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

Changes in the Medicaid Law Over Time

We have seen Congress attempt to restrict Medicaid planning through the years.

COBRA, OBRA ’93 and the current attempt, the Deficit Reduction Act, are the major congressional changes since I have been practicing law.

Janice Chapin and I have discussed these numerous changes in our ICLE programs, particularly the Final Medicaid Regulations Finally, Hot Topics in Medicaid Planning, and The Impact of the Final Medicaid Regulations on Planning.

As I am not a constitutional lawyer, I do not feel that I can comment on the constitutionality of a federal statute. However, the most egregious changes have occurred in the Deficit Reduction Act (except for a limited time when Congress actually attempted to eliminate the possibility of a lawyer giving Medicaid advice, struck down on First Amendment basis) in that a transfer is deemed to be made not on the date the property is shifted, but rather at the date when the applicant would be “otherwise eligible” for Medicaid but for the transfer. Examples that would ruin the “otherwise eligible” requirement would be prior transfers or a non-excludable home.

The 60-month look-back (Post 15) is terrible in itself, but the problem is that it catches all transfers during the time period and moves them to the above-forward date.

Perhaps more important than the federal changes are the state regulations. Reference is the aforementioned ICLE publication, the Final Medicaid Regulations Finally. As mentioned in a prior blog, the book basically discusses New Jersey’s Medicaid law under OBRA ’93 and its violation of the federal law (i.e. federal pre-emption).

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© June 2009, Post 98

Summary of Key Planning Ideas

I think this is an appropriate time at my blog site to summarize what I think are the key planning techniques which survive the new law. Rather than discuss them in detail I will summarize such techniques with a reference to the post number.

The key planning techniques are as follows:

1. Payment of Debts and Expenses (Post 4).
2. Property Owned by Applicant Residing with Caretaker Child (Post 6).
3. Real Estate Planning Ideas for a Married Couple (Post 11).
4. Community Spouse Not Limited to Community Spouse Resource Allowance After Date of Eligibility of Applicant (Post 13).
5. The Significance of a Dependent Relative Residing in the Home With Applicant (Post 14).
6. Preserving the Community Spouse Resource Allowance (Post 26).
7. The Problem of the Working Spouse (Post 33).
8. Property Owned Jointly With Other Than Spouse (Post 35).
9. Assets Transferred to a Disabled Child (Post 42).
10. The Necessity for Other Professionals (Post 46).
11. Inaccessible Resources (Post 48).
12. Policy Decisions Affect Medicaid Rules (Post 49).
13. Transfers of an Excludable Resource (Post 58).
14. The Importance of a Carefully Prepared Transmittal Letter (Post 67).
15. Spousal Refusal (Post 78).
16. Real Estate Expenses as Part of the Spenddown (Post 83).
17. Changes That Affect Medicaid Planning (Post 84).
18. Reverse Half-a-Loaf Planning (Post 88).
19. Sources of Information for Medicaid Rules (Post 91).
20. Monies Received During the Month (Post 96).

I feel that a summary of the above key posts would be beneficial in light of the topics presented.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© June 2009, Post 97

Utilization of Legal Staff in Medicaid Application Process

Although I have practiced Medicaid Law for in excess of thirty years, I find that proper utilization of legal staff can be an invaluable asset to a firm.

My assistant, Juliet Rudy, is a lawyer in England and Wales. Her skills and knowledge in the Medicaid area have been acquired in a very short period of time.

Juliet came to be my employee through Jewish Vocational Services, a placement agency for individuals of all ethnic backgrounds, which extends itself beyond description in making placements. In addition, the agency provides such services for free.

I made a call to the agency through a relative of mine and within two hours they provided me with Juliet's resume and I hired her immediately.

I suggest that in hiring staff that a Medicaid attorney consider hiring someone with the intelligence of Juliet so that the attorney can concentrate on generating the practice and focusing on the legal issues.

In today's economy, it is necessary to have the help of others as I pointed out in Post 46 (The Necessity for Other Professionals).

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

© September 2010, Post 116