ERA Law Group

A New Era of Attorneys

annapolis elder law attorney

Apr 09

Personal Care Contracts

By: Jessica L. Estes

If you currently provide care for a chronically ill, disabled, or aged family member, likely you spend, on average, twenty hours per week providing that care.  This is in addition to your own personal commitments, which may, and often do, include managing a full-time job and your own family.  Not only can this be overwhelming, but it can be extremely stressful.  Moreover, family caregivers usually are not paid, as they feel some responsibility to provide this care solely out of love and affection.  

But what happens when they can no longer provide adequate care for their loved one?  The loved one may not have the resources to afford in-home, assisted living or nursing home care.  And, unless the loved one has less than $2,500 in countable assets, they will not qualify for Medicaid benefits.  Although one can “spend-down” assets below the $2,500 limit, Medicaid does not allow reimbursement for the care you provided.  If you are reimbursed and your loved one files an application for Medicaid benefits, that reimbursement will be considered a gift subject to penalty and your loved one may not qualify for benefits for a very long time.

However, a family caregiver may be compensated for their services without any impact to their loved one’s Medicaid benefits if they have a personal care contract.  A personal care contract is an agreement between a caregiver (one who provides care) and a care recipient (one who needs care) detailing the services to be provided for a set amount each month.  To avoid a Medicaid penalty, the personal care contract should be written, signed and dated before you begin providing services or receiving payment.  Also, the personal care contract should specify which services will be included and which will be excluded.  Services can include meals, lodging, furnishings, utilities, laundry, housekeeping, personal assistance (bathing, dressing, grocery shopping, transportation to/from medical appointments, etc.), medical care and costs, and materials and supplies necessary to perform the services.

Additionally, the personal care contract should include the amount the caregiver will charge the care recipient for these services.  You cannot, though, be paid more than someone with your equivalent experience and skills who does this professionally in your general area.  For Medicaid purposes, though, the caregiver should keep a log of the services they are performing on a daily basis and a record of the payments received for these services.  In the event the care recipient applies for Medicaid, the caseworker will want to see a record of the services provided and the payments made, which should be in accordance with the contract.  As long as the services and payments are in accordance with the personal care contract, Medicaid will not penalize payments made to the family caregiver.

Finally, because this is a legal contract, I recommend having a qualified elder law attorney draft the contract for you, especially if Medicaid benefits might be needed in the future.

Mar 26

Naming a Trust as Your IRA Beneficiary

By Jessica L. Estes

Most people with individual retirement accounts (“IRAs”) name their spouse and children as the primary and contingent beneficiaries, respectively, of their IRA.  Or, if they are not married or do not have any children, their siblings and nieces or nephews.  For the reasons outlined below, this may not be the best decision.  Though, to understand why it may not be the best decision, it is important to understand the basics of IRAs and required minimum distributions (“RMD”).  Generally, an owner’s funds in an IRA will be protected from his or her creditors, but a RMD will not be protected.  A RMD is the distribution that must be taken starting at age 70 ½, which is based on one’s life expectancy.  Once the distribution is made, that income is not protected unless state law provides otherwise.  When the owner of the IRA dies, his or her beneficiary receives an inherited IRA.

In 2014, the U.S. Supreme Court’s decision in Clark v. Rameker sent shock waves through the legal and financial planning industries.  The Court was asked to decide whether funds held in an inherited IRA were “retirement funds” within the meaning of the bankruptcy statute and thus, exempted from an individual’s bankruptcy estate.  The Court answered this question with a resounding “no” and specifically held that funds in an inherited IRA are not “retirement funds,” rendering those funds available for payment to creditors.  The Court reasoned that “retirement funds” are monies set aside for a day when one stops working; whereas, an inherited IRA consists of funds that may be used for immediate consumption.  Prior to this decision, an inherited IRA was considered “retirement funds” and protected from the reach of one’s creditors.  After this decision, though, that is not necessarily the case.

If one’s spouse inherits the IRA, they can: (1) create a new IRA in their name; (2) roll the inherited IRA into an existing IRA already in the spouse’s name; or (3) they can leave the inherited IRA in the deceased spouse’s name if the deceased spouse was younger than the surviving spouse so the payments can be stretched out for a longer period.  If the spouse chooses option 1 or 2, the funds in the account will be protected; however, if the spouse chooses option 3, likely the funds would not be protected.

