As October comes to a close, we prepare ourselves for Halloween: a time full of haunted attractions, scary costumes, and ghost stories. While it becomes easy to immerse ourselves in the fantasy world created by the Halloween season (and yes, many people treat it as a season), we must not forget the real life planning needs that drive everyone batty. Putting the terrible pun aside, here are 5 real life horror stories showing what can go wrong with a lack of estate and elder law planning.
Never Executing a Power of Attorney or Health Care Proxy: The Tale of Two 90 Year Olds
Mom and Dad (both 90) have lived typical American life, with a fair pension and social security, $50,000 in savings, and a house owned by both free and clear of mortgage. Neither ever engaged in any form of estate planning, because to them, estate planning is “planning for death”. Further, they believed themselves to be the type of people who would die healthy.
Not paying attention to any of the signs, Mom begins to show signs of Alzheimer’s. The family thinks that she is being forgetful in her old age. As time goes on, Mom is not only forgetful, but can no longer care for herself. She cannot get dressed herself, almost burned down the kitchen when she tried to cook ramen noodles, and has become incontinent. Dad can barely care for himself, let alone Mom, and the children work full time jobs.
As such, Mom needs to move to a nursing home and apply for Medicaid to pay for it. The only problem is that by law, no one has the authority to make a Medicaid application on Mom’s behalf or take the proper steps to shield whatever assets that they can shield (mainly the house). Without a Power of Attorney and Health Care Proxy, the family is forced to file with the Court for Guardianship of Mom. The cost involved includes paying for two attorney’s fees (the attorney the family hired to complete the application and the attorney appointed by the court to represent Mom’s interests), two doctor’s fees (part of the statutory requirement for filing for guardianship), and the filing fees.
While it is impossible to give an estimated amount of what an individual guardianship will cost, this often ends up costing around $5,000-$10,000! A lot of money could have been saved if Mom and Dad had gotten basic estate planning documents. Further, the Guardian needs to file an annual report every year indicating how Mom’s money was spent. Once Mom passes, the Guardian needs to file a formal accounting to be discharged from their duty, which is not cheap or easy.
End Result: Family petitions Court to be appointed Guardian for mother, has to pay for two attorney’s fees out of mother’s assets, and must report with the Court yearly regarding how they spent mother’s assets.
Never Executing a Power of Attorney or Health Care Proxy: The Tale of a 20 Year Old
Jessica is a 20 year old junior at Florida State University. She doesn’t have any estate planning documents, because what normal 20 year old has estate planning documents? Her parents live in New Jersey. Mom and Dad receive a call from Jessica’s boyfriend one day, informing them that she drank too much at a fraternity party and fell off of the second floor balcony. The only thing they know is that Jessica is stable, but in serious condition. While waiting for their flight, Mom and Dad call the hospital to find out more about Jessica. They are informed by a staff member that since Jessica did not have estate planning documents, and because she is over the age of 18, the hospital cannot verify if she is a patient, discuss the nature of her condition, or even update them on her condition. This situation would have easily been remedied with simple estate planning! This scenario could be even worse if Jessica loses her capacity and has no one appointed to do things financially or medically for her, which would require a Guardianship.
End Result: Mom and Dad spend hours worrying about the condition of their daughter, being unable to obtain any information via telephone.
Dying Without a Will: The Tale of a Late Life Remarriage
Tom, 80, lost his wife 20 years ago due to illness, leaving behind him and three adult children: Joe, John, and Tom Jr. Tom’s children mean the world to him. Realizing that he wants company in his life, Tom moves into a “retirement community” with likeminded people over the age of 65. While at the community, Tom meets Pam, who similar to Tom, is an 80 year old widow.
Tom and Pam decide to get married, with the understanding that when either of them pass away, his or her assets will go 100% to his or her children. They each have enough money ($400,000.00 each), and they like each other’s children and promise to make sure that the children get everything.
