Definition of Estate Planning and Elder Law Words
The purpose of this section is to give you a short definition of many of the common words used in estate planning and elder law. Within each definition, the italicized terms are listed in this glossary so you can find the definition of those as well. Let me know any other words you would like to see added to this in the next edition — thanks! (This is from our upcoming book).
Activities of Daily Living (ADL): These are activities that we can all do but now we need help with them in order to qualify for VA Pension. These normally include dressing, bathing, going to the bathroom, getting up and down out of a chair or bed and generally being safe in our home.
Aid & Attendance: This is the highest level of VA Pension — it can exceed $25,000 a year tax free for a married wartime veteran. Basically to qualify medically your loved one needs to require help with two activities of daily living or not be safe living without supervision.
Alabama Medicaid: This is a federal program administered by Alabama that pays for the vast majority of all long term care nursing home beds. There are strict rules about when you can qualify, the amount of income and assets you can have, and rules on gifts made in the 5 years prior to applying for and qualifying for Medicaid. It also can help those not in a nursing home — usually those with special needs.
Annuity: An investment product where typically you pay a lump sum of money and then, in exchange, an insurance company promises to pay you back a series of payments. The payments can be monthly for a fixed period of time (5 or 10 years, etc) or for your life or some other period of time. In elder law the right type of annuities are used to convert assets that might disqualify you from Medicaid or VA Pension into income.
Asset Protection: Protecting what you own — your assets — from creditors and predators. The basic concept is whatever you have access to, your creditors and predators have access to also. We use asset protection strategies to legally protect your assets from, for example, the ravages of long term care which can in a few years wipe out what took you decades to accumulate.
Assets: Any item of value owned by the institutional or community spouse. This can be investments, rental property, IRAs, cash, CDs, artwork, life insurance policies, etc. In both Alabama Medicaid and VA Pension normally we combine assets owned by both spouses, regardless of whose name the individual asset is in. We determine the value by taking the fair market value minus any debt or lien on the asset.
Assisted Living Facility: A facility where you live and the staff assist you in the activities of daily living which normally include bathing, dressing, going to the bathroom, etc. This type of facility is a higher level of care than an independent living facility but it is a lower level of care than a nursing home (skilled nursing facility).
Base Pension: This is the lowest level of VA Pension — for when wartime veterans or surviving spouses are not housebound and don’t need aid and attendance. For most practical purposes, it is very difficult to receive any money from merely a base pension but exceptions occasionally exist.
Community Spouse: This is the spouse who is living at home — in the community — while the spouse who is sick is in the nursing home. The spouse who is sick is sometimes called the “institutional spouse.”
Conservator: If you can’t make decisions for yourself, and if you don’t have a proper power of attorney or trust, then your family will go to court to get a conservator appointed. This person makes the financial decisions for you. A guardian makes the non financial decisions.
Countable Resources: The assets that Alabama Medicaid (and the VA Pension if applicable) consider you and your spouse to have in order to determine if you qualify for Medicaid (or VA Pension) benefits.
Crisis Planning For Medicaid: When a loved one is already in the nursing home, and no pro-active Medicaid planning has occurred, then we must do crisis planning. While it is better to plan ahead, even in a crisis case we normally can save a sizable amount of assets and still get the long term care in a nursing home that your loved one needs.
DD-214: This is the military form or record where the VA says when you entered service, when you left the service, and the type of discharge. We use this to see if we meet the first requirement for the VA Pension, which is military service during a time of war (World War Two, Korea, Vietnam, or Gulf War) and that you had an honorable discharge.
Elder Law: A specialized and advanced type of estate planning that focuses on how to preserve your family’s assets while getting you the long term care that you need.
Estate: The money and assets you have when you die that are in your name only as opposed to being owned jointly or that are in a trust. Your estate is controlled (normally) by your will which goes through probate court.
Estate Planning: This is planning for what you want to happen to your stuff when you are dead or can’t make your own decisions.
Fair Hearing: If you disagree with a Medicaid ruling, you can appeal it to get a hearing. The hearing is called a “fair hearing” but keep in mind the rules are stacked against you. Sometimes it is better to sue Medicaid in federal court than to play by the sometimes unfair rules in state court…
Fair Market Value: This is the amount a willing seller, and a willing buyer, would agree on if neither one was under any external pressure. In other words, we are not talking about a desperate buyer or seller.
