Blogs from 2021

When the higher income earning spouse needs nursing home care, the spouse that remains home is often concerned how they will pay his or her expenses. While not very robust in today’s economy, Medicaid does have some protections of income for the healthy spouse or what is known in Medicaid parlance as the “community spouse.”

Medicaid has specific limits on the assets that a community spouse can retain, but the income of the spouse of the Medicaid applicant is not counted when determining the Medicaid applicant’s eligibility. Medicaid only counts the income that is earned or received by the applicant alone to determine eligibility. However, in states such as New York, if the community spouse’s income is more than certain levels, he or she may be required to contribute toward the cost of the nursing home spouse’s care.

But what if the community spouse’s income is very low and the couple’s income is mostly in the name of the spouse that is in the nursing home? The community spouse’s income alone would not be enough to live on.

In such cases, Medicaid provides that the community spouse would be able to retain some or all of the institutionalized spouse’s income. The amount the community spouse is entitled to is known as the minimum monthly maintenance needs allowance or MMMNA, which figure varies by state and may range from a low of $2,288.75 to a high of $3,715.50 a month (in 2023). In New York State, the 2023 community spouse Minimum Monthly Maintenance Needs Allowance (MMMNA) is $3,715.50

If the community spouse’s income is below the state MMMNA, the difference between the MMMNA and his or her income is made up from the nursing home spouse’s income. If the community spouse’s income is at or above the MMMNA, he or she will not be entitled to any of the nursing home spouse’s income, (and may even need to contribute a portion of his or her income to Medicaid).

Example #1: Josh and Naomi Parker, NYS residents, have a joint income of $2,600 a month, $1,900 of which is in Josh’ s name and $700 is in Naomi’s name. Josh enters a nursing home and applies for Medicaid. Naomi is entitled to a MMMNA of $3,715.50 and therefore she may retain all of Josh’s income, which combined income is still below the MMMNA of $3,715.50.

Example #2: Mark and Sue Jones have a joint income of $4,000 a month, $2,800 of Mark’s income and $1,200 of Sue’s income. Mark enters a nursing home and applies for Medicaid. The Medicaid agency allocates $2,515.50 of Mark’s income to Sue’s support to meet the MMMNA ($3,715.50 = $1,200 + $2,515.50).

Example #3: Brian and Barbara White have a joint income of $9,000 a month, $1,200 of which is Brian’s social security and $7,800 is collected by Barbara from her social security and pension. Brian enters a nursing home and applies for Medicaid. Because Barbara’s income is above the MMMNA, the Medicaid agency does not allocate any of Brian’s income to her, and Medicaid budgets his income to be paid to the nursing home (after his $50 Medicaid personal needs allowance and Medicare and supplemental insurance costs are deducted).  Further, Barbara may need to contribute a portion of her income to Medicaid.

There are exceptions to the MMMNA as well as many other Medicaid rules, and it is best to contact our office to find out about the best options for your particular situation.

It’s not uncommon for parents to think about transferring assets, specifically their home, to their children in their sunset years. They hope to make the transition of assets smooth and easy for their children after their lifetime. Specifically, when there is more than one child, and a parent only wants one of their children to inherit the home, they may think a lifetime gift is the way to proceed. Not thinking about the tax and long term care implications can result in a very expensive mistake.

Losing the Step-up In Basis

Capital Gains Tax is a tax that is imposed upon the sale of an asset that has increased in value. When someone buys their home at a low price and then sells it at a much greater price, that difference might be subject to capital gains tax (after deducting their personal capital gains exclusion amount, closing costs, and adding in capital improvements). If you gave your child your home during your lifetime, you are also giving them your cost basis, so that when your child sells the home, the child’s cost basis will “carry over” and be the same basis as yours, the very low price you paid for your home. On the other hand, if your child inherited your home only after your death, he or she would get a new cost basis that would “step up” to your date of death market value, which could be the difference in hundreds of thousands of dollars of tax savings when the capital gain is calculated.

For Example: In 1964, Martha bought her Flushing, New York house for $65,000.

With the capital improvements she made over the years in the amount of $235,000, her total cost basis is $300,000 ($65,000 plus $235,000).

In 2021, the market value of her home is $1,300,000.

If Martha transferred her home to her kids during her lifetime: If she gifts the house to her children during her lifetime, when her children sell, they will have to pay taxes on the capital gain, which is the difference between the net sale proceeds and Martha’s basis of $300,000. This could amount to several hundred thousand dollars in taxes.

