A Living Trust is a revocable trust which means that you are able to change the terms of the trust while you are living.   A Living Trust is not the same as a Living Will which is an advance directive dealing with your healthcare.

​A Living Trust allows you to manage your property while you are alive.  If you become incapacitated it will allow a trustee to take over the management of the trust’s property. The trust uses the grantor’s social security number for tax purposes.  After you pass away the trust will become irrevocable and will need an EIN (employee identification number).  The trust’s assets will transfer to the beneficiaries of the trust without first going to property court.  Since the assets transfer without going to probate court the terms of the trust and the trust assets transfer remains private. 

With a Living Trust you are able to dictate when and how the property will transfer to the beneficiaries. This is called “Controlling your assets from the grave.”  This is good if you have a beneficiary that is under 18 years old or you do not want your beneficiary to receive the property right after you pass away.  Examples:  If someone is on government assistance, has a lot of debt, special needs, or it might be that the person is applying for financial aid for college.  A Living Trust will help with all of these problems.  A Living Trust normally does not protect your assets from bankruptcy, law suits, or divorce because the trust is revocable.

An Irrevocable trust can’t be modified or terminated very easily.  In order to change the terms of the trust, all the beneficiaries would need to agree to the change, including any successor beneficiaries.  This can become a problem when you name a charity as one of the beneficiaries.  The grantor (person who creates the trust), trustees, and beneficiaries could also seek a court order allowing the modification or termination of the trust.

An Irrevocable trust are used for estate and tax purposes.  Once the grantor transfers the ownership of assets to the trust, they are no longer the owner for estate or taxes purpose. The Irrevocable trust will receive its own EIN and not use the grantor’s social security number.  This will elevate the grantor from paying estate taxes on the assets and also any liability (bankruptcy, law suits, or divorce).  Also, if the assets are transferred 5-years in advance of applying for Medicaid, those assets can’t be counted as assets or required to be spent down.  However, if the grantor is also a beneficiary of the trust, those assets that they are a beneficiary of, will be included for estate, tax, and Medicaid purposes.


Summary:                                         Living Trust (Revocable)                   Irrevocable
Avoid Probate?                                              Yes                                              Yes

Change the terms ?                                        Yes                                             No – not easily

Who owns property?                                      Grantor                                       Trust

Assets Protection?                                          No                                              Yes

Assets Taxed as?                                           Grantor – SS#                            Trust- EIN

Privacy?                                                          Yes                                             Yes

Dictate when and how
beneficiary receives assets?                           Yes                                            Yes

Manage property
if incapacitated?                                               Yes                                           Yes
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Medicare will pay for some of the cost of a nursing home stay, but certain conditions must be met.   All of the following conditions must be met:
1)     You have Part A and have days left in your benefit period.
2)     You have a qualifying hospital stay.  
3)     Your doctor has decided that you need daily nursing home care.
4)     You get these skilled services in a nursing home that's certified by Medicare.
5)     You need these skilled services for a medical condition that was either:
6)     A hospital-related medical condition.
7)     A condition that started while you were getting care in the skilled nursing facility for a hospital-related medical condition
 
An inpatient stay begins on the day you’re formally admitted to a hospital with a doctor’s order. That’s your first inpatient day. The day of discharge doesn’t count as an inpatient day.
 
For day 1-20 the total cost of the nursing home will be paid 100%.
 
For day 21-100 there will be a coinsurance of $167.50 per day of each benefit period (2018)
 
For day 101 and beyond you must pay the total cost.

Most patients who can’t afford for their care after day 101 apply for Medicaid.

If your break in skilled care lasts more than 30 days, you need a new 3-day hospital stay to qualify for additional nursing home care. The new hospital stay doesn’t need to be for the same condition that you were treated for during your previous stay.

If your break in skilled care lasts for at least 60 days in a row, this ends your current benefit period and renews your nursing home benefits. This means that the maximum coverage available would be up to 100 days of nursing home benefits.
 
MOON -  Medicare Outpatient Observation Notices was passed into law on March 8, 2017.  Moon law requires the hospitals to inform the patient whether they are being “observed” (outpatient) or “admitted” (inpatient) to the hospital. Most people believe that if they stay overnight at the hospital or are moved from the emergency room to a hospital room, they have been admitted to the hospital.  However, this notation that you are admitted to the hospital just because you stayed overnight is wrong.
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Patients must be informed of their status by the hospital within 36 hours after the observation services begins.  The hospital must provide the patient or the patient’s agent a form which may either be printed or sent electronically, but the patient must then receive a physical copy of the signed acknowledgement.  Hospital staff must also verbally inform patients about how Medicare may handle their observation status.

