Hidden Cost to Sell Leisure World Property

Lawyers who assist clients with Medicaid planning sometimes work with clients to sell their real property in an interfamily transaction. One example of this is where a family member wishes to provide a disabled parent with liquid funds to enable the parent to continue to live at home with in-home caregivers. While doing so may delay the parent’s need to move to a nursing home, such a move may become necessary if the parent’s liquid funds are exhausted.

Few children of disabled parents have the wherewithal to simply give their parents large sums of money. That being the case, a child of the disabled parent may provide liquid funds to the disabled parent in exchange for the parent’s real property. In essence, the child buys the parent’s home, and allows the parent to live in the home and use the funds the child paid to buy the property to pay for in home care givers.

Then, once the parent dies or runs out of liquid funds and goes into a nursing home, the child can sell the parent’s home (which the child purchased and now owns) to recover the funds the child paid to her disabled parent to facilitate the parent staying home with a care giver.

Moreover, because the Medicaid rules allow for various methods of determining fair market value, a transaction such as the one described above may be part of an asset preservation strategy with the added benefit that the disabled parent gets to stay at home for a longer period of time than otherwise would be the case.

When considering any such plan, however, one has to take into account hidden costs. An example of a hidden cost is provided by the Leisure World homeowner association. Leisure World is a large senior community in Montgomery County, Maryland. When a homeowner sells a property in Leisure World, the homeowners association requires that a buyer contribute to the “resale improvement fund” an amount equal to 3% of the gross sales price.

For the sale of a $300,000 condo in Leisure World, this charge would amount to $9,000.

It is wise to be aware of any hidden charges that might come to bear when doing Medicaid planning that involves an interfamily real estate transaction.

Free Trust Forms

A client recently asked me to review a trust form she was considering using, which was a form she obtained for free from the internet. Her objective was to set property aside in the trust so the assets would be protected and she could get Medicaid to pay her care costs should she ever require long term care in a nursing home.

I discourage people who are not lawyers from using legal documents that they obtain from the internet. Doing so could result in serious problems.

The trust my client obtained from the internet, dubbed a “Maryland Irrevocable Trust,” was defective in a number of ways. While some of the provisions of the trust would not necessarily be problematic, those same provisions could cause problems depending on the client’s objectives and the intended purpose of the trust. A lawyer who is skilled in the area of estate and trust law, and in this case, Medicaid law, is able to craft a trust that would meet the client’s objectives, and in doing so, would not include certain trust provision that might be acceptable in other circumstances.

For example, in my client’s case, the trust form contained a provision that instructed the Trustee to add any income that was not distributed to the beneficiary in a particular year to the principal of the trust. While this type of clause often is used by lawyers who prepare trusts, in light of my client’s objectives, such clause could be problematic. Every time income is not distributed in a particular year and added to the principal of the trust, such action will be treated as a gift for Medicaid eligibility purposes which causes a period of Medicaid ineligibility thereby defeating the purpose of the trust.

Another problem with the trust form my client wanted to use is that the trust did not give the trustee the authority to distribute principal to the beneficiary thereby locking the funds away so they would never be available to my client during her lifetime. Because my client was planning to put all of her assets into this trust, she may have found herself in dire straits were she to encounter a situation in which she needed to use more than just her income during her lifetime. While it is possible to create a trust that meets the client’s objectives without locking away the majority of the client’s assets, the trust form my client wanted to use was not sufficient for such purpose.

The trust form also prohibited beneficiaries from serving as trustees. However, my client wanted her children, who would be future beneficiaries, to serve as the trustees, and in fact named one of her adult children as the trustee. Setting up the trust in that manner might put the trust at risk of being deemed not to be effective for my client’s intended purpose at some future time should she ever apply for Medicaid benefits expecting the trust to be in force to protect her assets. Indeed, such fact may have made the trust defective from day one so that the property would be treated as not having been held in trust in the first place.

In addition, while the trust stated that, after the client’s death, the trust assets would be distributed to her children, the trust was silent as to the disposition of the assets should one of her children die before she does. Would all of the property go to her surviving child? Or would her deceased child’s descendant take her deceased child’s share? This type of uncertainty could cause serious family problems in the future.

