Estate Planning Blog

What You Need to Know about a Medicaid Asset Protection Trust (MAPT)
What You Need to Know about a Medicaid Asset Protection Trust (MAPT)

What You Need to Know about a Medicaid Asset Protection Trust (MAPT)

What You Need to Know about a Medicaid Asset Protection Trust (MAPT).

Moving into a nursing home can be expensive, costing you $12,000 to $15,000 a month or more. This expense can quickly wipe out your life savings. Medicaid will pick up the bill for you, if your income and assets are low enough to qualify for Medicaid benefits. The problem is you typically have to be nearly destitute, before you can qualify for Medicaid.

If you put your assets into a Medicaid Asset Protection Trust, however, you might be able to qualify for Medicaid, even if your assets exceed the limit. Here is what you need to know about a Medicaid Asset Protection Trust (MAPT).

Medicaid Income and Asset Limits

Eligibility for Medicaid varies by state. In general, you must have little or no income and few countable assets. Each state also has non-economic requirements, such as age, disability and household size, depending on your circumstances.

Medicaid does not count all of your assets toward the asset limit. For example, if you or your spouse live in your primary house, Medicaid considers the home an exempt asset. The value of that property does not count toward your state’s asset limit. There are limits on the amount of equity that does not count. The current limit in New York is $858,000.00. Limits vary from state to state.

Additional examples of assets that can be exempt, include one car, term life insurance, household furnishings, clothing, wedding and engagement rings and other personal items. Medicaid does not count prepaid funeral and burial plans or life insurance policies with little cash value toward the limit.

Medicaid does count these things toward the asset limit:

  • Cash
  • Bank accounts
  • Investments
  • Vacation homes
  • Retirement accounts not yet in payout status (only in some states)

These are the general guidelines. Your state’s treatment of assets might differ.

How a MAPT Works

When you put your assets into a Medicaid Asset Protection Trust (MAPT), Medicaid does not count those things toward the asset limit. You do not own those items – the trust does. Medicaid does not count an asset that does not belong to you. The trust can protect the assets for distribution one day to your beneficiaries.

There are different flavors of trusts that protect an asset from being counted for Medicaid. Different attorneys call them different things. Please note that a “Medicaid Asset Protection Trust” can also go by the name of “Medicaid Planning Trust;” “Home Protection Trust;” “Medicaid Trust;” “Asset Protection Trust,” and “Irrevocable Trust.” to name a few titles. Make sure that the trust you select is Medicaid-compliant.

Trusts that do not safeguard against Medicaid are most revocable living trusts, family trusts, funeral trusts (some irrevocable funeral trusts do), and qualifying income trusts (QITs, also called Miller trusts) are not Medicaid-compliant. They will not protect your assets, if you want to be eligible for Medicaid to pay for a nursing home.

Essential Aspects of MAPTs

MAPTs are sophisticated estate planning documents. Here are a few of the highlights of these documents:

  • You cannot create a MAPT and immediately apply for Medicaid. You will have to wait at least five years (2.5 years in California) before you apply for Medicaid, after setting up a MAPT. If you apply for Medicaid before the “look back” period expires, you could face harsh financial penalties.
  • You are the grantor of your trust. You state might use a different term, like the trust-maker or settlor. There is legal debate as to whether your spouse can be the trustee of your MAPT, but your adult child or another relative can be.
  • The trust must be irrevocable. Once signed, you can never change or cancel the trust. You can never own those assets again. If you create a revocable trust, Medicaid will count all the assets in the trust toward the asset limit, because you still have control over the assets.
  • The trustee must follow the instructions of the trust. No funds of the trust can get used for your benefit.
  • A MAPT protects your assets from Medicaid estate recovery. Without a MAPT, after you die, the state could seek reimbursement from your estate for all the money they paid for your long-term care.
  • While a Miller trust will not protect your assets, it can protect some of your income, if your income exceeds the limit for Medicaid. Used with a MAPT, many people can qualify for Medicaid to help pay for the nursing home, even if their assets and income exceed the eligibility limits.
  • The rules for MAPTs vary from one state to the next.

