Special Report

Alzheimer’s Disease, What Is It And What Do We Do?

Jim Schuster, Certified Elder Law Attorney

(c) 2004

INTRODUCTION

In this paper we will identify Alzheimer’s disease and consider its consequences for the patient and the family. We will then look at the range of legal options that may increase the patient’s quality of life and maximize the family’s life savings. Finally, we will review steps that must be in place as soon as possible so that the best quality of life is available for the patient and family.

THE PROBLEM

Alzheimer’s disease is not a necessary condition of aging. Many of the common affects of aging – loss of keenness in memory or the lessening of some mental abilities – have no relationship to Alzheimer’s. They are normal, perhaps frustrating or embarrassing, but for the most part harmless. Many treatable conditions – medication imbalance, poor nutrition, chronic infections – mimic the cloud of confusion of Alzheimer’s disease. However, that is not to say the concern is misplaced. The risk of developing the disease is high. After age 85 the chances of a person developing Alzheimer’s doubles every year.

The diagnosis of Alzheimer’s disease in a family member is the sort of life-changing news no person wants to hear. The diagnosis comes with resistance – hope that the doctor is wrong and a curable condition will be found – and acceptance and some relief of knowing only what was believed and feared. The diagnosis has far reaching legal consequences and those will continue all through life and not always end at death. Alzheimer’s disease is progressive and degenerative. A person who has Alzheimer’s does not get better. It removes a person’s ability to function and live independently. It slowly and surely erases the memories and even the personality of the patient. The patient will need assistance with every component of daily life. The family must provide increasingly complex and expensive care that often ends in a nursing home.

There are no medications that cure. Those available ameliorate the symptoms, but they cannot stop or even slow the decline.

The most expensive component of the care – the nursing home – will not be paid for by health insurance. This is a major distinction as compared to other medical conditions such as heart disease or cancer. Those are often paid for by health insurance and the intense treatment may be measured in months as opposed to the years duration of Alzheimer’s. A long term stay in the nursing home may be expected. According to the Alzheimer's Association, the lifetime cost of care is $174,000. While that seems impossibly high, it may be understated. In Michigan the average cost of nursing home care is over $5,400 per month, almost $65,000 peryear.

The family faced with Alzheimer’s must adjust to a new and unasked for reality. They will need to support and care for a previously independent adult whose affairs must be wrapped up and a new plan of support must be put in place. The questions come racing: What changes must we make now? What must we provide for in the future? Who will handle the patient’s business? Who will care for the patient? What will the care plan be? Who will make decisions? How will we pay for it?

THE COURSE OF ACTION

Fortunately, there are many care alternatives and services available. At the onset of the disease the patient and family must make an effective plan to navigate the difficult course as successfully as possible. There are many legal alternatives that can ensure “success.” Choosing these requires forethought and preparation. However, prior to any successful approach the individual and family must take necessary steps. Those steps include consulting an experienced elder law attorney who will assist the family in choosing the plan and getting authority to act for the patient. No plan is possible without the necessary legal documents.

IS IT ALZHEIMER’S DISEASE? IF SO, WHAT CAN WE EXPECT?

Initially the diagnosis of Alzheimer's disease may be one of ruling out other causes, but as the symptoms manifest it becomes more certain. Alzheimer's disease includes memory difficulty involving items trivial as well as important. It not only causes inability to recall the name of objects, but it also impairs the ability to understand what to do with them. Judgment is impaired and the ability to perform multi-step tasks is lost. The disease ultimately leads to a loss of the ability to control muscles such as swallowing. Because the disease is progressive, it is convenient to classify the development by stages: mild, moderate, and severe.

Patients with mild Alzheimer's disease may appear to be "quite normal" to a person who has not known them. During this stage legal steps should be taken to protect the patient's rights and ensure assets are protected. Though diminished in capacity, the patient has the “legal capacity” to execute documents such as powers of attorney, Wills and trusts.

In moderate stage, the mental impairment is quite obvious even to the unsuspecting observer, though the patient will often be in denial. The patient may have the ability to engage in social conversation, though not in any depth and in fact may repeat the same statement multiple times. In this stage it is important to protect patients from themselves, as in this stage patients will take risks such as going out inappropriately dressed and getting lost. Patients in this stage are a hazard to themselves, and if engaged in activity such as driving, can be a hazard to the community. They may, for example, forget that they have turned on the stove and inadvertently trigger a fire, or cause an accident while driving. In this stage the patient will have the ability to execute straight forward legal documents, that is, those that do not require complex decision making by the patient.

In the third, or severe stage, patients have evidence of physical impairment, they become less mobile, they may have repeated falls, and they need nursing attention to meet their physical and mental deficits. They often become incontinent. As the disease progresses they become less mobile, more chair-bound, and finally bedridden in a fetal position.