There were other problems with the trust form as well. One paragraph simply did not make sense. While I, as a lawyer, could come up with a reasonable interpretation of such language, it is possible that the paragraph could be misconstrued.

Also, the signature page of the trust had spaces for the creator of the trust to sign and spaces for each of the trustees to sign, but there was only one notary jurat, the space on the form in which the notary acknowledges that the person signed the document. It was unclear whose signature of the three persons who signed the document the Notary Public was to certify.

This case is but one example of several in which clients have come to me with legal documents they obtained from the internet, which documents were more of a problem than a solution to meet the client’s needs. Because of this, I warn clients to resist the siren’s song of free legal forms available on the internet. Often those forms create more problems than they solve.

The Gatesman Law Office offers economical solutions, including legal documents appropriate to the circumstances, to meet our client’s needs. Please contact us at 301-260-0095 to learn more.

Obtaining Medicaid with a Beach House

In general, for a married couple, if one of the couple needs long term care in a nursing home, the couple can engage in asset preservation planning that enables the couple to keep all of their assets and still get Medicaid to pay for the nursing home care. Included among the property that the couple can keep is the family home.

The matter can be complicated if, in addition to the family home, the couple owns a beach house. Specialized planning must be employed to protect the beach house.

For example, it may be possible to title the beach house in the name of the spouse at home, (not the nursing home spouse), and make it a rental property, if only temporarily. By doing so, the beach house can be characterized as a source of income for the spouse at home rather than being a countable resource which might cause Medicaid ineligibility. By doing so, the beach house would not be counted as an asset that would cause Medicaid ineligibility.

Another strategy can be employed where the beach house is owned with others. If a joint owner provides an affirmative declaration that he or she would refuse to participate in a sale of the property, then the property can be valued at zero for Medicaid eligibility purposes. Done properly, such strategy would pave the way to allow for Medicaid eligibility.

A third possibility is to list the property for sale. As long as the property is listed for an asking price that Medicaid will consider to be “fair market value,” if no offers to purchase are received, then the beach house can be valued at zero. For example, if the family owns a beach house that is in poor condition, and it is listed for sale at its assessed value, if no third party would be willing to pay that amount in light of the condition of the property, then this strategy may be employed to protect the beach house.

There are other strategies that may be employed, as well. The bottom line is this: don’t be dissuaded if you are faced with a challenging circumstance that complicates your Medicaid asset preservation plan. It still may be possible to engage in planning to preserve all of the family’s assets and get Medicaid to pay for care in the nursing home.

William M. Gatesman specializes in “thinking out of the box” to come up with creative solutions to assist clients with their asset preservation objectives.

Nursing Home Admissions Contract and Power of Attorney

Maryland nursing homes make use of two alternative model form nursing home admissions contracts approved by the Maryland Department of Health. These are the model Financial Agent’s Resident Agreement and the model Resident’s Agreement.

Maryland also has a power of attorney statute which includes form powers of attorney, among the provisions of which empower an agent under power of attorney to act for the principal to enter into contracts on behalf of the principal.

In light of the two factors addressed above, it is within the realm of possibility and legally permissible for an adult child of a person entering a nursing home who is acting as the agent under a power of attorney created by the parent entering the nursing home to execute a Resident’s agreement on behalf of the parent.

Nevertheless, when a parent enters a nursing home, the nursing home usually presents to such agent under a power of attorney the Financial Agent’s Resident Agreement to secure admission to the nursing home. Often this is done after the parent actually enters the nursing home.

William M. Gatesman strongly advises clients not to have their their agents under power of attorney sign the Financial Agent’s Resident Agreement, but rather, to sign, as agent under power of attorney, the Resident Agreement. Nevertheless, some nursing homes will refuse to provide such Resident Agreement to the agent to sign.

The problem with the Financial Agent’s Resident Agreement is that, technically, it is not legally the act of the agent under power of attorney binding the parent to a contract. Rather, it is a contract that binds the agent under power of attorney, typically an adult child of the person entering the nursing home, to a contract, making the agent legally and financially responsible to take certain actions not otherwise mandated by the agency relationship arising out of a power of attorney.

