More estate planners are looking at the whole picture; they are looking for tools and methods to meet these larger concerns. This outline will focus upon not only the traditional estate planning topics related to death and taxes, but also upon the next generation of estate planning issues.

II. ETHICAL WILLS

An ethical will is a short document, often in the form of a letter, that expresses someone’s important values. Often people who survive a relative have unanswered questions about how that person developed into who they are and what experiences formed their personality.

The ethical will is one way to express how someone wishes to be remembered after death. It can be used to thank or honor those who have influenced him or her in life. A person can define what he or she considers to be success, preserve family stories, identify favorite inspirational or scripture passages, ask forgiveness or forgive others, express gratitude and express love to the people close to him or her.

The ethical will is not a legal document. Instead, it is a supplement to your estate planning documents. It will be shared with your loved ones when you die. Often it serves to explain why you made certain choices regarding the distribution of your estate. This can be problematical, however, because sometimes the ultimate distribution does not turn out as planned. Also circumstances change.

Someone creating an ethical will can say whatever he or she likes. There is no official format for an ethical will. This is an opportunity to express values and feelings to survivors.

III. LAST WILLS AND TESTAMENTS

A. WILL DEFINED

A Will is a signed, written document that describes how to divide an individual’s estate after death. In Oregon, anyone of at least 18 years of age can make a Will. The maker of a Will must follow certain important formalities for the Will to be valid.

B. ADVANTAGES TO HAVING A WILL

1.      Decide who is in Charge. A Will allows a person to appoint a personal representative. This person or financial institution will gather the assets and distribute them according to the instructions.


2.       Save Money. In a properly drafted and signed Will, the personal representative can be excused from posting a bond, thereby reducing estate expense. Often the expense of a bond exceeds the cost of a Will.


3.       Care for Minor Children. In a Will, a person can name a guardian to care for minor children in the event of the death of both parents.


4.  Provide for Dependents. A Trust can be set up in a Will for the benefit of minor children or other relatives unable to manage their financial affairs. A trustee can be named to be responsible for making financial decisions, as well as, determine when the Trust should end.


5.       Plan for Estate Tax. Married couples with estates in excess of $1,500,000 (in 2004) can include a Trust to minimize or eliminate estate and gift tax. The value of an estate includes most life insurance.

C. WHAT HAPPENS WITHOUT A WILL

If a person dies without a valid Will or Revocable Living Trust, the court distributes the property to relatives by following a strict formula called “intestate succession,” set out in Oregon law.

It is critical that proper formalities be followed. A handwritten Will that does not meet the formal requirements is not valid if made in Oregon.

G. WILL REVIEW

It is important to have an attorney review a Will every three to five years, if there is a tax law changed, or if there is a change in life such as the birth of a child, marriage, divorce, or a significant change in assets. It is especially important to have a Will reviewed if a person marries or divorce because a Will is automatically revoked by a subsequent marriage and partially revoked by a divorce. In addition, it may be important to update the Power of Attorney or Advance Directive.

IV. Probate Administration UPON DEATH

A. PROBATE DEFINED

Probate is the court process to determine who receives assets owned by someone who has died. The court appoints a personal representative (or executor) to take charge of the estate, pay all debts and taxes and, ultimately, distribute the remaining assets to the heirs.

B. SITUATIONS REQUIRING PROBATE

Some situations requiring probate include:

If the deceased person owned real property in another state, a second probate action may also be needed in that state.

C. SITUATIONS NOT REQUIRING PROBATE

Situations that may not require a probate include:

D. THE PROBATE PROCESS

Step 1: With or Without a Will. The process begins when the person named in a Will as personal representative (sometimes called an “executor”) files papers in the local probate court. This person must prove that the Will is valid. In Oregon, a valid Will requires two witnesses to testify that the person who created the Will was of sound mind and knew what he or she was doing. These witnesses must sign the Will in the presence of each other at the time the Will is created. The personal representative usually provides the court with proof of these requirements in an affidavit signed by at least one of the witnesses.

If there is no Will or if the person named in the Will cannot serve as personal representative of the estate, the court will appoint someone, usually the spouse, an adult child, or a close relative. Probate without at Will is called intestate succession.

Step 2: Inventory and Accounting for Assets. The personal representative must provide a list of all of the deceased person’s assets to the court, and to everyone named in the Will. During the probate, the personal representative may sell assets to pay expenses, depending on the instructions in the Will and the amount of debts. The personal representative must account for all expenses and receipts during the probate process. This accounting must be provided to the court and to all people and entities named in the Will.

Step 3: Creditors of the Estate. The personal representative must actively search for possible creditors of the deceased person. The estate must also publish a notice to creditors in a local newspaper. This process alerts creditors that they have four months in which to make a claim for any debts the deceased person may owe. Finally, the personal representative must provide written notice to all known and possible creditors of the estate.

Step 4: Distribution. The personal representative can request court approval to distribute estate assets after: (1) securing all assets; (2) paying all debts, taxes, and expenses; and, (3) the four-month creditor period expires.

E. LENGTH OF PROBATE

From start to finish, a person can expect probate to take six months to one year. They can begin probate immediately after a person dies. Probate can take longer if real property must be sold, or if complex tax issues exist.

F. PROBATE EXPENSES

Expenses associated with probate include the court’s filing fee, a fee for the personal representative, publication of legal notices, tax-preparer fees, and attorney fees. The personal representative’s fee is a set percentage of the estate’s value, based on Oregon law. Tax-preparer fees and attorney fees will vary, depending on the size, complexity, and number of heirs of the estate. Sometimes estates will also have appraisal fees and/or insurance premiums for real or personal property, as well as postage and/or shipping costs.

Attorney fees must be approved by the court before they can be paid. The range of attorney fees can vary greatly depending on the case. The attorney for the personal representative submits a detailed description of all attorney and staff time to the court. The court reviews the attorney’s documents and gives the personal representative permission to pay its attorney.

G. SMALL ESTATES

An estate may qualify for a “small estate” proceeding IF:

V. REVOCABLE LIVING TRUSTS

A. REVOCABLE LIVING TRUST DEFINED

A Revocable Living Trust is an estate planning document that allows assets to be managed and distributed in the manner desired, both during lifetime and upon death. It is referred to as a "living" Trust because it is established during lifetime and, in most cases, goes into effect immediately. It is a "revocable" Trust because it is free to be revoked or amended at any time as circumstances change.

B. MANAGEMENT OF REVOCABLE LIVING TRUST WHILE TRUSTOR ABLE TO MANAGE FINANCES

A Revocable Living Trust is created during a person’s lifetime, and the assets are placed in the Trust while he or she is alive. The person making the Trust (“trustor”) can name himself or herself as trustee. This means that he or she can manage the income and assets much the same as always, and file individual tax returns like before. The trustor can revoke or amend the Trust at any time, and can entirely determine the terms of the Trust.

