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Two overriding questions govern your choices in an elder law estate plan. First, what will happen to your assets when you pass away? Second, what will happen to your assets if you need long-term care? A comprehensive plan covers both issues. You must protect assets from going to long-term care costs so that the assets may transfer to your beneficiaries instead.
Plan A, and the best protection from long-term care costs, is long-term care insurance. Factors to consider include the daily benefit amount and an inflation rider that keeps pace with the increasing cost of nursing homes. Long-term care insurance also pays for home health aides, which allows you to “age in place,” rather than go to a facility.
If you don’t have, or cannot get, long-term care insurance, Plan B is the Medicaid Asset Protection Trust (MAPT). Assets that have been in the MAPT for a minimum of five years are protected from nursing home costs and, under upcoming laws, two and a half years for home care.
Planning for, and then executing, inheritances is often fraught with emotion.
Most families choose to leave the inheritance “to my children in equal shares, per stirpes.” Per stirpes is Latin meaning “by the roots” so that if a child dies before the parent, their share goes to their children (if any) in equal shares. If there are no children, then generally the inheritance is disregarded and their share goes to their surviving siblings in equal shares.
What about gifts to grandchildren? Let’s say one child has five children and the other has two children — seven grandchildren altogether. When a significant gift is given to grandchildren equally, it is not uncommon for the child with two children to say “well it was my brother’s choice to have five children, why do I have to pay for it?” Good estate planning also looks at inheritances from the heirs’ point of view as well.
An Aging Life Care Manager (ALCM) is a health and human services specialist who acts as a guide and advocate for families who are caring for older relatives or disabled adults. The expertise of ALCM’s can be summarized into these knowledge areas.
Health and Disability. From physical problems to mental health and dementia-related problems, ALCM’s interact with the health care system by attending doctor appointments and facilitating communication between doctor, client and family. They help determine types of services – such as home health and hospice – that are right for a client and assist in engaging and monitoring those services.
Financial. Reviewing or overseeing bill paying or consulting with a client’s accountant or agent under a power of attorney. ALCM’s provide information on Federal and state entitlements, connecting families to local programs when appropriate. They also help clients and families with insurance concerns, claims and applications.
Revocable living trusts, where the grantor (creator) and the trustee (manager) are the same person, use the grantor’s social security number and are not required to file an income tax return. All income and capital gains taxes are reported on the individual’s Form 1040.
Irrevocable living trusts come in two main varieties, “grantor” and “non-grantor” trusts. Non-grantor trusts are often used by the wealthy to give assets away during their lifetime and for all income and capital gains taxes to be paid either by the trust or the trust beneficiary but not by them. Gifts to non-grantor trusts are reported to the IRS but are rarely taxable. Currently, the annual exclusion is $17,000 per person per year to as many people as you wish. However, if you go over the $17,000 to any one person you must report the gift to Uncle Sam, but they merely subtract the excess gift from the $12,920,000 each person is allowed to give at death. Most of our clients are “comfortably under” as we like to say. These gifts then grow estate tax-free to the recipient.
Grantor trusts, such as the Medicaid Asset Protection Trust (MAPT), are designed to get the assets out of your name for Medicaid purposes but keep them in your name for tax purposes. You continue to receive income from the MAPT and pay income tax the same as before. The MAPT files an “informational return” (Form 1041) telling the IRS that all the income is passing through to you. Gifts to non-grantor trusts take the grantor’s “basis” for calculating capital gains taxes on sale, i.e. what the grantor originally paid and, if real estate, plus any capital improvements.
New York law prevents spouses from being disinherited. Instead, a spouse who is disinherited may go to court and claim their “elective share” which is the greater of fifty thousand dollars or one-third of the estate.
Questions often arise as what the “estate” of the deceased spouse consists of. Naturally, any assets in the decedent’s name only and listed in the estate court proceeding apply. Other assets, known as “testamentary substitutes” because they do not pay by will, and is against which the spouse may make their claim are: bank accounts, investment accounts and retirement accounts with named beneficiaries other than the spouse or, similarly, those same asset if they have a joint owner other than the spouse. An exception would be if the other joint owner had made contributions to the joint account and then as to the contributions only.
Gifts made within one year of death are also available for the elective share claim. Oddly enough, life insurance is not considered a testamentary substitute however annuities are.
In the fall of 1990, some thirty plus years ago, your writer first heard of the proposition that if you set up a living trust your estate doesn’t have to go to court to settle – the so-called probate court proceeding for wills. Having spent the previous eleven years as a litigation attorney, and having faced numerous problems probating wills, this sounded too good to be true.
At the time, some of the best estate planning lawyers were in Florida. Perhaps you can guess why. In any event, off I went to Florida to train as an estate planning lawyer and, upon returning, closed the litigation practice and founded Ettinger Law Firm in April 1991, to keep people just like you, dear reader, out of probate court.
The reason I was so excited about the living trust, and continue to be so to this day, is the concept of taking back control from the courts and government and giving it back to you and your family. After all, who doesn’t want control over their affairs?
Published this year, “The Good Life” reports on the Harvard Study of Adult Development, the longest scientific study of happiness ever done. Tracking the lives of hundreds of participants for over 80 years, the report concludes that it is the strength of our relationships with friends, relatives and co-workers that most determine quality of life, health and longevity.
Regarding older adults, the authors note that time is suddenly very precious. Questions arise such as:
Home care paid for by New York State is known as “Community Medicaid”. Paying your own living expenses, plus the cost of caregiving services, is beyond the means of many.
Since 2020, there have been numerous attempts to create a new thirty month look-back period for Community Medicaid eligibility. So far, none of these attempts have been successful and now 2024 is the earliest expected date for implementation. There is no current look-back period for Community Medicaid in New York. This means that you may move assets out of your name this month and obtain Medicaid home care benefits next month, provided you need the care.
Currently, an individual may keep about $1,700 per month plus the amount of any health care insurance premiums. Any excess income must be used towards their care. What if your living expenses exceed $1,700 per month? Enter the “pooled income trust”.
Spend-down. Look-back. Penalty Period. Uncompensated Transfer. These are just some of the terms Medicaid uses to determine eligibility for long-term care coverage. Medicaid is a combined federal and state program that pays for long-term care at home (community Medicaid) or in a nursing facility (institutional Medicaid). Asset, income and gift rules vary for community Medicaid versus institutional Medicaid.
To qualify for community Medicaid, an individual cannot make more than about $1,700 per month and cannot own more than about $30,000 in assets. A married couple cannot make more than about $2,300 per month and cannot own more than about $40,000 in assets. Applicants can “spend down” excess income to the allowed amount by paying for medical expenses.
To qualify for institutional Medicaid, an individual can keep $50 per month (the excess goes to the nursing home) and cannot own more than about $30,000 in assets. For married couples, the spouse at home can keep about $3,700 per month and can own between about $75,000 and $130,000 in assets. If the spouse at home makes more than $3,700 per month, she may have to contribute some of the excess to the spouse’s cost of care. For married couples, the residence, up to value of about $1,000,000 and one car are exempt (not counted as assets). Everyone can have a burial trust worth up to $1,500 or any amount in an irrevocable pre-paid funeral trust.
New York Estate Planning & Elder Law Blog