This three-stage description of Alzheimer’s may make it easy to roughly communicate where the patient is in the progression, but it does not really inform us as to the needs of the patient or what might be expected. More helpful is the detailed description of the Seven Stages of Alzheimer's Disease by Dr. Barry Reisberg:

Stage 1 No cognitive decline. No subjective complaints of memory deficit. No memory deficit evident on clinical interviews.

Stage 2 Mild forgetfulness. Subjective complaints of memory deficit, most frequently in the following areas: (1) forgetting where one has placed familiar objects; (2) forgetting names one formerly knew well. No objective evidence of memory deficit on clinical interview. No objective deficits in employment or social situations. May have difficulty performing multi-step activities that were easily performed before. Appropriate concern regarding symptoms.

Stage 3 Mild confusion. Earliest clear-cut deficits. Manifestations in more than one of the following areas:

1. gotten lost when traveling to an unfamiliar location;

2. friends and co-workers become aware of patient's relatively low performance;

3. word and name finding deficit becomes evident to intimates;

4. may read a passage of a book or newspaper and retain relatively little material;

5. may demonstrate decreased facility in remembering names upon introduction to new people;

6. may have lost or misplaced an object of value;

7. may have difficulty in concentration.

Objective evidence of memory problems may only be revealed with an intensive interview. Denial begins to become manifest. Mild to moderate anxiety accompanies symptoms.

Stage 4.Moderate cognitive decline. Clear-cut deficit on careful clinical interview. Deficit manifest in following areas:

1. decreased knowledge of current and recent events;

2. may exhibit some deficit in memory of one's personal history;

3. concentration deficit elicited on serial subtractions;

4. decreased ability to travel, handle finances, etc.

Inability to perform complex tasks. Denial is dominant defense mechanism. Flattening of affect and withdrawal from challenging situations occurs. However, the patient will frequently have no problems with orientation to time and person, recognition of familiar persons and faces, and ability to travel to familiar locations.

Stage 5 Moderately severe decline. Most people would recognize the dementia. Patient can no longer survive without some assistance. Patient is unable during interview to recall a major relevant aspect of their current lives, e.g., an address or telephone number of many years, the names of close family members (such as grandchildren), the name of the high school or college from which they graduated. Frequently some disorientation to date, day of week, season, or to place. An educated person may have difficulty counting back from 40 by 4s or from 20 by 2s. Patients at this stage retain knowledge of many major facts regarding themselves and others. They invariably know their own names and generally know their spouse's and children's names. They require no assistance with personal care chores, but may have some difficulty choosing the proper clothing to wear.

Stage 6 Severe decline. May occasionally forget the name of the spouse upon whom they are entirely dependent for survival. Will be largely unaware of all recent events and experiences in their lives. Retain some knowledge of their past lives, but this is very sketchy. Generally unaware of their surroundings, the year, the season, etc. May have difficulty counting from 10, both backward and sometimes forward. Will require some assistance with activities of daily living, e.g., may become incontinent, will require travel assistance but occasionally will display ability to travel to familiar locations. “Sundowners” – becoming more active at night– symptoms are frequent. Almost always will recall their own name. Frequently continue to be able to distinguish familiar from unfamiliar persons in their environment. Personality and emotional changes occur. These may include:

1. delusional behavior, e.g., patients may accuse their spouse of being an impostor, may talk to imaginary figures in the environment, or to their own reflection in the mirror;

2. obsessive symptoms, e.g., person may continually repeat simple cleaning activities;

3. anxiety agitation and even previously nonexistent violent behavior may occur;

4. loss of willpower because an individual cannot carry a thought long enough to determine a purposeful course of action.

During this stage the patient needs 24 hour care and supervision. Many patients enter a nursing home. This is especially true if the at-home care giver can no longer provide care whether that be the result of health problems or even death.

Stage 7 Very severe decline. All verbal abilities are lost. Frequently there is no speech at all - only grunting. Incontinent of urine requires assistance toileting and feeding. Loss of basic skills, e.g., ability to walk, sitting and head control. The brain appears to no longer be able to tell the body what to do. At this stage virtually all patients require nursing home care.

MEDICAID AND THE NURSING HOME

With the diagnosis of Alzheimer’s comes the expectation of long term care in a nursing home. Many people are surprised to find that neither Medicare nor Blue Cross or pension-plan health insurance pay the costs. A fortunate and provident few have “nursing home” insurance. However, very few of those policies will cover the full $180 per day cost of care. The only assistance with nursing home costs is Medicaid.

Medicaid is a complicated governmental program enacted into law by the United States Congress and administered by individual states who have the authority to enact their own twists on the program. Medicaid is a program put together by the Nation’s largest committee. The politics show. Some of the political twists benefit the consumer, others hurt. There is often no logic to program provisions.