If the trustor wants help in managing the estate now, even though he or she still has mental capacity, the Trust document allows the trustor to name a trustee or co-trustee to handle the Trust. Further, he or she has an opportunity to appoint someone to serve as trustee or co-trustee and then see if he or she handles things responsibly and according to the trustor’s wishes. If the trustor is dissatisfied with the way the trustee or co-trustee handles the Trust, the trustor can take over as trustee, name a new trustee, modify the powers given to the trustee, or revoke the Trust altogether.

C. MANAGEMENT OF TRUST WHEN TRUSTOR BECOMES INCAPACITATED

In the Revocable Living Trust, a person can specify under what circumstances a successor trustee takes over management of the Trust. This is usually when the trustor becomes incapacitated. He or she can spell out in the Trust how incapacity must be established. Typically, a determination of incapacity requires one or two letters from a physician. Once incapacity is established, the successor trustee, who has been named in the Trust, can take over management of the assets.

A Revocable Living Trust avoids the need for a court order establishing a conservatorship if at some time in the future the trustor becomes unable to manage his or her own financial affairs, either temporarily or permanently. While naming an agent in a Power of Attorney for Finances can often accomplish this, Powers of Attorney are not as reliably recognized by financial institutions.

D. QUALITY OF LIFE PROVISIONS IN REVOCABLE LIVING TRUST

A Revocable Living Trust is flexible and can be tailored to an individual’s specific needs, desires, and financial resources. Recently, we are seeing an evolution in the drafting of Revocable Living Trusts. The primary purpose of the Trust is no longer simply probate avoidance. Now, more focus is being placed upon the beneficiary’s "quality of life." One alternative is to draft, as part of a good living Trust, language that provides direction and assurance that the trustee will use Trust funds to promote the highest quality of life.

Specific instructions about care and comfort are particularly important when the successor trustee is an institution (bank or Trust company), or when a family member is very busy or geographically remote. It is important that the Trust is clear that the needs of the lifetime beneficiary take precedence over any remainder beneficiaries. Examples of provisions that can be included are the following:

Examples:

E. INCORPORATING PERSONAL VALUES IN REVOCABLE LIVING TRUST

The flexibility afforded by a Revocable Living Trust allows the trustor to tailor make a trust that incorporates his or her personal values. This may be as simple as making sure that charitable contributions are continued. However, the trustor can go much further, and incorporate detailed instructions about distributions to charitable or political organizations. In addition, the trust can specify a process for children to be involved in deciding which organizations should receive distributions.

In addition, many people are careful about how they invest their assets, to insure that they do not invest in companies with products or practices they do not support. For example, some people feel strongly they do not want their money invested in tobacco companies. However, once a fiduciary takes over due to death or incapacity, the fiduciary will not be bound by the same values unless those values are incorporated into a trust.

Example: I request my Trustee to administer this trust and make distributions of trust income and principal in the spirit and within the principles expressed in this Trust Agreement and otherwise known to be consistent with my philosophy. My trustee shall invest trust assets in investments that are socially responsible. For purposes of this trust a socially responsible investment is one made in an asset or company with the following attributes:

a. Environment. Complies with all applicable environmental laws and regulations and maintains an at least average record in pollution control and waste management. Preference shall be given to investments in assets or companies that help sustain or enhance the environment.

b. Products. Produces safe and useful products and services. Preference shall be given to investments in assets or companies that enhance the quality of life for consumers.

c. Workplace. Provide safe, healthy and non-discriminatory work environments and promote healthy development of all employees. Preference shall be given to investments in assets or companies that are innovative with respect to employee ownership or participation in management, actively hire and promote people of color and women, compensate their workers fairly, and provide equal opportunity without regard to race, religion, gender, sexual orientation, or disability.

d. Human Rights. Conduct corporate activities in a responsible fashion both domestically and abroad with regard to human rights. Investment shall not be made in companies that support countries that have records of political repression and violate basic human rights.

F. INCORPORATING FLEXIBILITY

Often it is critical to include additional provisions to allow for future flexibility, particularly if the Trust is a joint Trust between spouses or partners. Examples are the following:

1.       Exercise Reserved Powers. Often the terms of a joint Trust will allow the Trust to be amended only by both trustors. The option of allowing one trustor to exercise reserved powers should be discussed. Further, the trustor should consider whether an agent in a power of attorney for finances should be given the authority to exercise certain powers reserved in the Trust for an incapacitated person.

2.       Flexibility for Purposes of Medicaid Planning. The standard Revocable Living Trust specifies that if a trustor becomes incapacitated, that the trustee will provide for the trustor’s needs. However, in some instances this traps the trustor into a situation in which Medicaid planning is not allowed. For example, if one spouse is incapacitated, then a Medicaid plan might involve transfer of the couple’s assets to the name of one spouse. A client who anticipates a possible future need for Medicaid should consider not doing a Revocable Living Trust, or, if a Trust is created, to incorporate flexible provisions allowing withdrawal in the event of planning. The power of attorney should also be carefully crafted in this situation.

3.       Successor Trustee Provisions. The trusteeship is a critical role, but the successor trustee provisions are often not given much thought. The trustors in a joint Trust may want to consider giving authority to one trustor to change the successor trustees, or to give successor trustees the ability to name a new trustee or successor trustee. In some cases it is appropriate to give the beneficiaries the ability to name a new trustee, but the trustee should be cautious about giving unfettered authority.

G. TRUST ADMINISTRATION AT DEATH

A successor trustee will have the authority to take over management of the Trust and follow the instructions as spelled out in the Trust. Assets that are owned by the Trust will avoid probate entirely, which, in turn, can avoid significant costs and delays at death. People with real property in more than one state can avoid multiple probates with the use of a Trust.

Another advantage of a Trust is that the financial affairs are kept completely private. A Trust eliminates the need for a court proceeding, and other than tax returns, there is no public record.

H. ANCILLARY DOCUMENTS

In addition to the Revocable Living Trust, a person will need a Pourover Will and Powers of Attorney for Finances. Also, typically the attorney who assists them will prepare deeds to transfer real property to the Trust and provide an Advance Directive for Health Care.

I. NAMING SUCCESSOR TRUSTEES

A successor trustee should be someone who is trustworthy, responsible with investments, good with paperwork, and preferably a good communicator. This can be an adult child, other relative, friend, or professional fiduciary.

J. DISADVANTAGES OF A REVOCABLE LIVING TRUST

A Revocable Living Trust is not necessary in every case. It typically costs $800 to $1,200 more for a Trust package than a comparable Will package. It may not be necessary to incur this additional cost for people who are younger, healthy, and do not have a large estate. However, some people in these circumstances still choose a Trust because they want to make things easier for their families in the event of an untimely death. Also, the Revocable Living Trust allows people to incorporate provisions regarding values and desires.

There is more paperwork involved in finalizing a Revocable Living Trust than a Will because title to most of the assets is transferred into the Trust. Some people find this cumbersome and confusing.

In short, a Revocable Living Trust, while often very helpful and cost-effective, is not always necessary. An experienced attorney can help decide if it meets a person’s individual needs.

