Presenting a live 90-minute webinar with interactive Q&A Medicaid Planning: Pros and Cons of Gifting the House Navigating the Eligibility Rules, Gift and Capital Gains Tax Implications, Trust Drafting Issues, and Gifting Alternatives WEDNESDAY, MAY 25, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Kelly Gannott, Esq., Kentucky ElderLaw , Louisville, Ky. Michael J. Keenan, Attorney, Keenan Law , South Glastonbury, Conn. Misty Clark Vantrease, Esq., Kentucky ElderLaw , Louisville, Ky. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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South Glastonbury, CT www.keenan-law.com Medicaid Eligibility & Gifting Rules Michael J. Keenan, Esq. (860) 657-2683 michael@keenan-law.com May 25, 2016
Warning Unlike Medicare & Social Security, Medicaid is a federal program run by departments of state governments; States can differ widely in how they manage the Medicaid program; The figures used (income limits, asset limits, penalty calculations, etc.) vary state-to-state; Be mindful of this unique federal-state dynamic during the presentation. 6 www.keenan-law.com
Medicaid Introduction Established in 1965, Title XIX of the SSI Program; Federal government sets minimum coverage standards, states may expand their programs beyond the minimum requirements; Available to anyone who is disabled and has exhausted their financial resources; SSI beneficiaries are automatically eligible for Medicaid in most states; Nursing home care and community care. 7 www.keenan-law.com
Countable Assets State sets a limit on “countable” resources – assets that can be converted to cash and used to pay for care; Joint accounts are generally considered 100% owned by the applicant, regardless of how many joint owners there are; Real estate solely owned by an applicant is considered countable even though it is illiquid; Trusts for which the applicant is a beneficiary is generally countable; “Availability” is a key concept in Medicaid. 8 www.keenan-law.com
Non-Countable Assets A nursing home resident can keep very little in liquid assets (up to $2,000 in most SSI states); Healthy community spouse can keep ½ of the joint assets up to $119,200 with a “floor” of $23,844 (2016 figures). These figures can vary state -to-state; The home if occupied by a spouse, disabled/blind child or child under age 21, or if applicant plans to return home; Personal effects; One car for the healthy community spouse; Term life insurance; A small amount of cash-value life insurance; “Partnership Policy” long term care insurance payout equivalent. Certain annuities; Certain types of trusts; Retirement accounts in some states. 9 www.keenan-law.com
Income Treatment Generally, all of the applicant’s income must go to the nursing home. The applicant can keep a small amount each month for their personal needs account at the nursing home; Deduction for uncovered medical costs (including medical insurance premiums); An allowance can be allocated to the community spouse if a need can be demonstrated; Some states have income caps, but the excess can go to a “D4B” or “Miller” trust; The income of the community spouse is ignored. 10 www.keenan-law.com
Gifting The applicant’s finances are audited for the 5 -year period leading up to the Medicaid application; Any transfers of assets out of the applicant’s name that does not benefit the applicant is a “gift” and a disqualifying transfer; The size of the transfer/gift will determine the length of the period of ineligibility for Medicaid (the “penalty period”); The penalty period begins to run once the applicant is otherwise eligible for Medicaid; Beware of clients’ confusion with the gift tax exemption (currently $14,000). 11 www.keenan-law.com
Permitted Transfers To a spouse; To a disabled or blind child; To a trust for a disabled individual who is under age 65; The house may be transferred to (besides those above): - Child under age 21 - Child who has lived in the house for 2 years prior to the applicant moving to a nursing home and provided care to keep the applicant out of the home during that time. - Sibling with an equity interest in the house and who has lived there for one year prior to applicant’s nursing home placement. 12 www.keenan-law.com
Gift Tax Misty Clark Vantrease Kentucky ElderLaw, PLLC 502-581-1111 misty@kyelderlaw.com
Annual Exemption 26 USCA §2503 • b) Exclusions from gifts. -- • (1) In general. --In the case of gifts (other than gifts of future interests in property) made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year. 14
Inflation Adjustment (2) Inflation adjustment. --In the case of gifts made in a calendar year after 1998, the $10,000 amount contained in paragraph (1) shall be increased by an amount equal to-- (A) $10,000, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting “calendar year 1997” for “calendar year 1992” in subparagraph (B) thereof. 15
Current Annual Exemption • $14,000 per person per year. 26 USCA §1 Tax Table for 2016 Section 3.35 So, what does this mean?? 16
Net Effect Gifts to any person of less than $14,000 do not need to be reported through a gift tax return. These gifts are not taxable and will not be counted against the donor’s lifetime exclusion. BUT … Medicaid is not the IRS. NO GIFTS ARE OKAY WITH MEDICAID 17
Bad Advice? Good Advice? Many estate planners routinely advise clients to give the annual exclusion amount to family members as part of an estate plan. This is good advice only IF there are sufficient assets/insurance to meet all long-term care needs and Medicaid will not be an issue for at least five years (three in California). 18
Estate Tax Exemption § 2010. Unified credit against estate tax (a) General rule. --A credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by section 2001. 19
Estate Tax Exemption (2) Applicable exclusion amount. --For purposes of this subsection, the applicable exclusion amount is the sum of-- (A) the basic exclusion amount, and (B) in the case of a surviving spouse, the deceased spouse’s unused exclusion amount. 20
Estate Tax Exemption Amount (3) Basic exclusion amount. -- (A) In general. --For purposes of this subsection, the basic exclusion amount is $5,000,000. (B) Inflation adjustment. --In the case of any decedent dying in a calendar year after 2011, the dollar amount in subparagraph (A) shall be increased by an amount equal to-- (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting “calendar year 2010” for “calendar year 1992” in subparagraph (B) thereof. 21
Estate Tax Exemption Current Amount $5,450,000 for an individual or $10,900,000 for a couple. 26 USCA § 1 2016 Tax Table Section 3.33 for persons dying in year 2015. 22
State Inheritance Taxes While Federal Estate Tax might not be an issue, each state will have its own rules concerning inheritance taxes. See your state for details. 23
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