The regulations are different in every state. You should talk to an elder law attorney in your area to see how your state varies from the general law of this article.

References:

American Council on Aging. “How Medicaid Planning Trusts Protect Assets and Homes from Estate Recovery.” (accessed December 19, 2019) https://www.medicaidplanningassistance.org/asset-protection-trusts/

American Council on Aging. “How to Spend Down Income and/or Assets to Become Medicaid Eligible.” (accessed December 19, 2019) https://www.medicaidplanningassistance.org/medicaid-spend-down/

 

Can I Place My IRA in a Trust?
Can I Place My IRA in a Trust?

Can I Place My IRA in a Trust?

Can I Place My IRA in a Trust?

Unfortunately, you can’t place an individual retirement account (IRA) in a trust while you’re alive. This rule applies to all types of IRAs including traditional, Roth, SEP, and SIMPLE IRAs says Investopedia’s article, “How Can I Put My IRA In a Trust?”

However, if you establish a trust as part of your estate plan and want to include your IRA assets, you need to look at the characteristics of an IRA and tax consequences concerning certain transactions.

IRA accounts were designed to achieve two goals. First, they provided tax-deferred retirement savings for individuals not covered under an employer-sponsored plan. For those who were covered, IRAs provided a spot for retirement-plan assets to continue to grow, when and if the account holder changed jobs via an IRA rollover.

IRA accounts can only be owned by an individual. They can’t be held in joint name and can’t be titled to an entity, like a trust or small business. Contributions can also only be made, if certain criteria are met, such as the owner must have taxable earned income to support the contributions. A non-working spouse can own an IRA but must receive contributions from the working spouse and the working spouse’s income must satisfy the criteria.

No matter the source of the contributions, the IRA owner must remain constant. Only certain ownership transfers are permitted to avoid being categorized as a taxable distribution. If transferred to a trust, IRA assets become taxable, because this transfer is seen as a distribution by the IRS. In addition, if the owner is under age 59½ at the time of distribution, there’s an early withdrawal penalty. The trust can accept IRA assets of a deceased owner, however, and establish an inherited IRA.

Naming a trust as the beneficiary to an IRA can be a good idea, because owners can instruct the beneficiaries on how to use their savings. A trust can be created, so that special provisions for inheritance apply to specific beneficiaries. This can be a helpful option, if the beneficiaries vary greatly in age, or if some of them have special needs to be addressed.

Planning should consider how beneficiaries will take possession of IRA assets and over what time period. Get professional advice from a trust and estate lawyer. Ask the attorney about getting the maximum stretch option for the distribution of the account. The trust will need to have specific terms, such as “pass-through” and “designated beneficiary.” If it doesn’t have terms for inheriting an IRA, it should be rewritten, or specific people should instead be named as beneficiaries.

While moving all assets into the name of a trust and designating it as the beneficiary on retirement accounts is common, it is not always a good decision. Trusts, like other non-individuals that inherit IRA assets, are subject to accelerated withdrawal requirements. With the passing of the Secure Act in January of 2020 the rules concerning withdrawals have changed. Withdrawals must take place within a proscribed period of time from the original IRA owner’s death. Without the proper “pass-through” terms, stretching the withdrawals over a lifetime isn’t an option. Depending on the size of the account, this could place a major burden on the beneficiaries. It’s especially detrimental to eliminate the spousal inheritance provisions by designating a trust, instead of a spouse as the beneficiary.

Reference: Investopedia (November 26, 2019) “How Can I Put My IRA In a Trust?”

 

Simple Mistakes to Avoid in Estate Planning
Simple Mistakes to Avoid in Estate Planning

Simple Mistakes to Avoid in Estate Planning

Simple Mistakes to Avoid in Estate Planning.

There’s so much information available today, good and bad, that it is not always easy to know which is which. Just as we should not perform surgery on ourselves, we are asking for problems if we try to manage our estate planning without professional help. That’s the good advice from the article “Examining three common mistakes of estate planning” from The News-Enterprise.

