Jan Neal Law Firm, LLC

Alabama Estate, Elder and Special Needs Law


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Transfer on Death Deed (TODD) Not Valid in Alabama

You may have read a widely circulated post on Facebook that would make you think you should prepare a Transfer on Death Deed (TODD) to pass your property when you die without the need for probate.  And you can download and prepare such a document at various online locations.  See https://www.templateroller.com/template/2142576/transfer-on-death-deed-form-alabama.html. The only problem is Alabama does not have a TODD statute, so any such deed would have no validity.

As of January 14, 2022, twenty-nine states, along with the District of Columbia and the U.S. Virgin Islands, have some form of TODD.  Alabama is not one of them, and neither is Georgia or Florida.  Mississippi, bordering Alabama, does have a TODD statute, and, as of January 14, 2022, a TODD statute was pending in Tennessee.

There are other ways to pass property while avoiding probate, but be aware of the fact that the TODD is not available in Alabama. 


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How Gift Giving Can Affect Medicaid

If you will need Medicaid to pay for long-term care for you or your spouse in the next five years, you need to be careful with gift giving because giving away money or property can interfere with your eligibility. 

Under federal Medicaid law, if you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on how much money you transferred. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $16,000 a year (in 2022) without having to pay a gift tax, Medicaid law still treats that gift as a transfer.  In fact, for every $6600 you give away you will incur a one month period of ineligibility for Medicaid. A month of penalty means Medicaid will not pay for your care, no matter how destitute you are.    

Medicaid reviews all bank records for five years prior to application. Any transfer that you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road. Similarly, gifts for Christmas, weddings, birthdays, and graduations can all cause a transfer penalty, however reasonable gifts are usually allowed. If you buy something for a friend or relative, this could also result in a transfer penalty.  Also selling property for less than the tax assessor’s appraised value is considered an uncompensated transfer of the amount for which you sold the property for less than the tax value.  You will need documentation showing that you received fair market value in return for a transferred asset to avoid incurring a penalty. Repaying a debt not supported by a promissory note will also be considered a transfer subject to a penalty.

While most transfers are penalized, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

  • your spouse
  • a trust for the sole benefit of your child who is blind or permanently disabled
  • a special needs trust for the benefit of the Medicaid applicant

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant’s home may be transferred to the following individuals without incurring a transfer penalty:

  • A spouse
  • A child who is under age 21
  • A child who is blind or disabled (the house does not have to be in a trust)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
  • A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.


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Medicaid Spousal Income Allowance Increase

Medicaid’s maximum monthly maintenance needs allowance (MMMNA) changes every July.  This is the most in monthly income that a spouse living at home (known as the community spouse) is allowed to have when his or her own income is not enough on which to live, allowing him or her to take some or all of the institutionalized spouse’s income. The minimum monthly maintenance needs allowance as of July 2022 for Alabama is $2289 (up from $2178)  As an example, a community spouse who has income of $1500 whose spouse entering the nursing home has $2200 in income, would be allowed to keep $789 of the institutionalized spouse’s income each month – enough to bring his or her income up to $2289.

As for resource limits established every January, in 2022 the community spouse may keep as much as $137,400 without jeopardizing the Medicaid eligibility of the spouse who is receiving long-term care. Known as the community spouse resource allowance or CSRA, this is the most that a state may allow a community spouse to retain. While some states set a lower maximum, the least that a state may allow a community spouse to retain in 2022 is $27,480.  As of January 2022 Alabama allows the community spouse to keep one-half of the couple’s resources, not to exceed the maximum of $137,400.

If nursing home care is anticipated in the future it is important to calculate the income and resources of a couple to determine the financial impact long term care will have and to plan to retain as much as possible and still qualify for Medicaid coverage.     


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Planning for Burial/Cremation

Alabama allows an individual to prepare an affidavit appointing an agent to deal with disposition of his or her remains at death. This can be a useful document to have when there is the potential for disputes in a blended family concerning where someone should be buried or whether to bury or cremate the remains.

