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Patricia Bloom-McDonald • Mar 30, 2015
Estate Planning for People with Dementia or Alzheimer’s
Alzheimer’s or dementia is an insidious disease, affecting about half of those who are 85 and older though it can manifest in those who are decades younger. Dementia comes in stages and there is no cure for this progressive condition that can significantly affect your memory and cognitive abilities, effectively incapacitating you.
Why is an Estate Plan Necessary?
For those who have severe dementia but with no estate planning measures in place, their families may struggle with their financial affairs and medical issues. A conservator may have to be appointed by the court regarding the person’s finances and a guardian for health issues, both being subject to court oversight, a costly and cumbersome process.
If you or a loved one do have symptoms of Alzheimer’s, or the disease runs in your family, or have been diagnosed as such but still have the capacity to make important and material decisions about medical and financial affairs, then you need to act quickly to discuss and develop an appropriate plan with an estate planning lawyer. For those who do not have Alzheimer’s, now is the time to get an estate plan in order since you are at a substantial risk of developing this disease the longer you live. Once you are diagnosed, creating a Will, health care directive, or any legal document will become difficult since your mental capacity can be challenged in court.
Estate Plan Strategies for Dementia Patients
While you or your loved ones are capable, talk to elder law attorney Patricia Bloom-McDonald about your estate plan needs. These include:
- – Durable power of attorney (DPOA). You name an agent who will make decisions affecting your financial issues. This power can be conferred upon someone immediately regardless of your capacity, or you can indicate that you must first be declared incompetent by a medical specialist. If you wait too long, you will have to have the court appoint someone as guardian or conservator so that decisions regarding financial matters can be made. “Durable” meaning that it can still be used “during” your mental incapacity.
- – Living Will language in your DPOA and HCP. Massachusetts does not have a “Living Will Statute” therefore including language about your advance medical directives in your DPOA and HCP is a message to your appointed Agent about your intention regarding end-of-life care such as whether extraordinary measures should be taken to save your life under certain conditions.
- – Health Care Proxy with advance medical directives (HCP) . Similar to the durable power of attorney for financial affairs, this agent can pay your medical expenses, access your medical records, enforce your living Will language directions, and decide on a particular method of care or approve certain treatments and where it is to be administered.
- – Set up a revocable or irrevocable trust. You can place property in the trust, which then becomes the owner. You can place instructions as to how the trust assets are to be used upon your incapacity. The trust assets are not subject to creditor claims and your named beneficiaries of the trust assets need not go to probate court to have the assets transferred to them upon your death.
- – Last Will and Testament . For non-trust assets, funds not in Payment on Death (POD) accounts or for any other property, create a Will to leave these assets to whomever you wish. If you plan to omit a child from an inheritance in your Will, discuss this first with your estate planning lawyer.
- – Business entry strategy . If you have business interests, have your attorney review any agreements you have regarding what happens to your interests upon retirement, sudden death or incapacity. Without a business succession plan in place, a conservator or the agent you named in your DPOA may act as your agent and make decisions for you that may not be consistent with your own business judgment.
If you or a loved one is in the early stages of dementia and either have no estate plan or wish to update or change the one you have, you might consider having a medical specialist assess your mental capacity to avoid potential issues that may arise.
If you have any issues or concerns about estate planning for yourself or relative, call elder law/estate planning attorney Patricia Bloom-McDonald in Massachusetts. Her practice is devoted to issues affecting those who are retiring or have already retired, and seniors; planning for their health and financial affairs should they become unable to make vital decisions affecting their well-being and security. Call her today for a no-cost initial consultation.
