Medicaid Planning Protects Your Home

It is common for people to think of their home as their most valuable possession, which is why you want your children to inherit this value when you pass away. However, you are also concerned about planning for the future, declining health, and the potential need for expensive long-term care. You have heard that Medicaid can pay for that, but the rules say you can own no more than around $2,000 in assets to be eligible. Now what?

Medicaid Planning Using an Irrevocable Trust

One solution is to take that significant asset, your home, out of your name, while reserving your right to live in it. This can be done with a carefully drafted irrevocable trust. Putting the house in the ownership of a trust could prevent Medicaid penalties and ensure reimbursement of health expenses, depending on your state’s current rules. It all depends on whether your health continues to keep you out of care for the next five consecutive years.

There are numerous other advantages to that kind of trust, one of which is to avoid probate proceedings. Trusts are private agreements that usually require no court supervision. So, signing away valuable property can feel like a big step, but it keeps your living situation unchanged and can really pay off in the long run.

Avoiding Capital Gains Taxes

But suppose, later, you decide to sell the house and move into a smaller place. That could pose a capital-gains tax problem. If the trust hasn’t been carefully drafted, and it (not you) sells the home, the personal-residence exemption would be lost. Capital gains tax could be prohibitive if the house appreciated in value since the date of purchase.

A similar problem arises when it comes time for your children to inherit. If the trust is not carefully drafted to cover this eventuality, your heirs will lose the basis-adjustment tax break. That, too, could cost them dearly. The basis adjustment allows the inherited value of the home, for capital-gains purposes, to be calculated not from the date you originally purchased the home, but from the date your heirs inherit the property.

For example, suppose you paid $100,000 for your house in 1980 and you kept it in good condition. On your passing, the house is worth $300,000. Now suppose the home is titled in the trust name, but the trust wasn’t written carefully to preserve the basis adjustment that would otherwise be allowed for inherited property. If the children sell the home for $350,000 in those circumstances, they would have made a taxable profit of around $250,000.

With the basis adjustment, however, profit would be calculated from the $300,000 mark as of the date of inheritance. This would leave your children with a tax bill on the $50,000 profit, not $250,000. This tax advantage comes from “stepping up” the taxable basis to the market price at the time of inheritance. As a result, your family receives more value by having to pay less taxes.

Protecting Your Assets for Heirs with an Irrevocable Trust

First, the irrevocable trust takes the home out of your name and, instead, titles it to the trust. Medicaid rules view the owner of the property as the trust, not you, and that’s what you want to reduce your assets and qualify for Medicaid assistance.

Next, to preserve the personal residence capital-gains exemption, an irrevocable trust creates what’s known as “grantor trust” tax rules. Current tax rules allow property owned by this kind of trust to remain part of your estate for tax purposes, and exempt from capital gains up to specified value limits, depending on your state and whether you file single or jointly as a married couple.

Even though the trust has ownership, you are still allowed to take the personal-residence exemption. For capital gains, the IRS disregards the trust.

Then, to minimize your heirs’ exposure to capital gains tax in the future, the trust also provides a “limited testamentary power of appointment.” The appointment power permits you to designate someone with the authority to disburse your assets to chosen beneficiaries, provided those beneficiaries are limited to family or charities.

The limited power of appointment allows your assets to pass down to beneficiaries while preserving eligibility for both the tax basis adjustment and Medicaid.

The right estate planning strategies neatly solve Medicaid planning and tax issues by:

  • Transferring the house title to the irrevocable trust while retaining your right to live in it, avoiding Medicaid penalties or reimbursement problems after five years,
  • Creating grantor trust status to preserve the residence exemption, avoiding capital gains tax on the sale during your lifetime, and
  • On your death, the adjusted-basis tax break is preserved by designating a person or entity to administer the assets in the trust.

Trusts are carefully drafted to comply with current rules regarding ownership and taxes to prepare for Medicaid eligibility and protect your assets for your family.