THE CARE PLAN

One of the first things that must be done is to have a “care plan.” The patient and family must consider what resources, both human and financial, are available to them. The care plan will consider how much assistance is available without cost and what kind of assistance may be afforded. The progression of the disease causes the need for 24 hour assistance for the patient. In the earlier stages this will be “custodial,” that is, a person will assist with routine daily issues such as answering the endless questions, preparing meals, transporting, and performing household chores. As the disease advances the patient will need help with health care items such as medication administration, and personal assistance such as bathing and incontinence. A care plan is best done by a professional “Geriatric Care Manager” who will consider the total needs of the patient and family.

It is fitting and right that the first concern be for the patient. How will the patient be cared for when the patient needs help? Will the patient be cared for in his or her own home? Will the spouse be the primary care giver? What happens if the spouse predeceases or suffers a loss of health such that caring for the patient is not possible? Will the care be provided in the patient’s home, in the home of a child, in an “assisted living” residence, or will the nursing home be the option? Who will be responsible for making it happen?

The care plan must address the issue of the cost of care. In this instance Medicare’s benefits are insignificant. Medicaid, the government program for those who meet the eligibility standards, will pay for nursing home care, but it will notpay for in-home care or “assisted living.” All alternatives to the nursing home must be paid for by private money.

The care plan must consider that the patient will not be able to manage assets – will not be able to make investment decisions or even pay bills. Persons must be authorized to take all legal and financial actions for the patient. If the patient is the only person who has control over the assets, then the probate court will need to appoint a conservator when the patient needs to pay for care but cannot access the funds. This process will be expensive and time consuming and will subject the patient and family to court supervision. Through simple advance planning, conservatorship and court supervision can be avoided. One form of such planning is a living trust for management of all assets according to the care plan. That is, the trust can direct expenditures for particular needs that may not have been considered otherwise.

The care plan must consider the need to maintain the spouse’s standard of living. As often observed, people are living longer and also are relying more upon commercial care providers. It used to be that daughters were not employed and could take care of mom or dad. Now sons and daughters are married with both spouses working “to make ends meet.” The need for commercial care providers instead of family means that a couple’s assets must be maximized. The home and sufficient assets must be preserved for the “healthy” spouse so that his or her future needs may also be met. Finally, the plan must also consider the desire to preserve a legacy for the children. Where the nursing home must be considered, as it must for all families who are not wealthy, the patient will eventually be a Medicaid applicant and Medicaid rules become prominent in any plan.

FINANCIAL REVIEW

Financial ability to afford care options is a critical component of any care plan. A hard look at what can be afforded will answer the questions of how much will be spent on care for the Alzheimer’s patient, what is needed for the at-home spouse, how much and how soon will reliance on Medicaid be needed, and what, if anything, will be identified as the legacy assets.

With the financial review completed, some estimate may be made of a “budget” for patient care and the needs of the spouse. This may or may not be a half-and-half split of the assets. For example, a patient and spouse may be fortunate enough to have a child or spouse who can share the load of patient care. Sometimes the patient may move into the home of a child and receive 24 hour around the clock assistance. Today, this is rare. Most families have working children who are not be able to provide the level of care that is needed. An outside agency is needed for in-home care, an expense that must be considered in the care plan budget.

The needs of the “healthy” spouse cannot be underestimated. People are living longer today. Achieving age 100 is not a newsworthy event anymore. It may be true that the spouse can live on just social security and a small pension while still “young,” but as people age assistance with living in the residence is a necessity. Many of the full-service assisted living residences are just as expensive as nursing homes. The care “budget” must allow for these potential expenses.

In the end, the nursing home must be considered and Medicaid enters the analysis.

MEDICAID ELIGIBILITY RULES

Medicaid is a “means tested” program. It has “resource” rules concerning “assets” and “income.” Since the cost of the nursing home is so high, satisfying Medicaid’s income eligibility rules is rarely an issue, however, the same cannot be said about Medicaid’s asset rules.

Assets. As a general rule, Medicaid will not begin to pay medical bills until the “countable” assets of the applicant are “spent down” to the Medicaid allowable limit of $2,000.

Exempt Assets. Certain assets are exempt for purposes of determining an individual’s Medicaid eligibility. For example, the applicant’s primary residence is a non-countable asset as long as either the applicant has the “intent to return home” though he is residing in a nursing home, or the primary residence is occupied by the applicant’s at-home or “community spouse,”or the applicant’s minor, disabled or blind child. Other exempt assets include one automobile, household and personal effects, and an irrevocable pre-paid funeral contract and burial goods.

Countable Assets.All assets that are not exempt are considered to be “countable” assets. These include joint checking accounts, savings accounts, certificates of deposit, money in safe deposit boxes, brokerage accounts, stocks, bonds, IRAs, annuities, life insurance (cash value), and real estate other than the home.