I have written about this affidavit previously on this blog (see https://janneallaw.com/2017/01/06/appointing-an-agent-for-disposal-of-remains-in-alabama/), but it bears repeating due to a development I have seen in recent years.

Often unmarried significant others are making burial/cremation arrangements for a partner, and it comes as a surprise to them to learn that the funeral home will not accept the instructions of the unmarried partner to cremate. Instead the instruction must come from the next of kin. This can be especially problematic when there are estranged children, making the process even more stressful than it already is.

To avoid this problem, when preparing estate planning documents, it is a good idea to have an affidavit prepared or included in your will giving the person of your choice, especially an unmarried partner, the authority to make arrangements in the manner you wish, to include cremation.


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Safety Warning For Adult Portable Bed Rail Models

An advisory issued earlier this month warns people against using a series of adult portable bed rail models after at least three people — including one in a nursing home and another in an assisted living facility — were entangled in them and died of asphyxia.

The U.S. Consumer Product Safety Commission named the following 10 models of Mobility Transfer Systems adult portable bed rails in which it says users may become trapped, resulting in serious injury or death:

  • Freedom Grip (model 501)
  • Freedom Grip Plus (model 502)
  • Freedom Grip Travel (model 505)
  • Reversible Slant Rail (model 600)
  • Transfer Handle (model 2025)
  • Easy Adjustable (model 2500)
  • 30-Inch Security Bed Rail, single-sided (model 5075)
  • 30-Inch Security Bed Rail – Extra Tall, single-sided (model 5075T)
  • 30-Inch SecurityBed Rail, double-sided (model 5085)
  • 30-Inch SecurityBed Rail – Extra Tall, double-sided (model 5085T)

The Commission’s advisory “urges consumers to immediately stop use, disassemble, and dispose of” these bed rails, which have been on the market since 1992 and available through such online retailers as Walmart.com and Amazon.com.

Users can report any incidents related to these rails at www.SaferProducts.gov.


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Supreme Court Rules Medicaid Can Recoup a Larger Share of Injury Settlements

If you are injured due to another person’s negligence and receive Medicaid benefits to pay for care, the state has a legal right to recover the funds it spends on your care from a personal injury settlement or award. Yet in a legal case involving a Floridian teen who was catastrophically injured more than a decade ago, the U.S. Supreme Court this week ruled that states have the right to recover funds that they may spend on future medical expenses, too. 

The decision affects anyone who receives medical care through Medicaid after suffering a disabling injury that results in a lawsuit.  

In 2008, a truck struck 13-year-old Gianinna Gallardo, leaving her in a vegetative state. The state’s Medicaid agency provided $862,688.77 in medical payments on Gallardo’s behalf. Her parents sued the parties responsible, and the case eventually settled for $800,000, of which about $35,000 represented payment for past medical expenses. The settlement also included funds for Gallardo’s future medical expenses, lost wages, and other damages. 

The state Medicaid agency claimed it was entitled to more than $300,000 in medical payments from this settlement, including money that had been specifically allocated for Gallardo’s future medical expenses. 

Gallardo’s parents then sued the agency in federal court, arguing that the state of Florida should be able to recover monies only from that portion of the settlement allocated for past medical expenses. 

When a U.S. district court ruled in favor of Gallardo, the Medicaid agency appealed. A court of appeals reversed the lower court’s decision. Ultimately, the U.S. Supreme Court agreed to hear the case to resolve the conflict. 

In a 7-2 decision, the Supreme Court agreed that the state is allowed to recover benefits for past — as well as future — medical care. Justice Clarence Thomas, who wrote the majority opinion, noted that Medicaid law “distinguishes only between medical and nonmedical care, not between past (paid) medical care payments and future (un-paid) medical care payments.”  

Justices Sonia Sotomayor and Stephen Breyer dissented. They argued that accepting Medicaid shouldn’t leave a beneficiary indebted to the state for future care that may or may not be needed. 

To read the full decision, click here.


