Category: Medicaid

Selling the Family Home when a Loved One needs Nursing Care

Selling the Family Home when a Loved One needs Nursing Care

When an aging relative decides the time is right to move into an assisted living or continuing care facility, families face many decisions. This is often a difficult but necessary step for older individuals with trouble living independently or planning for their future needs. Selling the family home when a loved one needs nursing care can be a challenge. A recent article from Herald—Standard, “How to handle selling a home when moving into an assisted living facility,” offers suggestions to help families navigate the process.

First, speak with an estate planning attorney to have a trusted, responsible family member be named Power of Attorney. Individuals moving into assisted living may not have any cognitive problems at the time of the move. However, selling a home for a family member who develops dementia can present complex challenges. Only a person with legal capacity may transfer their home to a new owner. Having a Power of Attorney allows a family member to step in and manage the transaction without needing to go to court and have a guardian named.

Talk about the situation and the sale with the aging family member. They will need time to process the idea of selling their home and moving. Homeowners make untold sacrifices and compromises to buy and maintain their homes, so the decision to sell a beloved home is almost always very difficult and brings out a range of emotions.

Throughout this process, an open and honest dialogue about what can be achieved by selling the home and improving their quality of life will be helpful.

Sorting through belongings is an extremely hard task. A lifetime of memories and a loss of their independence are all wrapped up in the contents of a home. It will be impossible to take the entire contents into a one or two-bedroom apartment. Take the time to sort through belongings with your family members and select certain items to give them a sense of home in a smaller space.

If possible, try to pass on some items to younger family members. Most importantly, handle this process with as much compassion as possible.

Keep all relevant people involved and current throughout the process. This is particularly important if the family members are scattered in different states. Adult children who live far away and can’t be active participants in this process shouldn’t be dismissed and left out. Open communication with other family members will minimize the chances of objections when the sale and move take place.

Finally, because this is perhaps the largest and last financial transaction, make sure the sale of their home is done with an eye to their estate plan. Selling the family home when a loved one needs nursing care may cause tax issues. There may be ways to minimize tax exposure for the individual and their estate plan. Confer with an estate planning attorney to avoid any missteps. If you would like to learn more about managing property in your estate plan, please visit our previous posts.

Reference: Herald-Standard (Oct. 27, 2023) “How to handle selling a home when moving into an assisted living facility”

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Consider using a Trust Be for Long-Term Care

Consider using a Trust Be for Long-Term Care

More than a few seniors who are retired or nearing retirement lose sleep worrying over being able to afford the expense of long-term care, including nursing home care, which can cost thousands monthly. The fallback option for many Americans is Medicaid; according to a recent article, “Long-Term-Care planning using trusts,” from the Journal of Accountancy., Medicaid is a joint federal-state program requiring spending down assets. One option is to consider using a trust for long-term care.

To be eligible for long-term care through Medicaid, a person’s “countable” assets must fall below an extremely low ceiling—in some states, no more than $2,000, with some provisions in some states protecting the “well” spouse. States vary in terms of which assets are counted, with many exempting a primary residence, for example.

For many people, planning for Medicaid for long-term care may consider the use of an irrevocable trust. The basic idea is this: by transferring assets to an irrevocable trust at least five years before applying for Medicaid for long-term care, the Medicaid agency will not count those assets in determining whether Medicaid’s asset ceiling is satisfied.

If the planning is done wrong, there is a risk of not qualifying, thereby defeating the objective of creating the irrevocable trust. In addition, any tax planning may be undone, causing liquidity and other problems.

Some people plan to qualify for Medicaid even though they have asset levels as high as $2 million or more. Much of this may be the family’s primary residence, especially in locations like New York City, with its elevated real estate market. Costs at nursing homes are equally high, with nursing homes costing private-pay patients upwards of $20,000 a month, or $250,000 per year.

Timing is a key part of planning for Medicaid. Many estate planning attorneys recommend clients consider planning in their mid-to-late 60s or early 70s to move assets into a Medicaid Asset Preservation Trust, also called a Medicaid Asset Protection Trust.

This is because of Medicaid’s five-year lookback period. Most states have a five-year look-back period for both nursing home and home health care. If any transfer of countable assets has been made within the preceding five years of applying for long-term-care Medicaid, there will be a penalty period when the person or their family must pay for the care. The penalty is typically measured by the length of time the transferred assets could have paid for care, based on the average costs of the state or the region.

While there is no way to know when a person will need long-term care, statistically speaking, a person in their mid-to-late 60s or early 70s can expect to be healthy enough to satisfy the five-year lookback.