If Martha does not transfer the home to her kids and they only inherit the house after Martha dies: When her children inherit the house, instead of a $300,000 cost basis, the children get a “stepped-up” basis to the market value at the time of Martha’s death. So if the market value at the time of her death was $1,300,000 and then the children’s cost basis would be $1,300,000. If they sell it right after her death at market value, there would be no tax at all.

So you see, transferring the home to your kids could have a catastrophic and costly tax impact that a little bit of patience and a lot of good advice could prevent.

Long Term Care Issues

If your health declines and you need long term care in the future, you may need to apply for Medicaid benefits to cover the high cost of your long term care. Medicaid imposes a penalty on eligibility for any assets transferred for less than fair market value during the Medicaid lookback period. Transferring your home to your child during your lifetime, at a point in your life that you may need long term care in the near future, is not advisable.

For Example: In 2019, Bradley and Margie transferred their home worth $700,000 to their son Charlie.

In 2021, Margie suffers a stroke, and ultimately needs to remain in a nursing home.

A nursing home will cost $15,000 month to pay privately but Medicaid long term care would cover the cost if Margie was eligible for Medicaid benefits. Because of the Medicaid lookback period, Margie will not be eligible for Medicaid benefits until five full years have passed since the 2019 transfer. If she applies in 2021 without a further strategy, Medicaid would impose a penalty due to the 2019 home transfer that would render her ineligible for even longer than waiting the full five years.

If the house had not been transferred to Charlie, Margie could have utilized another planning strategy to become eligible immediately (such as transferring the house ownership to Bradley).

If Charlie agreed, he could transfer the house back to his parents, and all would not be lost, but what if between 2019 and now Charlie had a creditor issue? Got Divorced? Died? Or simply didn’t agree to transfer the house back? We can hope that our children will cooperate, but what if something happens that is out of their hands?

So you see, transferring the home to your kids could have a catastrophic and costly tax impact and unanticipated long term care impact that a little bit of patience and a lot of good advice could easily prevent.

How an Attorney Can Help

There are very good strategies available to address your objective of a smooth transition of your wealth while minimizes taxes and also providing protection against unanticipated long term care costs. Contact us today to help you set up a customized plan that will address your individual needs.

The cost of protecting your home may become a bit more affordable in Nassau County.

On Friday, October 1, 2021, the Nassau County legislature voted to eliminate $106 million in real estate and traffic fees. The fees to be eliminated includes the hefty $355 fee for each “tax map verification” letter required by the county per section, block and lot when recording certain documents with the county clerk, including property deeds.

All 11 Republican members of the county legislature voted for the fee cuts while all 8 Democrats abstained from the vote. If the County Executive Laura Curran (Democrat) vetoes the fee cuts, then the bill will only proceed by override with a supermajority of 13 legislators.

Previously, this fee has been challenged as unconstitutional and in March of 2020, a State Supreme Court issued a ruling striking the collection of the tax map verification fee and declaring it an unlawful tax. Nassau County is currently appealing that decision and during the pendency of the appeal, the county is continuing to collect the fee.

One aspect of Medicaid long term care planning is protecting the individual’s home, which is often a person’s most valuable asset. The process includes the execution and recording of a deed transferring the home from the current owner to a trust and in some instances to other family members.

The county clerk’s office collects a recording fee to record the deed, which recording is necessary to put the world on notice of the new ownership. Each county has its own schedule of recording fees, which can range from under $100 to about $500.

In addition to the recording fees, the Nassau County Legislature passed a law several years ago that required many types of documents submitted for recording, including deeds, to be accompanied by a tax map verification letter for each section, block and lot associated with a recording. In 2015 the fee was $75, increasing by 200% to $225 in 2016, and then in 2017 further increasing by an additional 60% to $355. The current fee of $355 is in addition to the recording fee of approximately $500.

In addition to the attorneys’ legal fees associated with an estate plan or long-term care plan, currently homeowners in Nassau County are subject to County/title costs over $900 merely to record the deed associated with their planning. This adds a significant expense to those seeking to protect their home. Elimination of the tax map verification fee will significantly help bring the cost down to preserve homeowners’ most cherished asset and make the transfer process more affordable.

The bottom line is that no one should decide whether or not to protect their home worth hundreds of thousands of dollars based on a $355 difference, but the savings of such an amount will be felt in the pockets of those wise enough to proceed with their planning.