K. REVOCABLE LIVING TRUSTS AND TAXES

Assets in a Revocable Living Trust are still treated as assets of the trustor, the same as they were when held in the trustor’s individual name. However, spouses with large estates can incorporate a tax savings plan into their Revocable Living Trust to eliminate or minimize estate taxes. A tax savings plan can also be incorporated into Wills, but in most cases, this ultimately requires a probate when each spouse dies. Therefore, use of a Joint Revocable Living Trust or separate Revocable Living Trusts for each spouse will avoid two probates instead of one.

VI. TRUST Administration UPON DEATH

A. MANAGEMENT OF TRUST AFTER DEATH

At time of death, the successor trustee manages the Trust assets according to a person’s specific instructions in the Trust. The successor trustee has the same kinds of duties that an executor would have in probating a Will. He or she pays all of the remaining debts, including any taxes, and then distributes the remaining assets to the beneficiaries. Distributing from the Trust does not require court supervision, and is therefore more simple and private than probate. Often the trustee can use certified copies of the Death Certificate and the Trust Agreement to begin managing assets right away, instead of waiting for a court order as required in probate.

If a person owns any assets that are not titled in the name of the Trust when they die or otherwise directed to a beneficiary, a probate may be necessary.

B. CAN CLAIMS BE CUT OFF AGAINST LIVING TRUSTS?

One of the benefits of probating a Will is that it allows claims of creditors to be cut off if they are not presented within the 4-month period beginning on the date that the notice of the probate is published in the newspaper. Beginning in 2001, a trustee of a decedent’s Revocable Living Trust may similarly cut off claims against the Trust assets by following the procedure outlined in
Oregon law.

The procedure is similar to a probate, except that there is no need to file an inventory of assets or a final accounting. In general:

1.      File Petition. The trustee files a petition that provides relevant information about the decedent and the Revocable Living Trust. The cost of the petition is $500 to $1,000.

2.       Publish Notice. The trustee publishes a notice to potential creditors once a week for three weeks in a newspaper of general circulation. The notice provides the name of the decedent, the name and address of the trustee, the date of first publication, and a statement that claims will be barred unless presented within four months of that date.

3.       Mail Notice. The trustee also mails a similar notice directly to any known creditor of the decedent.

4.   Final Affidavit. Once four months has passed, the trustee files an affidavit stating that the above notice requirements were made and that all presented claims have been paid. Simultaneously, the trustee requests that the court close the matter (and therefore bar future claims).

VII. TAX PLANNING
ESTATE AND GIFT TAXATION
AND INHERITANCE TAXES

A. FEDERAL ESTATE TAX THRESHHOLD

The federal estate tax is a tax assessed at a person’s death on the transfer of wealth to their heirs. While the federal estate tax is assessed at a person’s death, there is also a tax on lifetime transfers of wealth called the federal gift tax.

The federal estate tax is charged if the value of the estate is above a certain threshold, often called the applicable exclusion amount. Under the recently revised gift and estate tax laws, the applicable exclusion amount for the year 2004 is $1,500,000. This means that each person can transfer up to $1,500,000 without incurring paying federal estate tax. Under the legislation, the applicable exclusion amount is slated to increase as follows:

     Jan. 1, 2006   $2.0 million
     Jan. 1, 2009   $3.5 million
     Jan. 1, 2010   repeal of the estate tax
     Jan. 1, 2011             $1,000,000

Under current law, the estate tax is scheduled to be repealed for one year, beginning on January 1, 2010. However, the scheduled repeal automatically expires on December 31, 2010, and the estate tax will come back into effect on January 1, 2011. No one knows what will really happen.

B. ASSETS INCLUDABLE IN ESTATE

The federal estate tax is computed on the net worth of the assets in the taxable estate. It is also important to understand that the taxable estate is different than the probate estate. The probate estate only contains assets that are subject to probate, while the taxable estate includes every asset owned, or exercised control over, upon time of death. Thus, assets that are owned outright, as well as assets in a Revocable Living Trust, are included in the taxable estate. Some people are surprised to learn that the following assets are also included in the taxable estate:

C. EFFECT OF A REVOCABLE LIVING TRUST

While a Revocable Living Trust may protect assets from probate, it will NOT shield assets from estate tax unless it includes further tax planning. This planning can also be included in Wills. A person should contact an experienced estate planning attorney who can discuss other techniques to reduce the exposure to estate taxes.

D. OREGON INHERITANCE TAX LAW

The Oregon Inheritance Tax is no longer a “pick-up” tax state and is no longer tied to existing federal law. Tax returns must be filed if the decedent’s gross estate exceeds the Oregon inheritance tax threshold which is now $1 million. Tax will be paid on the amount of the taxable estate in excess of the threshold. The taxable estate is what remains after allowable deductions, such as the marital deduction, charitable deduction, and deductions for debts and expenses.

1.      What kind of estate planning should be done in light of the increasing federal estate tax threshold and the new Oregon inheritance tax?

a.    Review Existing Estate Plans. Married couples should have their plans reviewed. Many existing estate plans for married couples include tax-savings trusts that direct the full federal formula to a bypass trust which may no longer be desired. Language consistent with the new Oregon special marital property election should be considered.

Also, many people have estate plans that were created when the federal estate tax threshold was $600,000 that will require the surviving spouse to create a bypass trust that under current law may be unnecessary and expensive.

b.    Building Flexibility into Estate Planning The passage of the new Oregon inheritance tax and the continuing uncertainty over the future of the federal estate tax have highlighted the importance of building as much flexibility as possible into a client’s estate planning documents. The use of disclaimer planning can allow the clients to delay making the decision about whether to fund the credit shelter Trust until the death of the first spouse to die.

Example: In 1994, when the federal exemption amount was $600,000, Mr. and Mrs. Jones saw an estate planning attorney who recommended a tax savings Trust. At that time, their combined estate was $850,000. The tax savings Trust was designed to hold the federal exemption equivalent and the balance pass to the surviving spouse outright. It is now 2007. Mr. and Mrs. Jones’ estate is $1,000,000 and the federal exemption is $2,000,000.

Under the terms of their current Will, all of Mr. Jones’ assets will have to be diverted to the credit shelter Trust, even though the clients do not have a federal taxable estate. This creates an unnecessary complication for Mrs. Jones.

If instead of standard credit shelter Trust provisions, Mr. and Mrs. Jones had inserted disclaimer planning provisions into their Wills, the surviving spouse would have the flexibility to decide how much, if any, should go to the credit shelter Trust. If the Trust isn’t needed, no money will pass to it.

c.    Gifting. Making gifts to individuals or charities to bring down the size of the estate is a tried and true strategy for minimizing tax.

VIII. TRUSTS FOR CHILDREN

Parents of minor children have special estate planning considerations. Statistically, it is unlikely that a person will die while their children are minors, but it does happen, even though no one likes to consider the possibility. In a Will or Revocable Living Trust a person can establish a Trust for minors that answers all of these questions.

A. SUPPORT FOR THEIR CHILDREN IF ONE OR BOTH PARENTS DIE

A Trust for minors often takes effect after both parents die. The Trust can provide for the support, care, and education of children until they reach a specified age. A Trust will assure that the children benefit from the Trust assets right away, but not have control over them until they are mature enough to handle the responsibility.

