Q. I am thinking about giving my home to my son now, so that probate can be avoided and my
affairs simplified when my time comes. Any comment as to whether this plan makes sense?

A. Caution: Transferring your home to your son by gift during your lifetime can have adverse
tax consequences. Example: assume that you purchased your home many years ago for
$100,000, and suppose it is worth $,650,000 today. If you give it your son during your lifetime,
he “steps into your shoes” and the IRS will treat the home as if your son had acquired it for
$100,000. This is called “carry over basis”. If he then sells the home for $650,000, he will be
obliged to recognize the $550,000 difference ($650K – $100K) as capital gain and pay tax
accordingly. This could result in a whopping tax bill for him and actually lessen the net value of
your gift.

True, there would be some relief from this tax situation if your son moved into the home and
lived in it for at least 2 years before sale. In that event, he would be entitled to exclude a part of
the capital gain, i.e. $250,000 if he is single and up to $500,000 if he is married. However, this 2
year residential requirement is often impractical if your son already owns a home, or plans to sell
it sooner than 2 years, or prefers to treat it as a rental.

By comparison, if you hold the home until your death and pass it to your son as an inheritance,
this tax problem can be avoided. The IRS will then treat the home is if your son had acquired it
at its date of death value. In tax parlance, the home’s tax basis would be “stepped up” to its
market value at the date of your death. Example: if it is worth $650,000 at your death and your
child then sells it for $650,000, his capital gain would then be “0” and no tax would be due.
Quite a difference!

In your situation, you may wish to consider a Living Trust, which would accomplish your
objective of avoiding probate while simultaneously obtaining the favored tax treatment which
accompanies transfers upon death. This arrangement would also allow you to retain home
ownership in case you later need to obtain a reverse mortgage to help with your future long-term
care expenses.

Sometimes parents who have received long term care benefits from the Medi-Cal program,
consider a gift of their home in order to avoid a Medi-Cal recovery claim after their death.
However, if that is the motivation, there are ways to both avoid a Medi-Cal recovery claim while
still preserving favored tax treatment. If this is a concern, professional guidance from an
attorney knowledgeable in Medi-Cal planning is extremely important.

Q. My wife and I hold title to her home as joint tenants, and most of our cash assets are in the
form of two large IRA accounts and one big annuity. We have basic wills which leave everything
to the other and then on to our children. Our son suggested that our wills may not control what
happens to our assets when one of us dies. Should we be concerned?

A. Perhaps, in the sense that your wills will not control what happens to your assets when one of
you dies. Rather, the form of title will control as to your home, and the beneficiary designations
on your IRA’s and annuity will control what happens to those assets. Here is the way it works:

Your Home: Since you and your wife hold title to your home in joint tenancy, when one of you
dies the other will automatically become the owner by right of survivorship. The right of
survivorship is the primary feature of joint tenancy. In essence, the form of title overrides your
wills. It is only when the survivor later dies that his or her will may control who ultimately gets
the home. While many couples in California do hold their home in joint tenancy, it is often not
the best form of co-ownership. One principal reason: it does not optimize the tax benefits that go
along with holding title as ”community property” if the home has appreciated significantly in
value since the time of purchase.

Your IRA Accounts: Each of your IRA accounts will, upon the death of the IRA owner, go to
the primary beneficiary named in the account agreement signed when you created your IRAs.
Presumably, the primary beneficiary for each of you is the other spouse and, if deceased, your
children. However, the pattern of distribution very much depends upon who you designated as
primary and contingent beneficiaries when you created your accounts. It is always wise to review
these designations and retain in your permanent file a copy of the documentation you signed
when you created your accounts. As a lawyer, I have been involved in at least one case where the
IRA custodian lost the paperwork on a very large IRA account, almost costing the designated
beneficiary a six-figure tax bill because of the resulting delay in distribution. The IRS has strict
rules about handling inherited IRA accounts, and these must be observed on a timely basis to
avoid unnecessary tax.

