The Rabalais Law Firm's La. Estates Blog

The Importance of Special Needs Trusts

Special Needs Trusts are a great tool for protecting your disabled relatives and ensuring their eligibility for valuable Federal Medicaid programs. This article is designed to inform you as to how these trust are created and administered, and most importantly, to inform you of the benefits these Special Needs trusts.

Individuals with certain disabilities can receive federal benefits including money for their support and medical expenses from various Medicaid programs. Medicaid is a system set up by the US government specifically designed to assist low income individuals (this is not to be confused with Medicare, federal health insurance for the elderly). In order to qualify for the various Medicaid programs, individuals must have an income level and resources below certain eligibility thresholds.

For the disabled, problems with Medicaid eligibility often arise  when parents or other relatives leave an inheritance to their disabled children. The assets inherited by the child very well may preclude them from continued receipt of federal aid. Fortunately, the law allows for these assets to be placed into a trust for the disabled child while still preserving their eligibility for federal benefits. However certain terms and restrictions must be included in the trust to ensure that eligibility parameters are met.

Essentially these trusts allow for the assets in trust to be used only for certain needs of the disabled child. The assets in trust will go toward supplementing government benefits rather than supplanting them. The most common restrictions on the special needs trust include provisions which prevent trust assets from being used for food and shelter of the disabled individual. The goal is to let the federal government continue to pay for these primary expenses.

If you or a relative is disabled and would like to discuss your options for using a special needs trust feel free to call me in the New Orleans/Metairie Area at (504) 247-1980 or send an email to chris@rabalaislaw.com. On the Northshore, contact Brent Durham at (985) 246-3020 or brent@rabalaislaw.com. In Baton Rouge, contact Paul Rabalais at 225-329-2450 or paul@rabalaislaw.com.

 

Chris Kane, Attorney

Director, New Orleans Office

Five Common Uses for Louisiana Trusts

There are an unlimited numbers of ways that we use trusts to help Louisiana residents protect their estates for themselves and their loved ones. Here are some of the more popular uses for Louisiana trusts:

1. Probate Avoidance Revocable Living Trust. Our court-supervised probate/Succession process for administering estates is broken. It causes delays in the distribution of an inheritance, it requires significant attorney involvement and paperwork, confidential family financial records become public and on the internet, and it often costs families tens of thousands of dollars that they'd prefer to see go to help a family member. Today we are setting up a trust for a family with two children. Since the married couple is setting up their revocable living trust together, they are avoiding two probate/successions, and they are pleased that neither the surviving spouse nor the son/trustee will have difficulties when they die - a win-win for everyone.
2. Trust for Minor Children. Yesterday we set up a Last Will-based estate plan for a couple with two teen-age sons. The couple wanted to designate in their testamentary trust the back-up parents ("tutors") in case the parents die before the children reach majority. They also wanted to provide for a trustee for their children - someone who would handle the children's inheritance for them until the children were 25. The beautiful thing is that the parents are flying later in the week and because of our incredibly fast service, all of their important estate planning documents were signed and packaged professionally in their Estate Planning Portfolio binder within four hours of his initial call to our office - great job team!
3. Trusts to Avoid Estate Tax. We are working with several Louisiana families this month who want to avoid estate tax by shifting value from their estate to their children and grandchildren, avoiding a future 55% federal estate tax. One family in particular established trusts for the grandchildren and we helped them donate LLC membership interests to the trusts for those grandchildren.
4. Medicaid Living Trusts. The Louisiana Long Term Care Medicaid rules are complex - particularly as they relate to trusts and eligibility for Medicaid. A gentleman thanked me recently and gave me a firm handshake. We set up a trust for his parents years ago. A few years later, both of his parents entered the nursing home and immediately qualified for Medicaid, saving the family $8,000 per month, and protecting the life savings of his parents. The key to Medicaid Planning and Trusts is to plan ahead - at least five years before you go to the nursing home.
5. Children's Inheritance Trusts. Are you one of those people that wants to protect the inheritance for your child, but you don't want their spouse to get one red nickel from you? If so, then you should consider establishing our Children's Inheritance Trusts. If done properly, the assets you leave to your children's trusts won't get commingled or become community property. So if your kids inherit money and then divorce, your child keeps his trust and his inheritance. Why not do this?

I could easily list another dozen or so uses for Louisiana trusts, but this should give you an idea of how  trusts can benefit Louisiana residents and their families. If you would like to have a no cost legacy planning meeting with one of our attorneys, give us a call at 225-329-2450. It's easier to set up a trust than you might think.

Paul Rabalais

Every Once in a While This Happens - Heart Drops

I've been talking to a friend of mine for the last few weeks about his parents' situation. His father's health was deteriorating and the family wanted to make sure everything was in order from a legal standpoint.

A couple days ago my friend told me it was urgent that his father sign a Durable Power of Attorney so that my friend's mother could transact some business for her husband.

I said, "No problem." So we drafted the documents and emailed them to my friend so he could review them for accuracy. We talked and I agreed that I'd drop by the nursing home on my way home from work today and notarize his father's signature. My friend arranged for two witnesses to be available when I arrived this afternoon.