A Trust provides flexible control of assets for the benefit of minor children. In the Trust document a person decides how the money will be spent. For example, parents who want to encourage their children to attend college should include provisions for the payment of higher education costs.

Without a Trust for the minor children, the court may have to appoint a conservator to manage assets for minor children. A conservator is restricted by law, must be bonded, and is required to file annual accountings with the probate court. This is an expensive and time-consuming option.

B. NAMING TRUSTEE FOR TRUST FOR THE CHILDREN

A person would select a trustee to manage and control the Trust for the benefit of the children (the beneficiaries). The trustee follows the directions spelled out in the Trust, using the assets for the beneficiaries. The trustee should be someone who is financially responsible and knows the children’s needs. If there isn’t a Trust for minors and a fiduciary is necessary, the court will have to appoint someone without the parent’s guidance.

C. NAMING A GUARDIAN FOR THE MINOR CHILDREN SHOULD BOTH PARENTS DIE

In a Will or Revocable Living Trust parents can also nominate a guardian to care for their minor children if both parents die. A guardian has the power and responsibility of a parent and makes decisions about the children’s upbringing such as schooling, religious training, and medical treatment. The nomination of a guardian does not guarantee that this person will be appointed. However, it lets the court know the maker’s wishes, and Oregon law requires the court to carefully consider the maker’s named preferences.

IX. PLANNING FOR A CHILD WITH A DISABILITY

Parents of an adult or minor child with disabilities need to plan for personal and financial assistance and management for their child.

A. PERSONAL ASSISTANCE

Very severe disability can often result in the inability to make personal and health care decisions. For minor children, these decisions are most often made by their parents. For adult children with disabilities, the parents have often become the court- appointed guardian for the disabled person and can make all the necessary decisions about the person’s care, placement, personal and medical needs.

The important planning issue is “what will happen when the parents die?” Who will become the personal decision-maker (guardian) for the child with disabilities? Ultimately, the decision to appoint a successor guardian (for a minor or an adult child with disabilities) is made by a court. However, the court places great weight in the choice of the deceased parent and guardian. Therefore, it is very important for the parent to make his or her wishes known to the court. The most common method is to include language in the parent’s Will recommending the appointment of the parent’s first choice (and at least one alternate) as successor guardian for the child. (Important Note: This is one reason why Wills are so important for parents with minor or disabled children.

B. TRUSTS FOR PEOPLE WITH DISABILITIES

A person with a severe disability may be unable to manage his or her own financial matters. Financial assistance is often provided by a parent or trusted family member serving as a Power of Attorney or as a court-appointed conservator. If a conservator has been appointed, the parent needs to take steps to let the court know the parent’s wishes regarding the appointment of a successor conservator upon the parent’s death.

Many parents wish to leave an inheritance to their disabled child. We recommend establishing a Trust for the benefit of the child. The two most common Trusts for a disabled child are a discretionary support Trust and a special needs Trust.

Parents of a disabled child can use a special Trust called a Supplemental or Special Needs Trust to manage assets after their deaths. This Trust can ensure that the disabled child will continue to be eligible for government programs. They can also nominate a guardian for their disabled child.

A Trust for a (minor or adult) child with a disability can be established by the parents during their lifetime (living Trust) or it can take effect after both parents die (testamentary Trust). A testamentary Trust would be included as a part of the parent’s own Will or Revocable Living Trust.

The Trust can provide for the support, care, education, and assistance needed by the disabled child for the remainder of his or her lifetime. The parent appoints a trustee who will have the discretion to make (or refuse to make) payments for the benefit of the disabled child. This is commonly called a “discretionary support Trust.” This arrangement will provide for a person who cannot manage his or her own financial affairs, but may not preserve eligibility for public benefits. For this, a Special Needs Trust is needed (see below).

1. Effect Of No Trust. Without a Trust for a child with disabilities, the funds left by the parents could be quickly dissipated or misused by the child. Also, the disabled child might become the victim of undue influence and/or financial abuse. A discretionary support Trust is one of the best methods of preventing financial harm to the child.

Upon the parent’s death, the court may require the appointment of a conservator to manage the assets of the disabled child. A conservator is restricted by law, must be bonded, and is required to file annual accountings with the probate court. This is an expensive and time-consuming option. Again, the Trust may be able to prevent this.

2. Public Benefits And Special Needs Trusts. Often a person with a disability is receiving some form of public assistance and/or benefits. There are several government programs that provide assistance to people with disabilities. This help may take the form of cash, medical assistance, housing, or food.

Some of these programs, such as Supplemental Security Income (SSI) and Medicaid, have financial eligibility requirements. There may be resource requirements that limit the amount of assets a person can own and still be eligible for the program. Similarly, if monthly income is too high, it may affect eligibility for benefits.

A person with a disability who is also receiving public assistance benefits, may require the establishment of a Special Needs Trust both to provide financial management and to ensure that the person will continue to be eligible for government programs. See below for a discussion of Special Needs Trusts.

3. Special Needs Trust Defined. A Special Needs Trust is a planning tool to benefit people who receive government benefits. This type of Trust preserves eligibility for government benefits and establishes a separate fund that can pay for things over and above basic needs that improve the beneficiary’s quality of life.

4. Advantages Of Special Needs Trusts. Often a person with a disability receives public benefits. There are several government programs that provide people with disabilities with help. This help may take the form of cash, medical assistance, housing, or food. Many of these programs, such as Supplemental Security Income (SSI) and Medicaid, have financial eligibility requirements.

Most public benefits programs have a resource requirement that limits the amount of assets a person can own and still be eligible for the program. There are certain assets that do not count, such as a house in which the beneficiary lives and one car. For most programs, the limit for assets that are not excluded is $2,000.

Similarly, if someone has monthly income that is too high, it may affect eligibility for benefits. The income eligibility limits vary among the programs.

With a Special Needs Trust, the assets can be given to the trustee of the Trust, to be used for special needs. In some circumstances, income can be directed to the trustee as well.

5. Special Needs Explained. Special needs include any goods and services that are not food, clothing, or shelter. “Supplemental needs” is another term for special needs.

Special needs include, but are not limited to, the following: transportation, such as car expenses or bus pass; telephone; education; cable television; private rehabilitative services; occupational or physical therapy; private case management; medical services for which there are no other funds available; health insurance premiums; dental care; medication and supplements; psychological support services; companion care; respite care; durable medical equipment; massage; recreation and vacation; entertainment; computer equipment and services; personal care items and services.

6. Food, Clothing, Or Shelter From Special Needs Trust. The most common way for a Trust to be written is to limit expenditures to items that are not food, clothing, and shelter. This strict distribution standard has been proven to work for most, if not all, types of public benefits programs that limit the resources a person may own.

In some situations a more flexible standard, often called the hybrid distribution standard, can be included in the Trust. This allows the trustee to pay for food, clothing, and shelter in certain limited circumstances. If a distribution is made for basic needs there are usually consequences, such as a reduction in government assistance, but in some cases the overall benefit is worth it. The hybrid standard is more flexible than the strict distribution standard but is not always desirable. Be sure to get advice from a knowledgeable attorney before deciding to include this authority in a Special Needs Trust.