Your Annuity: the person or persons to receive your annuity would, just like the IRA, depend
upon who was named as the beneficiaries on the annuity contract, itself. The same would be true
if you owned any other insurance products or policies. Where you have designated named
individuals to be primary or contingent beneficiaries, the contract or policy controls and not your
will.

In view of the above, whenever clients come in to see us for estate planning, we always urge a
review of all beneficiary designations associated with IRA and other retirement accounts, as well
as annuities and other insurance products. Where appropriate, the beneficiary designations can
then be modified, so that the plan design accomplishes the clients’ goals and everything works
together. In many cases, the clients choose to name their Living Trust as the contingent
beneficiary of these contracts and policies, so that the plan of distribution integrates with the plan created in their trust.

Q. My 86-year-old mother is in a nursing home and receives a Medi-Cal subsidy. We just learned that her brother died and left her $200,000 in his trust. Will the receipt of this inheritance bounce mom off of Medi-Cal? Is there anything we can do?
A. The answer to your first question is easy: yes, the receipt of that inheritance will put her over the resource ceiling and result in the termination of her Medi-Cal nursing home subsidy. If she is unmarried, that resource ceiling is a very modest $2,000.
As your second question, there may be things you can do. Here are some options:
1) Purchase A Prepaid Funeral Plan. If she has not already made her final arrangements, she can purchase a prepaid funeral contract or fund an irrevocable burial trust for herself and other members of her immediate family. Most mortuaries have forms available. Those funds will then be considered exempt and will not count toward her resource ceiling.2) Pay Debts and Expenses: If Mom has any outstanding debts or expenses, she can pay them. Be sure to pay by check and retain full documentation.
3) Reform Brother’s Trust? In some cases, it may be possible to reform her brother’s trust by court order during trust administration, so that the bequest would bypass your mother and, instead, go into a Special Needs Trust (“SNT”) for her benefit. The SNT would then be managed by a trustee, which could be a family member or a professional trustee appointed by the court. If properly set up and administered, the funds distributed to the SNT would then not count against her $2,000 Medi-Cal resource ceiling. Instead, they could be used to pay for things that Medi-Cal does not cover, such as a companion to spend time with her or even to supplement healthcare expenses not paid by Medi-Cal.
In some cases reformation might even be possible without court involvement under a new out-of-court procedure called “Decanting”.
4) Join Pooled SNT: If it is not possible to reform her brother’s trust, consider joining a pooled SNT. These are SNT’s set up and managed by nonprofit organizations, whereby all of the funds are invested and professionally managed as a group, but separate accounts are maintained for each individual beneficiary. Distributions from the pooled SNT could likewise be used to pay for things that Medi-Cal does not cover. The drawback is that funds remaining in the pooled account after Mom’s death must first be used to reimburse the state to the extent of Medi-Cal benefits paid out for her, and the excess, if any, may remain in the fund for its ongoing nonprofit purposes.
5) Gifts? If mom has full capacity to consent to gifts, or if she has in place a Durable Power Of Attorney which has adequate gifting powers (most do not), consideration might be given to a very carefully designed plan of divestment in favor of children or other family members. CAUTION: gifts are frowned upon by Medi-Cal, and any gifting plan should be designed and supervised by an Elder Law attorney with special expertise in this area. If gifts are not handled properly, they may result in the termination of Mom’s Medi-Cal benefits.
As to all of the options, timing is very important, and it is usually necessary to design the plan before the inheritance is actually received so that it can be fully implemented in the month of receipt. To avoid running afoul of the Medi-Cal rules, obtaining expert advice is essential.

Q. I hear that Medicare has developed an “App” to help beneficiaries determine what benefits may be covered. Do you have any information on this?

A. Yes. Recently, as part of its initiative focused on modernizing Medicare and empowering beneficiaries, the Center for Medicare and Medicaid Services (“CMS”) has developed and launched a new “App” (short for “Application”).  The App is free and can be easily downloaded onto your smart phone or computer from the Medicare.gov website, or from the Apple App Store or Google Play.

On the App, you can search for what’s covered and what’s not covered under Medicare Parts “A” and “B”, how and when to get covered benefits, and obtain basic cost information and other eligibility details.  It can be especially helpful when, say, you are at the doctor’s office and need to determine whether a recommended procedure is covered. Just take out your smart phone and use the App. The information is right in your pocket!

However, the App does not give results for extra benefits that Medicare Advantage plans may cover but that Original Medicare does not. Also, it does not ask details about your specific insurance, so the App does not take into account the user’s supplemental insurance, co-insurance and deductibles.  Essentially, it provides a way that you can carry in your pocket the same information otherwise available online and in the Medicare Handbook available at Medicare.gov.

Examples of the types of questions the App can answer include:

  • When are mammograms covered?
  • Is home health care covered?
  • Will Medicare pay for diabetes supplies?
  • Can I get a regular cervical cancer screening?
  • Will my Medicare benefits cover a service to help me stop smoking?

To get the new “What’s Covered” app, go to www.Medicare.gov and click on the link on the home page which says “Learn About our new App”.

The App is part of an initiative by CMS focused on modernizing Medicare and empowering beneficiaries. Other initiatives include:

  • Enhanced interactive online decision supportto help beneficiaries better understand and evaluate the coverage options and costs of original Medicare compared to Medicare Advantage plans.
  • New price transparency tools that let consumers compare the national average costs of certain procedures between settings, so people can see what they will pay for procedures done in a hospital outpatient department versus an ambulatory surgical center.
  • A new webchat option in the Medicare Plan Finder.
  • New easy-to-use surveys across Medicare.gov so consumers can tell CMS what they want.

Have fun next time you’re at your doctor’s office and help spread the word to your doctor’s staff and other patients.

Q. As a part of our “bucket list”, my wife and I have decided to purchase cemetery plots for each of us in advance of need. But in doing our inquiries to cemeteries, we were quite surprised by the prices of these plots. We heard that that there may be a way to purchase plots in the cemetery of our choice at a “wholesale” price. Do you know anything about that?

A. Yes. I believe you refer to purchasing cemetery plots in the secondary market, such as through independent “cemetery brokers”. These folks are independent dealers who assist individuals to re-sell their previously purchased cemetery plots when they no longer intend to use them, whether because of relocations, divorces, or changed burial preferences.

These independent brokers are licensed by the State of California as Cemetery Brokers, under the Department of Consumer Affairs, Cemetery & Funeral Bureau. They are not employees of the cemeteries, but work closely with them to assist individuals re-sell their unwanted plots. They fill a very important need as the cemeteries, themselves, often will not re-purchase previously sold plots.

These brokers typically have an existing inventory of plots available for resale in most of the existing cemeteries, and you are likely to find they have just what you are looking for, often at prices 40% to 60% less than the prices for which similar plots would sell if sold directly by the cemetery. The brokers’ inventories usually also include other burial options, such as crypts and niches.

By the same token, for those who wish to sell their unwanted plots, contacting an  independent cemetery broker may also be a wise move. However, before listing  plots for sale, sellers should check with the cemetery to make sure they have the legal right to sell their plot and to ask about the fees the cemetery will charge to transfer the burial rights to a new buyer. Also, if the original plots were purchased together with other family members, sellers will need the consent of their co-purchasers before listing the plots for sale.

For more information, try a Google internet search using words such as “Cemetery Plot Brokers”. One example of an independent cemetery broker listing plots in the Bay Area is:  www.LowCostGraves.com. Another, with a national inventory is www.FinalArrangementsNetwork.com.  Consider, also, the offers of sale on sites such as ebay and Craigslist.

For more information, visit the following State of California website maintained by the Department of Consumer Affairs, Cemetery and Funeral Bureau: www.dca.ca.gov.  For any questions, you might call the Bureau directly  at 1-800-574-7870, or email it at: emailcfb@dca.ca.gov.