Obviously, this will assist the patient when deciding if they will continue to receive care knowing their out-of-pocket cost could rise. Medicare Part A doesn’t cover outpatient services (observation).  Medicare Part B may require copays for certain outpatient hospital and physician services after the deductible.  Outpatient observation services do not count toward the 3-day patient’s hospital stay for nursing home care.
 
 

On August 1, 2014, Wisconsin changed its estate recovery program.  The Wisconsin estate recovery program seeks repayment for the cost of certain long term care services paid for on behalf of Medicaid.  The recovery is made for the estates of the person who received Medicaid (member), the spouse’s estate, non-probate property, and liens place on their homes.  Recovery is not made during the lifetime of the member or the member’s surviving spouse or their dependents.  Instead, recovery is made after their death or when they no longer need the assets.

The state will recovery the repayment from the following assets:

1,         Joint tenancy property and tenant in common - value of the member’s interest for jointly owned property is the percentage interest attributed to the member when Medicaid eligibility was determined or, if not determined at eligibility, the fractional interest the member had in the property at his or her death.
 
2.         Life Estate - the value is the percentage of ownership based on the member’s age at the date of death, according to the life estate tables used for Medicaid eligibility.
 
3.         Life Insurance Policy – any amount up to the value of the money paid for medical cost.
 
4.         Marital Property - 50% is allocated for marital property value
 
5.         Revocable Trust -  any amount up to the value of the money paid for medical cost.
 
6.         Tax Equity and Fiscal Responsibility Act Liens – The state may still file a lien on the property even if the member is survived by: spouse, child, if the child is any of the following: under age 21, or blind, or disabled.  However, the state will not inforce the lien while the above survivors are alive.
 
7.         Other Non-Probate Property (transfer on death deeds, payable on death accounts, transfer on death accounts, and beneficiary designation) – any amount up to the value of the money paid for medical cost.
 
8.         Probate Estates - The probate court will not allow a claim on the estate to be paid if any of the following survives the member: spouse, child, if the child is any of the following: under age 21, or blind, or disabled.
 
9.         Homestead property even ones that are being sold on a land contract - any amount up to the value of the money paid for medical cost.
 
The amount recovered by the state will depend on when the assets was obtain, how the assets is titled, and the amount the assets is worth when the member passes away.  The state may recover the total amount that was paid for the medical needs from any of the above items.
 
The state may not put liens on property located outside of the state, but they will try to negotiate a lien on that property.
 
The state will recover any funds that remain from a burial trust after costs have been paid.  This include all irrevocable funeral trust (insurance policy) which has been created for the member.
 
Heirs, guardians, and trustees of revocable trusts created by a deceased Medicaid member must notify estate recovery program before transferring any of the deceased’s property through a Transfer by Affidavit ($50,000 and under). The heir, guardian, or trustee must send a copy of the affidavit to the state by certified mail, return receipt requested. Examples of property include bank accounts (savings or checking); postal savings; credit union or building and loan shares; contents of safe deposit boxes; savings bonds; stocks and other securities; promissory notes and mortgages which are payable to the applicant/member and negotiable; real estate; funeral trust, etc.
 
Estate recovery is different for people who are survived by a spouse, child, if the child is any of the following: under age 21, or blind, or disabled, and Native Americans. Always seek legal advice before transferring any assets from a deceased person who received government benefits for medical assistance.
 
 
 
 

​Medicaid (Title 19) is a joint state and federal program that helps with medical costs.  A person must qualify with both their income and assets.  For the purpose of this article, the focus will remain on long term care in a nursing home setting.  

Medicaid will require a person to prove what their assets and income are.  Assets include but not limited to: vehicle title/registration, providing copies of your bank statements, property tax bill/deed, life insurance, annuities, stocks, bonds, etc.  This include the assets that are in your name sole, your name jointly, in your revocable trust, and any assets that your spouse has in their name, even if it is solely in their name.  It does not matter if you have signed a prenuptial agreement and you do not own the assets.  Medicaid does not care about prenuptial agreement when they are determining what assets you own.  If your spouse owns the asset you must list it on the application.

It is very important to remember that the state may ask you for documents from the 5 years previous to you submitting your application and being approved for Medicaid.  This is called the 5-year look back period.  The state is making sure you did not give away any of your assets or income for less than fair market value.  This also includes any assets and income your spouse may have given away.  If you did give away assets or income for less than fair market value, then you divested this amount and you will not be qualified for an amount of time.  The amount of time that you do not qualify for Medicaid depends on the value of the assets and income you gave away.  In addition, if you or your spouse try to avoid receiving assets or income that you or your spouse is entitled to, this would be considered a divestment. There is also a 5-year look forward period, where the spouse at home is not allowed to give away any assets for less than fair market value, 5 years after their spouse starts receiving Medicaid. So for 10 years DO NOT give away assets or income for less than fair market value.

