“Specialist” for a Reason
Ethan R. Okura
Hawai‘i Herald Columnist
Most of us see our general practice physician when we’re sick. If a serious illness is discovered, however, we are referred to a specialist. If we have a heart problem, we go to a cardiologist. If we have cancer, we go to an oncologist.
Can you imagine what would happen if you had a serious heart problem and you went to a foot specialist for treatment? What would happen if you needed surgery and your family doctor, with no experience in surgery, tried to operate on you? Fortunately, most doctors will not try to treat a patient in an area of medicine in which he or she is not an expert. Most doctors will refer you to a specialist when you need one.
Unfortunately, that isn’t always the case in the legal profession. Many lawyers will try to help you in an area of law in which they have no expertise. Sometimes it’s because they feel an obligation to help you as a relative or a friend. Oftentimes, it is the result of ignorance of their own lack of knowledge.
Example: A married couple with a home is growing older. When they die, they want their home to go to their daughter without any problems. They have a friend who is a general practice lawyer; he does some divorces, some lawsuits, some deeds and maybe even some wills. They go to this lawyer and tell him that they want to put their daughter’s name on the property. The lawyer prepares a deed with three names on it.
Now, the father, mother and daughter all own the property together as joint tenants. When the father and mother die, their daughter will own the property automatically without having to go to court for probate. The aging couple is happy and does not worry about their property. The years go by, and the father dies. Now the mother and daughter each own half of the property. Then, the mother ends up in a nursing home. Medicaid pays the nursing home bill and puts a Medicaid lien on the mother’s half of the property. When the mother dies, the daughter is forced to sell the property and the government ends up with half of the money from the sale. In this case, going to a lawyer who was not a specialist caused the loss of half their property!
Now let us look at another example. A father and mother own a home and want it to go to their daughter. They attend a seminar on revocable living trusts. At the seminar, the attorney talks about avoiding probate by having a trust. The father and mother, being elderly and concerned about nursing home costs, make an appointment with that attorney. The attorney is familiar with trusts, but not with Medicaid laws. Without advising them on how to protect their home from nursing home costs, the attorney puts the property into a revocable living trust. The father dies and the mother ends up in a nursing home.
When their daughter applies for Medicaid to pay her mother’s nursing home bills, she discovers that Medicaid will not pay the nursing home bill unless the property is taken out of the revocable living trust. Using the power of attorney that her mother had made, the daughter takes the property out of the trust. Medicaid pays the bills and puts a Medicaid lien on the home. When the mother dies, the daughter is forced to sell the property and all of the money from the sale goes to the government. In this case, 100% of the home is lost! Why? Because the trust attorney focused on protecting the home from probate but not from nursing home costs.
A specialist in Medicaid planning should be able to protect the parents’ home from nursing home costs and Medicaid liens, while still making sure that the parents have a home to live in for the rest of their lives. In addition, if the home is to be sold after the parents pass away, the estate plan should make sure that there is still a “stepped-up” basis at parents’ passing, allowing the daughter (or other heirs) to sell the property without paying any capital gains tax. Also, if there is a need to sell the home during the parents’ lifetime, the Medicaid planning strategy should include a way for the property to be sold in a way that the parents can claim the $500,000 exclusion from capital gains tax, while still protecting the home from nursing home costs and Medicaid lien recovery. These strategies don’t have to be only for parents and their children. Nieces and nephews, friends or other loved ones — even charities — can benefit from this type of planning. Finding this level of expertise is like having your cake and eating it too! It almost sounds too good to be true, but a true expert specialist can help you to design a plan that does all of those things and more.
Law, like medicine, has become so complicated that even a specialty in estate planning and protecting assets from probate and estate taxes does not necessarily include protecting assets from nursing home costs. Before hiring a lawyer, make sure that the lawyer has expertise and experience in the exact area (and sub-area) of law in which you need help.
© OKURA & ASSOCIATES, 2023
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Ethan R. Okura received his doctor of jurisprudence degree from Columbia University in 2002. He specializes in estate-planning to protect assets from nursing home costs, probate, estate taxes, and creditors.
This column is for general information only and is not tax, financial, or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate-planning specialist.