Why not simply make gifts to children during this time to become eligible for Medicaid? For one reason, there’s no way to prevent a child from spending money given to them for safekeeping. A trust will protect assets from a child’s creditors, and if the child should undergo a divorce, the assets won’t end up in the ex-spouse’s bank accounts.

Using a trust for Medicaid planning could be combined with gifts made to children or assets placed in trust for children, depending on the individual’s financial and familial circumstances.

The creation of a Medicaid Asset Preservation Trust is critical. The estate planning attorney must seek to accomplish two things: one, to say to Medicaid that the settlor, or creator of the trust, no longer owns the assets. At the same time, the IRS must see that the settlor still owns these assets and, therefore, receives a basis step-up at death.

If you are considering a trust for long-term care, an experienced estate planning attorney will be needed to advise you and create a Medicaid Asset Preservation Trust to meet the Medicaid and IRS requirements. If you would like to learn more about long-term care planning, please visit our previous posts. 

Reference: Journal of Accountancy (Oc. 9, 2023) “Long-Term-Care planning using trusts”

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Consider Hiring a Lawyer for Medicaid Applications

Consider Hiring a Lawyer for Medicaid Applications

Medicaid can be a complicated and ponderous process to navigate. As with many government programs, it is easy to make mistakes that could potentially devastate your family’s finances. You might consider hiring a lawyer for Medicaid applications. Film Daily’s recent article, “Do You Need a Lawyer to Apply for Medicaid?” says that hiring a lawyer for Medicaid applications can provide many benefits. Let’s look at some of the big ones:

Expert Knowledge: Attorneys specializing in Medicaid are well-versed in the complex rules and regulations of the program. They stay updated with policy changes and can provide accurate guidance based on your unique circumstances.

Maximizing Eligibility: An experienced elder law lawyer can help structure your finances and assets to maximize your eligibility for Medicaid. They can also advise you on strategies to protect your assets, while satisfying the program’s requirements.

Streamlined Application Process: A Medicaid application can involve a ton of paperwork and documentation. A lawyer can help you gather the necessary information, complete the application correctly and submit it on time, reducing the chances of delays or mistakes.

Handling Complex Situations: If your situation is complicated, like owning a business or having multiple sources of income, a Medicaid lawyer can work through the intricacies and ensure that all relevant information is presented correctly in your application.

Appeals and Legal Support: If your application is denied or there are other issues, a lawyer can represent you in appeals or hearings. They can advocate for your rights and help resolve any disputes that arise during the application process.

While hiring a lawyer when applying for Medicaid is not mandatory, their expertise can be invaluable in navigating the complexities of the program.

A lawyer specializing in Medicaid can provide guidance, streamline the application process, and help you maximize your eligibility.

Sit down as a family and consider hiring a lawyer for your Medicaid applications. Depending on your circumstances, hiring a Medicaid attorney can be beneficial in complex financial situations, long-term care planning, dealing with denied applications, or staying informed about changing regulations.

With the right legal support, you can also increase your chances of a successful Medicaid application. If you would like to learn more about Medicaid and estate planning, please visit our previous posts. 

Reference: Film Daily (July 25, 2023) “Do You Need a Lawyer to Apply for Medicaid?”

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An Attorney can help when applying for Medicaid

An Attorney can help when applying for Medicaid

Medicaid is a vital program that provides healthcare coverage for individuals and families with limited income and resources.  Hiring an attorney can help when applying for Medicaid. Their expertise can be invaluable in ensuring a smooth and successful application process.

Film Daily’s recent article, “Do You Need a Lawyer to Apply for Medicaid?” says that applying for Medicaid involves gathering the necessary documentation, filling out an application form and submitting it to the state Medicaid agency.

The application typically requires information about your income, assets, household composition and medical expenses. It’s important to provide accurate and complete information to avoid delays or potential issues with your case.

A lawyer specializing in Medicaid can walk you through the application process, ensure that you meet all of the requirements and provide the correct documentation.

A Medicaid planning lawyer can also help you understand any legal implications and address any concerns that may come up during the application process.

Here are some scenarios where hiring a lawyer might be a wise move:

  • Complicated Financial Situations: If you have complex financial arrangements or significant assets, a Medicaid planning lawyer can help you navigate the Medicaid eligibility requirements while protecting your interests.
  • Long-Term Care Planning: If you or a loved one requires long-term care services, a lawyer with expertise in elder law and Medicaid planning can help you develop a strategy to protect your assets while accessing the necessary healthcare services.
  • Denied or Delayed Applications: If your Medicaid application has been denied or delayed, a Medicaid planning lawyer can help you appeal the decision or address any issues that may have caused the delay.
  • Changing Regulations: The program rules and policies can change over time. An experienced Medicaid lawyer can ensure that you stay informed about any updates that may affect your eligibility or benefits.

Consider hiring an Elder Law attorney to help when applying for Medicaid. He or she may be the difference between receiving benefits and being denied. If you are interested in learning more about Medicaid planning, please visit our previous posts. 

Reference:  Film Daily (July 25, 2023) “Do You Need a Lawyer to Apply for Medicaid?”

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Life Estate may be a good option for Older Homeowners

Life Estate may be a good option for Older Homeowners

A life estate may be a good option for older homeowners, but there are some potential drawbacks you should know. A life estate is an interest in real property that entitles the life estate owner (sometimes called the “life tenant”) to the right to occupy, possess, or otherwise use the property for the lifetime of one or more individuals (usually the lifetime of the person or persons who hold the life estate interest).  A life estate owner has the right to possess and use the property for the duration of the life estate. A “remainderman” has an ownership interest in the real property. However, they have no right to possess or use it until the life estate terminates, typically when the life tenant dies.

  • The Property Avoids Probate. Property held in a life estate isn’t required to go through probate but rather transfers ownership to the remainderman. This also eliminates the complications of stating your intentions for your property in a will.
  • The Property is no Longer Part of the Estate. Once your state’s Medicaid look-back period is over, a property transferred through a life estate won’t count against your eligibility for the program.
  • It Keeps Elders in Their Homes. Even though a life estate effectively transfers property ownership to the remainderman, the life tenant has guaranteed residency, if desired, for the rest of their life.

While life estates are helpful tools, they do have several drawbacks:

  • The Property is still Vulnerable to the Debts of the Heirs. Because the life estate transfers property rights to a designated heir, the heir’s creditors may have the right to seize the inherited assets to cover any outstanding debts, contradicting the life tenant’s wishes to pass their assets on directly to the heir.
  • The Heirs’ Rights to the Property Vest at Creation. Once you create a life estate, the property rights vest in the heir(s) and can’t be revoked without the heir’s consent.
  • The Property Can’t Be Sold or Mortgaged. If a life tenant wants to significantly alter the property, convert it into a rental, or even decide to sell, they must have the remainderman’s permission.

A life estate may be a good option for older homeowners because it allows them to set up a straightforward, legal directive for an heir to inherit property without probate. Life estates also let the owner control the property in most respects. If created in a timely manner, a life estate can even help its creator qualify for Medicaid assistance. However, life estates do have some disadvantages. Ask an experienced estate planning attorney if this is a good move for your situation. If you are interested in learning more about life estates, please visit our previous posts. 

Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

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SNT can be a Vital Tool for Families

SNT can be a Vital Tool for Families

A special needs trust, or SNT, can be a vital tool for families. It is an important part of planning for the financial security and lifestyle of a family member with special needs. A special needs trust can allow the trust’s beneficiary to receive financial support from the family for supplemental needs without losing public benefits, such as SSI (Supplemental Security Income) and Medicaid. A recent article from The Westerly Sun, “Special needs trust could ease families’ stress,” explains how this works.

A parent typically has the special needs trust created. As the grantor, the parent establishes the trust and names a trustee who will be responsible for managing the trust. The trust may be funded with gifts throughout the parent’s lifetime or from other sources, such as a court settlement or an inheritance.

Life insurance proceeds are often used as the funding mechanism. The trust purchases a life insurance policy on the life of one or both parents of a special needs individual. Government benefits are protected as long as the trust is named the policy beneficiary.

The role of a trustee is important in a special needs trust. They must manage the funds within the trust and ensure that they are only used to supplement SSI and Medicaid, the two government programs that typically cover the costs of housing, food, and medical care. The special needs trust can be used for other qualified expenses, including transportation, travel, education, entertainment, professional services, and personal items.

The parent could serve as a trustee, or a trusted friend or relative may be named. Whoever is chosen as the trustee should be familiar with the family and the needs of the family member with disabilities. You also want to name a person who is competent at managing finances and can be trusted to stay current regarding SSI and Medicaid regulations.

Another option is to hire a professional trust company to manage the special needs trust. This type of company is experienced in both asset management and government regulations and would provide parents with strict recordkeeping of all financial transactions associated with the trust.

Parents should also be familiar with areas of concern about special needs trusts. The trustee controls how and when funds are distributed, which can frustrate beneficiaries if requests for funds are denied.

While third-party special needs trusts are funded by someone other than the beneficiary, the beneficiary’s own assets fund first-party special needs trusts. The trust must pay back Medicaid for money used for the beneficiary after the beneficiary’s death. This repayment could deplete the trust, depriving secondary beneficiaries of any funds they might otherwise receive. Third-party trusts do not require Medicaid repayment.

An SNT can be a vital tool for families, but only if it is properly structured. Speak with an experienced estate planning attorney before establishing a special needs trust to be sure that this is the right solution for your family’s situation. If you would like to learn more about special needs and elder law planning, please visit our previous posts. 

Reference: The Westerly Sun (June 10, 2023) “Special needs trust could ease families’ stress”

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Planning for Long-Term Care with Irrevocable Trusts

Planning for Long-Term Care with Irrevocable Trusts

One of the best strategies to plan for long-term care involves using an irrevocable trust. However, the word “irrevocable” makes people a little wary. It shouldn’t. Planning for long-term care with irrevocable trusts can provide peace of mind for your family. The use of the Intentionally Defective Grantor Trust, a type of irrevocable trust, provides both protection and flexibility, explains the article “Despite the name, irrevocable trusts provide flexibility” from The News-Enterprise.

Trusts are created by an estate planning attorney for each individual and their circumstances. Therefore, the provisions in one kind of trust may not be appropriate for another person, even when the situation appears to be the same on the surface. The flexibility provisions explored here are commonly used in Intentionally Defective Grantor Trusts, referred to as IDGTs.

Can the grantor change beneficiaries in an IDGT? The grantor, the person setting up the trust, can reserve a testamentary power of appointment, a special right allowing grantors to change after-death beneficiaries.

This power can also hold the trust assets in the grantors’ taxable estate, allowing for the stepped-up tax basis on appreciated property.

Depending on how the trust is created, the grantor may only have the right to change beneficiaries for a portion or all of the property. If the grantor wants to change beneficiaries, they must make that change in their will.

Can money or property from the trust be removed if needed later? IDGT trusts should always include both lifetime beneficiaries and after-death beneficiaries. After death, beneficiaries receive a share of assets upon the grantor’s death when the estate is distributed. Lifetime beneficiaries have the right to receive property during the grantor’s lifetime.

While grantors may retain the right to receive income from the trust, lifetime beneficiaries can receive the principal. This is particularly important if the trust includes a liquid account that needs to be gifted to the beneficiary to assist a parent.

The most important aspect? The lifetime beneficiary may receive the property and not the grantor. The beneficiary can then use the gifted property to help a parent.

An often-asked question of estate planning attorneys concerns what would happen if tax laws changed in the future. It’s a reasonable question.

If an irrevocable trust needs a technical change, the trust must go before a court to determine if the change can be made. However, most estate planning attorneys include a trust protector clause within the trust to maintain privacy and expediency.

A trust protector is a third party who is neither related nor subordinate to the grantor, serves as a fiduciary, and can sign off on necessary changes. Trust protectors serve as “fixers” and are used to ensure that the trust can operate as the grantors intended. They are not frequently used, but they offer flexibility for legislative changes.

Planning for long-term care with irrevocable trusts is an excellent way to protect assets with both protection and flexibility in mind. If you would like to learn more about long-term care planning, please visit our previous posts. 

Reference: The News-Enterprise (March 18, 2023) “Despite the name, irrevocable trusts provide flexibility”

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Qualified Disability Trust can reduce Tax Burden

Qualified Disability Trust can reduce Tax Burden

A qualified disability trust can help reduce the tax burden associated with special needs trusts. A qualified disability trust, or QDisT, qualifies for tax exemptions and applies to most trusts created for an individual with special needs. In most cases, explains a recent article from Investopedia, “Qualified Disability Trust: Meaning and Tax Requirements,” the person receiving income from the trust must pay income tax. However, in 2003, the IRS added a section allowing some disability trusts to reduce this tax liability. This is another example of why reviewing estate plans every few years is important.

Trusts need to meet several requirements to be considered qualified disability trusts for tax purposes. However, if a special needs trust meets these criteria, it could save a lot in taxes.

Most special needs trusts already meet the requirement to be treated as qualified disability trusts and can be reported as such at tax time. For 2022 tax year, the tax exemption for a QDisT is $4,400. For tax year 2023, the amount will increase to $4,700. Income from a QDisT is reported on IRS Form 1041, using an EIN, while distributions to the beneficiary will be taxed on their own 1040 form.

The best way to fully understand a QDisT is through an example. Let’s say a child is diagnosed with a disability, and their grandparents contribute $500,000 to an irrevocable special needs trust the child’s parents have established for the child’s benefit. The trust generates $25,000 in annual income, and $10,000 is used annually for expenses from the child’s care and other needs.