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Medicaid Personal Liability

When Nursing Home Medicaid eligibility has been established there is an amount of income that the nursing home resident must pay directly to the nursing home.  After that amount is paid Medicaid picks up the difference in that personal liability and the nursing home Medicaid rate for room and board.    

Before paying the personal liability Medicaid will allow the resident to keep:

  • The personal needs allowance of $30 per month;
  • The spousal minimum monthly maintenance needs allowance (enough money to bring the income of the spouse at home up to $2178);
  • Family maintenance needs allowance (a similar allowance for minor or dependent adult child, a dependent parent or a dependent sibling of either spouse);
  • Costs of necessary medical or remedial care not covered by a third party (e.g. Medicare Part B premium).

These allowances are made to the extent the resident’s income can cover them.  It is entirely possible for the patient to exhaust his or her income before paying any personal liability at all to the nursing home.

It is important to remember that during the time a Medicaid application is pending the resident should pay the estimated personal liability or risk receiving a bill for this amount from the nursing home.  After eligibility is established Medicaid will publish the exact personal liability to use.

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Social Security Retroactive Lump Sum Benefits

If you need a lump sum of cash on hand when you retire, Social Security offers a lump sum payment option that’s worth six months of benefits for those who have waited beyond full retirement age to draw benefits (for those born between 1943 and 1954 full retirement age is 66). Known as retroactive benefits, the maximum that Social Security offers is six months’ worth of back payments in a lump sum.

This may be a good deal depending on your needs and goals, but it does come at a cost. By taking the lump sum, your retirement date and the amount of your monthly benefit are rolled back six months. So it is important to understand the details before requesting the payment.

When you delay taking retirement beyond your full retirement age, you amass “delayed retirement credits” that increase your benefits by 8 percent for every year that you wait, over and above annual inflation adjustments. By taking the retroactive lump sum payment, you lose the delayed credits that you had accumulated over the previous six months, so your monthly benefit will be lower than if you did not take the lump sum. 

Whether you should take the lump sum payment depends on a number of factors, including your life expectancy, your spouse’s needs, and what you will do with the money. Taking the lump sum payment makes more sense if your life expectancy is shorter. In this case, the immediate cash infusion may be more beneficial than bigger monthly payments, especially if you need cash for caregiver expenses. However, if you are married and are the higher earner, you will want to consider your spouse’s needs. If you die, your spouse will receive spousal benefits equal to the monthly amount of your benefits. The higher your benefit, the more your spouse will receive, and that is important when the spouse goes from a two earner household to a one earner. 

You also need to consider what you will do with the lump-sum payment. If you are paying off high-interest debt or investing in something with a good rate of return, the lump sum might be better than having the higher monthly payment. 

For more information about the retroactive benefit see the Online Social Security Handbook found at https://www.ssa.gov/OP_Home/handbook/handbook.15/handbook-1513.html.


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Selling Life Estate Property

A life estate deed can be a great tool for passing property after death.  A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies.  The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will.  Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant.  An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property.  That all sounds like a win, win situation, right?

It is, except for one thing.  If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents.  The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.

Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case.  Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.    


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Who Can Make a Will?

A person must be 18 years of age and of sound mind to make a valid will in Alabama.

Although a person does not reach the full age of majority in Alabama until he reaches the age of 19, he can execute a will at age 18.

To have testamentary capacity the person making the will, who is known as the testator, must understand the business and consequences of making a will.  He must be able to remember the property being given in the will, the persons who are his next of kin, and how the property will be disposed of in the will. 

Interestingly, case law in Alabama states that a person may have testamentary capacity while not having the ability to transact ordinary business of life.  This would lead to the conclusion that testamentary capacity is actually lower than capacity required to make a power of attorney.    

Alabama law presumes that all persons 18 and over have the capacity to make a will, but ethics would require an attorney to screen for capacity before preparing a will.  When a will is offered for probate and challenged for lack of capacity, the person challenging the will must prove that the testator lacked testamentary capacity at the time he or she signed the will.