7. Management Of A Special Needs Trust. Distributions from a Special Needs Trust are paid at the discretion of the trustee. It is important that the trustee directly pay the person or business providing the special need. The beneficiary is ordinarily not given cash with which to make an allowed purchase. This is because the cash could be used to purchase a prohibited item, such as a meal or item of clothing. Receipt of the cash must be reported to the government agency providing assistance, and benefits may be reduced or eliminated for a period of time. To avoid this, the trustee should pay directly for the item requested.

8. Naming The Trustee. A trustee can be a private person, such as a relative of the beneficiary. Alternatively, a professional trustee can be named, such as a financial institution or small business that offers fiduciary services in the local community. In some cases, both a relative of the beneficiary and a professional fiduciary are named as co-trustees.

Choosing the trustee for a Special Needs Trust is an important decision. The trustee will have an ongoing relationship with the beneficiary, and it is paramount that the trustee be sensitive to the beneficiary’s needs and takes the time to understand the beneficiary’s unique situation. The trustee must also exercise good judgment when making distributions and be knowledgeable about the impact of distributions on the beneficiary’s public benefits. In addition, the trustee must be a prudent investor and good with record keeping and paperwork. Being a trustee is not an easy job!

X. CHARITABLE GIVING

A. CLIENT’S GOALS AND MOTIVATIONS

            1. Benefit charities. Some clients have a strong motivation to benefit certain charities.

a. Clients who have the relatively straightforward goal of benefiting their favorite non-profit organizations are usually looking for the simplest way to achieve their goal.

b. If they are not concerned about the tax consequences of their gift, they do not have the additional burden of analyzing whether the non-profit organization qualifies as a tax-exempt charity.

c. They are also usually not concerned about exerting any kind of control or involvement in the assets once the donation is made.

d. Often an outright gift is the best technique.

2. Pass on values. Often a motivation is to pass on values to children.

a. Some clients would like to pass on the values embedded in charitable giving process, or in the non-profit organizations themselves, to their children and grandchildren.

b. These clients may or may not be concerned about the tax consequences of their charitable donation, but they usually want to be more actively involved in the process and want to establish a technique that can extend into the future.

c. A family foundation or charitable trust is probably the most appropriate technique.

            3. Save taxes. Charitable gifts are popular and useful because of the tax benefits.

a. Some clients are primarily motivated to give to charities because of the tax benefits. They may want to sell a valuable piece of real estate but are concerned about the potential capital gain tax cost. Or, they may have received an unusually large amount of tax income in a year and would like to offset the income taxes with a charitable deduction.

b. These clients will have to be concerned about the types of non-profit entities they select to receive the gift and will have to pay attention to the income tax limitations and other tax rules that may affect their goal.

c. Outright gifting or a charitable remainder trust is likely the best technique

            4. Create a legacy. Creating a legacy is paramount for some people.

a. There are clients that would like to establish a charitable giving technique whereby they or their family members are remembered for their service and contributions.

b. These clients usually have personal experience with the particular cause and have a desire to see that the financial support of the organization or cause continues into the future.

c. A family foundation or endowment fund should be appropriate

            5. Combination. Peoples’ motivations are usually complex.

a. Most often, clients usually have a combination of the above goals. They may be actively supporting a non-profit foundation but want to be sure that they are doing so in the most tax-efficient manner. Or perhaps, they want to extend their charitable giving to their estate planning documents and create a legacy without substantially reducing their children’s inheritance.

b. For this reason, its important to carefully listen to clients about their charitable motivations in order to find the right “fit” between the client’s goals and the charitable technique.

B. TYPES OF PROPERTY TO GIVE

            1. Cash.

            2. Marketable securities.

            3. Real estate.

            4. Closely-held stock.

            5. Personal property.

            6. Retirement plans.

C. TYPES OF ENTITIES

            1. Public Charity.

2. Supporting Organization.

3. Donor Advised Fund.

4. Private Operating Foundation.

5. Private Foundation.

D. GIFTING TECHNIQUES                 

1. Outright Donations.

2. Charitable Remainder Trust.

3. Charitable Lead Trust.

4. Charitable Gift Annuity.

5. Family Foundation.

6. Endowment.

XI. UNMARRIED PARTNERS

Many traditional estate planning documents have a special importance for unmarried couples. The default provisions in the law generally do not recognize unmarried partners, so it is imperative that documents are executed to give the partners legal rights in several important areas.

Example of important documents are Powers of Attorney for Finances, Advance Directives for health care decision-making, Wills, Disposition of Remains, Nomination of Guardian and Conservator; and documents clarifying property ownership.

Oregon now allows same sex partners to register as domestic partners and participate in virtually all of the rights and responsibilities of spouses under state law. Registration could revoke any pre-existing wills of domestic partners, so they should see a lawyer to update them.

XII. PLANNING FOR A PET AFTER DEATH

People share a special bond with their animal companions. Pets rely on their owners for food, shelter, and companionship, and shower them in return with unconditional love and affection. How can someone make sure that their cat is well cared for if they become ill? What if someone is injured or incapacitated and can no longer take care of their dog? What will happen to a pet upon death?

A. PREPARING FOR THE TEMPORARY EMERGENCY

One of the first steps in a good care plan for a pet is to find one or two neighbors or nearby relatives or friends who would be willing to help out during a crisis.

Next, the owner should make a list of instructions describing each pet’s diet, exercise schedule, health concerns, and veterinary contact information, and including names and phone numbers of the emergency caregivers chosen for the pet. A copy of the instructions should be posted in a prominent place in the home.

B. PLANNING FOR LONG-TERM OR PERMANENT CARE FOR A PET

Only a handful of states acknowledge pet Trusts, and Oregon is one of them. Oregon law recognizes pet Trusts as a legally enforceable method to provide for pets and their care after the owner’s death.

In Oregon, an experienced attorney can help to create a pet Trust through a Will or a Trust document, such as a Revocable Living Trust. An attorney can explain how to use a pet Trust to name one or more individuals to care for one or more pets after death. A person can also name a “trustee” to hold cash or other property “in Trust” for the benefit of the pet.

A Power of Attorney is another tool for providing for a pet’s future. However, a Power of Attorney is only effective during the owner’s lifetime, whereas a Will takes effect after the owner’s death. In a Power of Attorney, a person can authorize their “agent” to give their pet the care it needs, pay for necessary expenses, and even find a permanent home for their pet, if needed. Again, an experienced estate planning attorney can help a person decide whether this document is right for them.

C. NAMING SOMEONE TO CARE FOR A PET

1.      What to Look for in a Caregiver for a Pet. One of the obvious questions needed to be consider when choosing someone to take care of a pet is whether this person is “animal friendly.” Is the person compassionate, flexible, and sensitive to the needs and comfort of companion animals? Observe how this person interacts with the pet now. Consider whether this person has successfully cared for his or her own animals. If a person has more than one pet, will the same person be able to take them all, or does more than one caregiver need to be chosen?

