The goal of estate planning is to help design and determine your future. Fewer people can now rely upon a close and supportive family to be there in times of need. You must therefore rely upon advance planning, which includes the implementation of estate and incapacity planning tools. The following is a summary of the areas that should be planned for and some of the tools available to facilitate an effective, advance plan.

Planning for incapacity is often overlooked, and yet there is a 65% chance that each of us will experience some period of incapacity and a 25% chance we will suffer a long period of incapacity. The best method of planning is to use the following legal tools to appoint a surrogate or substitute decision-maker to assist you when, and if, the time comes.

1. Planning Tools for Financial Decisions.

a. Conservatorship. If a person does not do other planning, as appropriate, a conservator may be appointed by the court. This can occur if, based upon medical testimony, it is determined that the individual lacks the capacity to manage financial resources. The conservator can be an individual, a bank, or other professional fiduciary. The conservator is empowered to take possession of the individual’s assets and income, and provide for payment of expenses. The conservator has all the powers that the person would individually possess to manage financial affairs. If a person is incapacitated, he or she no longer has the ability to utilize the planning tools discussed below. The procedures for the establishment of a conservatorship are similar to that of guardianship; in fact, the two powers are often requested at the same time (see discussion of guardianships on page 6). Also, a conservator is required to be bonded. Annual accountings to the court are also required.

b. General Power of Attorney. To minimize the need for a conservatorship, you can designate another person, a family member, or friend (called "attorney-in-fact" or "agent") to act legally on your behalf in a durable power of attorney. Simply put, the attorney-in-fact has the power to sign your name to any legal document. Oregon law provides that a power of attorney will continue beyond disability or incapacity. All Powers of Attorney are not the same. For example, sometimes general financial powers are granted, but no mention is made of gifting. Often, gifting provisions are included, either for tax planning or long-term care planning. A power of attorney terminates at your death.

c. Bank — Limited Power of Attorney. Most local banks allow you to appoint an attorney-in-fact for a bank account or group of accounts at that bank or branch. Contact the bank to obtain their forms for this purpose.

d. Bank — Joint Accounts. A bank officer may recommend that you put an account in joint names with a family member or friend. This will allow the joint owner to have access to the account should you become incapacitated.

There are potential disadvantages to joint ownership. One joint owner’s liability can expose the entire assets to creditor claims. Also, the joint owner can take the entire amount out without the consent of the other. Last, upon your death, the account becomes the sole property of the surviving joint owner (despite the terms of a Will or Trust), even if your intention was that the account be joint only for convenience.

Another approach is to execute a Power of Attorney for Finances for lifetime planning in case of incapacity and payable-on-death designations to avoid probate at your death.

e. Representative Payee. When a person becomes unable to manage his/her resources, several public programs (such as Social Security) provide for a representative payee or fiduciary to receive benefits on behalf of the beneficiary.

f. Revocable Living Trust. A Revocable Living Trust provides an excellent method for managing the financial affairs of an incapacitated person. The trust document can incorporate specific instructions about how funds will be used if the trustor becomes incapacitated. Usually, the trustor, while competent, will appoint a successor trustee to take control of the person's financial affairs when he or she becomes incapacitated. The trustor can customize the provisions of the trust to suit his or her particular needs and wants. Often the need for conservatorship is avoided by a well established and properly funded trust.

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." Many people are no longer able to rely upon a close and supportive family to be there in times of need. 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. Revocable Living Trusts are discussed in more depth below on page 5.

1. Last Will and Testament.

a. What is a Will? A Will is "a written legal expression by which a person makes disposition of his or her property." A Will becomes effective upon your death. The Will can be amended or revoked any time prior to death. Fiduciaries appointed by the Will have no power nor duties until death. Beneficiaries of the Will acquire no rights nor interest in your estate until death. A Will directs the probate court regarding many issues:

b. What a Will is Not.

c. Requirements.

2. Revocable Living Trusts. The popularity of Revocable Living Trusts is because of their ability to both plan for incapacity during life and avoid probate upon death.

a. What is a Revocable Living Trust? A Revocable Living Trust is an agreement that your property and assets will be managed and distributed in the manner you desire, both during lifetime and upon death. Its primary benefit is to allow you to manage and control the trust as long as you are able. 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 you are free to revoke or amend the trust at any time as circumstances change. If, due to an accident or illness, you become incapable of managing your own financial affairs, you may appoint the person(s), often a spouse or other relative, to step in and take over the management of the trust without court approval or supervision. Not only do you decide who the "successor trustee" is, but also instruct the successor trustee how to use funds for your benefit. You also define the term "incapacity" and select the person or doctor who will make that decision.

b. Probate Avoidance. Probate is a court-supervised process providing for the payment of debts and taxes, and the transfer of probate property when you die. Probate property is what you own in your own name without survivorship rights. Many people mistakenly believe that having a Will avoids probate. A Will simply directs the probate process - it does nothing to avoid it. People want to avoid probate because they are concerned about the cost ($2,000 to $5,000) and the time delay in obtaining distribution of assets to the heirs (6 to 12 months). A living trust prevents the need for probate because you have directed the distribution of assets in the trust document. You may have also appointed a successor trustee to pay debts and taxes, and to distribute the estate.

c. Personal Needs and Quality of Life Planning. The Revocable Living Trust is flexible and can be tailored to your specific needs, desires, and financial resources. This includes the ability to make provisions for care and comfort. 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. The following personal issues can be included in your trust document:

1. Specify that you prefer to be cared for at home (even if the cost of such care would be significantly greater than the cost of nursing or other long-term care); and
2. Authorize the trustee to provide additional services and care monitoring if you become hospitalized or require placement in a long-term care facility.