In order to qualify for Medicaid Home Care or Assisted Livings Services, known as “Community Based Services”, a person cannot have non-exempt assets (or “resources”) greater than a specific dollar amount. In New York, for 2023 the resource limit is $30,180.

Until the Community Medicaid lookback is implemented (expected to be implemented no earlier than April 1. 2024), a person can still transfer most of their assets out of their name to qualify for a home health aide or assisted living care without penalty.

In fact, often this is exactly what people do. A person in need of a home health aide (or assisted living facility) will simply transfer their non-exempt assets out of their name, whether to their children or to a trust, and then apply for Medicaid and get approved for community based long term care services.

A grave mistake that is made though, is spending the money too soon after it is transferred. If a nursing home is needed by either the Medicaid recipient or his or her spouse within five years after the transfer is made, the nursing home patient could find themselves in a really bad situation.

While there is currently no lookback implemented yet for home care or assisted living services, that is not the case for a Medicaid nursing home applicant. There is currently a five-year lookback when applying for Medicaid nursing home care. To qualify for Medicaid services to pay for nursing home care, not only will the applicant’s current resources be reviewed to confirm that the applicant’s non-exempt resources are under $30,180, but the applicant’s financial history will be fully reviewed for the past five years. Medicaid is looking for any uncompensated transfers, or “gifts”, that the applicant may have made in order to reduce their assets to qualify for Medicaid. If a transfer is found for less than fair market value (i.e. a transfer to a trust or to a child), Medicaid can assess a penalty equal to the amount of that transfer.

The penalty is calculated by dividing the value of the transfer by the regional rate of the cost of nursing home care to determine a period of time within which the applicant would have to pay privately. For example, if the applicant made an uncompensated transfer in the amount of $150,000 and the nursing home Medicaid regional rate in his area was $12,000, then the applicant would have a penalty period of 12.5 months ($150,000/$12,000) during which time the applicant would have to privately pay the nursing home bill. This is known as a “penalty period.” Medicaid will only begin to pick up the tab of the nursing home costs at the end of the penalty period.

If someone transfers his assets to get Medicaid home care or assisted living care, but then the situation changes, and that same person, or his spouse, needs nursing home care within five years, Medicaid will assess a penalty for the prior transfers that were made to become eligible for Medicaid community care.

The issue is, if such a penalty is assessed, how will the nursing home resident pay privately during the penalty period if he no longer has that money and the transferred money is already spent?

If the money has already been spent, there is a big problem. EVEN IF the money was spent on the Medicaid applicant’s needs, that will not help the situation. Medicaid will review the transfer and assess a penalty.

On the other hand, if the money was not yet spent then even if a penalty is assessed, at least there will be money available to pay for the nursing home resident’s care during the penalty period.

But even better, if the money has not yet been spent, there are crisis time strategies that can be implemented to preserve some of that money, and sometimes even all of the money, even when nursing home care is already needed.

Here is an example:

Bob had $165,000 collectively in all of his bank accounts. He has no retirement accounts. He transferred $150,000 to his two children and when he only had $15,000 left in his checking account, he applies for Medicaid Community Care to pay for the cost of a home health aide.

Bob’s Medicaid application is approved and he has a home health aide for six hours a day, seven days a week. His low income is insufficient to cover his living expenses, so Bob’s children use the money that was transferred to them to pay for Bob’s expenses such as his rent, utilities, groceries. Bob wanted to help pay for his grandchildren’s college education, so some further money was used for college tuition. After about two years, Bob suffers a stroke and is admitted to a hospital and then discharged to rehab. Unfortunately, he does not improve and can no longer safely return home. It is determined that he will need long term institutional care. The Medicaid nursing home application review process will uncover the $150,000 transfer of his assets to his children and a penalty will be assessed. During the penalty period Bob will be responsible to pay for the cost of his nursing home care during which time he must come up with $150,000 to pay for his own care. But where will he get this money from if it was already spent?

It is a huge problem that the children already spent Bob’s money, even if a good portion was spent on Bob’s own expenses. Bob’s children do not have another $150,000 of their own to pay for Bob’s nursing home care during the penalty. Bob cannot afford to stay in the nursing home.

Often, an applicant for Medicaid home care or assisted living facility may be short sighted and only think of the approval process for community care services while not thinking about the possibility, however remote, of requiring nursing home services.

