Texas Elder Law Series - Episode 2 - Don't Make It Worse
Never make your mother’s situation worse. Often many people come to me after making serious errors because they did not want to hire an “expensive attorney.” Most attorneys who practice in Elder Law will save their clients far more money than they will ever spend on the attorney’s services. Meeting with an Elder Law Attorney can sometimes save hundreds of thousands to millions of dollars by shifting financial responsibility and reducing the cost of care.
One issue which needs to be addressed before you go to far is the ability to make gifts for your mother. If you mother does not have the mental capacity to make a gift, then any gifting strategy which we endeavor could be considered invalid. Depending on your mother’s mental condition, the strategies set forth hinge.
Failure to act is often the most serious error in Elder Law planning. When your mother’s mental capacities are declining the situation almost never improves. However, many of my clients hold on to the belief that their mother will be just fine. After spending hundreds of thousands of dollars, they seek out assistance only to find out they are too late to do essential planning. On the flip coin, I have clients who visit with me and decide to do nothing often out of fear of making a serious mistake not comprehending that inaction is the mistake. Take ownership of your mother’s financial situation and put her needs above your own and you’ll almost never go wrong.
An important note: If you are acting as a power of attorney on behalf of your mother, it is my opinion that you must act to preserve your mother’s estate. When you accept the authority granted under your mother’s power of attorney, you establish a "fiduciary" relationship with your mother. This is a special legal relationship that imposes on you the legal duties that continue until you resign, or the power of attorney is terminated, suspended, or revoked by your mother or by operation of law. A fiduciary duty generally includes the duty to:
(1) act in good faith; (2) do nothing beyond the authority granted in this power of attorney; (3) act loyally for your mother’s benefit; (4) avoid conflicts that would impair your ability to act in your mother’s best interest;
The key concept of the power of attorney is the obligation to “act”. Failure to act which causes serious financial harm to your mother is a violation of your duty. It is important to always remember that certainty is illusory. If you are attempting to do your best to assist in your mother’s financial situation, you will not be held liable as long as you follow the four principles above.
The most common error in preparing your mother’s estate for a long-term care situation is the selling of her primary residence. Under Medicaid law a primary residence is not considered a countable asset towards Medicaid eligibility. While selling a property and paying for her care might ultimately be the best decision, she may desire to one day return home. If the property is sold, your mother will probably never have an opportunity to purchase a residence again. In almost every situation in which I have planned for individual, they desire to leave their home to their children. The home, to many people, represents their largest financial achievement in their life.
Beware of giving your mother gifts. After your mother is eligible for Medicaid, if you or anyone else gives her anything which is considered "income", Medicaid places a requirement that it be reported to them, and if that income places the her over the "income cap," the she will be disqualified for Medicaid benefits. Medicaid income limit is $2,205.00 per month (as of 2018) although the amount changes at the beginning of each year. Income is considered cash paid to your mother or property that can easily be converted into cash. In addition, any payments to providers of food or shelter for her benefit.
Sometimes it is easier to understand what is not considered income. As long as people pay a third party for anything other than food and shelter, then it will not be considered income to your mother. You example, if you took your mother to movies. Paying for her ticket is not income. However if you purchased her popcorn, then you would have to report it to Medicaid. Maybe let her eat out of your bucket.
While we have not yet talked about a “waiver” program, it is important to not that gifts of food and shelter are not income on Community Based Alternative program. To complicated it even further it is counted as income to a person who is on a Community Care program. Later in this book, we will talk more about these programs. At this time, just note that if you are concerned about this jot down some note to talk to your attorney about these situations.
I often have children who come to me who have “gifted” mother’s money to him or herself. The line between a gift and thief is often blurry when dealing with the elderly. As you will see later in this book gifting strategies are difficult and need to be planned out. Please do not gift your mother’s property to any person without having your elder law attorney review such gift.
Last, If your mother has long term care insurance and qualifies for Medicaid, your mother might want to apply for Medicaid to help pay for prescription drugs. The strategy is to get the Medicaid rate and have the long-term care insurance pay for her care. Sometimes long-term care insurance will not cover the whole amount. If it does not, your mother’s income will go to pay for her care and her spouse will get to keep the rest of the income. This also could be a great strategy if your mother’s spouse is in a nursing home and has long term care insurance. In addition, Medicaid will pay for all of your mother’s medication bringing down the cost of her care even more.