Jointly Held Assets. It is presumed that all funds held jointly with a Medicaid applicant by financial institutions belong to the applicant, including savings, checking, time deposits or certificates of deposit. This includes assets held with the spouse or any other person. To rebut this presumption, the Medicaid applicant must:

1. submit a written statement, along with corroborating written statements from the other account holders, regarding who owns the funds, why there is a joint account, who has made deposits and withdrawals, and whether withdrawals have “divested”;

2. submit account records for the months for which ownership of funds is at issue; and

3. separate the funds owned by the Medicaid applicant from the funds of the other account holders.

Community Spouse Resource Allowance (CSRA). Where the applicant is married, the countable assets are divided in two, with the at-home or “community spouse” allowed to keep one-half of all countable assets to a maximum of $95,100 (2005). The amount of the countable assets which the at-home spouse is permitted to keep is called the “Community Spouse Resource Allowance” or “CSRA.” The other half of the countable assets must be “spent down" until $2,000 or less remains.

Snapshot Date. The date the married applicant entered long term care is the date Medicaid will use to determine the total countable assets. This process is called the “initial assessment.” The date of entry is that of the continuous period of care 30 days or longer. It is often the date the patient entered the hospital and from there transferred to the nursing home. The initial assessment results in a “snapshot” of the couple’s assets as of entry into long term care, and it is this process that determines the CSRA. The “spend down” amount is any excess resources above the Medicaid allowable $2,000 limit. There is only one snapshot date, and the CSRA is fixed as of that date.

Spend Down. The spend down amount is nothow much must be spent. Rather, it identifies how much must be leftafter spend down. For example, if a couple has $100,000 in countable assets, half is allowed for the at-home spouse and $2,000 for the applicant. The amount to spend down to is $52,000. In this example, until $52,000 in countable assets is reached, Medicaid will not assist. All money including inheritance, gift or earnings received after the snapshot date must be completely spent.

Trusts –Revocable and Irrevocable. Does a trust protect assets against Medicaid requirements? That depends on the type of the trust. Must the existence of assets in a trust be disclosed? Yes. The trust agreement as well as the trust assets of any trust in which the applicant or applicant’s spouse is a beneficiary must be disclosed. This includes revocable and irrevocable trusts.

A revocable trust is one in which the creator reserves the absolute and unconditional right to revoke or amend the trust at any time prior to the creator’s death. In contrast, an irrevocable trust is one in which the creator gives up the right to revoke or amend the trust. Because the assets in a revocable trust are subject to the control of the creator, the assets will be considered a “countable asset” by Medicaid.

In contrast, by transferring assets into an irrevocable trust, the creator relinquishes control over the assets. The assets will not be “countable.” Transferring assets to an irrevocable trust creates a penalty period provided that the irrevocable trust does notgive the trustee discretion to distribute principal for the benefit of the creator. If there is any discretion to disburse “principal” to the creator or spouse at any time under any circumstance, then the entire principal will be “deemed” available by Medicaid.

Look Back Period. In Michigan there is a 36-month “look back” period (60 months in cases of assets transfers to trusts), which means that when application for Medicaid nursing home benefits is made, the applicant may be required to provide verification of assets for the applicant and his/her spouse, if any, for the applicable period immediately preceding the Medicaid application date. Applicants must truthfully declare any asset transfers made within the period in their Medicaid applications. Failure to do so constitutes Medicaid fraud, which is a criminal offense.

Penalty Period. A “divestment” is an uncompensated transfer of assets. It may result in a period of ineligibility called a “penalty period.” During the penalty period the applicant will be ineligible to receive Medicaid benefits even if he meets the asset standard. The length of penalty period is calculated by the amount of assets transferred divided by the average monthly rate of nursing home care as set by the Michigan Medicaid department.

Medicaid Institutional (Nursing Home) Benebits.

Personal Needs Allowance (PNA) and Patient Pay Amount (PPA). All recipients of Medicaid nursing home benefits are required to spend their monthly income as directed by Medicaid. The program allows $60 per monthfor a “personal needs allowance” (PNA), certain deductions such as Medicare Part B and health insurance premiums and, finally, an allowance for the at-home spouse. The amount which must be paid to the nursing home each month is called the Patient Pay Amount (PPA) and is determined by Medicaid at the time the application is approved.

Minimum Monthly Maintenance Needs Allowance (MMMNA). If the community spouse does not have at least $1,562 in income, he or she is allowed to receive a supplement from the income of the nursing home spouse to reach the Minimum Monthly Maintenance Needs Allowance (MMMNA), i.e., up to at least $1,562 (2005). The community spouse may be allowed an additional amount for “excess shelter expense” to bring his or her income up to a maximum allowance of $2,377.50 (2005). The community spouse may be allowed additional income by court order. The nursing home spouse's remaining income, if any, is the PPA that goes to the nursing home.

