United States: You Are An Elder Law Attorney, Whether You Realize It Or Not

Elder Law, as a specially-defined practice area, has been in existence for approximately 12 to 15 years. The Elder Law Section of the New York State Bar Association was formed in 1991. From an initial group of about 20, we have grown to over 2700 attorneys across the state. This explosive growth is indicative of the demographics of our society. People are living longer and are facing increasingly complex legal issues as they age.

Elder law attorneys often take a holistic approach to representing clients. People seek our services when they are confronted with a "problem" and require our help in order to obtain a resolution. Whether the client is concerned about how to pay for the costs of long-term care, how to find appropriate senior housing, how to protect one’s lifetime savings, planning for incapacity, or any of the issues affecting people as they age, the elder law attorney is an integral part of the process. We must be knowledgeable in many areas of the law, including social services, tax, insurance, real estate, guardianships, litigation, trusts and estates, among others.

For the non-elder law attorney, the task is to identify issues as they pertain to clients who have sought their services in what ostensibly is a non-elder law matter. For example, the personal injury attorney who recognizes that his client is receiving Medicaid benefits and should take protective action, or the matrimonial attorney who recognizes that his client contemplating a second marriage should be concerned about her liability for the potential long-term care costs of her husband-to-be, is providing excellent client service while avoiding malpractice pitfalls. At a cost of approximately $10,000 per month, the benefits of proper planning for the costs of long-term care can be significant.

Lawyers must not view client engagements in a vacuum. Rather, we must be sensitive to all relevant issues even if they are not the primary focus of our representation. This article will identify certain situations where attorneys should be aware of elder law issues and offer planning techniques available to resolve those issues for the benefit of the client.

There are several instances which may arise during the course of a matrimonial attorney’s representation of a client which give rise to a variety of elder law issues. For example, a long-time client who is a widow is considering getting married again. However, she wants to make sure that her hard-earned assets are ultimately left to her children from her prior marriage. You recommend a prenuptial agreement that includes a waiver of the spouse’s right of election.

Under these circumstances, you should advise your client that if she remarries, she will be responsible for the long-term care costs of her new husband. Under New York law, each spouse is legally responsible for the health care costs of the other.¹ Except for very modest resource and income allowances, even assets that have always been in the name of the well spouse must be used to pay for the cost of care of the sick spouse. Moreover, Medicaid is not bound by the terms of any prenuptial agreement to which it is not a party. You could advise your client not to get married; however, that is not consistent with her wishes.

One way to plan for this potential liability is to provide in the prenuptial agreement that each spouse is required to maintain sufficient (as defined and negotiated by the parties) long-term care insurance coverage. There are many different types of long-term care insurance policies on the market and the attorney should familiarize herself with the features of each. For example, the premiums on certain policies are tax-deductible to a limited extent. Other polices called "Partnership Policies"² are portable to another state only for a limited time period; thereafter, the care must be provided in New York State. You need to review whether the policy covers assisted living and whether the policy benefits can be applied to care received in different settings (i.e., skilled nursing facilities, home care, etc.) at the policyholder’s option. Of course, if the cost of care exceeds the amount of the insurance coverage or if either spouse is uninsurable, additional elder law planning will need to be considered, including gifting of assets or spousal refusal.

With respect to the right of election under EPTL §5-1.1A, you should be aware that Medicaid treats the waiver of said right as a transfer of assets subjecting the surviving spouse to a period of ineligibility for nursing home Medicaid benefits.³ This issue becomes important if your client is later in a nursing home and her well spouse at home predeceases her. By recommending to your client that she execute a waiver now, you may be causing her to be ineligible for Medicaid in the future. Moreover, you will not be able to advise your client when her period of ineligibility will expire since the period of ineligibility does not commence until the death of the first spouse.⁴ The fact that you don’t know this date when the waiver is executed makes it very difficult to engage in prudent elder law planning at that time. Of course, it could always be argued that the purpose of the waiver was not to obtain Medicaid and, accordingly, should not result in a penalty period. However, that will almost certainly lead to complications in connection with Medicaid’s review of your client’s application.

If a waiver is not executed and the well spouse dies first, she could disinherit her spouse who is in a nursing home. However, the institutionalized spouse will be entitled to exercise his right of election against her estate which would defeat the non-Medicaid concerns of ensuring that her children inherit her estate as opposed to the second husband. If exercised, the right of election will result in additional resources in the institutionalized spouse’s name that would make him ineligible for Medicaid. At that time, further elder law planning could be done on behalf of the institutionalized spouse to protect a portion of those assets. If the institutionalized spouse does not exercise his right of election, then Medicaid may treat assets that he would have received assuming an exercise of the right of election as an available resource, thereby rendering him ineligible for benefits. Alternatively, Medicaid may seek to have a guardian appointed for him under Article 81 of the Mental Hygiene Law to obtain court permission to enforce the right of election on behalf of the institutionalized spouse.

