In Post 6, I analyzed the reasoning for delaying the transfer of a house to a child who provided care for a parent for the requisite time period and concluded that the transfer should be delayed until the Medicaid proceedings. The reasons were having the advantage of presenting information to justify the necessary care and also to lose the step-up in basis upon death only if necessary.
Similarly, if an individual has a disabled child who is a possible transferee, the transfer should be delayed until the Medicaid proceeding. That is, a transfer currently if the parent never goes into a nursing home, loses the step-up in basis upon death. The transfer results in the child receiving a carryover basis, which can be voided if the parent dies prior to going into the nursing home. Of course, if the child receives the home and resides in it for the requisite time period, the carryover basis can be increased by a $250,000.00 amount or $500,000.00 amount should the client be married.
Since reverse half-a-loaf planning has been denied by the State, if five-year planning is contemplated, the transfer should be made currently regardless of the laws of the step-up in basis to start the clock running on the 60-month lookback period.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 164
Monday, September 26, 2011
Thursday, September 22, 2011
Summary of Factors to Consider in the Spenddown Process
In the simplest situation which we have a single applicant applying for Medicaid, the following are some of the salient factors to consider in projecting the date of eligibility. Assuming an average monthly nursing home costs $10,000.00 and social security of $2,000.00 (no pension), and $100,000.00 of assets, consisting of stocks, cash accounts and retirement benefits, the following factors should be considered:
1. The net cost per month would be $8,000.00 ($10,000.00 minus social security).
2. An approximate cost of a pre-paid funeral would be $10,000.
3. The nursing homes often require a deposit of two months nursing home costs, the net amount of which would be $16,000.00
4. There is a cost of liquidating the IRA, the distribution of which results in ordinary income. Therefore, the income tax cost would be part of this spenddown.
5. If there is a money market, many people are concerned that there would be a penalty for termination during a money market term. However, there cannot be a penalty if the term is interrupted by the death of the applicant.
6. Of course, as indicated in Post 3, the cash value of life insurance could also be a factor.
7. If there are stocks, which must be sold, capital gain enters into the computations.
As indicated in Post 103, once the decision is determined that Medicaid is the goal, financial planning is no longer relevant. That is, a client cannot hold on to a valued investment since all resources must be liquidated in order to project the date of eligibility.
Many other topics relate to this, such as an inadvertent inheritance of the Medicaid applicant which is discussed in Post 60.
As indicated throughout the postings, the relevant amount of $4,000.00 or $2,000.00 must be made on the first day of the first moment of institutionalization. Institutionalization has been defined as the earlier of the first day a person enters a nursing home, goes into a hospital or receives home care.
Keep in mind in a spousal situation, the "spousal income allowance," also known as the shelter allowance and/or MMNA, can be set aside for the community spouse. Also the amount of Medigap insurance can be retained by the community spouse, as can $35.00 a month. Therefore, as indicated in Post 1, a spousal situation assigning social security, might be imprudent. Said posting also points out that pension benefits cannot be assigned because of restrictions in the Internal Revenue Code.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 163
1. The net cost per month would be $8,000.00 ($10,000.00 minus social security).
2. An approximate cost of a pre-paid funeral would be $10,000.
3. The nursing homes often require a deposit of two months nursing home costs, the net amount of which would be $16,000.00
4. There is a cost of liquidating the IRA, the distribution of which results in ordinary income. Therefore, the income tax cost would be part of this spenddown.
5. If there is a money market, many people are concerned that there would be a penalty for termination during a money market term. However, there cannot be a penalty if the term is interrupted by the death of the applicant.
6. Of course, as indicated in Post 3, the cash value of life insurance could also be a factor.
7. If there are stocks, which must be sold, capital gain enters into the computations.
As indicated in Post 103, once the decision is determined that Medicaid is the goal, financial planning is no longer relevant. That is, a client cannot hold on to a valued investment since all resources must be liquidated in order to project the date of eligibility.
Many other topics relate to this, such as an inadvertent inheritance of the Medicaid applicant which is discussed in Post 60.
As indicated throughout the postings, the relevant amount of $4,000.00 or $2,000.00 must be made on the first day of the first moment of institutionalization. Institutionalization has been defined as the earlier of the first day a person enters a nursing home, goes into a hospital or receives home care.
Keep in mind in a spousal situation, the "spousal income allowance," also known as the shelter allowance and/or MMNA, can be set aside for the community spouse. Also the amount of Medigap insurance can be retained by the community spouse, as can $35.00 a month. Therefore, as indicated in Post 1, a spousal situation assigning social security, might be imprudent. Said posting also points out that pension benefits cannot be assigned because of restrictions in the Internal Revenue Code.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 163
Monday, September 12, 2011
Review of Partial Interest in Real Estate
In Post 86, I discussed the advantages and disadvantages of a potential Medicaid applicant transferring property and retaining a life estate. The advantages are that the retained life interest is assigned no resource value nor is it subject to the lien. On the negative side, as pointed out in said Post, New Jersey Practice, Celantano, ¶4.8 indicates that the individual with retained life interest has certain obligations. If an individual is in a nursing home, the social security and/or pension cannot be applied to pay these costs and the burden falls on the remainderman.
