Estate Planning Bits

Is it ever wise to refuse a gift from somebody?

In the event that a person is entitled to receive assets from another person through a will, life insurance or trust, the recipient of those funds is not required to accept them. In fact, if the person (recipient) is not insolvent, he or she may decide to not accept those assets within a specific time period, which is normally nine months. This action would result in the assets not being considered a taxable gift by the person refusing them. The assets would then pass to the individuals who would have received them as if the originally intended recipient died immediately prior to the person who left those assets to him or her.

In the event that the refusing party does not file the qualified disclaimer within nine months of the date the interest vests, then the gift is taxable. Any person receiving funds who doesn’t need them may elect to not accept them and have them basically pass to next generation. However, it is very important to thoroughly read the document to determine the contingent beneficiaries.

By: Hyman G. Darling, Esquire

New Medicaid law and annuities – still okay, but with one BIG condition

In my previous blog posts, rules for Medicaid eligibility and opportunities for preservation of assets were discussed. Here, I will review utilizing an annuity. One of the new rules is that certain annuities must be changed to structure them properly so that they will not be counted as disqualifying assets when applying for Medicaid benefits.

In the past, the spouse at home, (the community spouse,) was entitled in many jurisdictions to obtain an immediate annuity, which would provide him or her with an income based on the excess assets, over and above the community resource allowance amount. That amount is currently $99,540.00, and it changes every January 1. For instance, if a couple had $200,000.00 of excess assets (not including their real estate) a spouse at home could keep approximately ½ of those assets and the other ½ would be attributed to the institutionalized spouse. However, the community spouse could have annuitized those assets for his or her lifetime and received an income from them rather than having to spend them for long term care.

With the new law, it is anticipated that this will still be allowable. However, if a single person or the community spouse becomes institutionalized in the future, the annuity must designate the State Medicaid program as the primary beneficiary, so that the state may recoup payments made for or on behalf of the Medicaid qualified person upon that person’s death.

There are still opportunities available to preserve assets, but an annuity must be structured properly in order to achieve the required goal.

By: Hyman G. Darling, Esquire

Old Medicaid transfer rules not effective

Although the President signed the Deficit Reduction Act of 2005, on February 8, 2006, each state has a grace period in order to comply with the legislation, to ensure that its own rules are in sync with the Federal Law. Each state has until the first day of the first calendar quarter beginning after the end of the legislature’s next session to comply with the law. For instance, if the legislative session begins on September 1, 2006, and ends in December of 2006, the deadline is January 1, 2007. Therefore, until rules are implemented in each respective state, it may be possible to do some crisis planning, and “squeeze in” before the new law becomes effective in your state.

One of the pitfalls is that a person may plan under the old law, because the new rules have not yet been implemented, intending to comply and create qualification under the old rule. Since this plan may be effective under the old rule, but the application for medical assistance may not be filed until after the new rules are implemented, a person who is applying for medical assistance could be caught in the trap of having a false sense of security, anticipating coverage for assistance, but having coverage denied due to the change in the law.

Incredibly, it may behoove a person to be institutionalized and apply for care sooner, rather than later, in order to qualify under the old rules.

By: Hyman G. Darling, Esquire

The new Medicaid Law is frightening

I have to apologize for the absence of blogs posts over the last few weeks. This is a result of the crisis planning we have been undertaking with our clients. As the Medicaid rules have significantly changed, we have attempted to create as many opportunities as possible for clients who are in the planning process.

Now that the law has changed, there are still a few planning opportunities to be utilized under the new law. Initially, however, it is important to provide an update as to the major changes in the law.

The first change is that the waiting period of transfers is now a maximum of five years for all gifts made. This so-called “look back period” has been extended to five years from three, and this is the GOOD news.

The bad news is that the date for the look back period no longer begins in the month that the individual transfers an asset, but rather, when the individual applies for Medicaid benefits and would have been eligible except for the asset transfer and the corresponding divestment penalty period.

The penalty period is determined by each particular state, sometimes on an annual basis, and some states even vary on a geographic area basis within themselves.

The real kicker is that the way the new law is written, all transfers will now be counted toward this penalty, without respect to timing. For example, if I give my child a gift today, and I enter a nursing home in 30 years, today’s gift will be penalized.

As another example, under the old rule, with a penalty of $7,000 per month, if a gift of $14,000.00 was gifted on November 1, 2005, the penalty period would have been extinguished on January 1, 2006. Under the new rule, the divestment period begins on the date that the applicant applies for Medicaid, so if this occurs on July 1, 2006, the period would not be extinguished until September 1, 2006.

This harsh penalty period is not good for any particular group except the government. This new rule will cause significant problems with Medicaid benefits applicants because records must now be kept indefinitely.

In addition, this will be a problem for the facilities that accept individuals. The new rules are going to create havoc when applicants who may have gifted assets five years previously, but are impoverished when entering the facility, believe that they will qualify for Medicaid. Since they will not qualify, the facility will be forced to request that their children pay for the residents’ care, or the facilities will have to ask for hardship waivers from the state in order to obtain Medicaid benefits for these residents. Worst case scenario, the nursing home facility may be required to evict any residents that can’t pay for care.

By: Hyman G. Darling, Esquire