For one thing, the roles of power of attorney agent and executor are often confused. The power of attorney agent acts in accordance with a document that is used when a person is living. The power of attorney appointment is made by you for someone to act on your behalf, when you cannot do so. The power of attorney expires upon your death.

The executor is a person who you name to handle matters for your estate after your death, as instructed in your last will and testament. The executor is nominated by you but is not in effect, until that person is appointed through a court order. Therefore, the executor cannot act on your behalf, until you have died and a court has reviewed your will and appointed them to handle your estate.

Too many people opt for the easy way out, when it comes to estate planning. We hear that someone wants a “simple will.” This is planning based on a document, rather than planning for someone’s goals. Every estate plan needs to be prepared with the consideration of a person’s health, family relationships, and finances.

Many problems that arise in the probate process could have been prevented, had good estate planning been done.

Simple Mistakes to Avoid in Estate Planning. One mistake is not addressing change. This can lead to big problems while you are living and after you die. If you are healthy, that’s great—but you may not always enjoy good health. Your health and the health of your loved ones may change.

Family dynamics also change over time. If you only plan for your current circumstances, without planning for change, then you may need to make many updates to your will.

The other thing that will occur, is that your estate plan may fail. Be realistic, and work with your estate planning attorney to plan for the many changes that life brings. Plan for incapacity and for long-term care. Make sure that your documents include secondary beneficiaries, disability provisions, and successor fiduciaries.

Create an estate plan that works with today’s circumstances, but also anticipates what the future may bring.

Reference: The News-Enterprise (Nov. 18, 2019) “Examining three common mistakes of estate planning”

 

Facebook and youtube can be helpful elder law resources.
Facebook and youtube can be helpful resources.

Facebook and youtube can be helpful elder law resources.

Located below are the my Facebook and Youtube Law Office shortcuts.
Please like and share these shortcuts.
The Facebook Business page has more than 150 videos on elder law topics. I have a series on Estate Planning Basics, Medicare, Trusts and Elder Law and more. You may be surprised. These tasty soundbites are fun and informative.
My youtube channel is new and we are migrating videos onto it. Please subscribe so that you do not miss new information as posted. I have a series on Elder law, on Medicare on estate planning and guardianship. Plus a whole lot more.
You would really help me out as well because I can get the ability to name my channel instead of having that long letter chain after it (see below). I need 100 subscribers or more. That would be a big help.
My website has plenty of information and my blog has over 200 posts.
As always, I am available rather easily for a telephone discussion. Please schedule by telephone 718-497-1003 or through the website www.frankbrunolaw.com.
I give my cell phone to clients and many existing clients text with me about various situations and circumstances and I am always available to lend an “ear” and a helpful word or two. The inquiries range from Probate, L&T, real estate to Guardianship and Incapacity to Elder Law issues.
Go ahead ask me a question, I dare you!
What Happens If a Spouse Is Not on the Deed?
What Happens If a Spouse Is Not on the Deed?

What Happens If a Spouse Is Not on the Deed?

What Happens If a Spouse Is Not on the Deed?

When one spouse has paid for or inherited the family home and the other spouse has not contributed to its purchase or upkeep, the spouse who purchased the home has to take proactive steps. Otherwise, the other spouse will inherit the home and have the right to live in it, lease it, visit once a year or do whatever he or she wishes to.

It’s their home, says a recent article from the Houston Chronicle titled “Navigating inheritance when husband is not on the deed,” and remains so, until they die or abandon the property.

In this case, the woman is the buyer of the home and she wants her son to have the house. The son will eventually own the home, but as long as the husband is alive and he has a life estate, the son can’t take possession of the home or use it, unless given permission to do so by the husband.

The husband may remarry, and if so, he and his new wife may live in the home. If he dies before she does, according to Texas’ homesteading laws, the homestead rights don’t transfer to her. At that point, the son would inherit the home and the new wife would have to move out.

The husband doesn’t get to live in the house for free. He is responsible for paying property taxes and maintaining the house. If there is a mortgage, he must pay the interest on the mortgage, but the woman’s son would have to make principal payments. The son would also have to pay for the homeowner’s insurance. Different arrangements can be implemented.