Gift: This is where you transfer something for less than the full fair market value. So if you receive nothing back on a $50,000 asset, the gift is $50,000. If you receive $10,000, then the gift is $40,000.
Guardian: When you can’t make decisions for yourself, then if you don’t have a proper power of attorney, then your family will go to court to get a guardian appointed — this is someone who has control over you but not your money. So they will make the non monetary decisions for you. A conservator makes the money decisions.
Housebound: Sometimes called “homebound” — this is a VA Pension benefit for war time veterans (and surviving spouses) who cannot leave their home without the help of someone else. This is not the highest level of VA Pension — “aid and attendance” is but this is the next highest level.
Income: Money of almost any type that comes in. This could be Social Security, pension, rental income, etc. In Alabama Medicaid we keep separate the income of each spouse but in the VA Pension we combine the income of both spouses. Under Alabama Medicaid, the income limit to still qualify for benefits is $2,199 but if the institutional spouse’s income exceeds this, then a QIT (Miller Trust) can be used.
Independent Living Facility: A facility where you live, but you do not receive any assistance in the “activities of daily living” such as bathing, dressing, going to the bathroom, etc. This is “below” an assisted living facility which is the next step if your health deteriorates.
Institutional Spouse: The spouse who is sick and who lives in a skilled nursing facility (nursing home) while the spouse who is still at home is called the “community spouse.”
Irrevocable Trust: A trust that is created but the creator of the trust cannot change his or her mind. They cannot pull assets out of the trust and use them for the creator’s benefit. This type of trust, when done correctly, provides great asset protection and is key in doing elder law planning for Alabama Medicaid and VA Pension.
Long term care: Care that is not for a temporary illness or injury. Instead the care is expected to last long term and is generally associated with the effects of aging, diseases, and injuries that require assistance at home, in an assisted living facility, or in a nursing home. Four basic ways to pay for this: (1)Your personal money; (2)Long term care insurance; (3)VA Pension; and (4)Alabama Medicaid.
Long term care insurance: Insurance designed to pay you money directly (normally at a daily rate) if you need long term care. Most policies have a total dollar limit and a daily limit. There are some “hybrid” policies that allow your family to receive a death benefit if you don’t need any or all of the long term care portion of the policy. In essence, these hybrid policies combine life insurance with long term care insurance. We often use long term care policies when doing pro-active medicaid planning.
Look Back Period: In the Medicaid context, if you qualify and apply for Medicaid (to pay for a nursing home), then Medicaid looks back 5 years to see if you or your spouse have given any assets away. That is less than the full fair market value. Any asset — money, investments, property, etc. The purpose doesn’t matter — so giving away $10,000 to pay for your grandchild’s college is still a gift. If there are gifts, then Medicaid totals up the gifts and divides by (2015 number) $5,500. The answer tells us the number of months of penalty that you must privately pay for your nursing home care. An example is you gave away $110,000 of assets, so divided by $5,500 this equals 20 months of penalty.
Means Test: To qualify for Alabama Medicaid or VA Pension or SSI, you must meet certain asset and/or income tests.
Medicaid: This means Alabama Medicaid as this book is only focused on Alabama.
Medicaid Application: This is the paperwork you fill out asking Alabama Medicaid to determine if you qualify for Medicaid to pay for your nursing home costs. In this application you must disclose your financial resources and any gifts you have made in the 5 years prior to applying.
Miller Trust: Same thing as a Qualified Income Trust (QIT) which allows someone who makes over the income limit to still qualify for Alabama Medicaid.
MMMNA: Minimum Monthly Maintenance Needs Allowance which is the minimum amount of income the community spouse (the one not in the nursing home) is allowed to have. This is $1,967 in 2015. If the community spouse has less than this amount of income, then normally we can divert some of the income from the institutional spouse (the one in the nursing home) to get the community spouse up to the $1,967 a month.
Nursing Home: The highest level of care. This is where you need skilled nursing, typically around the clock type of long term care.
