Article by John C. Lincoln
The following article is provided as a courtesy by its author. It is provided for informational purposes only, and should not be taken as legal advice. You SHOULD in every case act or rely only upon the advice of an attorney who practices extensively in this area of the law. You SHOULD NOT in any case act or rely upon written materials of a general nature, such as the following article.
Elder law is an area of practice that has only begun to acquire a separate identity in the last several years. This area of practice encompasses the breadth of the legal problems faced by the elderly. As such, elder law is descriptive more of a clientele than it is of a particular area of the law. Elder law attorneys attempt to concentrate on those areas and aspects of the law that have special application to the elderly. Elder law is a specialty but it is a specialty formed around a particular class of clients rather than around a particular area of substantive law.
Notwithstanding the emphasis of elder law on the various areas of the law that have particular importance for the elder client, elder law is probably most closely associated with long-term care planning. This association is not accidental. The possibility of long-term care is the biggest of the various financial disasters that may befall most middle class elderly. The public is only beginning to understand this.
Historically, the public has been overly concerned with probate. Probate has always been viewed by lay people as a money and time consuming monster. Although there is much less justification for those fears with modern informal probate procedures in Arizona, the fears continue. In fact, there are many more living trusts sold than are really advisable merely because they are sold as probate avoidance devices. Probate avoidance is the least important reason to have a living trust, but most laymen think it is the most important, if not the only, reason to have a living trust.
In the pecking order of catastrophic costs that are connected with growing old and dying, probate is likely to be the lowest. Conservatorship is much more costly than probate. Long-term care is much more costly than conservatorship. We can actually view long-term care planning as tax planning for the middle class. It is planning that is uniquely applicable to the middle class because the rich and the poor do not have to concern themselves with this kind of planning. The rich can afford $4,500 per month for long-term care. The poor are already at the level at which the Arizona Long Term Care System, ALTCS (Arizona's version of Medicaid), will pay for their long-term care. It is the middle classes who face impoverishment by the expenses of long-term care before they can become eligible for ALTCS to pay for their care. Planning for long-term care is tax planning because the cost of long-term care is a tax. It is not only a tax, it is a very onerous tax. It is a tax because the middle class taxpayer pays huge amounts of taxes to pay for long-term care for the indigent, and then must pay for his own care when he needs it. If he were allowed to keep the tax money that he pays for long-term care for the poor, he might at least have a good start towards paying for his own long-term care.
The crucial difference between long-term care and other kinds of welfare is one of enormous degree. When you see the lady ahead of you in the supermarket line using food stamps to buy expensive steaks, cheeses, and other expensive foods, and paying for cigarettes and alcohol, at least you can console yourself with the thought that the waste of your tax dollars is small enough in relation to your total taxes and your individual wealth (or comparative lack of it) that you will not be bankrupted. Long-term care is entirely different because it does bankrupt you. If you save hard all of your life, and have $200,000 that you would like to see pass on down to your children, you will waste all of it in four years in a nursing home. Meanwhile, the fellow in the next bed, who never thought to save a dime will receive his care at no charge. The taxes that you paid for all those years that you were working hard will pay for the long-term care of your neighbor. Despite all those taxes that you paid, you must now spend your life savings, your children's inheritance, to pay for your own care. It is the extremity of the welfare proposition involved that creates gross unfairness for the middle class elderly in need of nursing home care. Most people do not mind giving the less fortunate a few dollars. It is when the less fortunate demand a life's savings that there is something seriously wrong with the system. It is this serious unfairness in the welfare system that creates a need, and ample justification, for planning that will allow at least some of the product of a lifelong toil to pass to the ones who may carry on the family pride rather than to the indigent in the next bed.
ALTCS has three criteria for eligibility: medical, income, and asset eligibility. Medical eligibility is usually not an issue. By the time that someone comes to see the attorney about the financial aspects of long-term care, it is clear that the individual in question needs long-term care. In order to be income-eligible, an individual cannot have income of more than $1,692 per month. A couple can have twice that amount. In addition, the husband or wife will be eligible if their combined income is not more than $3,384, even if the income that is in the name of the spouse applying for benefits is more than the individual limitation of $1,692. Income eligibility is often a problem because an individual is ineligible at $1,692, but the actual cost of nursing home care is around $4,000 to $4,500 per month. One strategy that is used to address this issue is what is known as a Miller trust. The basic structure of the trust is that all of the individual's income is made payable to the trust, but only an amount less than the eligibility amount of $1,692 is paid out each month. The Miller trust is named after a Colorado case. It was codified by the Omnibus Budget Reconciliation Act of 1993 (OBRA 93), at 42 U.S.C. 1396p(d)(4)(B).
Asset eligibility issues are the most frequent issues involved in long term care planning. An individual is not eligible for ALTCS unless his or her liquid assets are under $2,000. If they are over that amount, and aside from any long-term care planning that might be done, the individual is not eligible for ALTCS benefits until they have spent their liquid assets down to that amount. There are two main "saving graces" in this regard, even if there is no planning done. The first is that many assets are exempt. For instance, the individual may keep a house, no matter how expensive the house may be, so long as the individual intends to return home. A married person can keep a car and household furnishings, without limit in value.
The second saving grace is found in the Spousal Impoverishment rules. The well spouse is allowed to keep, in addition to the $2,000, one half of the other liquid assets. There is a minimum of $18,552 and a maximum of $92,760. The minimum means that if the total liquid assets are under $18,552, the well spouse can keep all of the liquid assets. The maximum means that if half of the liquid assets are over $92,760, the individual can keep only the maximum. So if the liquid assets are $300,000, the well spouse would only be allowed the maximum of $92,760. If the assets are $100,000, the well spouse would be allowed half, because $50,000 is between the minimum and the maximum.
There has been space in this article only to present a few general thoughts on the subject, and to outline oversimplified versions of a few of the planning strategies used. Long-term care planning is a highly complex, technical, and rapidly changing area of the law. Its sources are federal and state statutes, federal and state regulations, administrative interpretations and bureaucratic practice. Typically, there are different strategies and combinations of strategies used in each different case. As people near retirement age, they should consult an elder law attorney so that they can understand how the system works, and be able at least to consider the many planning options that are available.