However, there are options:

  • Move to another state, where the laws are more in the second spouse’s favor.
  • Sell the home.
  • Ask the husband to sign a post-nuptial agreement, where he waives his homestead right.
  • Get divorced.
  • Gift or sell the home to the son now and rent from him.

The last option is risky. If the son owns the home, there is no protection from the son’s creditor’s claims, if any, and the woman would lose her property tax homestead exemptions. If the son needs to declare bankruptcy or sell the home, or dies before his mother, there would be nothing she could do. If the son married, his wife would be an owner of the home. He (or she) could even force his mother out of the home.

What Happens If a Spouse Is Not on the Deed? Not every state treats these issues the same. Speak with an estate planning lawyer to see if gifting the house to your son is a good idea for your situation.

Reference: Houston Chronicle (Nov. 13, 2019) “Navigating inheritance when husband is not on the deed”

What Happens If a Spouse Is Not on the Deed?

What Should I Know About Joint Tenancy?
What Should I Know About Joint Tenancy?

What Should I Know About Joint Tenancy?

What Should I Know About Joint Tenancy?

Investopedia’s recent article, “Joint Tenancy: Benefits and Pitfalls,” explains that it’s a common practice for couples and business partners to take title to each other’s bank accounts, brokerage accounts, real estate and/or personal property, as joint tenants with rights of survivorship (JTWROS).

JTWROS is a type of account or title, where the asset is owned by at least two people and all tenants have an equal right to the account’s assets.

They all also have survivorship rights, in the event of the death of another tenant. Therefore, when one partner or spouse dies, the other receives full title to the asset. Let’s take a closer look at JTWROS.

When a person passes away with a will, it is examined by the Surrogates’ Court (probate court). The court will decide whether the will is valid and binding and determines if there are any outstanding liabilities and assets of the deceased. After addressing any debts, any remaining assets are distributed to the heirs, according to the instructions in the will. However, if a person dies without a will, the probate court will divide the assets pursuant to state intestacy law.

Because JTWROS automatically transfers ownership to the surviving spouse or business partner at the death of the first partner, there is no probate for this asset. When a married couple or two business partners own an asset that is titled JTRWOS, both are responsible for it, so both enjoy its positive attributes and share liabilities equally. However, neither party can incur a debt on the property without indebting themselves.

When the surviving spouse or business partner assumes control over the asset titled JTWROS at the death of the co-tenant, she can sell it, or give it away.

The alternative to JTWROS is a tenancy in common. With that form of ownership, each owner may own half of the asset, or a percentage or fractional ownership can be established. Each party can also legally sell his share, without the other party’s consent. Second, the asset will pass to heirs.

Both JTWROS and tenancy in common have some nice benefits. However, before you set up either, every party should assess their situations, to determine whether one option is better than the other.

Reference: Investopedia (May 28, 2019) “Joint Tenancy: Benefits and Pitfalls”

 

Can You Explain the Concept of Step-Up Basis?
Can You Explain the Concept of Step-Up Basis?

Can You Explain the Concept of Step-Up Basis?

Can You Explain the Concept of Step-Up Basis?

If you inherit assets—especially real property—you need to understand the step-up in basis rules. These rules can save you a lot of amount of money on capital gains and depreciation recapture taxes.

Motley Fool’s recent article on this subject asks “What is a Step-Up in Basis?” The article explains that step-up in basis has significant implications for inherited property. When an asset is inherited because the original owner has passed away, in many cases, it’s worth more than when it was first purchased. To avoid a huge capital gains tax bill when the inherited property is sold, the cost basis of the asset is modified to its value at the time of its owner’s death. This is called a step-up in basis. Note that this only applies to property transferred after death. If a property was gifted or transferred before the original owner dies, the original cost basis would transfer to the recipient.

Can You Explain the Concept of Step-Up Basis? This is a gigantic tax benefit for estate planning, regardless of whether you go ahead and sell the inherited asset immediately or hold on to it for a time. While a step-up in basis can let heirs avoid capital gains taxes, it doesn’t allow heirs to avoid estate taxes that apply to big inheritances.