You may have a will, but it will not be able to protect your assets unless it becomes part of an estate plan that include an irrevocable trust. Bring us your will or estate plan, and let us look it over. If we find that it isn’t Medicaid-qualified, or it lacks provisions for grantor trust or the necessary powers of attorney, don’t worry. An irrevocable trust can sometimes be changed. Trusts that fail to account for various contingencies can happen if you don’t know where to find a trusted and reputable estate planning attorney.  All parties must consent, or court proceedings would be required, but an expert Estate Planning or Medicaid Planning Attorney knows how to correct these problems efficiently.

For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

The Importance of Hiring an Elder Law Attorney as Soon as Possible

Whether your loved ones are older adults, or you are concerned about your future health and financial well-being, an elder law attorney can help. Elder law is a highly specialized area of law focusing on the legal needs of older adults encompassing more significant issues like long-term health care needs, quality of life, and financial well-being. Specific planning may include estate planning and administration, asset protection planning, Medicaid planning and applications, wills and trusts, probate, advance directives, special needs planning, and guardianships.

How would you answer the following questions:

  • Do you have a will, and has it been updated in the last five years?
  • Are your assets protected in the event you require home care or nursing home care?
  • Do you have a living will, including a health care proxy and durable power of attorney?
  • Is your home protected, perhaps in a trust?
  • Are you willing to spend half or even all of your assets on the cost of your elder care?

If your answers are no to any of these questions, it is time to consult with an elder law attorney.

The Importance of Medicaid Planning with an Elder Law Attorney

As you age, early planning is the key to enjoy a successful, secure, and less stressful lifestyle. Currently, the look-back period for Medicaid nursing home benefit qualifications is five years, and it is 2.5 years for Medicaid home care benefits. Early planning can protect many of your assets and still secure eligibility for government benefits.

The truth is, regardless of your age or wealth, you should have an estate plan. Your will sets forth instructions regarding which heirs will receive your property upon your death, name a guardian(s) for minor children, and protect assets in a special needs trust benefiting any disabled loved ones.  An estate plan will tackle tax planning, power of attorney, health care proxy, and a living will in the event of unforeseen incapacity.

Engaging in Medicaid planning and asset protection can ensure you or your loved one will receive the care they need and afford it. Medicaid planning can protect a healthy spouse who wishes to remain in your home with the financial resources to do so. Proper planning for Medicaid benefits can protect your assets from Medicaid’s estate recovery program, genuine estate liens.

How an Elder Care Attorney Can Help You or a Loved One?

Hiring an experienced elder care attorney can be the most significant financial safeguard a person can make for their life or the life of a loved one. Specific services of an elder care attorney include but are not limited to:

  • Planning and managing of long-term care services – Your elder law attorney will compile financial information, insurance, and assets, including medical and housing needs, in addition to evaluating and implementing estate planning. Geriatric care, veterans benefits, financial and tax planning, and preparation are part of the process.
  • Planning and qualifying for Medicaid eligibility – Elder law attorneys understand the differences between Medicare and Medicaid. They can show how income levels and current asset holdings may affect your future benefits.
  • Interdictions (Guardianships) – In this process, a judge will appoint a person to manage another’s financial affairs known as a Curator (guardian), particularly for those who can no longer care for themselves or have Alzheimer’s or other forms of dementia. Elder law attorneys can guide a family through the process of obtaining guardianship for their loved one’s benefit.
  • Administration of the estate, probate and trust(s) – This service benefits the estate holder and the designated trustees or executors. An elder law attorney can outline the rights and responsibilities of those with fiduciary appointments.
  • Estate and disability planning and preparedness – Many seniors have questions regarding the impact of their will on their family and other tax and legal issues. Your elder law attorney can explain these impacts and help guide choices that ensure your legacy and benefit your heirs.

A well-crafted estate plan is invaluable to you and your beneficiaries. Your elder law attorney will help guide you through the estate plan process, customizing it to meet your needs, and prepare the legal documents reflecting the laws of your state. Early proactive planning will yield the best results to protect your assets and your well-being. Contact our Ruston, LA office by calling us at (318) 255-1760 to establish or review your existing estate plan.