Well, I just got a call from my friend who said his father passed away last night. I was sorry for my friend to hear that.

He asked me what they should do. He said he wants to make sure that his mother's legal affairs are handled right from here on out. I suggested to him that after all the arrangements have concluded (they are on their way to New Orleans as I type this to make arrangements), he and his mother will need to come into the office so that the succession can be completed and their condo can be put in her name, and her estate plan and Medicaid plan can be established to protect her assets. I suspect I'll be meeting with them in my office within the next couple of weeks.

Paul

Shifting Interest in Trust Principal

This is one of the most confusing components of many Louisiana trusts. People who set up trusts often get thoroughly confused even though the provision may never affect them or their family.

Let's say Mom sets up a Louisiana trust for her three children. She names the three children as the principal beneficiaries of the trust. She may have done this to move assets out of her estate for federal estate tax purposes, or she may have done this to move Countable Resources out of her name for Louisiana Long Term Care Medicaid eligibility purposes.

Mom is concerned about what will happen to these assets if one or more of her children die before Mom.

Here's the deal with Louisiana trusts:

• If a child dies during the term of the trust AND THE CHILD HAS DESCENDANTS, then the trust principal will be in the child's estate and will go to the child's heirs or legatees. If the child dies without a Last Will and the child has children, then this separate property of the child will stay in trust for the benefit of the child's children, unless there exists a provision in the trust allowing the child's children to receive it sooner or later. There's nothing Mom can do to change this since the child died with descandants.
• If a child dies during the term of the trust AND THE CHILD DOES NOT HAVE DESCANDANTS, then Mom, in the trust, can provide who the substiture beneficiaries of the trust are. Perhaps Mom wants the child's interest to go back to her other children. Or perhaps Mom wants the child's interest to go to the child's spouse. As long as the child died without descendants, then Mom can designate who the substitute principal beneficiaries are if the child dies prior to the termination of the trust.

Hope I explained it in a way you can understand. There are a few minor exceptions to this rule but you should be able to get the gist of it.

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Don't Leave Usufruct of Out of State Real Estate

It is common for married couples in Louisiana to leave each other the "usufruct" of their estate when the first spouse dies. Often the spouse leaves his or her spouse the "lifetime usufruct."

Usufruct is a term that is commonly used ONLY in Louisiana. Lawyers and others in the other 49 states are not familiar with this term - they don't even try to pronounce it!

If you live in Louisiana and you own real estate in another state, perhaps you should not leave your spouse (or anyone) the usufruct of your out-of-state real estate. When you die, you will confuse everyone that has anything to do with this real estate.

If you want to accomplish the same thing that a Louisiana usufruct accomplishes, perhaps you should have a Will which includes a testamentary trust so that your property will go in trust after you die. Your spouse can be the trustee and the first income beneficiary, and your children (or whoever you designate) can be the principal beneficiaries. Your estate will get similar favorable estate tax treatment from this arrangement.

Or, perhaps you should create a Revocable Living Trust and transfer your out of state real estate (and other assets) to your trust. This will avoid the ancillary probate in that state when you die. It's often a pain for the suriviving spouse or other executors to go through a probate in each state where someone owned real estate when they died. A properly establised and funded revocable living trust would avoid that.

Or maybe you should create a Medicaid Living Trust so that you won't have to sell your out-of-state real estate and use the proceeds on your long term care if you ever need long term care services in a nursing home. You just may qualify for Medicaid sooner (without having to consume the trust assets) and your estate will avoid probate also - a double benefit.

Until next time...

Paul Rabalais

Medicaid Applicant May Own Vehicle

A while back I was asked by a family (whose mother was in the nursing home) whether the value of the vehicle mattered for Louisiana Medicaid Eligibility purposes.

I told them that the Louisiana Medicaid Eligibility Manual provides that one vehicle per household is exempt regardless of its value if anyone in the applicant/recipient's household uses it for transportation.

The rationale for this rule is that the family may need to take the Medicaid recipient to the doctor from time to time, thus Medicaid exempts a vehicle from its stringent asset test.

But you can't have a fleet of cars. The Manual provides that the exclusion provides only to the vehicle with the greater equity value - if more than one car is owned.

I've heard my colleagues use the term, "Medicaid Cadillac." from time to time. While it is generous that Medicaid exempts a vehicle regardless of its value, I would not attempt to abuse this provision. If too many people buy a Medicaid Cadillac or a Medicaid Mercedes (although you can probably get a good deal on one in this economy), Medicaid just might change the rules to limit the value that is exempt.

Paul Rabalais

Louisiana Parents Can Transfer Home To Child Without Medicaid Penalty

I took a call yesterday from a woman in New Orleans who had been living with her parents and taking care of them for more than 20 years. She said her parents were about out of funds and were about to move into the nursing home and apply for long term care Medicaid.