There is noother allowance from the patient’s income for other needs of the patient such as for payment for taxes and insurance on the home or automobile. For example, PPA would be calculated as follows:

Social Security (Gross) $__________

Pension (Gross) $__________

Interest/Dividend Income $__________

Total Monthly Gross Income $__________

Minus The Following Deductions:

Personal Needs Allowance (PNA) $ 60.00

Health Insurance Premiums $__________

Medicare Part B $ 66.60

MMMNA $__________

Total Monthly Deductions $__________

Total PPA: $__________

Medicaid Application. Receipt of Medicaid benefits is not automatic. An eligible person must apply for Medicaid benefits. The application must be handled very carefully since much is riding on the grant of benefits, i.e. months of nursing home bills. Consider a common mistake: assume an applicant does not cash in a life insurance policy because that is for his burial. Suppose the $5,000 policy has a present cash value of $3,000. If it takes the Medicaid worker three months to deny the application, someone will have to pay the $15,000 in nursing home bills – money the patient does not have. The nursing home may look to the child who volunteered to handle the application. It may not be the child’s legal obligation, but he or she may have to hire an attorney to fight a collection case.

IS IT TOO LATE TO TAKE ACTION?

Fortunately, most families take action as soon as they learn that the diagnosis is Alzheimer’s. In the three stage matrix this is often in the mild stage. Some believe that if they have the diagnosis, their family member is “incompetent” and, therefore, it is too late. It is not. It may not be too late even to take steps in the “moderate” stage or Stage 5 of Dr. Reisberg’s Seven Stage scheme. The reason for this is that legal capacity is determined at the time an act is performed and by the nature of the act.

Capacity to execute legal documents is notbased on a person’s average ability during a week. For example, the patient may be able to recall the names of grandchildren on Monday. On Tuesday he may be calling the police to get the intruder out of his house, who happens to be his wife of 50 years. On one day he may be clear in the morning and confused in the afternoon. The question of “capacity” is whether he is of sound mind at the timea legal act is to be performed. We may make an analogy to the capacity to make a Last Will and Testament. This document can be completed on a person’s death bed when they may be under great pain and stress. During a moment of clarity the person may make his or her Last Will. In the same way then, a person who has the challenge of Alzheimer’s disease can execute legal documents as long as they possess the clarity of mind when executing the document. Then, it is not “too late” to take action to protect the assets and the rights of the patient and family, even if the patient has been diagnosed with Alzheimer’s disease. The patient may authorize transactions at that time, or authorize a representative to take action when needed.

WHAT STRATEGIES WILL MEDICAID ALLOW?

Transfer Assets to the Healthy Spouse. It makes sense to transfer the home to the healthy spouse since the Alzheimer’s patient will not be able to manage the home as an asset. He will not be able to contract for repairs, to get a mortgage, or to sell the home. The patient must then rely upon the spouse to handle these matters. A simple expedient is to have the patient transfer his interest in the couple’s assets to the healthy spouse.

If the spouse dies and leaves the CSRA and other assets to the Medicaid recipient, then the assets would have to be used to pay the nursing home. Medicaid would be lost until they were spent down to $2,000. If the patient could not manage the assets and if no one is authorized to assist, then the probate court must appoint a conservator. Proper advance planning to avoid these unintended consequences is needed.

Transfer of Home. The home may be transferred without penalty to certain persons, e.g. to the healthy spouse or a disabled child. If the home is transferred to the healthy spouse, and if she predeceases the applicant, then the home will pass to the beneficiaries named in her Will through probate. Probate can be avoided through other means, such as using a trust or life-estate. The transfer of the home by life-estate deed makes the children present owners in part. The transfer is a gift that has gift tax consequences. Where the gift exceeds $11,000 in value, a Federal Gift Tax Return must be filed, Internal Revenue Code §2503(b). The transfer also creates a Medicaid “divestment” penalty.

Capital gains tax must be considered where there is a present transfer of a home to children who do not use the home for their residence. The children do not receive a “step up” in basis, but rather, are taxed on the increase or gain in value of the house over what the parents paid for it and what the children sold it for. This would be true even if a parent continued to live in the house.

As part owners of the home the children have veto power on any plan to sell or to mortgage it. While most people have no immediate plan to sell or use the home equity to finance home improvements, these options are being used more often. People live longer. Their needs change. A house that is fine for a 60-year-old may be unliveable for a 90-year-old. The home needs to grow and change with the owner.

Some may ask, “Why not just transfer the home and not record the deed?” This “plan” would have the deed recorded after death, at which time the house would be sold by the children. This could make all planning for nothing. If and when Michigan enacts “estate recovery,” Medicaid may put a lien on the home. This lien could be filed even after death and the recording of the deed by the children. The lien would be paid when the house is sold. The family would find that they kept the house for the State and now must give the proceeds to the State.

Spend Down. As noted above, Medicaid requires “spend down.” This may be done in many different ways. When looking at what to spend on, the patient and representative must look around and see what needs must be met. It goes without saying that the Alzheimer’s patient is not the only person with needs, and those of the spouse, whose assets are being counted as well, must be considered. As we go through the list of options it becomes clearer that we only have so much money, and funds used for one purpose are no longer available for any other. We must make choices, as failure to do so is to save the money for the nursing home.

Debt Incurrence.Debt may be incurred immediately before a nursing home placement and may be paid off after entry.

Debt Repayment. Payment of debts is not considered a transfer. However, debts paid before the “snapshot date” in the case of a married couple will use money that would otherwise be part of the “spend down” of assets to the Medicaid allowable limit. Payment of bills, taxes and so on are better paid after entry into long term care.

Home Repair/maintenance.Money may be spent on needed maintenance or repairs, but if repairs drag on over months, the money will be lost in nursing home payments.

Home Improvements. Home improvements can be made without the expenditures being considered “divestment.”

Household Goods or Personal Effects. As a practical matter, household goods and personal effects are non-countable. Purchase of household goods or personal effects may be considered.

New Car. One might consider purchasing a new car, though it is a declining investment and the money used will not be otherwise available. The new car may be used by the person who is responsible for transporting the patient from the nursing home to visits or doctor appointments.

Prepaid Funeral. Medicaid regula­tions permit the purchase of a prepaid funeral within limits. An alternative to the irrevocable funeral trust is to make an irrevocable assignment of a paid-up life insurance policy in exchange for the funeral service. Medicaid regulations also permit the purchase of prepaid burial goods for the adult children and spouses.

Long-Term Care Insurance. While long term care insurance will not be available to a person with Alzheimer’s or other progressive degenerative condition, the spouse may wish to consider purchasing the insurance. It may be a way to use “excess” income to replenish lost assets.

Retirement Accounts. It must be remembered that Medicaid does consider IRAs and such accounts as “countable assets.” However, the withdrawal of funds from a retirement account is a taxable event and, therefore, the distributions should be timed with an eye toward tax deductions. A retirement account may be saved through the purchase of a qualified annuity that essentially turns the account into a defined income stream for the wage earner. When Medicaid is the consideration, the annuity must meet the strict Medicaid rules.

Annuity. When a person is in the nursing home, Medicaid will allow spend down by a single premium immediate annuity. If the patient is the recipient of the funds, as long as the patient is alive all payments will go to the nursing home. Michigan does not currently have estate recovery, so that when the patient dies the beneficiaries will receive any remaining funds in the annuity. Purchase of annuities prior to entry to a nursing home must be very carefully weighed. Some annuities are called “Medicaid friendly,” meaning if the owner enters a nursing home, then money may be taken out of the annuity fund without a surrender penalty, e.g., the annuity may be “cashed-in.” This type of annuity contract may not allow release of funds without penalty for in-house or assisted living care if the person should leave the nursing home.

Interest Only Note. One might consider transferring assets to the children in exchange for a non-assignable interest-only note for a fixed period of time. This is an “aggressive” strategy, the success of which depends on the rules of Medicaid in effect at the time.

Sale to a Defective Grantor Trust. For Medicaid eligibility purposes, as a general rule, transfers to trusts are subject to a five-year “look back.” However, if a transfer is a “transfer for value” it is not subject to a Medicaid transfer penalty.

Sale by a Self-Canceling Installment Note (SCIN). One aggressive strategy is to transfer countable assets by sale in exchange for a Self-Canceling Installment Note (SCIN). This is considered a transfer for value and the SCIN may not be a countable asset depending on the particulars of the transaction, so Medicaid eligibility could be achieved. There is a risk that the note could be contested by the Medicaid agency as “divestment” resulting in expensive appeals.

Income Only Trust. This option is typically used for long range planning, not for Medicaid spend down. The potential applicant or spouse chooses assets they do not plan on spending, but rather, plan to leave as an inheritance. For example, it would be possible to transfer the home to such a trust, though all the tax issues would need to be considered. One could take assets and transfer them to a trust for the benefit of the healthy spouse. The healthy spouse would be entitled to the income, but not to the principal. The look back period for transfers to this type of trust is five years. One would not be able to apply for Medicaid until either the expiration of the five year look back period or the penalty period caused by the divestment, whichever occurs first.

Spousal Annuity Trust. This type of trust mimics an annuity for the sole benefit of an at-home spouse. The assets placed in the trust are to be paid out to the spouse over his or her life expectancy. Under the 2004 rules the transfer is not divestment. Assets in the trust would not be considered available for Medicaid eligibility purposes.