In determining the strategy to obtain Medicaid home care or assisted living facility care, it is crucial to look ahead and make sure you have thought about the possibility, however remote, of the need for nursing home care within five years after transfers are made.

If Bob would have needed a nursing home 6 years after the transfer of his $150,000 was made, that wouldn’t have been a problem because the transfer would have been beyond the five year look back period and a penalty wouldn’t be assessed. The first five years after a transfer are pivotal. It is strongly recommended that money transferred is not used for at least five years in case it is needed in a crisis situation like Bob’s.

It is important to keep this in mind for both the Medicaid applicant and his or her spouse.

Because there is no lookback implemented currently for New York Community Care, it is not hard to get approval for Medicaid community care, but beware of making an irreversible error if the full long term care future picture is not properly assessed and addressed for both the Medicaid applicant and his or her spouse.

Get Help From an Attorney

We are here to help you evaluate your situation and advise you when Medicaid long-term care is needed. Contact our firm today.

Can I Sell My Home if I Put It in an Irrevocable Medicaid Asset Protection Trust?

The answer is most likely, yes. If you already have a trust, the first step is to consult with your elder law attorney and confirm that both the trust rules and your local state’s Medicaid rules.

The trust should be drafted to allow the trustee to buy and sell or otherwise exchange assets. Which means that the trustee could sell your home, but the sale proceeds would be placed directly into a trust account, and would not go to you, the Grantor. The trust could then use the proceeds to buy another residence for you to live in. This allows you to fund your trust with a property, allow the clock to start ticking so that you can get past a “look-back period” even if you decide to move later on. By following the rules accurately, you will not restart the clock, and the value of your home that you originally funded your trust with will be protected from the cost of nursing home care once five years have passed from the time of the transfer.

Here is an example:

• In January 2020 you created a Medicaid Asset Protection Trust and fund your home worth $900,000 into the trust.
• In March 2022, the trustee sells your home and the trust receives net proceeds of $1,000,000. The net proceeds are placed directly into a trust account.
• In April 2022, the trustee buys a condo for $400,000 using the trust account funds. The trust allows you (and your spouse) to live in the condo.
• The balance of $600,000 remains in the trust account, which can be invested, or preserved as the trustee sees fit.

Remember, the trust funds cannot be used for you, the Grantor, or your spouse, so you cannot use the house sale proceeds for rent or an assisted living if you sell your house. If the trust is drafted to allow you to receive income, then the money can be invested and you can use the income generated by the investment for your expenses.

If you need a nursing home anytime after February 2025, the Medicaid application will review any transfers you made back to February 2020. The initial transfer of your home in January 2020 will not be part of the lookback. The subsequent purchase of the condo and balance of trust funds will be protected because those were transactions done within the trust.

Asset protection planning for Medicaid long term care can be tricky and it is always best to consult with an elder law attorney not only to set up your plan, but before any significant changes take place. The right advice received before making a move will result in successful protection of your assets while accessing care when you need it.

Questions? Contact us today for a free consultation.

What is the Difference Between Medicare and Medicaid?

It is a common mistake to confuse Medicare and Medicaid. While they are both government programs for healthcare, it is important to understand the difference between them.

A main difference between the two programs are the eligibility requirements and the coverage each provides in relation to long term care, which will be further discussed below.

Medicare is a federal health insurance for people that are 65 years old and older, for younger people with certain disabilities, and for people with End-Stage Renal Disease. Eligiblity for Medicare is not based on a person’s income or assets, but rather on a person’s work history, or premium payments, regardless of personal finances.

Medicaid is a joint federal-state program that also provides medical benefits, however, unlike Medicare, Medicaid eligibility is means tested, which means a person can only qualify for Medicaid based on strict income rules. For a person seeking long term care coverage, in addition to income requirements, a person must meet strict asset rules as well. The main reason why people seek Medicaid coverage even if they are already eligible for Medicare coverage is because Medicaid covers long term care, including nursing home care, unlike Medicare, which may only provide long term care in limited and temporary circumstances.

When Would Each Pay for Long Term Care?

Let’s review Medicare first. Original Medicare is divided into Parts A and B.

Medicare Part A provides coverage for inpatient hospital stays, hospice care, and some care in a skilled nursing facility and limited home health care. Medicare Part B covers traditional healthcare expenses, such as visits to a doctor, blood tests, and X-rays.