It is very important to save receipts for items that you have paid for in cash.  If you take a lump sum from your bank account or other financial investments, Medicaid will want to know what you spent the money on.  You will need to prove that you did not give away that lump sum and that you spent it on yourself or your spouse or your dependents.  The easiest way is to keep all your receipts in an expandable folder. You might not need them for tax purposes but you will need them for Medicaid. Most likely you will not be the person who is completing the application for yourself. It will be your spouse or your children or your agent.  The person completing your application will need to know what you spent the money on.  It is hard enough to remember what money was spent on last week much less what it was spent on 5 years ago.

Almost every year Medicaid changes the amount for spousal improvement.  For the year 2018, a spouse may keep up to $123,600, but they must have more than double that amount, $247,200 and then spend down to the $123,600.  If their combined assets are between $247,200 and $100,000 the spouse may keep half of that amount.  If their combined assets are under $100,000 then the spouse may keep $50,000.  The spouse that goes into the nursing home may keep $2,000. 

There are exempt assets like: house value $750,000 or under, 1 vehicles, personal items, and burial arrangements.  The spouse at home may also have an income up to $3,090.00 (2018) after an allocation of income from the spouse in the nursing home.  Although the spouse at home may only allocate some of the income from the spouse in the nursing home, if the spouse at home has their own income above $3,090, they do not need to give the amount above $3,090 to help pay for the cost of the nursing home.
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This is just a brief summary of the Medicaid laws.  Medicaid laws are very complex.  Many times estate planning laws, Medicaid laws, and IRS codes conflict with each other so that if you follow one of the laws you could cause problems for yourself under the other laws. An example is if you were to give away $14,000 under the IRS gift tax you would not pay any taxes, but if you gave away that amount and then applied for Medicaid within 5 years the gift would be a divestment.  The gift was fine under IRS code, but not for Medicaid purposes. This is why you should always seek advice from lawyers, accountant, and financial advisors to navigate your way through the estate planning laws, Medicaid laws, and IRS codes.

A “life estate” is when a person(s) owns property during their lifetime. They are called “life tenants”. The life tenant has the right to use the property, live in the property, control the property, and receive any rent from the property until they pass away.  The life tenant is responsible for the taxes, insurance, and maintenance of the property during their lifetime.

After the life tenant passes away the property is transferred to the beneficiaries which are called “remaindermen”.  The transfer is made without having the property go through probate court. 

During the lifetime of the life tenant, the life tenant can’t mortgage the property without the remaindermen agreeing to the mortgage.  Most banks will require the remaindermen to sign all mortgage documents.

Also, the life tenant is not allowed to sell the property without the remaindermen agreeing to the sale.  If all of the life tenants and remaindermen agree to sell the property, the remaindermen would receive a portion money from the sale.  Please note the amount that the life tenant will receive from the sale has difference values depending on why they are selling the property.  If the life tenant is concerned about Title 19 (Medicaid for the Nursing Home), the Medicaid life tenant table requires the life tenant to take a greater value then the IRS requires on the IRS’s life tenant table. It is very important to determine how to split of the proceeds from the sale of the property because it will affect all parties differently, under the Medicaid and the IRS tables.

Life estate may be a valuable tool in both estate planning and Medicaid planning.  For estate planning the property will avoid probate and will avoid capital gains if it is transferred at the life tenant’s death and not sold during their life time.  For taxes purposes, the remaindermen will take the property at the value of property at the date of death of the life tenant.  The remaindermen will not take it at the value the life tenant purchased the property and will receive the step-up in basis.  This means the remaindermen will not pay capital gains taxes on the property when they become owners.   However, the basis of the property at the time they became owners and the value of the property when they sell it could cause them to pay capital gains or receive a loss.

For Medicaid purposes, a life estate may protect up to 100% of the value of the property from a Medicaid lien or spend down. If the life tenant gifted the property away before August 1, 2014 and the life tenant did not apply for Medicaid for 5 years from the date of transfer, it would be 100% protected from a Medicaid lien or a spenddown.   The 5-years is known as the 5 year look back period where if you gifted away any assets for less than fair market value it is considered a divestment and you may not qualify for Medicaid. If you created a life estate after August 1, 2014 and made it pass the same 5-years look-back without applying for Medicaid then a portion of the value of your property would be protect.  Medicaid may still put a lien on the property for a portion of the value that the life tenant is entitled too.  The amount is based off of Medicaid table, which calculates the lien based on the life tenant’s age and the value of the property.