1. Planning Tools for Health Care Decisions.

a. Guardianship. A guardian may be appointed by the court when an individual lacks the capacity to make adequate decisions involving his/her care and safety. The guardian maintains full responsibility for the physical care and welfare of the protected person. For example, the guardian may decide where the protected person resides and what medical care the protected person will receive. Any health care representative named in an Advance Directive will typically still have the power to make health care decisions. The powers of a guardian can be limited to specific actions. In fact, the current public policy is to impose the least restrictive alternative upon the protected person. In practice, however, few guardianships are limited. A temporary guardian can be appointed with little notice and without time for filing objections if the court determines that an emergency exists and that the welfare and life of the protected person is at risk without appointment.

b. Advance Directive. You can designate another person, a family member, or friend, (called "health care representative") to act legally on your behalf to make health care decisions. The health care representative will be authorized to make any health care decision you could have made (with some limited exceptions, e.g. sterilization). This includes the authority to withhold or withdraw life support procedures, such as respirators or artificial nutrition and hydration. The Advance Directive also gives you an opportunity to give instructions regarding your wishes with respect to life support. The Advance Directive replaces the "Directive to Physicians" and the "Health Care Power of Attorney." The old Health Care Power of Attorney expires seven years after execution unless you have become incapacitated.

Estate planning most often involves establishing a testamentary distribution of your property to your heirs and devisees. This process assumes that the heirs are competent to manage the inheritance and make sound financial decisions and that the heirs are capable of caring for themselves independently. These assumptions cannot be made if an heir is also a severely disabled or incapacitated person. In addition, as discussed above, many disabled heirs receive public assistance benefits. Some of these programs, such as Supplemental Security Income (SSI), Medicaid, subsidized public housing, and Food Stamps are "need-based" programs. In other words, eligibility is based upon financial need. A testamentary bequest or distribution to such a person will likely make them ineligible for the public benefit until the funds are liquidated. If you have a disabled child or other person you would like to include in your planning, you have the following options:

This is the simplest option, but seldom the best. The beneficiary will receive the funds with no limitation and with no supervision. Also, if the beneficiary is receiving need-based assistance, the beneficiary will be ineligible for the assistance until the funds are spent down.

A common method of planning is outright transfer to a third party. The third party is usually a family member or friend who is committed to the disabled person and is trustworthy. In essence, the parent is funding a person who will step into the same role as the parent had providing for the disabled person as needed. The problem with this option is obvious. There is no legal method of requiring the third party to assist the disabled child. The bequest is the sole and unrestricted property of the third party. Also, the funds will be exposed to the third party’s own problems, such as creditor problems, divorce, or the third party’s own death.

The parent could transfer to a trust established for the benefit of the disabled child. The trust could require the trustee to make distributions of income and principal as the trustee determined necessary for the disabled person. The trust would be structured very similarly to a testamentary trust established for minor children. This arrangement will adequately provide for an incapacitated person who cannot manage his or her own financial affairs. It may not work for an incapacitated or disabled person receiving public assistance benefits. As discussed below, if the trust assets can be paid or applied for food, clothing, and shelter, the assets may be considered available to the disabled person and could disqualify the person for certain public benefits, such as Medicaid. However, if public assistance eligibility is not important nor likely to be needed in the future, this option is sufficient.

Most parents prefer to supplement, rather than to replace, the public assistance benefits their disabled child is receiving. One method of accomplishing this goal is transfer to a special needs or supplemental needs trust. Special needs include education, the telephone bill, internet service, cable television, transportation expenses, and health care needs not otherwise covered. This type of trust provides for management of funds and preservation of public benefits.

Few individuals or couples have enough income to pay for the high monthly cost of nursing home care ($2,000-$5,000). If no planning is done, the couple will often exhaust their savings (resources) before applying for Medicaid. By utilizing the state and federal laws governing eligibility for Medicaid, much can be done toward preserving the estate and/or preventing impoverishment of the spouse remaining in the community.

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 range from $3,000 to $5,000 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 $1,850 to $2,500.

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 $1,000 to $3,000.

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 $75.

1. Medicare. Medicare is primarily focused upon the payment of hospital and physician care for illness or accidents. It covers limited long-term care expenses after a hospital stay when skilled care is needed. Skilled care means the services of a doctor or nurse are available 24 hours a day. Even when Medicare covers long-term care, it is limited to a certain number of days.