Medicare Part A will only cover care in a skilled nursing facility (i.e. nursing home care) if the following conditions  apply:

1. The nursing home care is preceded by a qualifying hospital stay of three days of inpatient care;
2. The nursing home care is related to the hospital stay; and
3. The patient entered the nursing home within a short time of the hospital stay (usually within 30 days).

Even if those conditions are met, only the first 20 days of nursing home care are fully covered by Medicare Part A.  From Day 21 through 100, the patient will be responsible for a co-pay. (A patient may have supplemental insurance to cover this.) Any care beyond the 100^th day is not paid at all by Medicare Part A.

For a temporary situation where a full recovery is expected, Medicare’s long term care coverage may suffice. However, when a person will need either a nursing home or home health aide for a long term duration, Medicare coverage will not pick up the bill. That’s where Medicaid comes in.

To be eligible for Medicaid benefits that would cover nursing home costs, an applicant cannot have more than a certain amount of assets when they apply for Medicaid long term care coverage. The asset and income requirements vary by state. In 2021, in New York, an applicant cannot have more than $15,900 in non-exempt assets.

In addition to income and asset rules regarding nursing home Medicaid benefits eligibility, there is a look-back period.  Meaning, during the application process, it will not only be determined whether the applicant is presently below the asset limit, but there will also be a review of the applicant’s transactions for the 60 months preceding the application to determine whether the applicant transferred their assets for less than fair market value. If a person spent down their assets on their own expenses, that will be okay, but if the applicant gifted money to children or to a trust, Medicaid will impose a transfer penalty, and the applicant will have to cover their own cost of care for the duration of the penalty before Medicaid will begin coverage.

Applicants can seek the assistance of an elder law attorney to protect their assets while still qualifying for benefits.  Because of the lookback period, it is best to be proactive and consult with an elder law attorney well before the need for care will arise. By doing proper planning, a person’s lifetime of savings can be preserved for their family and won’t have to be spent down on care.

Even if it’s too late for advance planning, there still may be strategies that can be utilized to preserve assets. An experienced elder law attorney can help you navigate the Medicaid long term care process and advise you of your best options.

When You Die, Who Will Get Your Assets?

There are several ways that property is distributed when a person dies. The distribution of the property that you own at your death (your estate) will depend on several factors, including how you owned it, what legal documents you have in place, and what your state’s intestacy laws are if you haven’t set up an estate plan. Here are five ways that your property would be distributed when you die as a resident of New York State.

1. Property You Own Alone When You Don’t Have a Will

When you die without a will, then your property (a bank account, stock, real property, etc.) that is in your own name alone will be distributed according to state law.

State law will designate who will administer your estate. An administrator will be appointed by the Court and state law will determine who your estate is distributed to. There is an order of priority and specific rules regarding who can be your estate’s administrator and who will inherit your property.

Example: Peter owns a co-op and has checking and investment accounts when he dies as a resident of New York. Peter does not have a valid will. Peter’s wife Kate has priority to petition the court to be appointed administrator and even though Peter would have wanted all his assets to go to Kate, under New York State law, his assets are divided between Kate and his children in accordance and in proportion to New York State law.

You can see how this can get complicated if Peter’s children were from a prior marriage and don’t get along with Kate. Other problems could arise if his children are minors, or a child has creditor issues, or if a child has special needs or is on government benefits that would be endangered by receipt of the inheritance.

2. Property You Own Alone When You Have a Will

When you die and have prepared a will, then the property that you own (a bank account, stock, real property, etc.) that is in your own name alone will be administered and distributed according to the provisions of your will.

Example: Jane owns her house and has a checking account in her name alone when she dies. She has a valid will that named her brother Steve as executor and directs that her estate be distributed evenly between her best friend Stacey and her favorite charity named in the will. Steve will have to petition the court to admit her will to probate, where once the court approves of the will, it gives permission to Steve to collect Jane’s assets (house and checking account), pay any debts, taxes, and estate expenses (such as court fees, legal fees, and executor commissions), and then distribute the balance of the estate to the named beneficiaries, Stacey and the named charity.

3. Beneficiary Designations

When you designate a beneficiary on something that you own, the title and ownership of that property will automatically transfer to the named beneficiary without the need for probate, which can avoid lengthy delays, expensive fees, or court intervention. A beneficiary designation supersedes a will and other laws governing administration without a will. There are several ways to designate a beneficiary and not all types of property allow for beneficiary designations.

You cannot designate a beneficiary on your real property, such as your house or other real estate.

You can designate a beneficiary (or beneficiaries) on your life insurance policies, annuities, retirement accounts, and many other types of bank and financial accounts.

There are several different terms that are associated with beneficiary designations. Some include:

• POD = Payable on Death
• TOD = Transfer on Death
• ITF = In Trust For

Example: If a bank account is titled “Mary Smith ITF Joanne Smith” that means that Mary is the 100% owner of the account and free to do with it as she pleases during her lifetime. When she dies, it will belong to Joanne Smith without the need for any probate or court process. She becomes the 100% owner of the account with minimal paperwork and no need for a court process or attorney assistance. (Even if her will names someone other than Joanne as beneficiary, the beneficiary designation is what governs, and Joanne gets the account.)

Designating beneficiaries is an excellent tool to retain complete flexibility and control during lifetime, while making it very easy and economical for your loved ones to inherit your assets after your lifetime.

4. Property Owned with Another Person as Joint Tenants (with Rights of Survivorship)

If you have property (a bank account, stock, real property, etc.) that you own together with at least one other person and the account is titled as “joint tenants” or as husband and wife, then when one of the owners dies (the “decedent”), the surviving owner or owners automatically become the owner of the decedent’s share. The will of the deceased owner is irrelevant and the surviving owner becomes the 100% owner. If there is a beneficiary designation on the asset, the beneficiary would only get ownership after the death of the survivor, and generally, the survivor can change a beneficiary during his or her lifetime.

Example: Paula and Patrick have an investment account titled “PAULA PARKS AND PATRICK PARKS JTROS” (Joint Tenants with Rights of Survivorship). When Paula dies, Patrick automatically becomes sole owner of the account.

If the account had a beneficiary, the beneficiary would only get ownership after Patrick’s lifetime if Patrick didn’t change or remove the designation during his lifetime.

Example: Paula and Patrick, a married couple, used their combined savings to buy a house. The deed was titled  “PATRICK PARKS AND PAULA PARKS, as husband and wife.”

Paula has two children from a prior marriage. When Paula dies, Patrick automatically becomes sole owner of 100% of the house. Paula’s kids do not inherit the house, (even if her will left everything to them).

5. Property Owned in a Trust

If property is owned in your trust, meaning, you established a trust during your lifetime and transferred the title of what you own from your individual name to your trust, then when you die, the terms of the trust will govern who gets your property and who is in charge of administering the assets in the trust. A trust has many diverse purposes, but one feature that is common in all trusts is that property held in trust avoids the need for probate (court intervention) when you die. A will does not apply to any assets that are funded in the trust. And a trust will only govern the assets that it has been funded with. Generally, a trust requires more legal work during your lifetime (setting it up, transferring assets to the trust), but makes it easier for your beneficiaries after your lifetime.

Example: Stuart owns a condominium apartment, an investment account and a checking account. He creates a will and a trust. He transfers his condo into his trust. He leaves his investment account and checking account out of the trust, but has a beneficiary designation on his investment account.

When Stuart dies, the terms of his trust will govern distribution of his apartment. The trustee that he has named in his trust can sell the condo or distribute it according to the terms of the trust. His named beneficiary on the investment account automatically get the money in the investment account. His checking account has no joint owner and no beneficiary designation, so his executor will have to go through the court probate process to access the checking account funds and distribute the money according to the terms of Stuart’s will.

This list is not exhaustive. There are additional ways that your property can pass to your heirs, which might be appropriate in your specific situation.  There are many important factors that should be considered when titling your assets, designating beneficiaries on accounts, and preparing a will and a trust, if appropriate. It is important to determine what is best for your individual needs. The first step you should take is consulting with an estate planning attorney to become educated and informed about what is right for you. Contact our firm today.

Myth: If my annual gifts are under the annual federal gift tax exclusion amount, then no penalty can be imposed by Medicaid when I later need a nursing home or home care services.

Fact: That is absolutely incorrect. Medicaid and the IRS treat “gifting” very differently and the two concepts are completely independent from one another.  Giving gifts less than the federal annual gift tax exclusion amount can trigger a penalty when applying for Medicaid long-term care coverage. If you are planning on applying for Medicaid coverage in the future, you will want to be very careful about gifting or transferring any assets until you speak to an elder law attorney.  If you need long term care in the future and apply for Medicaid coverage, gifts you gave in the five years preceding your Medicaid application can make you ineligible for Medicaid coverage for a certain period of time, depending on how much you gave.  In that case, you would be responsible for your long-term care costs for a period of time before Medicaid can cover your costs.