Q. My husband suffers from dementia and we have significant expenses for care in the home. In order to help with these expenses, I have been thinking about selling our vacation property which we no longer use or cashing in one of his annuities. I would also like to set up a Living Trust and make Wills. The problem is that my husband cannot sign the necessary legal documents.  Unfortunately, he does not have a Durable Power of Attorney which would allow me to sign for him.  Is there some way to overcome this problem?

A. Yes. There is a legal procedure whereby you can petition the superior court to make an order that takes the place of your husband’s signature. It is called a Substituted Judgment and  involves petitioning the court for an order that, in essence, asks the court to substitute its own judgment for your husband’s. The resulting court order would then usually be accepted in lieu of your husband’s signature by title companies, banks, insurers and others.  It could also authorize the creation of estate planning documents for both of you.  This could be a perfect solution to your problem.  For a married person, a formal conservatorship is not required to invoke this procedure.

Upon your petition, the court will assess your husband’s situation to determine whether the proposed order seems reasonable under the circumstances and whether, if granted, your husband’s interests will be protected and his needs for ongoing support and care met.  If the court is satisfied, an order will then usually be made in accordance with the petition.  Often, the court’s decision is based upon your written petition and the written report of the court-appointed Guardian, and is frequently made without a formal hearing.  Once granted, you would then be free to engage in the  transactions that you propose.

This procedure is designed to provide the necessary consent for a particular transaction or series of transactions which involve, primarily, community property, but may also include your husband’s separate property if the court finds “good cause”.   However, the procedure has even broader application and can also be used to help you handle other legal matters for him, such as the following: creating, modifying or revoking a “Living Trust”, making a will, making gifts, selling real property, arranging a loan, exercising options under life insurance, annuity policies or retirement plans, and for other purposes.  In our practice, we have used the Substituted Judgment procedure very effectively to assist with asset preservation strategies and Medi-Cal planning for long-term care.

By the way, the Substituted Judgment procedure is also available to unmarried individuals, albeit in the context of a full-blown conservatorship, which typically requires ongoing court management and associated legal proceedings for the remainder of the incapacitated person’s lifetime.  By contrast, for a married couple, the procedure is much more streamlined and the court’s powers are invoked by a petition which usually is resolved in one court hearing.

As you imply, had your husband previously signed a Durable Power of Attorney (“DPOA”) with adequate powers when he had full mental capacity to do so, his DPOA might then have been used to achieve many of your goals (except that a DPOA cannot be used to make a Will).  However, in situations such as yours, the Substituted Judgment procedure can be a very powerful tool to overcome legal impediments associated with incapacity.

Q.  Do you mind if I ask how you got started working with seniors and doing the kind of long-term care estate planning that you do?

A.  Not at all. In a word, I owe it all to my grandmother.

After my grandfather died in the 1960s, my grandmother, Lena Ponsky, became the head of our family in spiritual and religious matters, and I suppose we always thought that she would assume that role forever.

Just to provide a bit of background: my grandmother had always been a very strong and independent woman, always undertaking leadership positions in her volunteer organizations and charitable work.  Although she did not drive, she would walk or take the bus all over the East Bay to run errands and go to meetings, and I recall her doing so well into her 80’s. How independent was she? Well, on one occasion she needed to have a number of teeth extracted. Rather than calling any of her adult children or grandchildren for help going to and from the dentist, she said nothing to anyone and took herself back and forth to the dentist’s office by bus, holding a cold compress to her jaw all the way back home. In fact, we only learned of her visit to the dentist later that evening when she telephoned to chat about the events of the day.

However, as she approached 90 years of age, we noticed signs that she needed assistance. It appeared that she was not getting adequate nutrition, was not leaving her apartment very often, and it seemed that her eyesight was failing. To address these concerns, we ultimately found other living arrangements for her, including assisted living and later skilled nursing care. As we began to deal with her care, we found that we had many questions, not just about providing for her needs, but also about how to deal with her finances, pay for the cost of care, protect her estate and many others. However, we found the answers very difficult to come by, as very few people had the information that we needed. Indeed, we had to search far and wide for limited information.

