• A medical power of attorney is used to appoint someone to make your medical decisions and provide that person with guidance regarding your wishes.

• A financial power of attorney appoints someone to make your financial decisions. There are many different types of financial powers of attorney with significant differences between them. For example, whether your agent has the power to make gifts to others can have tax implications, as well as expose your estate to risk. On the other hand, without gifting authority, Medicaid planning can become more difficult.

• A living will can provide detailed instructions for how you wish to be treated during disability.

• A will is a set of instructions to the probate court for the distribution of your estate. This is one area that causes some financial loss to many families. The probate process is time-consuming and often expensive. It is not uncommon for the cost of administration to equal 4-8% of the value of an estate. In this economy many people are putting off their estate plans. A failure to plan altogether will almost certainly result in much more in the way of expense down the road.

• A revocable living trust is a document that provides instructions and authority to another person for handling your estate both during your lifetime and after your passing. Because the trust agreement is revocable, you can make changes to the agreement or remove property from the trust at any time before your death. A revocable living trust is useful for avoiding probate only and does nothing to protect against creditors or the cost of long-term care.

• An irrevocable trust is a set of instructions regarding your estate that generally cannot be changed by the creator of the trust in at least one way. So, for example, a trust would be irrevocable if the creator of the trust could not receive any principal placed in the trust.

If you should die or become disabled without at least some of these documents in place, it is very likely that your family will need to seek authority from a probate court to make decisions for you. The probate court has a number of procedures and powers that correspond in many respects to the estate plan documents listed above. In Michigan, the court receives its jurisdiction over these matter from the Estate and Protected Individuals Code, MCL 700.1101:

• A conservatorship is a procedure of the probate court in which a person is appointed to have authority over your property. The conservator must make regular accountings of your trust property

• A guardianship is a procedure by which the court establishes a decision-maker related to issues concerning your physical well-being, such as your medical care and where you live.

• A protective order can be granted that will provide authority for a specific action having to do with your estate, such as the transfer of your home.

• An estate of a deceased person can be distributed to creditors and heirs by means of probate. This procedure will generally take at least six months and cost at least 4-8% of the value of the estate. In the alternative, a trust administration will generally be less time-consuming and expensive and can be handled in a more discrete manner.

The difficulties with going to the probate court are many. First of all, the process will be much more time- consuming and expensive. Secondly, probate proceedings are generally public matters, though they often deal with subjects that are precisely things that people would prefer to keep private. But above all, it is very difficult for a probate judge to know exactly what a person may have wanted. And the judge must err on the side of safety and caution. The approach is understandable, and it is certainly not an error on the part of the judge who must be cautious, but it can nonetheless be costly when long-term care or disability issues are being handled and, more to the point, differ from what the protected person may have wanted.

One final point about decision-making: failure to execute proper estate plan documents will leave you in the default position. That is, your estate and your decisions will be governed by the state's default rules. That is usually not a good position to be in for tax purposes and it is almost always disastrous when it comes to disability planning.

“Throughout the process one point has become clear, that more and more people are finding themselves in need of individual coverage, but the system does little to help them. As the bills go back to the House, we are hopeful that there will be meaningful solutions on this important issue,” Blue Cross said.

Blue Cross officials have said the individual market needs new rules to accommodate a growing number of people expected to join it over the next five years. The Blues argued for the high-risk insurance pool, which would require assessments from competing insurers after two years.

The push and pull of the legislative process is a reasonable mechanism for working out these controversial and complex topics. There is no easy solution to the pressure that health care costs place on the economy as a whole or the individual retiree's monthly budget. The key is to remain informed and involved in the process.

In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Retirement assets present some of the most difficult problems in elder law, but there are solutions. With some intricate planning, one can use a solely for the benefit of trust, for example to preserve the tax-deferred funds and obtain qualification. This is an important alternative for families to consider so that retirement assets are not unnecessarily depleted by the cost of long-term care or restricted to minimal returns and subjected to estate recovery.