Let’s review what the federal annual gift tax exclusion amount is and what gifting means in the context of Medicaid.

Federal Annual Gift Tax Exclusion Amount

The Internal Revenue Service (IRS) imposes a gift tax on the transfer of money or property without getting payment or fair market value in return.  For example, if you “sell” a piece of property to your child for $500,000 but that property had a fair market value of $2,000,000, then you have given a gift to your child of $1,500,000.  In addition, the IRS imposes an estate tax on assets transferred upon your death. Most people and particularly people seeking Medicaid coverage, never actually get hit with the federal gift or estate tax, because every person has a lifetime gift and estate tax exemption that is currently a pretty high amount.  In 2023, the federal exemption for gift and estate taxes is $12.92 million, and $25.84 million for married couples combined. That means that if a person dies in 2023, and at the time of death his estate, including gifts made during his lifetime, is less than $12.92 million, his estate will not be subject to estate or gift tax. (This exemption amount is scheduled to decrease to $5 million, plus inflation, in 2026, and possibly to a lower amount and even sooner under current federal tax proposals.)

Now, what if you have assets near the federal exemption limit and would like to avoid gift and estate tax? One easy strategy is to take advantage of the federal annual gift tax exclusion, which is $17,000 per year as of 2023. This means that a person can give up to $17,000 to any amount of people this year, and it will not be deducted from his lifetime gift tax exemption amount. If you are married, as a couple, you can give $34,000 to a single person. For example, one person can gift $17,000 to 10 children and grandchildren and reduce her estate by $170,000 without being subject to federal gift tax and without decreasing her lifetime gift tax exemption amount. A married couple can give double that amount.

So the strategy of giving gifts to your children and grandchildren, each up to the annual federal annual gift tax exclusion amount of $17,000 for 2023, is beneficial to you if you are aiming to reduce your lifetime gift tax and estate tax liability (meaning, you have millions of dollars).

Basically, unless you expect to have a taxable estate at your death (more than $12.92 million as of now, or more than the exemption amount when it is reduced), the $17,000 annual exclusion amount is pretty irrelevant to you. (*Note: If and when the estate and gift tax laws change and amounts are reduced, this issue may become more relevant to even those planning for Medicaid. Stay tuned.)

Medicaid Eligibility

Medicaid is a government program which pays both medical costs and long-term care costs for people who cannot afford to pay on their own.  Medicaid is designed as a “payor of last resort,” so to qualify you must meet strict financial and other eligibility requirements.  For a single person in 2021, New York State residents can apply for Medicaid services if their non-retirement assets are below $30,180 (there are a few exceptions to allowed assets and this limit is subject to change).

When an individual applies for Medicaid coverage, in addition to making sure that the applicant’s assets are below the Medicaid resource limit, there is a “look-back period” to see if any gifts have been made (transfers without receiving fair market value in return). The look-back period for nursing home Medicaid is five years. Until now, New York did not impose a look back for home care, but a 30-month lookback for any transfers made on or after October 1, 2020 was signed into law, although not yet implemented (currently tolled due to the federal pandemic emergency). The local Medicaid agency would review your financial documents and determine whether you transferred any property for less than its fair market value during the look-back period. If you have transferred assets during the Medicaid lookback period, a transfer penalty will be imposed and you will be ineligible for Medicaid long term care coverage for a period of time depending on how much was transferred. Basically, the idea is that Medicaid is funded by taxpayer dollars and the look-back period addresses the concern that people will quickly gift all their assets to their children or family, then seek Medicaid coverage to pay their long term care costs while their family is sitting on a pile of money.

Other than a few exceptions where transfers are exempt from transfer penalty (for example, transfers to a spouse or disabled child), transfers will be scrutinized by the local Department of Social Services (“DSS”) and can trigger a penalty. Substantial gifts for holidays, graduations, and birthdays may affect eligibility.  Medicaid can treat contributions to a charity as gifts for the purposes of qualifying for Medicaid benefits.  The same goes for transfers to a child, grandchild, or any other uncompensated transfer.

Although the IRS would not impose a gift tax for gifts in a given year below $17,000, such gifts could be scrutinized by Medicaid and, a transfer penalty can be triggered for these gifts.

Don’t assume that a transfer that will benefit you under federal tax laws will be safe under Medicaid eligibility rules. Such gifts will likely be a problem.

