Estate Planning


Assisted Living Facilities Due For Changes

Forbes contributor Howard Gleckman recently published an article that covered the challenges facing assisted living facilities (ALFs) around the country in the next few years.  ALFs will have to respond to the demands of their customers, who largely have a negative view of care institutions.  Many seniors tend to compare ALFs with the dreaded “home”, and are quick to associate these facilities with nursing homes, which usually have less than favorable reputations among Americans.

Gleckman estimates that, due to the rising cost of long term care, these facilities will have to increase their rates, which will drive out smaller facilities and promote the growth of larger operators.  ALFs are also being pressured to provide more medical (rather than social) services to their residents, and Gleckman surmises that this will inevitably push operators toward more partnerships with medical providers and insurance networks.  Many facilities are already providing these medical services (such as medication management), but they are not always cost effective for residents, and changes will likely have to be made to keep this business model viable for operators.

Given that ALFs are a relatively new type of long term care solution, it is not surprising that they will be forced to adapt quickly to the needs of America’s aging population.  Seniors are demanding more personalized care, higher quality environments and entertainment, and greater support services for their medical needs.  Right now, ALFs are regulated by each individual state, which means that standards vary widely across America.  It is likely that regulators will have to come up with a more broad solution to address the problems and challenges in this industry.

If you or a family member have had experience with an ALF, you may have already noticed changes in the quality, cost, or availability of care in your own situation.  It looks like those changes are only the first of many to come in the next few years, so don’t get too comfortable!  The number of available ALF facilities and vacancies for residents will decline in the coming years, both due to the increasing number of aging citizens and the rising cost of health care.  This will force many families to contribute their own time, effort, and funds toward caring for their family members.  Be prepared to handle what is on the horizon for your long term care options.

Click on the image below to read the Forbes article and learn more about what is in store for assisted living facilities:


SB 1124 (Hernandez) Vetoed by the Governor


There was a pile of bills on Governor Brown’s desk this last week and many were signed that affected residential care facilities for the elderly.  However, one bill was being watched very carefully and it was unfortunately vetoed by the Governor.

SB 1124 (Hernandez) was a bill that would have offered relief for many Medi-Cal beneficiaries who worry about losing their family homes. While the short term savings – $15 million according to the Governor’s budget folks – amount to less than .05% of the overall Medi-Cal budget, the long term consequences of this veto include the destabilization of low income communities, who are the primary targets of Medi-Cal recovery. Forcing the children of Medi-Cal beneficiaries to sell the family home or to sign “voluntary liens” at annual 7% interest rates is simply bad public policy.

A Follow Up to Asset Protection of IRAs and Retirement Accounts


In August, I related that the US Supreme Court unanimously ruled in the case of Clark, et ux v. Rameker, Trustee, et al, that funds held in inherited IRAs are NOT “retirement funds” within the meaning of §522(b)(3)(C) and therefore are not protected in bankruptcy.  I thought that an additional comment was important to bring home the devastating effect this decision can have on a child, or other heir, that has or could have a judgment against him/her in the future.

Lets assume that a child has an inherited IRA.  In other words, the parent has passed away and the IRA is payable to the child.  Generally the child would have to withdraw the funds over a five-year period but often there are special provisions are added to trust documents to allow a “stretching” of the IRA over the life expectancy of the child.  The prior law protected the IRA funds from judgment creditors.

However, now the child’s interest in the IRA is attachable by the judgment creditor.  That means that the judgment creditor can take the assets of the IRA in satisfaction of the judgment.  However, withdrawal of IRA funds carries with it a tax consequence.  This is income to the child.  So not only is the IRA lost to the creditor, but the child has to pay income tax on the money that was attached!  And the money wasn’t even his to begin with…it was the parent’s IRA!

A standalone IRA trust has become a very popular estate planning tool to prevent this disastrous result.  Please contact me for further information if you have an interest in protecting your IRA from your children’s creditors.

Is Applying for VA Pension Benefits Always the Right Answer Even if You Can?


After working with clients seeking the VA pension with Aid & Attendance, certain client profiles became apparent where the VA pension may not be in the best interest of the client(s).  Any attorney practicing in this arena must be attuned to myriad factors affecting the client’s decision to file a VA pension claim, such as the client’s age, health, prognosis and life expectancy, net worth, income, housing choice (home, assisted living, memory care, board and care, etc.), expected changes to the living condition and more.  In addition, the type of assets that a client holds can be the most important factor in determining whether or not to file a VA claim.


As mentioned in previous blogs, VA planning and Medi-Cal (Medicaid) planning are quite different.  Assets that are exempt under the Medi-Cal rules often are not exempt under the VA Pension rules.  One asset causing particular problems in VA planning is the IRA.  In California IRAs are not countable resources (if in pay status for the institutionalized spouse).  However, they are not exempt under VA Pension calculations.  What I have seen is a marked increase in clients presenting me with IRAs of substantial value.  The challenge is to do something with the IRA to make it not countable but without causing huge tax consequences.


When dealing with IRAs, there are really two extreme options.  The client can annuitize the IRA by investing the entire IRA into a single premium immediate annuity.  The downside of this approach is that the income generated from the annuity may be too large in relation to the share of cost and thus will not help the client in accessing the VA Pension.  Additionally all the cash is irrevocably tied up in this annuity and the client can no longer access a lump sum if needed.


On the other extreme, the client can liquidate the IRA and transfer the funds into an irrevocable trust or to the heirs.  Here there are tax consequences as the entire IRA value will be income in the year of liquidation.  This income may be offset by medical deductions but the larger the IRA the less can be sheltered.


An option in the middle may be liquidating some of the IRA and transferring the funds and annuitizing the remainder.  Detailed analysis must be done to find the “sweet spot”, often requiring services of a CPA or accountant to run tax returns based on different scenarios.


There are similar issues with deferred annuities that have substantial accrued income in the policies.


Clients have to be aware of the extra time the attorney needs to devote to this analysis (which translates into higher legal fees) to best position the client’s assets or to determine that the VA Pension does not make economic sense to pursue.


The bottom line is that even though the client could qualify for the VA Pension, the cost of doing so may be too great and thus the advice would be not to pursue the Pension.

Asset Protection of IRAs and Retirement Accounts

The US Supreme Court has recently and unanimously ruled in the case of Clark, et ux v. Rameker, Trustee, et al, that funds held in inherited IRAs are NOT “retirement funds” within the meaning of §522(b)(3)(C) and therefore are not protected in bankruptcy.  It is clear that IRAs are exempted but, before this decision, whether an inherited IRA was subject to the same protection had varying precedent.

An IRA that was generated from the work efforts of the individual, such as a 401k, IRA, a rollover IRA from a 401k, and accounts of that character have historically been protected from creditors of the owner of the account.  The standard for protection has also always been how the accounts would fare in a bankruptcy proceeding.

It is projected that in the next 10 years there will be trillions of dollars passing to heirs, of which a substantial amount will be in the form of IRAs that are inherited by the heirs.  The Clark decision now encourages clients to look at alternatives in how these qualified plans are transferred to the heirs.  A conduit or accumulation trust in a clients’ traditional revocable living trust may no longer be a good approach if the clients are concerned about the protection of the IRA assets.

The decision in Clark bring to the forefront other planning devices such as a qualified trust being named as beneficiary of an IRA, or the use of testamentary charitable trusts, which generally pay out the heirs over a 20 year period more than the value of the qualified plan being inherited.


Please feel free to contact me if you would like additional information on alternative approaches.