Indeed, the typical nursing home Financial Agent’s Resident Agreement contains a laundry list of matters for which the person signing the agreement binds themselves to the risk of suffering fines and civil money penalties of up to $10,000, and some of these provisions might be triggered when events occur that are not in the direct control of the agent signing the Financial Agent’s Resident Agreement.

Moreover, while the law offers opportunities for an agent under a power of attorney to facilitate and fulfill the estate plan of the person entering the nursing home by engaging in asset preservation planning strategies to facilitate Medicaid eligibility while still preserving assets, if an agent engages in such planning after signing a Financial Agent’s Resident Agreement, then such person will have made themselves subject to at least one of the circumstances that gives rise to such $10,000 penalties addressed in the foregoing paragraph, not to mention other potential personal liability.

In cases where the person entering the nursing home does not have a power of attorney, the Financial Agent’s Resident Agreement contains provisions that allow for an adult child of the person entering the nursing home to sign such agreement and to bind such child to the provisions of such agreement even if such adult child does not hold a power of attorney from the parent. The same issues addressed above pertain to any such adult child who signs a Financial Agent’s Resident Agreement.

William M. Gatesman urges any person involved in the admission of a parent or other loved one into a nursing home, if such person is asked to sign an admissions agreement with the nursing home on behalf of such person, to obtain competent legal advice before signing such agreement.

Indeed, Mr. Gatesman, has advised numerous clients not to sign the Financial Agent’s Resident Agreement, or to do so only after it has been modified by Mr. Gatesman to protect the person signing such contract.

William M. Gatesman stands ready to assist clients in the legal processes relating to nursing home admissions, including addressing the questions relating to which is the appropriate nursing home admissions contract to sign and how to protect the person signing such contract from the risk of personal liability.

Ageism and the Right to Drive

A client called me recently to report that the Maryland Department of Motor Vehicles had suspended his license for medical reasons. The MVA notice was deficient in that it did not give particular details as to the reason for the suspension.

Only later did we learn that a physician who my client had visited only once sent in a one line report stating that the client had dementia and memory issues and should not be allowed to drive.

We appealed the MVA license suspension and, in support of our appeal, we submitted letters from my client’s doctor who has a five year history with the client and a psyschiatrist who has a 13 year history with the client, both of whom opined that the client, while he did experience mild dementia, was not so impaired as to be unable to drive safely.

We won that appeal and my client’s right to drive has been restored.

This case reveals that ageism may play a role in some doctors’ perceptions of an older person, and may color the doctor’s judgments about a patient’s abilities.

Fortunately, the law provides a remedy for persons whose right to drive is improperly denied due to the rash actions of those who do not take into account all of the factors impacting a patient’s ability to drive. In a word, the law enables older people to combat ageism.

William M. Gatesman assists seniors and their family members in addressing legal issues that impact them. If you encounter such a problem, you may call Mr. Gatesman at 301-260-0095 to learn whether there is a solution available to you.

Supported Decision Making

Supported Decision Making is a new concept gaining favor in the community of people working to better the lives of people with disabilities. There is no formal process or formal legal recognition of Supported Decision Making in Maryland and it is a developing area of law in only a few states and other jurisdictions. The District of Columbia, for example, does give some recognition to Supported Decision Making in its statutory law.

Supported Decision Making typically would involve a person with limited personal capacity agreeing and communicating to other parties that such person wishes to have another trusted individual involved with communications with third parties such as banks, medical care providers, and so on, and that such person wishes to obtain the trusted individual’s input and guidance. Nevertheless, the person with limited capacity retains the right to make all her decisions.

Supported Decision Making often is implemented by means of a Supported Decision Making agreement or other legal document memorializing the relationship between individuals that could be presented to third parties for the purpose of enabling the trusted person to be involved with communications between the third party and the person of limited capacity. Such document serves the purpose of notifying third parties of the trusted person’s advisory role and can be used to open doors to enable the trusted person to participate in conferences which usually are attended only by the person of limited capacity and the third party. In states such as Maryland in which Supported Decision Making is not formally recognized in the law, the efficacy of such Supported Decision Making document is hard to predict, and any use of such tool in Maryland would be based upon a contractual relationship between the parties rather than upon specific statutory law.