The daughter wanted to know if the parents could transfer their home to the daughter and still be eligible for Medicaid. My initial comments were, "No, you're stuck. Your parents can qualify for Medicaid but when they die, estate recovery laws require Medicaid to get reimbursed from your parents estate for the moeny spend on your parents' care." If her parents were to transfer the home, it would make them ineligible for Medicaid for as long as five years.

But I asked a few more questions and realized they might qualify for an exception to the transfer of asset penalties. In Louisiana, a parent can transfer the parent's home to a child without penalty if the child is:

• 21 or older;
• is not blind or permanently and totally disabled;
• was residing in the home for at least two years immediately before the date the individual became institutionalized; and
• provided care to the individual to reside at home, rather than in an institution.

This exception must be documented by a written physician's statement.

If you have questions regarding how to protect your family's assets from the rising cost of long term care and nursing homes, send me an email at paul@rabalaislaw.com. We've helped many save their life savings by taking advantage of smart Medicaid eligibility planning. I look forward to hearing from you.

Paul Rabalais

Louisiana Medicaid Application Asks Onerous Question

Today I was reviewing the Louisiana Long Term Care Medicaid Application. It asks the question,

"Has the applicant, their spouse, or anyone acting for them

ever

given away, sold, cashed in, or changed the

name listed on a policy or deed for any item of value such as land, houses, home property, life or burial

insurance, vehicles, or bank accounts?"

What I don't understand is why the Medicaid Application asks if the applicant ever made transfers. This means if an 80 year old Medicaid applicant made a gift to a child 30 years earlier, then it must be listed on the application. Really, Medicaid should only ask if the applicant made transfers in the previous five year period.

If an applicant made a transfer more than five years before applying for Medicaidm I do not see where it would affect the eligibility status of the Medicaid applicant. Do you thing I'm  right or am I being too overcritical of the Louisiana Long Term Care Medicaid Application process.

If you have a question about a loved one's Louisiana long term care Medicaid eligibility status, feel free to send me an email at paul@rabalaislaw.com. I enjoy getting all these emails and responding to help you  in your time of confusion and need.

Paul Rabalais

Sometimes A Transfer Of Louisiana Home To Child is OK

Took a call today from a woman who wanted to transfer her home to her daughter to avoid Medicaid Estate Recovery. She asked me if it would be OK to transfer the home even though she was about to admit her husband to a nursing home and apply for Louisiana long term care Medicaid. I told her that normally if she transfers the home to her daughter then she and her husband would be ineligible for Medicaid for the next five years.

I then asked, "Does your daughter live in the home?" She told me the daughter lived in Maryland. I said, "We have a problem."

In very certain circumstances it is OK for a parent or parents to transfer their home to their child. The Louisiana Medicaid Eligibility Manual provides that certain transfers do not incur penalties. One of those exceptions is when a parent transfers the parent's home to a child who is:

• age 21 or over,
• is not blind or permanently or totally disabled,
• was residing in the home for at least two years immediately before the date the parent became institutionalized, and
• provided care to the parent allowing the parent to reside in the home, rather than in an institution.

All of this must be documented properly by a physician's written statement. In fact, if these circumstances exist, you may want to make the physician aware of this circumstance at the beginning of the two year period. This may make it easier for the physician to properly document the circumstances at a later date.

If you have a question about potential Medicaid eligibility, feel free to e-mail me at paul@rabalaislaw.com, and I'll see what I can do to help.

Paul Rabalais

Certain Transfers Won't Penalize You From Louisiana Medicaid Eligibility

If you or a loved one made a transfer of resources, you have the right to rebut the presumption that the transfer was made to become Medicaid eligible. You must present convincing evidence that the transfer was exclusively for another purpose.

The presence of one or more of the following factors may indicate that the resource was transferred exclusively for a purpose other than to qualify for assistance:

• If after the transfer the individual experienced:
  1. an unanticipated, drastic change in his health which resulted in a greatly increased need for medical care,
  2. the unexpected loss of other resources which would have made him ineligible for assistance, or
  3. the unexpected loss of income which would have made him ineligible for assistance.
• The value of the transferred resource was less than the average private facility payment.
• The transfer was made as a result of a court order or other legal commitment.

Let's say, for example, that Dad buys a house for his son in order to help his son start a new life. Dad pays $160,000 for the home and Dad puts the home in his son's name. Dad's remaining countable resources total $100,000. A month later, Dad has an unanticipated severe stroke that requires that he move into a nursing home. Dad then spends the $100,000 on his care. Dad, it seems, would have authority to state that he is eligible for Louisiana Long Term Care Medicaid because the purchase of the house for his son was not done to become Medicaid eligible.

If, however, it is ruled that Dad bought the house for the son to become Medicaid eligible, the Dad will be ineligible for Medicaid for another 40 months ($160,000 divided by $4,000) with no funds remaining to pay for his care.

Time is of the essence. You must make an effort to rebut the presumption within seven working days after the Notification of Transfer of Resources Determination is mailed.

If you want to know more about whether you or a loved one will qualify for Louisiana Long Term Care Medicaid, send me an e-mail at paul@rabalaislaw.com, and I'll be happy to review it with you.

Paul Rabalais