The estate tax this year is imposed on property in excess of $11.4 million per individual and $22.8 million per married couple. Therefore, if you and your spouse leave a $25 million estate to your heirs, $2.2 million of this will still be taxable, even though your heirs’ cost basis in assets they inherited will be stepped up for capital gains tax purposes.

There are many strategies that a qualified estate planning attorney can advise you on to avoid estate taxes, but step-up in basis doesn’t exclude the value of inherited property from a taxable estate all by itself.

There are two significant ramifications of stepped-up cost basis regarding inherited real estate assets. First, like with other assets, you don’t have to pay capital gains on any appreciation that occurred before you inherited the property. Selling an investment property after years of holding it, can mean a massive capital gains tax bill. Therefore, a stepped-up cost basis can be a very valuable benefit. A step-up in basis can also give you a larger depreciation tax benefit. The cost basis of residential real estate can be depreciated (deducted) over 27½ years: a higher number divided by 27½ years is a greater annual depreciation deduction than a smaller number would produce.

Real estate transfers are pretty complicated, so work with a qualified estate planning attorney.

Reference: Motley Fool (November 21, 2019) “What is a Step-Up in Basis?”

 

From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans
From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans

From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans

From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans.

Sometimes the first attempt is a flop. Imaging this exchange: “So, do you want to talk about what happens when you die?” Answer: “Nope.” That’s what can happen, but it doesn’t have to, says The Wall Street Journal’s recent article “Readers Offer Their Advice on Talking to Aging Parents About Estate Plans.”

Gentle Persuasion Talking About Estate Plans. Many people have successfully begun this conversation with their aging parents. The gentle persuasion method is deemed to be the most successful. Treating elderly parents as adults, which they are, and asking about their fears and concerns is one way to start. Educating, not lecturing, is a respectful way to move the conversation forward.

Instead of asking a series of rapid-fire questions, provide information. One family assembled a notebook with articles about how to find an estate planning attorney, when people might need a trust, or why naming someone as power of attorney is so important.

Gentle Persuasion Talking About Estate Plans. Others begin by first talking about less important matters than bank accounts and bequests. Asking a parent for a list of utility companies with the account number, phone number and if they are paying bills online, their password, is an easy entry to thinking about next steps. Sometimes a gentle nudge, is all it takes to unlock the doors.

For some families, a more direct, less gentle approach gets the job done. That includes being willing to tell parents that not having an estate plan or not being willing to talk about their estate plan is going to lead to disaster for everyone. Warn them about taxes or remind them that the state will disburse all of their hard-earned assets, if they don’t have a plan in place.

One son tapped into his father’s strong dislike of paying taxes. He asked a tax attorney to figure out how much the family would have to pay in estate taxes, if there were no estate plan in place. It was an eye-opener, and the father became immediately receptive to sitting down with an estate planning attorney.

A daughter had tried repeatedly to get her father to speak with an estate planning attorney. His response was the same for several decades: he didn’t believe that his estate was big enough to warrant doing any kind of planning. One evening the daughter simply threw up her hands in frustration and told him, “Fine, if your favorite charity is the federal government, do nothing…but if you’d rather benefit the church or a university, do something and make your desires known.”

For months after seeing an estate attorney and putting a plan in place, he repeated the same phrase to her: “I had no idea we were worth so much.”

Between the extremes is a third option: letting someone else handle the conversation. Aging parents may be more receptive to listening to a trusted individual, who is of their same generation. One adult daughter contacted her wealthy mother’s estate planning attorney and financial advisor. The mother would not listen to the daughter, but she did listen to her estate planning attorney and her financial advisor, when they both reminded her that her estate plan had not been reviewed in years.

Reference: The Wall Street Journal (December 16, 2019) “Readers Offer Their Advice on Talking to Aging Parents About Estate Plans”

From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans.