A power of attorney, unlike the supported decision making agreement, establishes a legal relationship recognized under state law in which the person of limited capacity empowers the trusted individual to act in her place, as her agent. An agent under power of attorney (i.e. the trusted person) always is subsidiary and subservient to the principal (the person with limited capacity). With a power of attorney, the agent typically would be able to act alone even if the principal is not present or not personally involved in the interactions with the third party. Power of Attorney has been recognized by the law for a very long time and there would be no question as to the validity of the relationship of the principal and the agent.

A Supported Decision Making arrangement may be beneficial in some circumstances to provide a person with limited capacity a greater sense of autonomy and control while still enabling the trusted individual to be involved with her affairs and it could open doors to allow the trusted individual to be involved in situations in which privacy laws or other restrictions otherwise may keep the trusted individual on the sidelines. The person with limited capacity may desire to appoint the trusted person as her agent under power of attorney, as well, so that if the person with limited capacity became unable to manage her affairs, then the trusted person would have the authority to act on her behalf.

William M. Gatesman stands ready to assist clients who may have heard about Supported Decision Making and would like to learn more about it or who think that Supported Decision Making is a tool they may wish to employ in their estate planning.

Degrees of Relationship

Have you ever referred to someone as being your “second cousin?” Would you be surprised if you may have gotten the relationship wrong? Posted below is the Nolan Chart of Relationships and Degrees of Kindred. This chart, while it is interesting from a familial relationship point of view, also provides legally significant information that is important in some instances when administering a decedent’s estate.

Medicaid Planning with Augmented Estate

NOTE:  This article was written before the new augmented estate law was passed, and while the main gist of the article, that a married couple can preserve most if not all of their assets, remains true, certain of the points made below regarding the mechanics of how the new law works are different than described below.  To learn more, you may call us at 301-260-0095.

There is a new law in Maryland that, effective October, 2020, will allow a surviving spouse to elect to take a portion of property passing as a consequence of a spouse’s death under an augmented estate formula. What does this mean?

Before the new law, a spouse only could elect to take a portion (one-third or one-half depending on the circumstances) of the estate that passed through probate. Lawyers who assist clients with Medicaid asset preservation planning took advantage of that by assisting couples to preserve all of their assets when one of the married couple needed nursing home care. The plan worked like this (and until October, 2020, will still work like this): If Husband is in a nursing home and Medicaid is paying for all of his care, then Wife could arrange to have all the assets to be titled in her name and pass outside of a probate estate.

Tools one may use to pass property outside of probate are bank and investment accounts that are designated “Pay on Death,” beneficiary designations, and life estate deeds. Before the new law takes effect next year, property passing by such tools will not be subject to an elective share by a surviving spouse.

That being the case, a husband and wife could set up their estate planning so that, if one them needs nursing home care in a nursing home for which Medicaid is paying the bill, and the spouse at home dies first, all of the couple’s assets could be protected rather than having those assets pass to the spouse in the nursing home causing Medicaid ineligibility.

Under the new augmented estate rules, however, all property held by the spouse at home would be subject to the elective share. Hence, in a case where Husband is in a nursing home and Medicaid is paying for all of his care, if Wife dies first, then it would appear at first blush that she no longer could shelter assets with “Pay on Death” accounts, beneficiary designations, and life estate deeds, because, under an augmented estate law, all of those assets are available for the spouse to elect to receive a portion.

Such is not the case with the Spousal Protection Wills that I have been using to do Medicaid planning for married couples, however. If a married couple employs the Spousal Protection Wills that I recommend, coupled with “Pay on Death” accounts, beneficiary designations, and life estate deeds that direct assets to the trust under the Will of the deceased spouse at home, which Spousal Protection Trust is for the benefit of the Husband in the nursing home in the example discussed above, then, under the new augmented estate law, the spouse in the nursing home only would be able to elect to take 11% of the property.