Suddenly, a kind of light bulb flashed in my mind! And here’s what it was:

Until then, I – along with my attorney colleagues – had practiced traditional estate planning, centered on what I call “death planning.”, i.e. planning designed to pass on one’s assets to heirs and beneficiaries at death.  However, I had long felt that there was something missing from this approach, but in my early years as an attorney I could not quite put my finger on it.

Suddenly, while working to help my Grandmother, I realized what was missing. My grandmother’s circumstances essentially showed me a different way of thinking about seniors and elders in declining health. The question for them was not “What happens when I die?” but rather “What happens if I don’t die, but live on and need long-term care?”

And, right then and there, my current focus in Elder Law was born. As a result of that flash of insight inspired by my Grandmother, I have been serving the planning needs of seniors and those who love them by focusing on the legal and financial challenges of longevity, including the ever-present question of how to pay for the cost of long-term care.

And now you know the “back story”.

About Gene Osofsky

Q.  We have a dear, elderly neighbor who lives on SSI and, to my surprise, I learned that she is not eligible for food stamps. However, I hear that a new law was passed that will soon make her, as well as other persons on SSI, newly eligible for food stamps. Is that so?

A. Indeed it is! To the surprise of many, California residents on SSI have traditionally not been eligible for food stamps. The reason is buried in prior state legislative history going back to 1974. But the good news is that, under newly passed Assembly Bill 1811, Californians on SSI will soon now be eligible.

Under AB 1811, and beginning in the Summer of 2019, persons receiving SSI will be newly eligible for Cal Fresh, the California nutrition program, formally known as “Food Stamps”.  While the new law will mostly increase the numbers of persons eligible for food stamps, there will be some households that may be negatively affected by the change, principally those with both SSI eligible and non-SSI eligible persons sharing meals and food purchases in the same household. However, even as to them, those “mixed” households can still apply for enhanced nutrition benefits under supplemental food programs, all designed to increase access by all households to good nutrition.

The new law kicks in as of June, 2019, but persons who may be eligible to have their Cal Fresh re-evaluated are urged to contact their County eligibility worker now. Here are some contact points: (1) on the web, click on “GetCalFresh.org”, (2) by phone, call the Cal Fresh Benefits Helpline at 1-877-847-3663; or (3) personally visit your County Department of Social Services and apply.

Thanks for being the good neighbor and I hope this information helps your friend.

*************************************

References for more readingAB1811 and Scroll to Item # 10;   CalFreshFood.org; another resource: Expanding Cal Fresh to SSI/SSP Recipients;  Still more in “Justice in Aging” Fact Sheet.   Legislative Analysts’ study, including a short explanation entitled “What is the SSI Cash-Out” by Legislative Analyst’s Office.  See pages 4–5 for the history.

Q. Our father is 90 years old and is being cared for in a nursing home, which costs about $10,500 per month. We need to apply for a Medi-Cal subsidy to help with the cost, but Dad has an old insurance policy with accumulated cash value which puts him over the $2,000 Medi-Cal resource ceiling for a single person.  Our Problem:  Dad has severe dementia, can’t access the policy cash value on his own, and we don’t have authority to do it for him, as Dad never signed a Durable Power of Attorney. Further, the insurance company won’t even talk to us. Is there any way around this in terms of Medi-Cal?

A. Yes, indeed! It’s unfortunate that your father never created a Durable Power of Attorney (“DPOA”) which would now authorize you to access that policy on his behalf. But, so be it. The good news is that Medi-Cal recognizes that these situations happen and provides a solution. However, some background:

It is generally known that Medi-Cal allocates an applicant’s assets (which Medi-Cal calls “resources”) into two categories:  Those that are EXEMPT (such as a home, furniture, and one automobile) and those that are COUNTABLE (such as cash, savings, and investments).  Cash value in an insurance policy would normally be allocated to “countable” assets. And, you are correct, in that a single person over age 65 cannot have more than $2,000 in countable resources and qualify for a Medi-Cal Long Term Care (“Medi-Cal LTC”) subsidy.