There are always problems with everything in life and that is true with life estates.  I already mentioned that a life tenant can’t sell the property or take out a mortgage on the property without permission of the remaindermen.  Some additional problems are related to the remaindermen’s interest.  Because the remaindermen have an interest in the property, if the remaindermen go through a divorce, personal injury, court case, or bankruptcy a lien could be placed on the property.  The creditor will not be allowed to force a sale of the property because the life tenant still has a right to use the property until they pass away.  Also, that means the creditor can’t not enforce the lien until the life tenant passes away.

Another problem arises when the life tenant is in the nursing home and on Medicaid.  If the life tenant is single then their assets are at $2,000.00.  They probably do not have any money to pay the taxes, insurance, and the maintenance on the property.  That means the remaindermen will need to pay those costs until the life tenant passes away.  Do the remaindermen have the money to do that?  Also, things like snowplowing and other yard work need to be taken care of.  The remaindermen might not live in the area or have money to hire someone to do that. Other bills that need to be taken care of like water, electricity, and heat. It is never a good idea to leave a property vacant for any period of time.  If the property is rented, the income from the rent must be given to the life tenant which could affect their Medicaid benefits.  If the parties agree to sell the property while the life tenant is still alive, then the life tenant will need to receive some of the proceeds which could affect their Medicaid benefits.  The sale during the life of the life tenant will also cause tax implications and the step-up value will be lost.
​
Life estate may be a very valuable tool in estate planning and Medicaid, but it may also cause problems if it is not done right.  There are three very complex laws to consider: tax laws, Medicaid laws, and estate planning laws.  It is always best to speak with a lawyer and an account who knows the laws before you create a life estate.

Joint tenancy is a type of ownership where each joint tenant has an undivided interest in the property.  There can be more than 2 joint tenants.  When one of the owners pass away their interest automatically transfers to the remaining owners. This type of ownership does avoid probate, as long as one owner is still alive.  If the last owner alive does not list a beneficiary for the asset, that asset will go to probate court.  Joint tenancy normally refers to real estate, but a joint owner may be listed on other financial accounts like banks, cds, stocks, bonds etc. 
 
Some of the problems with joint tenants are 1) gift taxes; 2) liability; 3) property control; 4) guardianships; 5) sell; 6) mortgage; and 7) step-up value.
 
1)     Gift tax – Every time you gift an asset to any one individual that the value gifted is over the amount of the federal gift tax ($14,000 – 2018) you have created a taxable event.
2)     Liability – You have exposed the asset to the other owners’ liability whether it is divorce, bankruptcy, creditor, and lawsuits.
3)     Property Control – Normally to make any type of changes to the property/asset you will need the consent of the other owners.
4)     Guardianship – If one of the other owners become incapacitated, they might have a guardian placed over their finances/estates and you might not like the person in that is guardian.  That guardian now has control over those finances/assets.
5)     Sell - It is very hard to sell your share of the joint tenancy or close the accounts.  Sometimes you will need permission of the other joint owners.
6)     Mortgage – You will need the other owners’ permission and consent to mortgage or refinance the property.  The other joint owners’ credit might not be good. They might not be willing to complete the paperwork or agree to any new obligations of a mortgage or refinancing.
7)     Stepped-up Value – You could lose the stepped-up value on the property by transferring during your life time to a new person.  If you took the property as joint tenants when you first obtain the asset and one of the joint owners passes away, only that deceased owner’s interest gets the step-up value.
 
Step-up value is generally the amount you paid for an asset, plus the cost of last improvements.  If an asset is inherited, the new owner take the asset at the value of the property as the date of death of the deceased.  They avoid paying capital gains tax. (Stepped-up value).
 
Tenants in common is a type of ownership where each owner has a certain percentage of ownership.  The ownership could be equal or one of the owners could own a higher percentage.  When one owner passes away their percentage will transfer according to their Last Will and Testament or whomever they list as a beneficiary.  It does not automatically transfer to the other owners.
Tenants in common have many of the same problems as Joint tenants.  Problems with tenants in common are 1) Probate 2) Liability 3) Property Control; 4) Guardianship; 5) Selling; 6) Mortgage; 7) Partition ; 8) Cost; and 9) Uneven Interest.
 