Estate Planning: Six Mistakes to Avoid

You can protect your assets, interests, and the people you love if you plan ahead. Sadly, many individuals make costly mistakes without proper advice and guidance from a qualified estate planning attorney. Beyond undermining your intent and diminishing your financial legacy, poor planning can create additional stress to your heirs in their time of grief.

Six common errors frequently happen during the estate planning process. These mistakes often occur because the complete financial picture was not fully considered. It is easiest to avoid estate planning mishaps by knowing what they are before you begin or looking for these errors when reviewing and updating your plan.

Financial procrastination causes problems. While examining your mortality and making end-of-life preparations is not a particularly fun activity, try viewing it as helping and enhancing your loved ones’ future lives while creating a sense of peace during your own.

The need to protect your finances using wills, trusts, and power of attorney (POA) documents is not solely the domain of the elderly. Putting off the drafting of legal documents necessary to protect yourself and your inheritors can lead to disastrous outcomes.

By far, failing to create an estate plan is the most common mistake. Even if you do not have a lot of money, you need a will to protect any minor children you have by naming their guardians. Your will also ensures your asset distribution to heirs is carried out according to your intentions when you die and names a representative to handle debt obligations, final taxes, and other estate administrative duties. Dying without a will or “intestate” can lead to dire consequences.

Outdated wills, forms, and POAs create problems. If you made a will twenty years ago and have not reviewed and updated its contents, chances are many of the details no longer reflect current assets or beneficiaries. Estate planning is not a “set it and forget it” proposition. Reviewing estate planning documents and beneficiary forms every two years is generally adequate, barring a major life change such as divorce, birth, death, remarriage, or relocation to another state.

Beneficiaries without coordination can create expensive oversight. Beneficiary forms for retirement accounts like 401(k)s and IRAs, annuities, and life insurance policies may constitute a significant portion of your estate’s assets. These beneficiary forms are legally binding and will supersede the contents of your will. Failure to update beneficiary forms can lead to an ex-spouse receiving assets that preferably would go to your heirs. Routine checks of all beneficiary designations are best practices for estate planning.

Failing to title trust assets properly can lead to probate. While not everyone requires a trust, those who do must carefully retitle their assets into the name of the trust. Forgetting to add more recently purchased property or opening a new account requires you to title them into the trust to receive trust benefits. Whether real estate, cash, mutual funds, or stocks, if you fail to move the asset into the trust, they become subject to the probate court, possible tax consequences (depending on the trust type), and a public record of these assets.

Life insurance can trigger estate tax. Life insurance can provide heirs with liquidity without the sale of assets and tax consequences when handled correctly. However, if a wealthy individual dies while maintaining ownership of their life insurance policy, they may inadvertently create a tax event for their heirs. Although life insurance death benefits are not subject to state or federal income taxes, any “incident” of ownership by the decedent can create an inheritance tax.

An estate planning attorney can help shelter life insurance proceeds from high-value estates by gifting the policy to an Irrevocable Life Insurance Trust (ILIT) or draft a new trust to purchase a new policy where the trust is the owner and beneficiary. A policy owned by the trust does not create a taxable situation to death benefits. Your attorney’s careful structuring of this trust type is complex but can provide proper protection.

Joint ownership of assets with your children can lead to disastrous consequences. Naming your children as co-owners of assets, even digital, permits their creditors to access your money. The better way to address the situation is to give your adult child power of attorney and assign them as a beneficiary to a payable on death bank or brokerage account. This tactic permits them to access your funds if required during your lifetime. However, it keeps your assets from your child’s estate and away from their potential creditors.

Ultimately the biggest error you can make is not finding the right estate planning attorney to guide you. This specialized attorney receives training on avoiding probate, tax implications, and asset protection if you require long-term care. Proper planning with the right guidance will help you avoid costly estate planning mistakes and protect your family’s future financial well-being. If you have questions or would like to discuss your personal situation, please contact our Ruston, LA office by calling us at (318) 255-1760.