Moreover, if a child inherits the IRA, they could stretch out the RMD’s based on their life expectancy rather than their parent’s life expectancy, or the child could take the money all at once.  Either way, though, the funds would not be protected from the child’s creditors, which may include a bankruptcy court, general creditors, lawsuits and judgments entered against them.  Additionally, the Supreme Court decision opens the door for Medicaid to recover against an inherited IRA since the federal law allows recovery against beneficiary- designated accounts. 

Another reason to name a trust as the beneficiary of your IRA is to protect government benefits for a spouse who may require or is currently receiving long-term care Medicaid benefits, or a disabled child receiving benefits.  If those individuals were to inherit even a small IRA, it could disqualify them from continuing to receive benefits.  Depending on the amount of the IRA, that may or may not matter, but one should be aware of the consequences of such action. 

Similarly, if a designated beneficiary (1) is a spendthrift, (2) has a drug, alcohol or gambling addiction, or (3) has creditors, or any number of other issues, naming a trust could be beneficial to preserve the funds so it is not depleted quickly.

The trust must be drafted carefully so as not to trigger a five-year payout.  If the Internal Revenue Service (“IRS”) considers the trust as the owner or beneficiary of the IRA, the trust must liquidate the IRA and distribute it within 5 years of the decedent’s death.  However, the IRS will not consider a trust the owner or beneficiary of the IRA if four requirements are met: (1) the trust is irrevocable as of the decedent’s death; (2) the trust is valid under State law; (3) the trust identifies “human” beneficiaries; and (4) the trustee provides a copy of the trust to the plan administrator or custodian within 9 months of the date of death.  If there is the possibility that a non-human can become a beneficiary (e.g. ultimate beneficiary is a church or charity), then the 5-year payout rule applies. As long as the above requirements are met, the trust will be considered a “see through” entity and any distributions paid to the beneficiary of the trust, will be taxed at that beneficiary’s income tax rate.

Also, the trust can be drafted in a way that maximizes the payout to the beneficiaries.  Likewise, it is important to decide how the RMD’s payable to the trust will be handled.  Giving the trustee the authority to decide whether to make distribution to the beneficiary or to continue to hold the RMD’s in trust provides more flexibility and creditor protection for the beneficiary.  Depending on your situation, a trust might be the better choice for your IRA beneficiary designation.

Mar 05

Prenuptial and Postnuptial Agreements – Why You Should Have One

By: Valerie E. Anias, Esq.

There is a misconceived notion that asking for or discussing a prenuptial or postnuptial agreement implies distrust or concern over your relationship and its future.  This isn’t true!  There are a significant number of benefits gained as a result of a prenuptial agreement, or postnuptial agreement if you’re already married.

There are two ways to dissolve a marriage: divorce and death.  Prenuptial or postnuptial agreements help in making the dissolution as easy as possible. 

The reality is this: marriage is both a romantic and business relationship.  With very few exceptions nearly everything is or becomes marital.  As such, nearly everything can become subject of costly litigation in the event of divorce or death.  A well drafted and all-inclusive agreement will limit many of these issues.  For example, the agreement will identify what is and is not marital property, each parties’ rights in the event of death or divorce, predetermine rights and obligations for spousal support, inheritance, and more.  In addition, the agreement will have a complete financial disclosure including each spouses’ assets, liabilities, and income.

A properly drafted agreement will provide a full financial disclosure to both prospective or current spouses.  It will list all assets, income, real property, personal property, etc.  For example, what if you have your great-grandmother’s engagement ring?  You’d want to be sure that said ring would remain with you, your children, and/or your family.  If you were to pass, the value of that ring may ultimately be considered part of your estate and have to be divided.  That could mean sold. 

When contemplating whether you think a prenuptial or postnuptial agreement is needed for you, you should consider whether you want to be on the hook for your partner’s debt in the event of divorce or marriage?  Whether you want your spouse from a second marriage to inherit more than your children from their first marriage?  Whether you want your private business to be impacted in the event of divorce or death?  

Obtaining a prenuptial or postnuptial agreement is simply a combination of planning and protection.  Planning for the future of your spouse, children, and yourself while simultaneously protecting your spouse, children, and yourself.