Based on the foregoing, should the matrimonial attorney advise her client to waive her right of election? If there are sufficient non-Medicaid reasons for executing the waiver, then perhaps you will be able to successfully argue that no penalty period should apply to the waiver. However, if you are uncomfortable with that position, then perhaps it is best to recommend that your client not sign a waiver and simply disinherit her spouse. By doing so, you put the burden on Medicaid to discontinue benefits or to bring a proceeding to compel the exercise of the right of election. Even if Medicaid is successful in that regard, you should still be able to protect a portion of your client’s assets by implementing additional planning at that time.

The trusts and estates attorney often recommends that bequests be in trust as opposed to an outright disposition. The traditional reasons for recommending this planning include creditor protection and satisfaction of the client’s desire to leave property to children from a prior marriage. Accordingly, you draft a will for your client which contains standard credit shelter trust provisions and a marital trust intended to qualify for QTIP treatment under §2056(b)(7) of the Internal Revenue Code. Unfortunately, you have not given any thought to the possibility that the surviving spouse may require expensive long-term care.

You could draft a will which disinherits the surviving spouse, but that would frustrate the testator’s intent. Moreover, as discussed above, the surviving spouse would have a right of election which could be enforced by Medicaid. Instead of disinheriting the surviving spouse, it may be preferable to leave a bequest to the trustee of a third party supplemental needs trust ("third-party SNT") for his benefit pursuant to EPTL §7-1.12. The trustee of a third-party SNT will be able to utilize trust assets at its discretion to pay for items that are not covered under governmental assistance programs. An outright bequest would disqualify the surviving spouse for Medicaid, whereas the corpus of a properly drafted third-party SNT is not considered an available resource for Medicaid eligibility purposes.⁵ Although a third-party SNT will not satisfy the right of election, it is possible to draft language in the decedent’s will which would allow for the elective share amount to be paid outright while maintaining the balance of the bequest in the third-party SNT.

With respect to clients for whom you would draft typical A/B trusts in their wills, you could draft the credit shelter trust with income payable to the surviving spouse, as well as standard invasion powers. However, you should draft the trust so that the income distributions and principal invasion powers terminate upon the surviving spouse’s admission to a nursing home or application for Medicaid. At that time, the will should provide that the entire trust converts to a third-party SNT. Once the standard credit shelter trust converts to a testamentary third-party SNT, none of the trust assets will be available if the surviving spouse applies for Medicaid. This so called "trigger trust" technique is permissible since EPTL 7-3.1(c) does not apply to testamentary trusts. With respect to trusts that are not testamentary, any provision which provides for the suspension, termination or diversion of trust assets is void as against public policy.⁶

This same "trigger" technique could apply to the marital trust except that the surviving spouse must be entitled to all the income from the trust in order for it to qualify for QTIP treatment. Accordingly, with respect to the marital trust, only the provisions relating to principal distribution convert to a third-party SNT. The income continues to be paid to the surviving spouse.

This type of planning may be further embellished utilizing contingent QTIP and partial QTIP elections. For example, when drafting the will you could provide that if the executor elects QTIP treatment, then a certain trust is funded which has standard QTIP invasion powers. However, if the executor does not elect QTIP treatment, then a different trust is funded which has standard third-party SNT provisions. This will allow maximum flexibility with respect to planning for the surviving spouse. Since the QTIP election does not have to be made until the estate tax return is filed (including extensions), the executor will have 15 months to decide which trust to fund. When utilizing this planning technique, it is imperative that the executor of the estate be someone other than the surviving spouse.

If you customarily utilize revocable living trusts as the dispositive instrument for your clients, you will need to be extremely careful when doing this type of planning. Assets placed in a third-party SNT by an individual or his spouse may be considered an available resource if either spouse applies for Medicaid unless the trust was created by will.⁷ Thus, if your married clients create revocable trusts which provide that on the death of each party, the trust becomes irrevocable and converts to a third-party SNT, the funds in those trusts may be available for Medicaid eligibility purposes if the surviving spouse requires long-term care.

To address this concern, you may draft the revocable trusts so that the trust assets pour back into a testamentary third-party SNT created under the decedent’s will. By doing this, the third-party SNT will be created by will and the assets will not be considered available for Medicaid eligibility purposes. However, under this scenario, the decedent’s estate must be probated in order to create the third-party SNT. Avoidance of probate is typically one of the reasons clients utilize revocable living trusts as opposed to a last will and testament. Those clients who have a strong desire to avoid probate but also wish to establish a third-party SNT for a spouse may reserve a limited power of appointment with respect to the assets in the revocable living trust. The power of appointment may be exercised in favor of the trustee of the third-party SNT created under the will. This approach will give the client added flexibility since, as a practical matter, the power of appointment will only be exercised if the surviving spouse is likely to require long-term care. Otherwise, the power is allowed to lapse and the assets of the revocable living trust pass to the designated beneficiaries without necessity of probate. When using this technique, careful thought should be given to who the power holder should be. It is possible that Medicaid may take the position that if the spouse retains the power to appoint the trust property to the testamentary third-party SNT, that a transfer of assets has occurred for Medicaid eligibility purposes. A more conservative approach would be to give a child the power to appoint the trust property.

When someone is injured, it is not uncommon for her to receive medical care prior to the receipt of any proceeds of a personal injury lawsuit. In many cases, the amount of care provided can be substantial, resulting in large medical expenses. These expenses will continue to increase the longer it takes for the case to settle or for there to be a jury verdict. If the client is on Medicaid at the time the proceeds become available, then that award may disqualify her from government benefits that she may already be receiving or may receive in the future. A special needs trust ("SNT") is a trust established for a disabled individual under age 65 who receives (or who may receive in the future) government benefits. The purpose of the SNT is to supplement the government benefits that the individual receives rather than replace or decrease those benefits.

If an SNT is properly established, the trust property is not considered available for Medicaid purposes.⁸ An SNT may be established by a disabled individual’s parent, grandparent, legal guardian, or by court order.⁹

As opposed to a third-party SNT, which is funded with someone else’s assets, an SNT is funded with the disabled individual’s own assets. In this situation, however, the SNT must contain a "pay-back" provision. A pay-back provision states that any funds remaining in the trust after the disabled individual has died must be utilized first to repay the local Medicaid agency for the benefits provided to the SNT beneficiary during her lifetime, up to the amount of benefits paid.

Prior to establishing an SNT, the lawyer must first determine if a Medicaid lien exists and the amount thereof. As a condition of granting eligibility, Medicaid requires the injured party to assign any rights she has in her lawsuit to Medicaid. Upon receipt of proceeds from the lawsuit, the Medicaid lien must be satisfied prior to funding the SNT.¹⁰ Notwithstanding the foregoing, many local Medicaid agencies have been willing to negotiate the Medicaid lien depending upon the circumstances of each case, including the amount of the lien and the amount of benefits provided. Prior to negotiating any settlement with Medicaid, the attorney must be sure to obtain a copy of the Medicaid CDR report, which details the benefits provided. Only benefits paid that are causally related to the injury are subject to the Medicaid lien.¹¹

Real estate lawyers need to be familiar with the elder law consequences of transferring title to property, especially the family home. Although Medicaid law affords an individual’s homestead preferential treatment while the person is alive, the homestead may still be subject to recovery by Medicaid upon the person’s death.

Transferring the home out of your client’s name will generally cause her to be ineligible for Medicaid for a certain period of time, depending upon the value of the home at the time of the transfer. The period of ineligibility can be shortened if the client retains a life estate in the property. The amount transferred for Medicaid eligibility purposes is computed using the life estate table published by the Department of Health.¹² This table values the remainder interest at a discount based on the age of the transferor. If title is held by a married couple as tenants by the entirety, then it may be prudent to transfer title to the younger spouse prior to creating the deed with life estate. This technique may result in a shorter period of Medicaid ineligibility. When preparing a deed with a life estate, it is important to review all tax abatement issues, including the STAR exemption, veteran’s and senior citizen exemptions. You want to make sure that the deed has the appropriate language to ensure that your client does not lose the benefit of those exemptions.

In addition to obtaining a discount for purposes of the transfer penalty rules, life estates are not subject to Medicaid estate recovery since they pass by operation of law upon the death of the grantor. Medicaid estate recovery is limited to the probate estate.¹³

In addition to the foregoing, real estate lawyers need to be familiar with the Medicaid exempt transfer rules as they apply to the homestead. Under the Medicaid laws, the transfer of a homestead is exempt if the transfer is made to a spouse, minor or disabled child, sibling who has an equity interest in the home and who has been residing there for one year, or a caretaker child who resided in the home for two years prior to the parent becoming institutionalized.¹⁴

As you can see, elder law issues permeate many different practice areas. I have identified a few of those areas in this article and have offered practice tips that you may wish to consider. In order to effectively service your clients, it is important that you be able to identify these issues and offer suggestions, where applicable.

1 Social Services Law §101.

2 Social Services Law §367-f.

3 See Social Services Law §366.5

4 Estate of Jeanette Dionisio v. New York State Department of Social Services, 666 N.Y.S. 2d 904 (App. Div. 2^nd Dept. 1997).

5 See 96-ADM-8.

6 EPTL §7-3.1(c).

7 42 U.S.C. §1396p(d)(ii); 18 N.Y.C.R.R. §360-4.5(c).

8 See 96-ADM-8.

9 42 U.S.C. §1396p(d)(4)(A); Social Services Law §366.2(b)(iii)(A).

10 Calvanese v. Calvanese and in the Matter of Frances Callahan, 93 N.Y. 2d111, 688 N.Y.S. 2d 479, 710 N.E. 2d 1079 (N.Y. April 6, 1999).

11 Social Services Law §104-b(1).

12 See 96-ADM-8.

13 Social Services Law § 369.6.

14 Social Services Law §366.5.