1)     Probate – Many tenants in common do not list a beneficiary on the property/assts.  If there is no beneficiary listed and one of the tenants in common passes away their share will end up in probate court.  Probate court may take several months before the property transfers to a new owner.  You may not like the new owner.  That person could have creditor problems.
2)     Liability – You have exposed the asset to the other owners’ liability whether it is divorce, bankruptcy, creditor, and lawsuits.
3)      Property Control – Normally to make any type of changes to the property/asset you will need the consent of the other owners.
4)     Guardianship – If one of the other owners become incapacitated, they might have a guardian placed over their finances/estates and you might not like the person in that is guardian.  That guardian now has control over those finances/assets.
5)     Sell - It is very hard to sell your share of the joint tenancy or close the accounts.  Sometimes you will need permission of the other joint owners.
6)     Mortgage – You will need the other owners’ permission and consent to mortgage or refinance the property.  The other joint owners’ credit might not be good. They might not be willing to complete the paperwork or agree to any new obligations of a mortgage or refinancing.
7)     Partition – You may need to go to court to have the court partition (divide) the property if you do not get along with the other owners.
8)     Cost – Because each owner owns a different percentage of the property, the cost to maintain the property might fall on the owner who has the largest percentage, even if they do not use the property as much. 
9)     Uneven Interest – Each owner may own a different percentage of the property which means they may have a larger say in what is occurring on the property.
 
It is always best to have a written agreement between all owners as to the rights, duties, maintenance, cost, termination, transfers, and other issues which may arise during the time ownership.
 
When signing a document - “and” means that all individuals listed on the document must sign in order for the document to take legal affect.
 
When signing a document - “or” any one of the individuals listed on the document may sign the document.  The signature of every individual is not needed for the document to take legal affect.
 

​A Durable Power of Attorney for Finance and Property is a written legal document that allows you (called the “principal”) to appoint an agent to make decisions concerning your finances and your property.   Anyone over the age of 18 need this document, it is not just for elderly individuals. 

The power of attorney documents may be broad and sweeping so that the agent is able to act upon everything that you are able to do for yourself.  These types of documents are called “general” powers of attorney.  “Limited” power of attorney allows the agent to have one or more specific powers of attorney at a particular time, the agent’s powers are limited. Durable Powers of Attorney are not affected when you become incapacitated or disabled, durable powers of attorney remain in effect during that time. 

Some powers of attorneys are active immediately, once you sign the documents and others become effective when a physician determines that you are incapacitated. This type of document is called “Springing”.  Other springing powers of attorney will delay the effective date until you decide when you want it to be activated, it doesn’t have to be determined by a physician.
 
Durable Power of Attorneys have become very popular because it is inexpensive and allows you to choose who you want to handle your finances and property without having them go to court, if you become incapacitated.  Most states will accept your power of attorney even if it was not written in that state. There is a misconception that your spouse, child, or parents will be able to handle your finances and property if you become incapacitated.  In reality, they would have to go to court to become your guardian.
 
When determining who should be your agent, it is a good idea to remember this person will be handling all of your finances.  They should be good at financial decision, accounting, and math.  This person will be paying all of your monthly bills so they will need additional time to do so.  The agent should be trustworthy.  It is always a good idea to list some or a few back-up agents in case your first agent is unable to perform their duty as agent.
 
These are some of the areas that the document should address: payment of bills, Banking, Insurance and annuities, Accounts, Real Estate; tangible personal property; stocks, bonds, securities and U.S. securities, Operation of entity or business, Borrowing, Taxes, Retirement plans, Benefits from governmental programs, Social Security, Medicare, Medicaid or civil or military service, Gifting of assets, Title 19 benefits, Estates, trusts, and other beneficial interests, special needs trust, WisPact Trust, Custodial accounts, Family support, Lawsuits, and Guardianship.
 
These types of power of attorney are effective during your lifetime, but ceases upon your death.  This is very important to note because most people believe their agent may get into their safety deposit box after they pass away, but because the document terminates on your death your agent may not use it any longer.  This is also true about bank accounts, property, and other financial investments.  This document does not take the place of your Last Will and Testament, other estate planning tools, or designating a beneficiary on your accounts.
 
You may revoke this power of attorney at any time as long as you are still capacitated. You may do this by:
1.         Canceling, defacing, obliterating, burning, tearing, or otherwise destroying it or, if you are not physically able to destroy it                       yourself, directing that another person destroy it in your presence; 
2.         Executing a statement in writing, signed and dated by you, expressing your intent to revoke the instrument;
3.         Verbally expressing your intent to revoke the instrument in the presence of witnesses; or
4.         Executing a new power of attorney.
 
Lesson Learned: Everyone over 18 years old needs to have a Durable Power of Attorney for Finance and Property.