Father-in-Law Worth Millions Won't Seek Estate Planning Advice.

Dear Len & Rosie,

My father-in-law is a shrewd businessman who owns a great deal of land and is worth millions. He’s also difficult to talk to and says he has a will, end of story. He says he doesn’t care what the kids have to go through after he dies because he’ll be dead! My husband has three other siblings, two who live on Dad’s property.

My husband also has an unpaid child support arrearage from 20 years ago when he was in an accident and didn't know that he had to go to court to stop support payments while he was injured. When my father-in-law passes away, there will be a big mess.

Is there anything we can do? My husband’s siblings want to sell it all after their father’s death and pocket the money, but they seem blissfully unaware of taxes and probate

Rene

Dear Rene,

Some people remain unaware of the need to do estate planning, and are under the impression that everything will work out after they die without a lot of effort. These people are usually wrong, but do not mistake your father-in-law for one of them. He’s a multi-millionaire, and he’s no dummy. He probably knows what he is doing.

There is not a lot that can be done about your husband’s child support debt. Even a spendthrift trust or a dynasty trust will not protect your husband’s inheritance from child support creditors. As a matter of public policy the courts will not allow a trust for your husband’s benefit to avoid paying this child support debt if the trustee has any discretion to give your husband any money under any circumstances.

The only way your father-in-law can guarantee his wealth won’t be used to pay off your husband’s child support arrearage is to disinherit him. Unless the child support debt is so great that it will eat up most of your husband’s share, your husband will be much better off inheriting his share outright and doing the right thing by paying off his child support debt.

Your father-in-law should have a revocable trust, because it will save his beneficiaries thousands of dollars in legal fees. He may also want to consider creating a family limited partnership with his children, to reduce the amount of federal estate tax that will be due upon his death. He should also consider creating dynasty trusts for each of his children, so that their inheritance won’t be subject to estate tax when they die.

Unless your father-in-law is willing to explain himself to you, there’s no way that you can know for sure why he does not want a trust. It’s a good idea to urge your father-in-law to seek the advice of an estate planning attorney, but remember that it’s his money, and he does not have to justify himself to you, and he does not have to create a trust to avoid probate. Sometimes parents react poorly when children or in-laws talk to them about estate planning, especially if they come off as being pushy or even worse, greedy, so tread lightly. Your husband will be much better off if your father-in-law dies with a will leaving him a one-quarter share, rather than dying with a trust that leaves your husband nothing at all because he didn’t like his daughter-in-law, even if she was right all along.

Len & Rosie

Qualifying for Medi-Cal

Dear Len & Rosie,

It looks like my mother needs nursing home care soon, probably in the next year. I asked a lawyer friend of mine if there’s anything that can be done to protect my mother’s home and her $200,000 in savings. He said he heard that it would take five years to qualify my mother for Medi-Cal benefits. But he also said he doesn’t do elder law like you (he’s into securities) so I should someone who works in the field. Is there anything my mother can do to protect your assets.

Kelli

Dear Kelli,

Your friend was right to send you to an elder law attorney. The rules regarding Medi-Cal are very strange. On February 8, 2006, the federal government enacted the Deficit Reduction Act of 2005 (“DRA”). Under DRA, when someone like your mother applies for Medi-Cal benefits, she will have to disclose any gifts she has made in the five years prior to the date of application. Each gift triggers a transfer penalty period during which your mother won’t qualify for nursing home Medi-Cal benefits.

The length of this penalty is calculated by dividing the total amount gifts your mother made in the last five years by the Average Private Pay Rate (the average monthly cost of nursing home care in California), which is $8,092 for 2015. If she were to give away $200,000 all at once, there will be a 28 month penalty (rounded down from 28.2 months) unless your mother waits five whole years before applying for Medi-Cal, and this penalty will start when your mother applies for benefits.

Except that it doesn’t work that way at all. The California Department of Health Care Services (“DHCS”) has not yet implemented the federal rules imposed by DRA, even though it’s been more years since its passage. But that should come as no surprise. DHCS failed to implement any of the rules created by the Omnibus Budget Reconciliation Act of 1993. Even more surprising, Medi-Cal’s current eligibility rules, with few exceptions, are based on temporary emergency regulations published in 1990. We are not kidding. Under the current rules, your mother could make multiple gifts within one month, and the transfer penalties will run at the same time instead of being added together. When will the new rules under DRA come into effect? Nobody knows.

So for now, people like your mother who may need nursing home care in the foreseeable future don’t have to worry about a five year look back period. Only gifts made in the thirty months prior to applying for benefits trigger transfer penalties. Also the penalties are retroactive. They start running on the first day of the month in which the gift was made. There are many planning opportunities available for your mother. You and she should see an elder law attorney soon. Not only is it possible to shelter a large portion of your mother’s life savings, her home can be protected from Medi-Cal estate recovery claims as well.

Len & Rosie