Second, does the person live in an environment that is suitable for the pet? Is there enough space? Does the person have existing pets, and if so, will the pets get along well together? Will the pet get along with other family members in the person’s household? The owner should also think about the caregiver’s general health, and whether he or she is suitable to care for the pet in the future when they need someone to step in.

Third, can a person trust this person’s judgment to make decisions about their pet? The owner can only go so far in providing instructions for their pet’s future. The caregiver chosen will be the person ultimately responsible for making all decisions for the pet.

A pet owner should ask themselves these three questions for both a primary and alternate choice for each pet. In addition, a person should consider also giving their Personal Representative the power to choose someone for them, in the event that the persons chosen are not able to take on the responsibility when the time comes.

2.       Choosing an Organization. Another option in choosing someone to care for a pet is an organization that specializes in caring for animals. These range from local the humane society or shelter, to long-term care facilities or sanctuaries.

A humane shelter might be an appropriate alternative for finding a suitable caregiver to adopt a pet. These facilities, however, are not designed to board and care for animals on a permanent basis. Humane shelters are typically faced with limited space and should be considered as an option of last resort.

D. HOW TO GET STARTED

A pet owner can get started by doing the following:

E. OTHER RESOURCES

XIII. INCAPACITY

Planning for incapacity is often overlooked, and yet there is a 65% chance that each of our clients will experience some period of incapacity and a 25% chance of suffering a long period of incapacity. The best method of planning is to use the appropriate legal tool to appoint a surrogate or substitute decision-maker to assist the client when, and if, the time comes.

A. DEFINING LEGAL CAPACITY

When is a spouse, parent, or loved one no longer able to make decisions for himself or herself? Legally, the issue is one of capacity. Oregon law defines “incapacitated” as:

“a condition in which a person's ability to receive and evaluate information effectively or communicate decisions is impaired to such an extent that the person presently lacks the capacity to meet the essential requirement for the person's physical health or safety or to manage that person’s financial resources.”

“Manage financial resources,” means “those actions necessary to obtain, administer and dispose of real and personal property, intangible property, business property, benefits and income.”

“Incapacitated” persons who are unable to make decisions about their health and safety may require a court-appointed guardian. An inability to manage financial resources may require the appointment of a conservator. In both instances, the rights and the decision-making abilities of the person are substantially reduced.

Whether a person has the capacity to perform a particular act is examined as of the time of the act. Even if several signs point to mental incompetence, it is possible for a person to have “lucid intervals” during which he or she has the required capacity to enter into a contract or sign a Will or Trust.

Unfortunately, many people believe that a medical diagnosis of dementia (such as Alzheimer's Disease) is the same thing as a legal finding of incapacity. This is not true. Until a court legally determines that the individual is incapacitated, that person retains the right to make his or her own decisions, including the right to refuse assistance, placement, and medical treatment.

B. RIGHT TO FOLLY

A person does not necessarily lack capacity just because he or she is making bad decisions. We all have the right to make bad decisions. One US Supreme Court Justice called it the “right to folly.” The legal issue, therefore, is not whether a person has made the wrong decision, but the capacity of the person making the decision.

For example, bouncing a few checks is not necessarily evidence of incapacity. On the other hand, overdrafts for the past few months, together with an increased history of unpaid bills, misplaced funds, unexplained gifts, a susceptibility to influence, and related problems may be evidence of an “inability to manage financial resources.”

C. COURT APPOINTED FIDUCIARIES

1. Guardianship. A guardian is a person named by the court who has the authority and duty to make personal and health care decisions for a minor (under 18 years) or adult incapacitated person (the “protected person”). A guardian may determine where the protected person will reside and what medical care he or she will receive. The court may appoint a guardian either with unlimited authority, or only for specific actions. If the protected person previously executed an Advance Directive naming a health care representative who is not the guardian, the health care representative will have the authority to make many health care decisions instead of the guardian.

A guardian generally does not make financial decisions. The court may appoint a conservator to manage the finances of the protected person.

2. Conservatorship. A conservator is a person appointed by the court with the authority and duty to manage the financial affairs of a person needing protection, such as a minor (under 18 years) or an adult incapacitated person (the “protected person”).

A conservator may be appointed for an adult if, based upon medical testimony, it is determined that the individual lacks the capacity to manage his/her financial resources. The conservator can be an individual (family member or trusted friend), bank, Trust company, or professional fiduciary. The conservator is empowered to take possession of the protected person’s assets and income, and provides for payment of the protected person’s expense.

The conservator becomes the sole financial decision-maker for the protected person. The protected person loses all control of his or her property and assets, except for a few limited powers in certain situations. Sometimes a protected person may be competent to make a Will, or change beneficiaries of life insurance and annuity policies, but this should not be done without the advice of an attorney. The conservator may also give the protected person access to a limited amount of funds for personal use.

3. Costs Involved. Expenses associated with a conservatorship and guardianship include the court’s filing fee, fees for serving documents upon the proposed protected person, or guardianship fee, and attorney fees. Other costs sometimes necessary to establish the conservatorship include medical evaluations, psychological testing, and/or functional assessments. Often these expenses will be reimbursed from the protected person’s funds after the court appoints a fiduciary. For guardianships, a court visitor is appointed and there is a fee charged to pay the visitor.

Once the conservatorship or guardianship has been established, the court may approve payment for the fiduciary’s time and out-of-pocket expenses. Currently, the court is approving fees for a family member’s services as conservator in the range of $25-$45 per hour. Fees for professional conservators can range from $50-$85 per hour. Banks and Trust companies customarily charge fees based upon a percentage of the total estate under management.

Attorney fees must be approved by the court before they can be paid. The range of attorney fees can vary greatly depending on the case. The attorney for the conservator submits a detailed description of all attorney and staff time to the court. The court reviews the attorney’s documents and gives the conservator permission to pay the attorney.

XIV.         PLANNING FOR PERSONAL AND HEALTH CARE DECISIONS

A. THE OREGON ADVANCE DIRECTIVE

If a person becomes sick and unable to make health care decisions, someone else may be required to make those decisions. If he or she does not have the appropriate legal tool in place, it may be necessary for a court to appoint another person, (a guardian) to make health care and medical decisions.

The Oregon Advance Directive form allows a person to choose someone to make health care and medical decisions when he or she is unable to make those decisions. A spouse, partner, family member, or friend (called "health care representative") can be designated to act legally to make health care decisions. This document has no effect until the person signing the Advance Directive is incapable of making health care decisions.

The health care representative will be authorized to make most health care decisions necessary. This can include the authority to withdraw life support procedures, such as respirators or artificial nutrition and hydration. The Advance Directive is a statement to the family and the doctor regarding life support. This is an opportunity to direct that if death is imminent because of a terminal disease or injury, a person does or does not want artificial life support procedures used to postpone the natural moment of death.

The Advance Directive replaces the Directive to Physicians and the Health Care Power of Attorney. In 1993, Oregon combined the two different documents into one document, the Advance Directive. The Durable Power of Attorney for Health Care expired automatically after seven years, unless the person was unable to make health care decisions at the end of the seven-year period. Therefore, we strongly recommend that people update their planning by using the Advance Directive form.
           