Who pays the income tax bill on the trust’s gains? There are a few options.

The parents could include income from the trust as part of their taxes. This would be “on top” of their earned income, so they will pay their marginal tax on the $25,000 generated from the trust—paying $8,000 or more.

Alternatively, trust income spent for the child’s benefit can be taxed to the child—$10,000, as listed above. This would leave $15,000. However, this must be taxed to the trust. Trust income tax brackets are high and increase steeply. Paying this way could lead to higher taxes than if the parents paid the tax.

The QDisT was designed to alleviate this problem. QDisTs are entitled to the same exemption allowed to all individual taxpayers when filing a tax return. In 2012, for instance, the personal tax exemption was $3,800, so the first $3,800 of income from QDisTs wasn’t taxed.

The deduction for personal exemptions is suspended for tax years 2018 to 2025 by the Tax Cuts and Jobs Act, except the same law said that in any year there isn’t a personal exemption, the exemption will be allowed for a QDisT.

For tax year 2022, $4,400 is the indexed tax exemption amount for these trusts, including most special needs trusts. For tax year 2023, the amount will increase to $4,700.

To be reported as a qualified disability trust, specific requirements must be met:

  • The trust must be irrevocable.
  • The trust must be established for the sole benefit of the disabled beneficiary.
  • The disabled beneficiary must be under age 65 when the trust is established.
  • The beneficiary must have a disability included in the definition of disabled under the Social Security Act.
  • The trust must be a third-party trust, meaning all funding must come from someone other than the disabled beneficiary.

An experienced estate planning attorney can help set up a qualified disability trust that can help reduce the tax burden and allow you to enjoy the benefits the statute grants. If you would like to learn more about special needs planning, please visit our previous posts. 

Reference: Investopedia (March 4, 2023) “Qualified Disability Trust: Meaning and Tax Requirements”

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There is Great Value in Special Needs Trust

There is Great Value in Special Needs Trust

Parents with children who have special needs know they play a pivotal role in their child’s medical, social, emotional and mental health. They also face the challenges of figuring out government assistance programs like Medicaid and how these and other programs provide much-needed help throughout a child’s life. Another important way that parents of children with special needs help is with the creation of a special needs trust, as explained in the article “Special Needs Trust (SNT): What It Is and How It Works” from Forbes. There is great value in a special needs trust.

A special needs trust is used to hold assets in an account to be used to support an individual with special needs. The funds belong to the trust and not the individual, so they are not factored into their eligibility for government benefits.

SNTs are typically set up by a parent, grandparent, or guardian. The person who sets up the account, called the “grantor,” funds the account, as may any other individuals who wish to provide for the child.

The grantor names a trustee, or a third party, who administers the trust. The trustee is a fiduciary and must act in the best interest of the beneficiary. Funds are to be distributed in accordance with the directions in the trust. The trustee will be responsible for distributing funds, following government benefit rules and requirements, and managing tax obligations, among other things.

Parents are often the trustees, although others, like siblings or close relatives, may also be trustees. Parents who are both grantor and trustee generally name a successor trustee to take over after they die, become incapacitated or resign from their role.

A person who may not be able to support themselves due to a medical condition or a disability can gain financial security from an SNT. This is one of the great values of a special needs trust.

Someone with special needs is likely to rely on means-tested government benefits, like Supplemental Security Income (SSI) or Medicaid. These benefits are only available to people with limited income or assets. Anyone receiving SSI, for example, may not have more than $2,000 of countable resources.

A parent who wishes to provide support after they die must plan in advance, so their bequest does not result in the person losing their benefits. This could happen if money is left through anything except a special needs trust. An estate planning attorney will know how to structure the parent’s estate plan to protect the individual with special needs and their government benefits.

Assets in an SNT can be used for a wide variety of expenses, including out-of-pocket medical or dental expenses, personal care givers, rehab services, education, vacations, and other permissible uses.

There is a lot of complexity involved with creating a special needs trust. For one, there are several different kinds of SNTs. You’ll want to select the one best suited for your family. Laws about means-tested benefits vary across states, so you’ll need to work with an estate planning attorney familiar with the laws of your state.

A well-drafted estate plan, incorporating a special needs trust can be of great value to the parents of a child with special needs.  It will provide your loved one with the resources to maintain as much normalcy as possible as they adjust to life without their parents. If you would like to learn more about special needs planning, please visit our previous posts. 

Reference: Forbes (Sep. 22, 2022) “Special Needs Trust (SNT): What It Is and How It Works”

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Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
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