Care Agreement. A child who provides a home and/or care to a parent is entitled to compensation by the parent for such care. Income received by a child for rent or for care is taxable income to the child.

Transfers of Assets.­­One asset protection technique is to transfer or “gift” a portion of the assets. The gifts must work in conjunction with the care plan. If made when a nursing home placement is in the foreseeable future, we must first estimate the money needed to pay the monthly nursing home cost during the “penalty period” caused by the transfers. Secondly, we must ensure enough “key money” (see below). Some asset transfers do not cause a penalty, however, the transfer still deprives the patient of money for care. No assets should be transferred if it will deprive the patient of needed assistance or be made in a way that the assets may not be used as intended.

Court OrderEven after institutionalization the law permits the spouse to go to court to get a court order allowing for a larger share of assets. Medicaid would then not consider the assets as available or “countable.”

Other Considerations

Estate Recovery. If and when Michigan enacts “estate recovery,” Medicaid will be entitled to recover from the estate of a deceased Medicaid recipient. It may recover all monies expended on behalf of that recipient while that individual was over the age of 55, provided that there was no surviving spouse or minor or disabled/blind child. If so, Medicaid must patiently wait. Medicaid’s right of recovery may be limited to identified assets only, if every effort is taken to be sure that the Medicaid recipient does not have any assets in his or her name other than a small personal needs account. That means the home is a very large at-risk asset. The potential for estate recovery is particularly critical when considering the future implications for homes owned by Medicaid recipients or spouses.

Nursing Home Key Money– Security Deposit.Many nursing homes require payment on a “private pay” basis for a certain period of time as a condition of admission.

Variables

There are a number of variables which will affect any planning, thus the need to be able to adapt to change and the unforseen and unpredictable. Care planning must be capable of making changes as needed.

Date of Entry. We do not know if or when the Alzheimer’s patient will require in-home care or care in a nursing home or assisted living facility. If the Alzheimer’s patient enters an assisted living facility, we do not know how long he will be able to stay before requiring nursing home care.

“

Key Money”

MISTAKES TO AVOID

If the patient and family does not plan, they may fall into expensive and needless mistakes. Consider these true examples:

Case Study 1: Mistaken reliance on joint bank accounts. Result: Civil lawsuit.

Client was joint owner on her father’s bank account. On that basis she signed a nursing home admission agreement. She got into a dispute with the nursing home over the quality of care and the home’s failure to obtain payment from Medicare or Blue Cross. She removed her father from the nursing home telling them she would not pay the bill. The nursing home sued both her and her father. Father had no money.

Result: Client had to pay nursing home $14,000 for her father’s bill.

Case Study 2: Mistaken reliance on joint bank accounts. Result: Criminal charges.

Mother went into a nursing home. Son recalled conversations with her wherein she stated that she did not want all of her and her husband’s life-savings to go to the nursing home and she wanted her children to have something. Son withdrew $100,000 from the account as a joint owner.

Result: Son was charged with criminal embezzlement.

Case Study 3: Failure to plan for incapacity. Result: Probate court involvement.

An 85-year-old single man had a mini-stroke while driving home from church. He hit the car in front of him and was hospitalized for a concussion. While hospitalized he was agitated, confused, and he had very poor memory. The hospital filed for guardianship upon learning he had no wife, children, or anyone authorized to act for him. A public guardian put him in a locked facility for his own safety. Four months later, after hiring an attorney and going to court, his nephew was able to arrange for his return to his own home with in-home assistance.

Result: Court appointed conservator, court fees in the thousands of dollars, and loss of independence.

Case Study 4: Wife appointed conservator for husband. Result: Court petition to sell home.

Husband went into a nursing home. Wife decided to sell home since she could not take care of it, she had run out of cash, and she was using credit cards to pay bills and get cash. Wife found a smaller condo. Since she had been made her husband’s court appointed conservator, she had to get court approval. After six weeks and over $4,000 in legal fees the court approved the transactions on the condition that her husband’s name be placed on the condo and the court file remain open.

Result: Court fees in thousands of dollars and loss of independence

WHAT DO I DO?

We know this Report is voluminous and it is notexhaustive. Many people take one look and say, “Just tell me, what do I need now?” The answer – you need a plan. You need a care plan. You need a “legal plan.” Your legal documents must completely empower the people you will be relying upon andthey must be flexible enough to handle contingencies. The basic documents are:

Health Care Power of Attorney.

a. consent to, refuse, or withdraw consent to all types of medical care, treatment, and procedures;

b. be the HIPAA personal representative authorized to access medical records, disclose the contents to others, and execute medical releases;

c. authorize admission to or discharge from (even against medical advice) any hospital, nursing home, or care facility;

d. contract for any health care related service or facility, without incurring personal financial liability for such contracts;

e. hire and fire medical and other support personnel responsible for care;

f. execute any documents, such as a refusal of treatment form or a do-not-resuscitate order that a physician or a facility may require to carry out wishes regarding medical treatment;

g. last and not least the document can and should authorize the Patient Advocate to seek out new forms of treatment and assessment and not just passively follow the present treatment regimen.