Penalty Period: This the number of months you must privately pay for your nursing home because you gave away gifts during the 5 year look back period. There is no limit on this so if you gave away $550,000 piece of land within 5 years of applying for (and being qualified for) Alabama Medicaid, then the penalty is 100 months ($550,000 divided by $5,500) which is over 8 years….
Personal Needs Allowance: In Alabama under Medicaid the institutional spouse is allowed to keep $30 a month for personal needs — eating out, clothes, haircuts, etc.
Power of Attorney: An estate planning or elder law document that lets you give someone else, called the agent, the power to make decisions for you. Put simply, they can sign your name. The document tells when or under what circumstance they can sign your name. Choose carefully to make sure you are giving the right person the right power.
Pro-active Medicaid Planning: Opposite of crisis planning — in proactive planning we lay out a strategy and follow it before, in advance of, ever needing long term care or at least nursing home care. We do this so we can preserve as many assets as possible and still qualify, at the right time, for Alabama Medicaid.
Probate: This is a type of court where we deal with wills, guardians, and conservatorships. We also use this word “probate” to describe the whole process of getting your will reviewed by a probate judge (who often is not a lawyer) and then the judge decides if your wishes will be carried out.
Qualified Income Trust (QIT): A special type of trust where the institutional spouse’s income is placed into it and that is used to pay for part of the nursing home costs. The QIT, also known as a “Miller Trust,” is used when the institutional spouse’s income exceeds the limits of Alabama Medicaid and without the QIT the person would not qualify for Medicaid.
Revocable Trust: This is a trust that the creator can revoke or change his or her mind. So assets put into a revocable trust (often called a “revocable living trust” as it is made during your lifetime) can be removed. There are great advantages to this but it does not provide asset protection while you are living. In many ways this trust is the opposite of an irrevocable trust.
Special Needs: A person who has some type of disability (from birth, from injury or disease) and who normally will receive government benefits. Often the special needs person cannot live alone without care or assistance. A special needs person can be a child or an adult and the disability may result from a mental or physical challenge.
Special Needs Trust: A special type of irrevocable trust that is designed to hold assets for the benefit of a person with special needs on government benefits. There are restrictions on how the assets can be used and if the rules are followed, then the special needs person can continue to receive government benefits and the assets in the special needs trust will not be counted against them. This can be critical to maintain Alabama Medicaid and SSI benefits.
SSDI: Social security disability insurance that is earned by accumulating enough “credits” or quarters of work. This benefit is not means tested so your assets don’t matter — you simply show you meet the definition of disabled and have enough credits or quarters of work to qualify.
SSI: Supplement security income — typically for those who have not worked enough to draw SSDI (social security disability insurance) when disabled. SSI is means tested which means that you must meet income and/or asset tests in order to receive the benefit.
Surviving spouse: The spouse of a war time veteran and the spouse has not remarried since the death of the war time veteran. While the amount of benefits are less than a war time veteran receives, a surviving spouse can still receive over $13,000 a year tax free from the VA Pension program.
Trust: A legal tool where you put assets into a “box” — this can either be a revocable living trust for estate planning purposes or an irrevocable trust that is used in elder law to help protect assets from long term care costs.
Unreimbursed Medical Expenses: These are expenses that are not paid by insurance or any other source so under the VA Pension program you can typically deduct most of these from your income which will tell us how much monthly benefit you are entitled to receive from the VA as a war time veteran or a surviving spouse of a wartime veteran.
VA Pension: This benefit, also referred to as the “Improved Pension” and “VA Aid & Attendance” is a non service related benefit for certain veterans and surviving spouses. It can pay over $25,000 a year in tax free benefits to pay for long term care. Three basic requirements: (1)Wartime veteran which means active duty during a time of war but being deployed overseas is not a requirement; (2)Disabled so that can’t leave home without help (housebound) or need help with activities of daily living; and (3)Financial requirements on assets and income.
War time veteran: A veteran who was active duty during a time of war (World War Two, Korean War, Vietnam War, or Gulf War) and received a better than dishonorable discharge. No need to be deployed overseas or to be in combat.
Will: An estate planning tool that tells what you want to happen to the stuff that is in your name only when you die. Your family will go to probate court to “probate” the will.