Ten years later, at the age of 90, Tom passes away without a Will. Four months after Tom’s passing but before his estate is resolved, Pam passes away without a Will. What Tom and Pam didn’t realize is that when you get remarried, and die without a Will, your assets do not automatically go to your children. Rather, in this situation, NJ statutes specify that because Tom passed away first, Pam was entitled to the first 25% of Tom’s estate (but not less than $50,000.00 or more than $200,000.00), plus 50% of the remaining balance. While Pam would have ensured that the money would have all gone to Tom’s children, Pam’s children are not so nice. Because Pam outlived Tom, her children are successful in Court, and thus inherit $250,000.00 of Tom’s $400,000.00 estate (along with inheriting Pam’s entire $400,000.00 estate), leaving Tom’s children only inheriting $150,000.00.
End Result: Because Tom and Pam did not plan properly, Tom’s beneficiaries inherit $150,000.00, while Pam’s beneficiaries inherit $650,000.00.
Dying Without a Will: The Tale of a Young Parent
Katie, 30, is a single mother of an 8 year old daughter, LuAnn. While Katie does not have much, she does have some savings ($30,000), and owns minimal equity in a house with a mortgage. Like other Millennials, Katie does not have any estate planning documents in place. Dying isn’t even a thought that Katie entertains because she is young, and assumes it won’t be an issue for a long time. Unfortunately, Katie gets into a fatal car accident at the age of 30, failing to plan for LuAnn.
LuAnn’s father is a deadbeat dad and not interested in raising her. In addition, the closest relatives, Katie’s parents, are divorced, and both want custody of LuAnn (even though Katie would have given custody to her sister). As such, since there is no Will naming a Guardian of LuAnn, a legal battle ensues over custody.
Further, LuAnn is under the age of 18, and thus cannot inherit money in New Jersey. As a result, whoever wins Guardianship must also obtain a property Guardianship to gain access to the funds that are rightfully LuAnn’s by law. This Guardian then has to file an Accounting with the Court every year to explain how any assets were spent, and get approval, along with other requirements.
This difficult process could have been avoided altogether if Katie created a distribution pattern in her Will and named a Guardian for LuAnn’s benefit.
End Result: Katie’s parents get into an expensive legal battle for custody of LuAnn, and the person who ultimately becomes Guardian has to apply to the Court to obtain access to Katie’s funds for LuAnn’s benefit. This is very costly.
The Medicaid Dilemma: Going with a “Medicaid Expert”
Susie is 90 years old, and has a daughter, Janet, who is receiving Social Security Income (“SSI”) payments due to a disability that doesn’t allow her to work anymore. Janet lives with Susie because she cannot afford her own apartment on the SSI payments alone. Janet is a loving daughter, and helps care for her mother.
As Susie ages, they have to hire an additional caretaker to help Janet care for her. As they realize that Janet is running out of money and a full time caregiver is needed, they decide to be proactive, and move her to a Nursing Home of their choice. The nursing home advises Susie and Janet about how they will need Medicaid when the money runs out, and refers them the local “senior Medicaid Experts,” that they have a relationship with. The “experts” inform Susie that she needs to sell her house (worth approximately $400,000.00), and spend the money down on her care to qualify.
While Janet understands that she now has to find low-income housing, she wants to do whatever she can to make sure her mother gets the care she deserves. So, the family sells the house, spends the money on the facility, and Susie qualifies for Medicaid at the age of 96. It’s a smooth transition.
Seems like everything is fine, right? WRONG! Had Susie and Janet seen an experienced Elder Law attorney, they would have been informed that Susie could have transferred her house to Janet, and still qualified for Medicaid three years earlier (despite the five year lookback period). This is because Janet meets the definition of a “Disabled Child”, and transferring assets to a disabled child is exempt from Medicaid transfer rules. While seeing a “Medicaid Expert” saved money in the short term, it definitely cost a lot more in the long term. The real winner here is the facility, who gets paid privately for about 6 years.
End Result: Janet is forced to find a place to live despite making minimal money each month, and inherits nothing from her mother. Proper planning could have, at the very least, allowed Susie to receive Medicaid AND Janet to inherit the house.
The stories contained in this post are meant to be illustrative only, and are based on the facts of real cases with changes made to simplify the issues at hand. The information contained in this article is not, nor is it intended to be, legal advice, as every case is different. For individual advice on your situation, please contact Hynes Law Group at 908-514-8008.