Some Basic Tax Issues in the Elder Law Area

It has been said that the "ideal" Elder Law attorney be knowledgeable both in the Medicaid rules and tax issues.

For example, if monies are transferred as part of a Medicaid plan (currently Reverse Half-a-Loaf is disfavored by the State, see Medcom 10-02 and 10-06), in any case, clients often have the impression that the receipt of monies gifted result in income. That is clearly not the case as Section 61 of the Internal Revenue Code provides that receipt of all funds results in taxable income except if there is a specific exclusion. Section 102 of the Internal Revenue Code provides that any monies gifted are not subject to income tax. Therefore, if transfers are made for any reason, it is only the earnings on the transfer that are subject to the tax and not the gift itself.

Another issue discussed in many of my blogs relates to transfer of a house (for example, see Post 6 dealing with transfer of a home to a "protected transferee"). This deals with transferring a home to a child who provided necessary care for two years before a person enters a nursing home. The law indicates in such a case a transfer of the home to the child is exempt from the transfer rules. I have recommended that the transfer not occur until the Medicaid application proceeding. The reasons are set forth in Post 6. An additional reason would be that if the individual dies before a Medicaid application, the basis of the house to the beneficiary will be "stepped-up" the date of death. However, once the property is transferred, there is a "carry-over basis" and the transferee will have the same basis as the donor.

Another misconception by clients is that distributions from an estate are subject to income tax. Under the fiduciary income tax rules, the distributions are only subject to tax to the extent of the estate income (technically referred to as distributable net income). Of course, there are exceptions to this rule, such as life insurance, the distribution of which is not subject to tax except for minor items, such as post-mortem dividends.

Any Medicaid planning or estate planning must include tax advice. The above are just some basic issues and rules to be discussed.


Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.

© October 2010, Post 117

Deposit in a Continuing Care Retirement Community

Under the current law, monies held as a deposit in a Continuing Care Retirement Community are treated as a resource. They are available for use in the facility, but prevent current Medicaid eligibility.

However, if the individual relocates to another nursing home, the deposit will be made available to such individual.

This opens up a planning opportunity since the monies returned from the deposit and other resources of the individual are now available for reverse half-a-loaf planning (see post 88).

Therefore, while such a living arrangement may be desirable, a decision must be made as to allow a parent to remain there or to do Medicaid planning by removing the funds and using the above-mentioned planning technique.

Of course, the viability of utilizing the reverse half-a-loaf question has been disallowed by the state. (Medicaid Communication 10-02, 10-06). My response to this denial is set forth in posting numbers 110 and 113.











Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© March 2010, Post 105

“Doing Nothing” as a Solution to Medicaid Planning

As part of my initial conference (assume client is single) is a discussion of a client’s resources, income from resources, pension, social security, veteran’s benefits, etc.

I then compute the approximate annual income from resources and the other sources to compare to nursing home costs. If such income exceeds or approximates nursing home costs, my recommendation is that planning not be undertaken and that such income be used for the nursing home.

Of course, you then run the risk that the person is in the nursing home for a lengthy period of time and, therefore, there could be a substantial depreciation of assets. However, keeping in mind that the average stay in a nursing home is slightly more than two years, a prudent approach in such a case would be to do nothing.

However, it is extremely important that there be “access” to the assets, generally pursuant to a power of attorney. In this way, the monies can be used for the benefit of the individual, particularly with respect to nursing home costs.

This is just an approach to consider and should not be treated as a recommendation.




Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© July 2009, Post 101

Estate Planning vs. Medicaid Planning

One of my cardinal rules for Medicaid planning is that once undertaken other considerations are irrelevant. For example, it is necessary that all assets be liquidated so that they can be used for planning or as part of the spenddown process. Estate planning then becomes irrelevant.

Often a client will say to me that he or she desires to preserve a certain stock or not to liquidate an IRA since these resources are a value to them. I point out the necessity for liquidating assets so that the date of eligibility can be projected and Medicaid planning be undertaken.

Another type of estate planning vs. Medicaid planning issue relates to the size of the individual’s estate. As pointed out in a prior blog, “doing nothing” may be a solution to Medicaid planning. That is, if an individual has sufficient assets (including pension and social security), nursing home costs may be insignificant. In such case, the individual’s will and estate planning become the focus of the attorney’s undertaking. The average stay in a nursing home is slightly more than two years; therefore, a prudent approach to an individual with substantial assets would lean toward estate planning rather than Medicaid planning.


Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2009, Post 103