In addition, the remainder interest is deemed to be a transfer and could cause a delay of Medicaid. The computations for the value of a life estate and the remainder interest are set forth in a prior Revenue Procedure, which bases its tables on the Internal Revenue Code prior to the IRS adjustment for current interest rates.
The transfer penalty can be avoided by having the remainderman purchase his or her remainder interest. However, the monies paid to the applicant are then available resources.
I have also discussed in Post 48 the fact that inaccessible resources are excludable resources for Medicaid. Therefore, if the applicant owns property jointly with another individual, the property is an inaccessible resource if the co-owner refuses to sell (Post 48).
If the co-owner is a child of the applicant and provided care for at least two years that enabled the applicant to remain at home rather than go into a nursing home, a transfer to the child is exempt from the Medicaid transfer rules (see Post 6). However, if the co-owner is not a child (a stranger), the applicant has an obligation to pay one-half the net cost with no money to do so. Another situation would be if the applicant owned the property jointly with a sibling (see Post 11), and the sibling resided with the applicant for at least one year prior to institutionalization, the transfer to the sibling also results in a non-penalizing transfer.
The advantage of a transfer to the child or the sibling as discussed above, is that the property is also exempt from the Medicaid lien.
From an estate planning point of view, keep in mind that a joint ownership passes by operation of law, while a tenancy in common is a probate asset and passes under the applicant's will.
As in all areas of Medicaid, an applicant after consultation with counsel must review the pros and cons of any planning technique, particularly when we are dealing with jointly-owned real estate.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 162
In addition, the remainder interest is deemed to be a transfer and could cause a delay of Medicaid. The computations for the value of a life estate and the remainder interest are set forth in a prior Revenue Procedure, which bases its tables on the Internal Revenue Code prior to the IRS adjustment for current interest rates.
The transfer penalty can be avoided by having the remainderman purchase his or her remainder interest. However, the monies paid to the applicant are then available resources.
I have also discussed in Post 48 the fact that inaccessible resources are excludable resources for Medicaid. Therefore, if the applicant owns property jointly with another individual, the property is an inaccessible resource if the co-owner refuses to sell (Post 48).
If the co-owner is a child of the applicant and provided care for at least two years that enabled the applicant to remain at home rather than go into a nursing home, a transfer to the child is exempt from the Medicaid transfer rules (see Post 6). However, if the co-owner is not a child (a stranger), the applicant has an obligation to pay one-half the net cost with no money to do so. Another situation would be if the applicant owned the property jointly with a sibling (see Post 11), and the sibling resided with the applicant for at least one year prior to institutionalization, the transfer to the sibling also results in a non-penalizing transfer.
The advantage of a transfer to the child or the sibling as discussed above, is that the property is also exempt from the Medicaid lien.
From an estate planning point of view, keep in mind that a joint ownership passes by operation of law, while a tenancy in common is a probate asset and passes under the applicant's will.
As in all areas of Medicaid, an applicant after consultation with counsel must review the pros and cons of any planning technique, particularly when we are dealing with jointly-owned real estate.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 162
Wednesday, September 7, 2011
Creativity Required in Elder Law Planning
Very often a situation will arise where it appears that Medicaid eligibility is lost. Often, creative thinking can preserve eligibility.
I can think of two very clear examples which will emphasize this point.
There is a theory in Medicaid known as the "stupid kid" defense. Assume a child has a power of attorney for a single parent and has $3,000 and the parent has a $2,000 liability. Further assume the child neglects to pay the liability so that the amount of resources at the appropriate time is $3,000. Janice Chapin of Central Jersey Legal Services has been successful in arguing what is known as the "stupid kid" defense. That is, Medicaid has allowed eligibility on the basis that the parent should not suffer neglect of the "stupid kid".
Another example comes to mind. Approximately 20 years ago, Hunterdon County Legal Services had a matter where the only applicant's resource was corporate stock and a buy-sell agreement. Such an agreement often provides for the other shareholders to have an option to buy and that upon the death of the shareholder, the purchase can be mandatory. At an administrative hearing, it was held that such stock was not an available resource since it was subject to the buy-sell agreement.
Like in all Medicaid situations, there is no guarantee that these approaches will work with any County board. However, these arguments have worked in the past and creativity should be the key note planning by any Elder Law attorney.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 161
I can think of two very clear examples which will emphasize this point.
There is a theory in Medicaid known as the "stupid kid" defense. Assume a child has a power of attorney for a single parent and has $3,000 and the parent has a $2,000 liability. Further assume the child neglects to pay the liability so that the amount of resources at the appropriate time is $3,000. Janice Chapin of Central Jersey Legal Services has been successful in arguing what is known as the "stupid kid" defense. That is, Medicaid has allowed eligibility on the basis that the parent should not suffer neglect of the "stupid kid".
Another example comes to mind. Approximately 20 years ago, Hunterdon County Legal Services had a matter where the only applicant's resource was corporate stock and a buy-sell agreement. Such an agreement often provides for the other shareholders to have an option to buy and that upon the death of the shareholder, the purchase can be mandatory. At an administrative hearing, it was held that such stock was not an available resource since it was subject to the buy-sell agreement.
Like in all Medicaid situations, there is no guarantee that these approaches will work with any County board. However, these arguments have worked in the past and creativity should be the key note planning by any Elder Law attorney.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 161
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