Helpful Links for readers of this Elder Law Blog
Helpful Links for readers of this Elder Law Blog

Helpful Links for readers of this Elder Law Blog

Helpful Links for readers of this Elder Law Blog.
Below is my Facebook link and Youtube link.  My Facebook Office page has more than 150 videos on elder law topics. Take a look.
My website has information and my blog has about 200 posts. My youtube channel is new and we are migrating videos onto it. Please subscribe so that you do not miss new information as posted. I have a series on Elder law, on Medicare on estate planning and guardianship. Plus a whole lot more. You would really help me out as well because I can get the ability to name my channel instead of having that long letter chain after it (see below). I need 100 subscribers or more. That would be a big help.
As always, I am available rather easily for a telephone discussion. Please schedule at www.callfrankbruno.com. Many existing clients text with me about various situations and circumstances and I am always available to lend an “ear” and a helpful word or two. The inquiries range from Probate, L&T, real estate to Guardianship and Incapacity to Elder Law issues. Try me out!
Resources for Healthy Aging
Resources for Healthy Aging

Resources for Healthy Aging

Resources for Healthy Aging. You worked hard for decades, and now you get to retire. You have daydreamed about what you want to do during these hard-earned years. It would be tragic if you were too sick and frail to get to do those things, like play with the grandchildren, travel, enjoy your hobbies and other activities. We all want to be healthy, but it is easier to achieve that goal with a little help. The Department of Aging, a federal agency within Health and Human Services (HHS), provides information on resources for healthy aging.

The Eight Pillars of Health and Wellness for Older Adults

You do not have to tackle all eight of these factors on Day One. Getting stressed and overwhelmed will hurt your health, not help it. Work your way through this list at a comfortable pace. Make changes to your lifestyle that you can continue over the long haul. Resources for Healthy Aging. Consistent habits will give you the most significant benefit.

  1. Move around and exercise. It is a safe bet that the people who live into their nineties and triple digits did not spend their sixties and seventies as couch potatoes. Keep moving. Getting a little physical exercise every day is essential for long-term health. Choose low-impact activities, like walking and swimming, that have a low risk of injury. Be careful to avoid falls that can rob you of your mobility and independence.
  2. Stay involved. Loneliness is toxic to your physical and mental health. Find something in your community that brings you joy, whether it is a house of worship, animal shelter, or organized senior events at the local recreation department. Sign up and meet new people. Stay involved.
  3. Eat right. You know the adage, you are what you eat. You cannot have peak health, if you eat and drink highly processed foods and beverages with little nutritional value. Make sure that you include fresh fruits and vegetables into your routine every day. If you cannot get fresh, choose frozen over canned foods.
  4. Access benefits. Tap into all of the benefits and services you have earned over the years. Social Security, Medicare, and Medicaid can go a long way to keeping you and your wallet healthy. If you do not apply for and fight until you get all of the benefits for which you are eligible, you are leaving money on the table and draining money from your retirement savings. Too many people do not go after the income and services they qualify for, in the form of veteran benefits, state and county programs and non-profit agencies.
  5. Respect mental health issues. For too long, the topic of mental health carried a stigma. People did not talk about it. We now realize that mental health has a significant impact on your physical health and quality of life. Talk to your doctor about your mental health concerns.
  6. The little grey cells. Keep your brain healthy. Like everything else, you need to exercise your brain to keep it fit. Be a lifelong learner. Practice a healthy lifestyle. Read books and do word puzzles. Just do not let your brain be idle.
  7. Medical knowledge. If certain diseases run in your family, go to reputable websites like the Mayo Clinic and the National Institutes of Health to educate yourself on those conditions. You might be able to prevent a debilitating illness. If nothing else, you can learn how to manage a medical condition.
  8. Medication management. Have a frank talk with your doctor about all of your medications. If you have to take three drugs to handle the side effects from another prescription, your doctor should explore whether a different medication might be a better option. Make sure that your various prescriptions, supplements and natural remedies do not conflict with each other.

One additional piece of advice: be kind. Be kind to others and to yourself. Help people and they will reciprocate in kind. You will create a better community, that is worth living in during your golden years.

References:

Health and Human Services. “Healthy Aging.” (accessed November 26, 2019) https://www.hhs.gov/aging/healthy-aging/index.html

Resources for Healthy Aging