2. Long-term Care Insurance. Long-term care insurance is a desirable option for people who can afford it and who qualify medically.

3. Private Pay. Currently, just under half of the cost of long-term care in Oregon is 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. The Medicaid program is the second largest source of payment for long-term care in Oregon. Medicaid is a joint federal and state program. Medicaid covers the full range of long-term care services, including skilled, intermediate and custodial care, adult foster home, and in-home services.

Medicaid eligibility is based upon financial need. Institutionalized individuals whose income is at or below $1,590.00 and whose assets are below $2,000.00 for an individual and $17,400.00 for a couple will be eligible. Couples with assets above $17,400.00 may be required to split their assets and spend down before eligibility.

1. Income.

a. Eligibility Level. The rules technically require that an applicant's income be less than $1,590.00 (2001). 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. You should consult an experienced elder law attorney if an income cap trust is needed.

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. You may desire to give away or transfer property or other assets to a family member, friend, or charity as part of your 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 you or your spouse ineligible for Medicaid benefits for a period of time.

a. Period of Ineligibility. The disposal of a resource for less than fair market value, by you or your spouse, will result in a period of time in which both you and your spouse are ineligible for Medicaid benefits. This period equals the time during which the uncompensated value of the transferred asset could have been used to pay for care at the average private pay rate in the State of Oregon, currently $3,750 per month. You should not make gifts for Medicaid planning purposes without first obtaining the advice of an elder law attorney. The state is allowed to ask a Medicaid applicant about any transfer of assets made during the 36-month period before applying for Medicaid (called the "look back period"). Any transfer made before that time does not effect Medicaid eligibility. However, transfers made during the 36-month period will be subject to the period of ineligibility. The period for transfers to or from irrevocable trusts is 60 months.

b. Exempt Transfers. 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 is subject to a minimum ($17,400.00 in 2001) and maximum ($87,000.00 in 2001). 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.

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 $1,452.00 (effective April 2001). 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.)

6. Estate Recovery. The State of Oregon may have a claim against the (expanded) estate of a deceased Medicaid recipient. The claim cannot be collected until the death of the surviving spouse. The claim cannot be made against assets transferred to the surviving spouse upon the death of the Medicaid recipient.

7. Planning Strategies. Careful planning can go a long way toward preserving the couple's resources and preventing the impoverishment of the community spouse.

a. Spend Down. Often referred to as "split and spend down," this planning approach combines the Community Spouse Resource Allowance (discussed above) with spend down strategies to both prevent the impoverishment of the community spouse and expedite Medicaid eligibility for the ill spouse.

The Resource Assessment is the beginning of the planning process. This "snapshot" of the couple's combined resources determines the amount the community spouse may have while the ill spouse qualifies for benefits. Generally, the community spouse is best off with the highest possible allowance.

The Resource Assessment "freezes" the couples' available assets at the time the continuous period of care begins. Spend down or transfers made subsequent will not change the figures produced by the Assessment.

Once the Resource Assessment is complete, the community spouse may transfer his or her share (the community spouse's resource allowance) into the community spouse's own name. The remaining amount may be left in the name of the ill spouse, or preferably, their joint names. This amount must then be spent down before the institutionalized spouse will be eligible for Medicaid benefits.

b. Exempt Resources. Spend down often begins by purchasing or maximizing exempt resources. Some examples are:

c. Converting Resources Into Income. Monthly income in the sole name of the community spouse is not considered available to the ill spouse. Therefore, the community spouse may convert a non-exempt resource into an income source (i.e. real estate contract) or he or she may use non-exempt assets to purchase an irrevocable income source (i.e. single premium, immediate annuity).

d. Court Order. The community spouse can go to court and ask the court to allow him or her to keep more of the assets or more of the income.

e. Transfers by Gift. The gifting of assets should be considered a dramatic form of planning. While it may preserve assets, it also can be a significant risk. Gifts can be made to a community spouse with no period of ineligibility for Medicaid. Gifts to individuals other than a spouse will trigger the period of ineligibility discussed above. Again, there is a 36-month look back period.

Either spouse may therefore give away (or sell for less than fair market value) an asset as long as both are prepared to wait out the ineligibility period. This has been referred to as the transfer and wait strategy.

f. Transfers to Trust. In the past, transferring assets to a specialized form of trust could protect some of the assets. Congress changed the rules governing trusts when it passed OBRA 1993, effective August 1993. These new rules substantially restrict the use of trusts for long-term care planning purposes. A few types of trusts are still effective.

g. Staying Off Medicaid. Finally, the best plan may be not to apply for Medicaid benefits. Some disadvantages of Medicaid include discrimination against Medicaid patients, not all facilities accept Medicaid, and impact of estate recovery upon the death of the surviving spouse.

_____ Power of Attorney for Finances

_____ Revocable Living Trust

_____ Advance Directive

_____ Declaration for Mental Health Treatment

_____ Nomination of Guardian and Conservator

_____ Long-Term Care Planning

_____ Will

_____ Revocable Living Trust