The Advance Directive form has two main parts, which correspond to the documents used prior to 1993. Under Part B of the Advance Directive, a health care representative may be appointed to make health care decisions in the event of temporary or permanent incapacity. An alternate health care representative may also be appointed. Health care representative(s) must act in accordance with the desires of the person appointing them, to the extent those desires are known.

Part C of the Advance Directive gives an opportunity to give instructions to the health care representative and physician about tube feeding or life support.

The law governing Advance Directives allows the person signing it to make additional instructions beyond what is set out in the form itself. Some people give specific instructions about matters such as hospice care, pain control, visitors, and home death.

Examples:

_______         HOSPICE CARE. My health care representative may
arrange for hospice care on my behalf.

_______            HIRING AND DISCHARGE OF DOCTORS. I authorize my health care representative to hire and discharge doctors and other heath care personnel on my behalf.

_______            MEDICAL RECORDS. My health care representative may review my medical records, and may authorize their release to those persons whom my health care representative designates. My health care representative shall be considered my “personal representative” as that term is used in HIPAA. I authorize my physicians and other health care professionals to discuss my medical condition with my health care representative and those designated by my health care representative.

_______            COPIES OF ADVANCE DIRECTIVE. A photographic or facsimile copy of this advance directive shall have the same force and effect as the original.

_______            VISITORS. I direct that (insert person or category of people) be permitted to visit me in any hospital or other care facility to the same extent that my closest relatives would be permitted to visit me.

_______            PAIN CONTROL. If I am terminally ill or otherwise close to death, I desire to be kept pain-free, even if pain medication might make me less responsive or impair my respiratory or other bodily functions.

_______            HOME DEATH. I wish to die at home, and not in a hospital or other care facility. When, in the opinion of a licensed physician I am likely to die within six months, I wish to be transferred to my home. I wish to be transferred to my home even if there is a risk that the transfer itself may accelerate my time of death. However, if my dying at home becomes too much of a burden to my family or others living with me, my health care representative may arrange for me to receive care elsewhere.

B. DECLARATION FOR MENTAL HEALTH TREATMENT

Another document utilized in Oregon is the Declaration for Mental Health Treatment. This document allows someone, in advance, to select a representative to make mental health treatment decisions, and/or to give specific directions regarding future mental health treatment. The Advance Directive does not cover mental health treatment. The Declaration is most helpful for a person diagnosed with a mental illness such as bipolar disorder or clinical depression, where he or she has periods of capacity and the insight to anticipate future problems and plan ahead.

C. POLST

The Physicians Order For Life-Sustaining Treatment is an order signed by the doctor at the direction of the ill individual, or his or her health care representative or guardian. The POLST is a tool to implement the ill individual’s desires regarding life-sustaining measures.

XV.         PLANNING FOR FINANCIAL DECISIONS

A. POWER OF ATTORNEY FOR FINANCES

A “Power of Attorney” usually refers to a Durable Power of Attorney for Finances. This is a legal document in which the signer delegates to another (“agent” or “attorney-in-fact”) the authority to deal with finances and assets. Usually a Power of Attorney becomes effective when it is signed, although the signer may indicate that it is not to be used unless ask the signer asks the agent to use it, or unless the signer becomes incapacitated.

The Power of Attorney document describes the powers being given to the agent, and the agent does not have any authority to act outside the scope of such powers. Sometimes a Power of Attorney only allows the agent to deal with a specific matter, such as the sale of a particular piece of real estate, or with a specific asset, such as a bank account. This is known as a “Limited Power of Attorney.” In contrast, a “General Power of Attorney” gives the agent very broad authority to deal with assets and finances.

Most standard forms of General Powers of Attorney do not include optional provisions, such as the right to make gifts, that in certain appropriate situations might be very useful. Some of the optional provisions to be considered are described below.

1.      Support of Spouse/Partner. If the person making the power of attorney wishes to allow the spouse or partner to have the funds available for his or her own needs, then this should be specified.

2.      Gifting. If gifting provisions are not included, any gifts made by the agent may be treated as a breach of fiduciary duty. Therefore, a person should consider including gifting provisions.

Examples:

a. Spouses might consider giving each other a Power of Attorney that includes provisions allowing assets to be transferred into just one of the spouse’s names. Then if one spouse becomes ill and needs Medicaid to assist with his or her long-term care expenses, the healthier spouse can use the Power of Attorney to transfer assets into the healthier spouse’s sole name. This could be very helpful later if planning is done to preserve assets for the healthy spouse, while allowing the ill spouse to receive Medicaid.

b.      If an individual has a taxable estate and has been making annual gifts in order to
reduce the potential for estate taxes upon his or her death, the individual’s agent could continue to make such annual gifts on his or her behalf if such gifting power were specifically granted in the Power of Attorney.

c.      An individual may wish her/her agent to continue making charitable gifts.

d. If a person wants to continue assisting a child or grandchild with college expenses, or with financial help due to disability, job loss or other circumstances, the authority should be included.

3.      Authority to Change Estate Planning Provisions. The client should consider whether or not to include provisions to change beneficiary designations, create or modify Trusts, and disclaim assets. An agent named in a power of attorney cannot modify a Will.

4.       Nomination of Fiduciaries. Despite good planning, a client sometimes becomes involved in a court proceeding such as a conservatorship, guardianship, family law proceeding or other litigation. The client can name who he or she would like to serve if a conservator, guardian or guardian-ad-litem is appointed by the court.

5.       Authority to Self-Deal. It can be troublesome if the agent takes action to benefit him or herself. If such activity is allowed, then a provision should be included to authorize self-dealing. If such a provision is not included, the agent could be accused of breach of fiduciary duty.

A financial institution sometimes will not honor a general power of attorney for finances because it does follow that particular institution’s prescribed format or because of the lapse of time. This is a source of great frustration to estate planners who endeavor to provide the tools to clients to plan for incapacity. To minimize problems, it can be helpful for the client to appoint an attorney-in-fact for a bank account or group of accounts at that bank or branch. Contact the bank to obtain its form for this purpose.

In Oregon, a Power of Attorney for Finances is “durable” unless specifically stated otherwise in the document. This means that the Power of Attorney remains valid even if after the person who executed it becomes incompetent. However, a Power of Attorney is only valid during the signer’s lifetime. When the signer dies, the Power of Attorney dies with him or her.

Clearly some of these provisions give broad authority to the agent, and the signer will want to give such broad powers only to someone he or she absolutely Trusts.

XVI.         PLANNING FOR LONG TERM CARE

WHAT ARE THE TYPES AND COSTS OF LONG-TERM CARE?

Long-term care needs can range from around the clock medical treatment to simply requiring assistance with the daily activities of life. In the past, a nursing facility was the only option for care outside the home. Today, Oregon leads the nation in providing alternatives to the traditional nursing home-type care.

1.       Nursing Home Care. Nursing homes, licensed by the State, provide several different levels of nursing care to residents. These range from intensive nursing and rehabilitative care for people with unstable medical conditions, to routine care for people with chronic medical problems. Current estimated costs for nursing home care range from $3,000 to $5,500 per month, depending on the level of care needed.