A special needs trust (SNT) allows you to meet your needs while receiving government benefits, such as Medicaid/MassHealth and Supplemental Security Income (SSI). When you have a special needs trust, you can use it to pay for goods and services government benefits do not cover, such as therapy, education,and housing. Since receiving income directly from your trust would jeopardize your eligibility for benefits, your trustee cannot give you cash from your SNT. When you use a credit card for permitted transactions, and your trustee pays off the balance with funds from your trust, these payments to a credit card company are not considered income. An SSI or Medicaid/MassHealth recipient who is capable of managing their own affairs can therefore use a credit card to make small purchases, and the trustee of the special needs trust need not micromanage every transaction. In the past, beneficiaries of SNTs sent their bills to their trustees for payment. Today, an individual with an SNT who qualifies for a personal credit card may find that using a credit card is more convenient. Credit cards have several benefits. Using a credit card to manage payments from your special needs trust allows you to maintain independence, gain access to some of the advantages of a credit card, and easily keep records while preserving your eligibility for Medicaid/MassHealth and SSI. Although credit cards can help people manage their special needs trusts, there are also several important restrictions and considerations to keep in mind. Consult with a special needs planner to ensure all transactions are acceptable under the trust's rules and comply with government regulations. The Benefits of Using Credit Cards When You Have a Special Needs Trust If you have a special needs trust, using a credit card has many benefits, including: Independence : Allowing you to maintain your independence. You can use your card to make qualifying purchases yourself. Your trustee does not have to make the transactions for you. Access to the Typical Advantages of a Credit Card : Using it responsibly can help you establish or build credit history, which may be important for your future financial needs. Record-Keeping : Credit cards provide easy record-keeping and a convenient way to monitor transactions from your special needs trust, which can also help special needs trustees fulfill their duty to maintain records. When you use your card, your trustee can observe your purchases and ensure that all expenses are allowable under the trust’s rules. Your statements can help your trustee keep track of funds leaving the trust. Benefits Eligibility : While adhering to Medicaid/MassHealth and SSI’s income and asset limits, you can access funds from your SNT. Credit cards can help prevent your trustee from accidentally providing you with cash payments that could affect your eligibility for government benefits. Considerations When Using a Credit Card for Your Special Needs Trust While you can use a credit card to access funds from your special needs trust for certain transactions , restrictions apply. If your trustee sees a charge on your card that could affect your benefits eligibility , they can flag it for review. You cannot use your credit card to pay for food and shelter, which SSI would cover. When administering your funds, your trustee must ensure that any expenditures are for your sole benefit if you have a first-party special needs trust. While using a credit card is appropriate, you should not use a debit card. Debit cards are considered cash income. Best Practices When using a credit card for a special needs trust fund, remember several best practices. Choose a card with low fees and interest rates. Set a clear budget and monitor transactions regularly. Keep thorough records and receipts of expenses. Consult with your special needs planning attorney. A special needs planning attorney can help you navigate the rules that apply to your trust and understand how to use a credit card to preserve your Medicaid/MassHealth and SSI eligibility.
With the Federal estate tax exemption possibly about to be lowered, it may be time to think about steps you can take to keep your estate from being taxed. An irrevocable life insurance trust allows you to pass on money to your heirs while avoiding both the federal estate tax, as well as any applicable state estate tax which is currently $1 million in the Commonwealth of Massachusetts. Senate Democrats have proposed lowering the current estate tax exemption from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. While it is unclear if this proposal will pass, it is likely that some change to the estate tax is coming. Even if Congress does not take any action, the current rate will sunset in 2026 and essentially be cut in half, to about $6 million per individual. In the Commonwealth of Massachusetts, the current estate tax exemption is $1 million for individuals and is taxed at dollar $1.00. A proposal to raise it to $3 Million and the tax to start at $3 Million (not at $1.00) has been submitted in the legislature but has not yet been voted on or enacted. One way to make up for any estate tax your estate may have to pay is by setting up an irrevocable life insurance trust [ILIT]and funding it with a policy that has a death benefit that would pay your heirs some or all of the amount your estate will be taxed. If you purchased such a life insurance policy directly, it could end up being taxed as part of your estate. But if a trust owned the policy, it could pass outside your estate. While a life insurance trust can be highly beneficial, it is also complicated to set up and maintain properly. The following are some of the requirements: Trustee . If you are setting up the trust, you cannot also serve as a trustee. If you are the trustee, you have control of the trust, which could lead to the trust being included in your estate. You will need to name another trusted person or financial institution to act as trustee. Policy ownership . The trust must own the life insurance policy. If you transfer an existing policy to the trust and die within three years, the policy will still be considered a part of your estate. To avoid this risk, the trust can purchase a policy directly rather than receive an existing policy. Premiums . You need to transfer funds to the trust to pay the policy premiums, which creates an issue with gift taxes. A transfer to a trust is usually not subject to the $15,000 yearly gift tax exclusion. For a gift to qualify for the exclusion, the recipient must have a "present interest" in the money. Because a promise to give someone money later does not count as a present interest, most gifts to trusts aren't excluded from the gift tax. To avoid this, you can use something called a “Crummey” power which gives beneficiaries the right to withdraw the funds transferred to the trust for up to 30 days. As part of the process, the trustee needs to send them a letter, known as a Crummey letter, letting them know about the trust funding and their right to withdraw the funds. After the 30 days have passed, the trustee can use the funds to pay the annual insurance premium. You run the risk of the beneficiaries withdrawing the funds, but if they know that by allowing the money to stay in the trust they will receive more money later, it shouldn’t be a problem. Beneficiaries . The beneficiary of the life insurance policy is usually the trust. Once the funds are deposited in the trust, the trustee can distribute the assets to the beneficiaries in the way specified by the trust. For example, if your beneficiaries are minors, you can wait to have the trustee distribute the assets. Keeping the assets in the trust will also protect them from your beneficiaries’ creditors. The downside of an irrevocable life insurance trust is that you do not have the ability to change it once it is set up, although the policy would effectively be canceled if you stopped paying the premiums. If you are considering this type of trust, discuss it with your attorney.
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