That being the case, if Husband is in a nursing home, and Husband and Wife own property (including the value of the house) worth $600,000, then, if Wife dies first, only $66,666 would have to be paid to the Husband in the nursing home under the new augmented estate legislation. Indeed, the administrators of the Medicaid program will insist that the spouse in the nursing home elect to take the spousal share or risk losing Medicaid benefits.

In this way, even after October, 2020, a married couple with $600,000 worth of assets, following a Medicaid asset preservation plan facilitated by this office, can preserve $533,334 even if the spouse at home dies before the spouse in the nursing home.

But doing a Medicaid asset preservation plan with this office would not stop at preserving all but 11%. There still are ways to protect all of the assets even under the new augmented estate law. That law provides other levers one could pull to effectively preserve all of the assets, just like a married couple can do now under current law. Those levers include: (i) spousal consent when the plan is put in place, (ii) judicial review under which a court may take into account, among other things, the degree to which the estate planning arrangement provides a benefit to the surviving spouse in the nursing home (which surviving spouse would be the beneficiary of 100% of the assets when using a Spousal Protection Trust), and, (iii) when an agent under a power of attorney or guardian must exercise the spousal election to comply with the Medicaid rules after the spouse at home dies, there is a mechanism by which a court order may be obtained to recognize that the interests of the spouse in the nursing home are much better served when he remains the beneficiary of 100% of the couple’s assets (albeit as beneficiary of a trust) as opposed to taking only 11% of those assets and losing Medicaid benefits for a period of time as a consequence of doing so.

William M. Gatesman has studied the new augmented estate statute well in advance of its October, 2020, effective date, and already is adjusting the estate plans for new clients to prepare for future asset preservation planning.

If you wish to review your estate plan with these thoughts in mind, please call us at 301-260-0095.

Resolving Trust Matters Without a Court

Until recently, resolving issues relating to trusts where the governing instrument of the trust was silent concerning the matter was a complicated process. Generally, clients had to petition a court to interpret confusing terms in a trust, or to modify a trust, or to change a Trustee if no successor Trustee was named, or to do other things not spelled out in the trust agreement.

Since Maryland adopted the Maryland Trust Act, however, Trustees and beneficiaries can resolve matters without having to go to court. There are a number of statutory provisions that apply, including Estates and Trusts Code Section 14.5-111 which allows interested persons to enter into non-judicial settlement agreements.

A non-judicial settlement agreement may even be useful in cases where clients are unable to locate the trust document itself. Indeed, there are circumstances in which a non-judicial settlement agreement may be used to recreate the lost trust document so that property held in a trust bank account can be dealt with without the necessity of going to court, thereby saving clients time and money.

William M. Gatesman has worked with numerous clients to assist them in resolving trust problems by means of non-judicial settlement agreements.

Praise from an Old Client

I recently received the correspondence below.

Dear Mr. Gatesman,

I just wanted to reach out to you to  thank you for a case you worked on and won for my fiance, Althea’s mother, Beatrice, in about 2005

Beatrice was the widowed, unmarried partner of a man who died intestate in DC in 2004. I can’t remember the exact ownership of the real estate they held together , but it was not the typical joint, with survivorship held by most married couples.

Anyway, my fiancé and I are Long Term Care executives, and had previously encountered another elder law lawyer (on the opposite side of the bench) and found him to be a worthy opponent. So, when this situation arose I told my fiance to call the other lawyer, who was either unavailable or didn’t do real estate cases in DC. Anyway, what a stroke of luck for us that the other lawyer referred us to you to be our counsel!

I remember Althea telling me that you listened to the case details and remembered a similar case decided in 1924 in favor of the unmarried survivor widow, I think it may have been Campbell v District of Columbia.

So, it turned out Beatrice was the rightful owner of the real estate due to how the ownership was structured. She lived until her death in 2014 in the house. Her ability to live out her years in her home was due to your capable and competent representation. I remember Althea and I spoke to several 5 star DC Martindale lawyers at the time in 2005, and none of them gave us any encouragement about her retaining her home in the estate battle.

So , Mr. Gatesman, after all these years I wanted to reach out to you to thank you for your capable representation of Beatrice, who would likely have lost her home and been quite destitute but for your advocacy and representation.

Thank you for helping us get through that difficult period and helping Beatrice retain ownership of her home.