2. Adult Foster Care. An adult foster home provides care to five or fewer residents. The operator or resident manager lives in the home. Personal care, cooking, and cleaning are provided. Other types of care depend upon the qualifications and license of the provider. Estimated costs range from $1,500 to $2,750.

3. Residential Care. Residential care facilities serve six or more residents and have staff on duty around the clock. Meals and housekeeping services are provided, but the amount of personal care and supervision varies.

"Assisted Living" is a particular type of residential care, with its own administrative rules. The focus is on providing care through a social model that emphasizes independence. Estimated costs for residential care range from $1,500 to $4,000.

4. In-home Services. A range of services can be provided at home, from a short visit to meet a particular need for assistance, to live-in help. In-home services, generally, are not licensed by the state, although some providers carry their own license. Estimated costs vary according to the hours of service and the type of provider used.

5. Adult Day Care. Adult day care is available in a variety of settings ranging from freestanding programs to nursing homes or senior centers. It often functions as respite care, to allow a regular caregiver, such as a spouse, to have a break or to continue working. Daily charges are now about $40 to $60.

WHO PAYS FOR LONG-TERM CARE EXPENSES?

1. Health Insurance and Medicare. Medicare is covering approximately 3-4% of long-term care expenses. Health insurance, including Medicare, is primarily focused upon the payment of hospital and physician care for illness or accidents. Few health insurance carriers cover long-term care expenses. If they do, it is usually only for skilled care (the services of a doctor or nurse available 24 hours a day). Even if the insurance covers long-term care, it is often limited to a certain number of days (often only 100 days or less).

2. Long-Term Care Insurance. Long-Term Care Insurance is covering approximately 1-2% of long-term care expenses. This is a relatively new form of insurance that can provide benefits for all levels of care including nursing homes, adult foster care, assisted living facilities, and in-home care services. People should shop wisely and compare several policies. Most companies provide excellent coverage. However, some long-term care policies contain limitations or exclusions that prevent them from being an effective mechanism for funding care over an extended period of time. (Policies sold in Oregon must now include coverage for alternatives to nursing home care.

3. Private Pay. Approximately 45% of long-term care expenses in Oregon are paid from personal or family funds. The funds of both spouses are considered available to pay for care. The assets of adult children are not available assets unless they have signed as a guarantor for the nursing home expenses.

4. Medicaid. Approximately 50%+ of long term care expenses are being covered by Medicaid, making the Medicaid program the largest source of payment for long-term care in Oregon. Medicaid is a joint Federal and State program. Medicaid covers the long-term care services for persons needing substantial assistance with activities of daily living in nursing and adult foster homes.

WHAT ARE THE ELIGIBILITY RULES FOR MEDICAID?

The eligibility rules for Medicaid change frequently, and advisors should be careful to stay abreast of the rules or associate with the professionals who do.

1.    Income.

      a.       Eligibility Level. The rules technically require that an applicant's income be less than $1,911 (2008). Income consists of such fixed items as Social Security, pensions, certain Veterans Administration benefits, workers compensation, fixed annuities, and real property contracts. Only the income of the ill spouse is considered. The community spouse's income will not be counted when determining income eligibility.

b.      Income Cap Trust. A special Trust is available to assist those individuals over the Medicaid Income Level to obtain Medicaid eligibility. The Trust was created through a joint effort between elder law attorneys and the State.

2. Resources. An individual can have up to $2,000 in cash or other non-exempt resources. An additional $1,500 can be set aside in an interest-accumulating savings account dedicated as a "burial fund."

Jointly held liquid assets, such as joint bank accounts, are considered available to the Medicaid applicant. However, the state cannot force a co-owner to sell a jointly held parcel of real property. A life estate interest in real property is an available asset. Value will be established by considering the fair market value for the property and life expectancy of the Medicaid applicant.

The value of a resource is determined by its "equity value." Equity value is the fair market value of the resource minus encumbrances. "Fair market value" is defined as "the amount a resource can be expected to sell for on the open market." The State uses the county tax appraised value for real property and the blue book for automobiles. These values can be successfully disputed by presenting evidence of actual fair market value (i.e., real estate appraisal).

3.       Exempt Resources. Certain resources are exempt and not counted in determining eligibility for Medicaid benefits. These include the person's home, one motor vehicle, household items, personal effects, medical equipment, "hard goods" for burial (including burial space, casket, liner, headstone), and a funeral or burial fund up to $1,500.

4.      Penalty for Transfer of Resources. Individuals may desire to give away or transfer property or other assets to a family member, friend, or charity as part of their estate planning goals. Unfortunately, a very complex set of rules govern a future Medicaid applicant's ability to transfer property. Simply put, a transfer of resources may make a person or their spouse ineligible for Medicaid benefits for a period of time.

There are transfers that are exempt from the above rules and will not result in a period of Medicaid ineligibility. These include transfers to a spouse, transfers to a blind or disabled child, and transfer of the primary residence to a caregiving son or daughter, or a sibling with an equity interest (certain conditions must exist).

5. Protecting the Spouse Who Remains at Home

a. Spousal Impoverishment Rules. The Medicare Catastrophic Coverage Act of 1988 ("MCCA"), significantly changed previous Medicaid laws, providing greater protection to the income and resources available for the maintenance of the spouse who remains at home (the "community spouse"). Prior to MCCA, a spouse's eligibility for Medicaid often resulted in the impoverishment of the community spouse.

b. Treatment of Resources. The non-exempt assets ("available resources") of both spouses are pooled together, regardless of how title is held. The equity value of pooled resources are "deemed" available to the ill spouse subject to the spousal impoverishment rules discussed below. The community spouse is allowed to keep the exempt assets and some of the non-exempt assets. The amount of non-exempt assets which the community spouse is permitted to keep is subject to a limit referred to as the "community spouse resource allowance" or "CSRA." The community spouse may retain one-half of the couple's combined assets. The value of the assets is determined at the beginning of the continuous period of care. The amount allowed the community spouse in 2008 is subject to a minimum ($20,880) and maximum ($104,400). Once the community spouse's resource allowance has been calculated, the excess resources must be spent down before the institutionalized spouse can be eligible for Medicaid benefits.

IMPORTANT NOTE: Much is currently being done by elder law attorneys to allow the community spouse to keep more than one-half of the couple's assets. Revision of the Community Spouse Resource Allowance should be evaluated in every case, before the spouse begins spending down the assets.

Once the spouse needing care has been determined eligible for Medicaid benefits, there is no need for future assessment of the community spouse's resources. The community spouse may accumulate additional resources without affecting eligibility.

The community spouse is entitled to an amount sufficient to raise his or her monthly income to $1,712. In determining the allowance, all of the community spouse's monthly income, for all sources, will be considered. If all available income is less than the allowance, the ill spouse's income will be used to make up the difference. (In addition, the community spouse is entitled to an additional allowance for his or her shelter expenses.)

Disclaimer: the information contained in this OUTLINE is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Fitzwater & Meyer, LLP, or its attorneys. Neither this OUTLINE nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.

Copyright Fitzwater Meyer LLP, 2003, 2004, 2005, 2008