However, what is not well known is that there is actually a third category of resources, i.e. resources that are UNAVAILABLE.  Resources are unavailable when they cannot be accessed, such as when (1) there is a dispute pertaining to their ownership, (2) where there are various co-owners who object to sale or liquidation, and—apropos to your own situation – (3) where the owner is comatose or suffers from dementia, cannot access them himself and there is no DPOA which authorizes an agent to do so on his behalf. Your situation would fall into the last example and be considered unavailable when tallying up your father’s countable resources when seeking a Medi-Cal LTC subsidy.

Here’s the good news:  So long as an applicant’s resources are unavailable, they are treated the same as resources that are exempt, i.e. they do not count when determining whether an applicant is under or over the Medi-Cal resource cap.  That is precisely your situation. Thus, the insurance policy cash value should not disqualify your father from a Medi-Cal LTC subsidy.

My suggestion is that you secure a doctor’s letter attesting to your father’s incapacity and corresponding inability to handle his financial affairs. Then, when you submit his application for a Medi-Cal LTC subsidy, include that doctor’s letter with the other required documents, advise that your father never created a DPOA which would authorize an agent to handle his financial affairs on his behalf, and assert that the insurance policy cash value should therefore be considered “unavailable”.  Some Medi-Cal eligibility workers may be unfamiliar with this concept, and so you might do well to engage an Elder Law attorney with experience in these matters to help you.

The upside benefit of securing a Medi-Cal LTC subsidy can be quite dramatic.  By helping you pay for your father’s care, the subsidy can help relieve what would otherwise be tremendous financial stress upon your family. Good wishes in your effort.

Q. I am in my late 80’s and am updating my estate plan. I find I have an important decision to make:  in my Power of Attorney (“POA”) and my Trust, if I ever lose mental capacity should I require the opinion of two doctors, or just one, to certify my incapacity before duties transfer to my Agent or Successor Trustee? Requiring two doctors to sign off would seem to give me greater protection against a “wrong call” by only one. What do you think?

A. That is really an excellent question and my compliments for giving it special thought.

A bit of background:  The most common choice in these matters is to require that two (2) physicians must render an opinion on mental incapacity before responsibility shifts to one’s designated successor.  This approach may make sense for younger individuals, who might reasonably believe that requiring two medical opinions will protect against a “wrong call” by a single physician. Hence, the “two doctor” requirement is typically the default approach in most estate plans.

However, for older persons, or those who – in the future – may need care in a facility, this two-doctor requirement could pose a big problem for one’s family, probably at a time of stress, and may actually make managing one’s financial affairs much more difficult.  Here’s why:

When and if incapacity becomes an issue, it is likely that you, the principal, will then be residing in a care facility, such as a nursing home.  In the nursing home and in some other care facilities, typically only one physician covers the entire facility, visits each patient at a prescribed interval, and directs his or her care. In those situations, it is very difficult to arrange for a visit by a second physician, as there is typically no second doctor who also makes those rounds.

Thus, to comply with a “two doctor requirement” in one’s POA or Trust, your family would need to search for a physician outside the facility who makes “house calls” to nursing home patients, and who is willing to assess you for legal capacity and write an opinion letter based upon that assessment.  It would also be an expense that would not likely be covered by private insurance, Medicare or Medi-Cal. This process can be very difficult for one’s family, especially at a time of stress, and can actually impede the prompt and smooth transfer of responsibility for financial affairs to one’s designated successors.

For these reasons, in our practice we consistently recommend that our clients only require the opinion of only one (1) physician to establish their incapacity. By doing so, we believe that we make the process easier down the road for the client’s family, help to smooth transition to his or her designated successors, and thereby help ensure uninterrupted management of our client’s financial affairs.

In this regard, we typically provide in our legal documents that the client’s incapacity, if it ever occurs, is to be “established by the opinion of one (1) physician, licensed in the state in which the principal then resides, who has examined the principal, and who renders an opinion in writing that the principal is incapable managing his or her own financial affairs.”

You may wish to discuss this matter with your family and with your attorney and consider using the “one (1) physician” requirement for the reasons discussed.