Estate Preservation

When it comes to securing wealth for the future, there is Estate Planning and then there is Estate Preservation Planning. Traditional estate planning helps individuals pass wealth on to heirs and avoid probate, but it does not protect assets in the event long-term care is required.  This is not to say that there is never a need for such planning—there most certainly is—but Estate Preservation comes into play if it is foreseeable that one might need long-term care.  Without Estate Preservation Planning, if this foreseeable need for long-term care ends with this person moving into a long-term care facility, there might not be an estate to distribute when the time comes.

Estate Preservation is the other side of the Debt Prevention coin, and it, too, is often referred to as “Elder Law.”  But with conscientious Arizonans remaining active and independent well into their later years, the term “elderly” is more and more interpreted as offensive for its implications of frailty.  Thus, because TKW refuses to denigrate the very population it serves most, TKW abandoned the more familiar nomenclature of “Elder Law.”  Particularly in a profession that relies on the nuances of language, TKW has dropped this insensitive terminology.  TKWhite’s founders have never been afraid to break the mold to improve the industry, and making a fresh start provided just the opportunity to make this small change in wording that could have a huge impact on the degree to which older Arizonans are respected..

Traditional Estate Planning vs. Estate Preservation for Long-Term Care–The Key Difference.

A typical estate plan might include a revocable living trust, wills, and powers of attorney—documents that facilitate asset management and lay the groundwork for a smooth transfer of assets to beneficiaries.  These tools are undoubtedly important, but, by themselves, they cannot protect an estate from the sometimes devestating financial impact of long-term care costs.

For individuals needing long-term care—whether in an Arizona nursing home or Arizona assisted living facility—expenses can quickly exceed $10,000 per month. Without estate preservation planning, these costs can entirely deplete an estate, leaving little for healthy spouses, let alone heirs. A typical Arizona estate plan will not shield assets from “spend-down,” a process through which most ALTCS applicants must undergo to qualify for benefits, and one that can put applicants whose estate plans do not contemplate long-term care costs at risk of losing everything.

Estate Preservation, on the other hand, is a particular type of estate planning that includes pre-planning for long-term care, and is designed to help individuals keep as much of their wealth as possible while qualifying for Arizona’s Long Term Care System (ALTCS). Through early and proactive planning, individuals can qualify for ALTCS, pay a reduced monthly co-pay for care, and preserve their estate.  More directly, estate preservation planning can carve a path by which ALTCS will cover the lion’s share of long-term care costs, leaving more assets for a healthy spouse and a larger estate to protect when the time comes.

Why Estate Preservation Pre-Planning Matters.

Estate Preservation involves structuring assets to facilitate ALTCS eligibility well before long-term care is necessary, all with an eye towards getting the appropriate care, if necessary, and also offering an assurance that a lifetime of savings may be protected.  The earlier this planning begins, the more assets the planning has the ability to preserve.  Given how strict the ALTCS income and asset tests are, waiting until a medical need arises oftentimes forces people with a long-term medical need to spend down to as little as $2,000 of total available assets before qualifying for assistance.

Through proper estate preservation planning, or pre-planning as it is often referred to at TKW, asset protection trusts and other legal tools can be used to meet ALTCS eligibility requirements without sacrificing everything  for which one has worked. These tools, however, are not part of a typical estate plan—they are specifically designed to facilitate the twin aims of estate-preservation and ALTCS-eligibility.

Traditional Estate Plans Sometimes Just Aren’t Enough.

Many who have a revocable living trust assume their estate is protected.  This might be true if the need for long-term care never arises, but even as these costs begin to chip away at the trust assets, a typical revocable living trust does not keep ALTCS from counting the trust assets when determining resource-eligibility.  In some cases revocable living trusts even make it more difficult to qualify for ALTCS, an example of which is that a primary residence is deemed unavailable, but that same house will be counted in full if it is in a revocable living trust.  Having the foresight to engage in estate preservation planning well before applying for ALTCS is perhaps the only way to shield assets from Medicaid’s spend-down requirements when applying for ALTCS.

Put succinctly, traditional estate planning may help avoid probate, but it does not preserve wealth if long-term care is needed.  Estate Preservation Plannning, on the other hand, is a specialized form of pre-planning that protects assets while fostering eligibility for ALTCS benefits.  With one-third of the population ending their life in a long-term care setting, one can plan now or pay later.

When the need for long-term care that pre-planning envisioned arises.

Before Arizona’s Medicaid program, Arizona Long Term Care System (ALTCS), will pay for an applicant’s long-term care, the person applying must meet specific eligibility criteria.  Contrary to popular belief, this process requires  much more than just filling out an application.  ALTCS eligibility involves strategic planning, accurate documentation, and sometimes the use of trusts or other legal instruments to ensure that income, assets, and medical needs align with program requirements.

Now, more than ever, qualifying for ALTCS is an arduous process.  With the advent and implementation of sophisticated software, ALTCS is able to scan bank statements for virtually every bank in the state to search for “uncompensated transfers.”  This software is called Automatic Verification System (A.V.S.), and the presumption coded into this software is that any withdrawal of greater than $1,000 is deemed an uncompensated transfer that delays eligibility.  Preparing for the application can eliminate many of these presumptive transfers, but if assets have been gifted, ALTCS will impose a transfer penalty, the length of which is determined by the total value of gifted assets, that altogether delays long-term care coverage.

Whether gifted for a grandchild’s education, a daughter’s mortgage payment, or even a wedding gift, ALTCS imposes a transfer-penalty for these gestures of generosity.  In these instances, legal processes such as transfer rebuttals, undue hardship requests, and appellate work are sometimes necessary to eliminate a penalty that cannot be endured.  With these thorny issues becoming increasingly common, legal counsel is more important than ever, and TKW is only a phone call away.  Contact TKWhite LTC Law for a free meeting with a member of our team to assess whether pre-planning is appropriate for you.