Estate Planning Bits

Dispelling Medicaid myths about gifts

It seems like every day someone tells me that they are going to protect their assets from long term care expenses by making a gift of $10,000 to their children. Ah, if only I had a dollar for every time I heard that one! Unfortunately, these people are misinformed.

First of all, the amount that you can gift to a child or another person on an annual basis is $13,000 without having to file a gift tax return. Any amount over this annual amount will require a gift tax return, but currently, the gift exclusion is $5.12 million. Therefore, most people should not be concerned about limiting a gift to $13,000.

For emphasis, this is only a tax rule, not a Medicaid rule. Any amount that is given to another person triggers a 5-year waiting period, which basically means that the amount of the gift, whether it is $10 or $100,000, carries with it a 5-year look-back period. The donor will not be qualified for Medicaid benefits until either the 5 years lapses or all of the funds transferred are utilized for the benefit of the donor. There is no minimum gift threshold that doesn’t trigger the look back, and some states even question and disqualify Christmas, anniversary, and birthday gifts.

Here is a short list of permissible expenditures that do not normally disqualify a person for Medicaid eligibility, the following is a list, although (These amounts may vary from state to state:)

• $2,000 personal needs account
• Prepaid burial account
• $1,500 burial account earmarked specifically for funeral and related expenses
• Purchase of any necessary medical equipment
• Payment of expenses of a home while the person is living there
• A home while the person is living in it (with equity of up to $750,000 in some states)
• Personal belongings and household goods
• 1 car

All other assets, including jointly owned bank accounts, CDs, retirement plans, revocable trusts, second cars, second residences, life insurance, U.S. Savings Bonds, etc, are countable and will have to be spent on a person’s long term care.

However, if a person is married, there are strategies available to assist with saving and preserving assets, since the disqualification rules relative to the 5-year look back do not apply to transfers between spouses.

While repetitive, it is worthwhile mentioning this information again in an attempt to clarify the annual exclusion rule for taxes vs. Medicaid. There is no substitute for good legal advice from a qualified elder law attorney, however, when considering any Medicaid or tax planning strategy or transfer.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft   

Unintended beneficiaries: When a beneficiary dies shortly after you and your assets pass to their heirs.

We’re all familiar with Light My Fire by the Doors. However, every time I hear that song, I think of both Jim Morrison’s life, which ended too soon, and also the will that he had signed.

Morrison’s one page will was prepared by an attorney in California. Within it, he provided that the majority of his estate would pass to his girlfriend if she survived him by 90 days. She did survive by 90 days, and shortly thereafter, she died, leaving all of her estate to her family.

Jim Morrison’s family was unhappy, to say the least, and they contested the will and attempted to receive a share of the estate, but since Morrison’s will provided for the specific survivorship clause, they were determined not to be legitimate heirs or beneficiaries.

The story is the same whether the decedent is a movie star, rock star, famous athlete, or just an ordinary person. An estate plan should be drafted with the thought of who will take the assets and under what conditions.

If a survivorship clause recites that there must be a 90-day waiting period, then there is no distribution to any heir until the 90 days has elapsed, and in most cases, this is not a problem. If there are significant bills or expenses to pay, the personal representative of the estate may petition the court for authority to pay bills, pending the vesting of the right to inherit. In most cases, the bills are going to be paid in any event, regardless of who the heirs will be when determined at a later date.

When leaving money to a beneficiary, the relationship makes a difference. For instance, if the relationship is a first marriage and there are children of that marriage, a person will probably leave money to their spouse without any survivorship requirement. However, if there is a second marriage, or if a single person is merely leaving funds or assets to friends or other not so close relatives, there may be desire to include a survivorship clause as well as a contingency that if the primary beneficiary does not survive by the allotted time, then the assets will pass to the residue of the estate, to a charity, or be redistributed among other beneficiaries.

Jim Morrison probably anticipated that if his girlfriend survived, she would receive his assets, and he evidently wanted her to have them. The question is whether, had he known that she would die within a short time after the 90 days, would he have made the waiting period longer? Would he have left some money to his family even if his girlfriend survived him by a little more than 90 days?

When leaving funds to any beneficiary, you must always think “what if” the beneficiary is deceased or dies shortly after they receive the assets? If your will has not been updated for some time, it might be smart to re-read it and consider the status of your beneficiaries and who would inherit the funds if they were to die shortly after receipt of your assets. Perhaps it is better to put a contingency in your will or establish a Trust, where the funds will be held and not distributed outright immediately. Naturally, there is no substitute for quality legal advice when preparing and revising estate planning documents.

It is likely that the parents of Jim Morrison’s girlfriend were never the intended beneficiaries under his will, but they certainly reaped the benefits.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft   

Filial responsibility: will you be responsible for your parents’ nursing home bills if they can’t pay?

In June of 2012, a Pennsylvania Appeals Court found that a son should be required to pay for his mother’s nursing home care bill in the amount of $93,000.00 under the filial responsibility law. 

Although many states have these types of laws on the books, when the Deficit Reduction Act of 2005 (DRA) passed in February of 2006, states and the federal government decided that it may be appropriate to consider attempting to enforce these laws. This is especially true when a person who applies for medical assistance under the Medicaid laws is denied benefits, possibly due to a transfer or other disqualifying gift. 

In the current case, a woman had moved in to a rehabilitation facility following a car accident. She later moved to Greece without paying her bill for services at the facility. 

Meantime, the nursing home took action by bringing a law suit against her son under Pennsylvania’s filial responsibility law. 

Although a child may not be required to sign admissions paperwork and a financial responsibility form for their parent, the filial responsibility act provides long term care facilities with an option of looking to children for private payment, as opposed to accepting Medicaid payments. 

The flood gates may be opening for additional litigation against children or step-children to support their older generation, and it seems that states are going to allow nursing homes to bring these actions. 

 

Hyman G. Darling, Esq.

Photo credit: Microsoft   

Estate planning for blended families: considerations for cohabitating or married couples with kids from other relationships

The days of mostly traditional American families are probably gone for good. The modern family of today is often a mix of spouses, exes, kids, and steps who somehow find a way to make it all work. Estate planning for such an intricate blended family may be a little tricky, and there are lots of factors to consider. 

With blended families, it is important to give significant thought, time, and attention to the many planning issues regarding financial, insurance, and tax related matters. While traditional estate planning documents are critical, it is also important to consider a prenuptial or a cohabitation agreement. Either one of these agreements should spell out, in as much detail as possible, what will occur if the relationship dissolves, regardless of whether or not the couple is married. 

One of the major issues that this agreement should address is housing. Both parties may be liable on a mortgage, and it is very important to consider the status of the real estate upon dissolution of the relationship. 

There may also be provisions within the agreement relative to the distribution of assets upon death. In cases where there is a significant mortgage, the parties may consider purchasing life insurance to cover the outstanding balance of the mortgage so that the survivor may receive sufficient liquid assets to continue paying the mortgage despite the loss of one income. 

Additional life insurance may also be necessary if one of the parties is under an order of the court from a prior divorce decree wherein a percentage of assets is required to be maintained for the benefit of children from the prior marriage. 

These are just a few of the issues that blended families will likely face. For a more comprehensive analysis of your situation, it is recommended that you meet with a qualified estate planning attorney.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft