Elder Law Mistakes

When it comes to elder law mistakes, one wrong move can become one very big, costly mistake. If you are trying to be proactive, make sure you engage an experienced elder law attorney. Otherwise, sometimes things can go wrong through no fault of your own. Take, for instance, the true case of a senior (“Marge”) who came to our office with this elder law mistake. Marge had consulted a real estate attorney instead of an elder law attorney. Marge wanted to protect her home from the high cost of nursing home care. One of Marge’s friends told her to get her house out of her name. Marge bought the house for $40,000.00. At the time she went to the real estate attorney, the house was worth in excess of $600,000.00. Marge walked into the office of the real estate attorney (who had no experience in elder law) and asked him to transfer her property to her children. The real estate attorney obliged and prepared and filed a deed as requested. The elder law mistake is obvious to an elder law attorney. Unfortunately, no one told Marge that, by transferring the deed in that way, her family would be looking at a $540,000.00 capital gain on the property. And, the family was going to have to pay the taxes on that capital gain. Had Marge consulted an elder law attorney, she would have learned that there was a way to avoid incurring that capital gain. The elder law attorney would have told Marge that the simple solution to this problem would have been to include a life estate for Marge. This type of transfer would have not only guaranteed that Marge could live in her house until her death; but would have also provided Marge’s children with a stepped-up tax basis and no capital gains tax issues!

Another type of elder law mistake occurs when people have done elder law planning, but they fail to follow through. Elder law attorneys refer to this inaction as “failure to fund” the plan. In other words, they simply do not take the final necessary steps to protect their assets. Whether it is poor advice by the elder law attorney drafting the plan or simply a failure to follow the attorney’s instructions, the failure to fund trusts is one of the most common mistakes in elder law planning. For example, an elder law client will have a Medicaid Asset Protection Trust (sometimes called an Irrevocable Income Only Trust) prepared by an attorney, but, for some unknown reason, the client does not change the deed to his/her home. The Medicaid Asset Protection Trust never owns the house as it should. In other cases, the elder law mistake is that the client fails to re-title their bank accounts or brokerage accounts to reflect that the assets are held in trust. It is not until after the client needs nursing home care or sometimes after the client’s death that anyone realizes that the Medicaid Asset Protection Trust was an empty shell. The unfunded trust was rendered useless and a solid elder law plan was wasted. This is a huge elder law mistake with significant consequences. In the case of nursing home care, the client will not qualify for Medicaid benefits. Since the elder law trust was not funded, the Medicaid office will have no choice but to treat the assets as belonging to the senior. The end result is that the client will lose all of his/her assets to the high costs of nursing home care. However, the benefits of the Medicaid Asset Protection Trust are not just limited to qualifying for Medicaid. Upon the death of the senior, an unfunded trust means that the decedent’s assets or estate must pass by Will or the laws of intestate succession. If the assets had been placed in the trust, then probate would have been avoided for all assets that were in the Trust. Probate avoidance is an important feature of Medicaid Asset Protection Trusts because the probate process can be costly and time consuming. So, at the time of death, the deceased client’s family will have to go to Court to probate the Will and/or administer the Estate. Had the elder law plan been followed, probate could have been avoided.

The lesson to be learned from these elder law mistakes is that you must do your homework. The truth is that these elder law mistakes could apply to any area of law. Make sure that the attorneys, accountants, insurance planners and investment advisors you hire are professional and competent. When meeting with your advisors, ask a lot of questions. The more informed you are, the less likely it is that you will end up making these common elder law mistakes.