Practical Notes

The federal annual gift tax exclusion is not an exempt transfer from the Medicaid look-back period. Giving gifts, even under the federal annual gift tax exclusion amount, within five years of applying for Medicaid long-term care, may have serious impact on Medicaid eligibility.

Most people who are planning to apply for Medicaid long-term care coverage may never reach the lifetime gift and estate tax exemption amount (at the current exemption amounts). For a person whose estate would not be subject to gift tax or estate tax upon his or her death, utilizing the annual gift tax exclusion amount each year is quite irrelevant! For people well under these limits, it is much more relevant to make sure they will be eligible for Medicaid coverage when they need it. These annual gifts can hurt Medicaid eligibility.

With all that said, if you do not expect to need Medicaid soon and want to gift assets to your children, grandchildren, or other loved ones, that is always your choice.  There just may be certain penalties down the road if you apply for Medicaid coverage, depending on the circumstances of the gift.

All of this information may be a lot to take in at once. If you are considering giving gifts and haven’t thought about how you will pay for long-term care if you need it, it is important that you speak to an experienced elder law attorney.

Changes to the New York State Power of Attorney Law are now in effect as of June 13, 2021.

On December 15, 2020, changes to the New York General Obligations Law in relation to the statutory short form Power of Attorney were signed into law, with the effective date of June 13, 2021.

The new law will substantially change the format and enforceability of the power of attorney.

A Durable Power of Attorney (POA) is the most critical planning tool that will be used during your lifetime.  The POA gives the person or people you designate (your “agent”) broad powers to handle your personal financial affairs on your behalf.  Some of these powers include handling real estate, banking, business, insurance, estate, and tax transactions.   Without a properly drafted and executed Durable Power of Attorney in place, in the event of your incapacity, your loved ones may be faced with bringing a legal proceeding to handle your personal and financial affairs, which can cost thousands of dollars, time, and stress that would have been avoidable with proper planning.

Until now, a Statutory Gift Rider (SGR) would need to be executed in addition to the short form Power of Attorney to be allow for broader gift, tax, and Medicaid planning.  The signing requirements for an SGR were different than the short form. Whereas the short form required the principal to sign in front of a notary, the requirements of an SGR included both notarization and the signature of two witnesses.

The new law addresses criticism that the current power of attorney was often unenforceable due to its complex format and strict requirements as to form and execution. The objective of the new law was to simplify the document and facilitate its enforceability.

Some of the major changes addressed in the updated law are the following:

1. The new power of attorney form will condense the current two form format, the Short Form and Statutory Gifts Rider, into a one form format.
2. The updated law requires substantial conformity with the wording of the law, replacing the strict “exact wording” requirement.
3. In addition to the notary, the power of attorney form will now require two witnesses as well.
4. Whereas the current law requires third parties to accept a power of attorney presented to them, with the new law banks and will allow imposition of penalties if unreasonably rejected. The new law will reduce the likelihood of banks or other financial institutions rejecting a power of attorney.
5. The updated law will allow a power of attorney to be signed at the direction of a person, and not by himself or herself, which is crucial in the event a physical disability prevents a person from signing the document independently.

A power of attorney is a complex document that is one of the most important documents every adult should have as part of their estate plan. Therefore, while the new law is intended to facilitate the execution and use of a power of attorney, it is highly advisable to have one prepared by an attorney experienced in estate planning and specifically, elder law, to ensure that your form will include all the necessary provisions to allow your agent to act on your behalf to the full extent needed when necessary. You want to be sure that you have the proper documents in place in the event of a sudden injury, illness or incapacity.

An elder law attorney is experienced in assisting clients who no longer have capacity and are most knowledgeable on the crucial provisions that must be added to a power of attorney while a person has capacity to sign one. For example, an elder law attorney will include provisions in a power of attorney relating to long term care planning and government benefits that an attorney that is not experienced in those areas may possibly omit.

How We Can Help

If you have a power of attorney prepared before the effective date of the updated law, your power of attorney should still be enforceable as long as it was properly prepared and executed according to existing law at the time it was signed. We invite you to contact us to review it and ensure that it is effective and will meet statutory requirements.

If you do not yet have a power of attorney in place, we would be glad to assist you with this and your other estate planning needs.

It is always best to consult with an experienced attorney to ensure you not only have a good power of attorney in place, but that your full estate plan is up to date and reflects your wishes, your current situation and the current law.