One of the biggest obstacles to overcome is the so-called uncapping of property taxes. In Michigan, property taxes can only increase by a fixed percentage each year, regardless of the increase in fair market value of the real estate so long as the real estate is owned by the same person or joint owners. For those who have held real property for a long time, this rule has helped to keep their property taxes down.

When real property is transferred to another person, such as through a sale or a gift, the property tax values will generally be reset at the fair market value of the real estate at the time of the transfer. Knowing the exceptions to these rules and how to retain sufficient interest in the property by the grantor can be critical to obtaining the best possible asset protection result without incurring additional property taxes.

One example of how an uncapping of property taxes can be avoided is through the creation of joint tenancy. Under MCL 211.27a (h), the creation of a joint tenancy does not create an uncapping under most circumstances:

A transfer creating or terminating a joint tenancy between 2 or more persons if at least 1 of the persons was an original owner of the property before the joint tenancy was initially created and, if the property is held as a joint tenancy at the time of conveyance, at least 1 of the persons was a joint tenant when the joint tenancy was initially created and that person has remained a joint tenant since the joint tenancy was initially created. A joint owner at the time of the last transfer of ownership of the property is an original owner of the property. For purposes of this subdivision, a person is an original owner of property owned by that person's spouse.

One way of reading this paragraph would allow for avoiding the uncapping of property taxes indefinitely. If Annie and Barrie own property that they transfer to Charlie by creating a joint tenancy, no uncapping results. Furthermore, if Annie, Barrie and Charlie convey to Annie, Barrie, Charlie and Danny as joint tenants, one could argue that Charlie is an "original owner" for purposes of MCL 211.27a(h) and that at the passing of Annie and Barrie, Charlie and Danny will continue to pay property taxes at the "capped" rate, i.e., without regard to the fully appreciated value of the property. So what prevents Charlie and Danny from conveying the property to Eve as joint tenants and continuing to avoid the uncapping of property taxes?

This technique is one example of how a careful understanding of Michigan's property tax law can result in significant savings and maximize the value of an asset protection plan.

First, you should understand that the rules are different for single people and those who are married. To make things just a little more complicated, if both spouses of a married couple are in the nursing home, they are both subject to the rules of a single person, with each spouse qualifying separately.

Single people are permitted $2,000.00 in assets and $60.00 a month in income. The remainder of non-exempt assets will have to be spent down until the asset threshold is reached. The additional income will be used to pay the cost of long-term care, even after qualification for Medicaid. See below for details on what assets can be exempt.

Married people are entitled to keep 1/2 of the couple's non-exempt assets, with a minimum protected amount of $20,880.00 and a maximum of $104,400.00. This protected amount is known as the Community Spouse Resource Allowance or CSRA. For some thoughts on increasing the CSRA, click here.

Exempt assets in Michigan include a home with less than $500,000.00 in equity value, one automobile, a burial space, a pre-paid funeral contract, up to $1,500.00 in face value of life insurance, wedding and engagement rings, household goods, and very little else.

Assets that are not exempt include bank accounts, stocks, bonds, retirement accounts (IRAs, 401ks, etc) and virtually anything else of value.

It is widely anticipated that there will soon be limitations placed upon the automobile, including that it must be worth less than $25,000.00 and it must be purchased by a single person before entering the nursing home. So there will be no more purchasing a Cadillac on the eve of qualification, which has previously helped many families preserve assets.

Giving away assets now results in a period of ineligibility that will not begin to run until one is otherwise qualified for Medicaid. In other words, one must be completely out of non-exempt assets before the period of ineligibility will begin to be served. This makes it extremely difficult to preserve assets in the case of Medicaid crisis situation, i.e., there has been no previous planning for a person who is now or will soon be in long-term care.

It is difficult to lay out every complexity of this area of law in an article such as this and indeed, I have not done so. There are many fact-sensitive exemptions and asset protection strategies and other issues that are outside of this scope of a brief note like this. But as a general rule of thumb, I can help you to preserve 50% or more of long-term care patient's assets. Feel free to email me if you would like to discuss your situation and learn more.