The Health Care Power of Attorney grants the authority to the Patient Advocate that is needed during the course of treatment for Alzheimer’s. It should address issues such as: Is the Patient Advocate authorized to make medical decisions if the patient cannot participate in such decisions? Is the Patient Advocate authorized to make decisions concerning mental health treatment (e.g. “agitation,” depression, paranoia)? Is the Patient Advocate authorized to agree to hospice? Should the Patient Advocate consent to novel treatments? It is much more than an end-of-life form only to be used if two doctors certify that the patient is unable to participate in medical decisions.

The Health Care Power of Attorney must work with the care plan and must empower and authorize the Patient Advocate to advocate for the best quality of care with the patient’s physicians whether the patient is residing at home, at an assisted living facility, or at a nursing home.

Durable Power of Attorney.

Your Durable Power of Attorney mustauthorize your agent to implement each stage of your care plan and must specifically authorize asset protection.

Will.

If the patient has transferred all of his or her assets to the spouse then the possibility that the spouse may predecease should be planned for. The healthy spouse's Will or Trust should specify what should be done with the home and other assets. If the assets are left in the Alzheimer’s patient's name or in joint names, then upon the death of the healthy spouse, the Alzheimer’s patient will have title to the assets. This would lead to probate court supervision as discussed above. If the assets are left to the children they may be left in trust to be held for the life of the patient. If they are given to the children then it must be clear whether any obligation is imposed on the children to use the assets for the patient or not. This may depend on whether the patient is still at home or whether he is in a nursing home.

We generally recommend that no assets be given to the Alzheimer’s patient unless they are held in trust for the patient under terms that address asset protection.

Revocable Living Trust.

1. A married person whose spouse has Alzheimer’s can address the concern of who will take care of the sick spouse should the “healthy” spouse predecease. There may be no children or the healthy spouse may judge that the children need guidance and assistance in the care of their parent.

2. Single persons who have no spouse or children to care for them should they become incapacitated can find the trust assists in maintaining independence and control over their future. It can incorporate the care plan. The trust will also direct gifts after death, otherwise the property would go to distant heirs.

3. A parent of an adult disabled child who wants to provide for the child after the parent dies. The trust may be made so that the child does not lose public benefits.

4. A person who wants to leave property with conditions or “strings attached.” For example, a grandmother may want to leave $10,000 to a grandchild for college education, but if the grandchild does not go to college, then the $10,000 is not available until the grandchild reaches the age of 25. A parent may have a child with a drug or gambling problem and may wish to designate the trustee to administer the child’s inheritance. A Will may not place conditions on gifts and if it does, the probate court must create a “testamentary” trust.

5. Persons with real estate in more than one state who want to avoid multi-state probate.

6. Persons with a business such as a landlord with many rental homes. The trust will allow for smooth transition of administration in case of disability or death.

7. Persons who want to avoid probate and do not want to use joint property to do so.

8. Estate tax motivated persons whose tax avoidance plan requires the use of a trust. These persons, by definition, have over $1.5 million dollars in worth and need not be concerned about Medicaid since they have the ability to pay for a nursing home without impoverishment.

HOW CAN A TRUST HELP IN CASE OF INCAPACITY?

As you have become aware, your trust shouldauthorize each step of your care plan. In addition, itmustspecifically authorize asset protection. If it does not, then you will predictably lose. One great advantage of a trust is that it provides for comprehensive disability planning. If the settlor becomes incapacitated, the trust provides for a successor trustee to take over trust administration. The successor follows the instructions in the trust. For example, if a nursing home stay is a possibility, the settlor may instruct that all alternatives are considered first. The settlor may set personal standards of care over and above what the law requires. The trust instructions may require the hiring of independent professionals to monitor the quality of care or to provide for regular visitation and a patient advocate. The trust avoids the necessity of having the probate court appoint a guardian and conservator to manage assets and make personal decisions.

SUMMARY

Alzheimer’s is a cruel disease. It follows a predictable course. A patient and family may find some comfort in the knowledge that the progression of the disease is known and they have the opportunity to make plans. With a care plan in place the patient can receive the highest quality, most personal care possible andprovide for loved ones. Legal documents must authorize and instruct those who come to the aid of the patient on how to get the best care possible, and how to preserve the assets for the needs of the dear spouse and children who mean so much to the patient.

It will be a rough journey. With preparation and professional assistance, you will find comfort in knowing that you have done all you can to make the journey as successful as possible. We wish you godspeed.