Drafting Income-Only Trusts for Medicaid Eligibility and ...media. Medicaid Eligibility and Tax...

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Transcript of Drafting Income-Only Trusts for Medicaid Eligibility and ...media. Medicaid Eligibility and Tax...

  • The audio portion of the conference may be accessed via the telephone or by using your computer's

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    have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

    Presenting a live 90-minute webinar with interactive Q&A

    Drafting Income-Only Trusts for

    Medicaid Eligibility and Tax Planning Navigating Look-Back, Grantor Trust, Basis and Gift Tax Rules

    Today’s faculty features:

    1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

    WEDNESDAY, OCTOBER 28, 2015

    Judith D. Grimaldi, Partner, Grimaldi & Yeung, New York

    Kyla G. Kelim, Esq., Aging in Alabama, Fairhope, Ala.

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  • 5

    Income Only Trusts in

    Medicaid Planning

    Kyla G. Kelim, Esq.

    AGING IN ALABAMA

    Fairhope, AL

  • Irrevocable Income-Only Trusts

    (IIOT) • Self Settled: This type of trust is settled by the Medicaid

    applicant or the applicant’s spouse

    • Trust Assets

    - Income-producing

    (Example: stocks, rental property, CDs)

    - Non income producing

    Residence

    6

  • Objectives of Income-Only Trusts

    • Control

    • Flexibility

    • Protection

    • Tax Savings

    7

  • Advantages of the IIOT

    • Preserve assets/exempt for Medicaid purposes after

    lookback period

    • Protect assets against catastrophic long term care costs

    • Pass on the estate to heirs

    • Minimize tax liability

    • Retain control over assets

    • Avoid risk of loss

    • Right to income – source of continued income

    • Right to use, live in, sell real estate/purchase new

    property

    8

  • Risks associated with IIOT

    • Estate Recovery

    • Right to elect against spouse’s estate (depends on

    state’s definitions: probate vs. nonprobate)

    • Irrevocable

    • No access to principal

    9

  • Common Types of IIOT Assets

    • Income producing assets

    - stocks, rental property, cds

    • Non-income producing assets

    - residence

    10

  • When to use IIOT?

    • Depends on client and individual situation

    • Generally advantageous when:

    --Long term care planning for married couples with

    different degrees of health and income

    --Long term care planning for married couples in

    good health

    --Long term care planning for married couples who

    will not need long term care for 5 years

    • Trusts established for the non-institutionalized spouse of

    Medicaid applicant/recipient

    11

  • When NOT to use IIOT

    • Crisis planning when client will need long term care now

    or in the near future

    • Long term care planning for married couple with limited

    resources

    • Long term care planning for married couples with high

    income who live in or plan to move to state with income

    cap (ex: Colorado, Georgia)

    12

  • Alternatives to IIOT

    • Direct gifts

    --increased tax liability

    --exposes assets to risks from loss

    --lack of control

    • Other type of trust (no income reserved, special needs)

    • Spousal refusal

    • Spend down

    13

  • Five Year Lookback Period

    • Deficit Reduction Act of 2005 imposed a 5 year lookback

    period (effective for most states 2/8/2006)

    • Restrictions on transfers of assets

    • Established penalty period for transfers for less than fair

    market value

    • Penalty Period is UNLIMITED

    • Changed beginning point of penalty period

    14

  • Penalty Period

    • Will be imposed for transfers for less than fair market

    value after 2/8/2006

    • Will not start running until applicant otherwise qualifies

    for Medicaid benefits

    --in a covered long term care facility

    --spent down financially

    --income qualified

    • UNLIMITED

    15

  • How the penalty is calculated

    • Penalty may be imposed for even minimal transfers

    • The amount of the penalty is calculated by adding up the

    transferred amounts and dividing by the average cost of

    nursing home care in the area or state as determined by

    the jurisdiction

    • Can vary wildly by state

    16

  • Cost of long term care relating to

    Penalty • Can vary by state: may affect placement:

    -- Mom transfers her home worth $100,000 to

    daughter in July 2011. She falls, hits her head, and enters

    a nursing home for long term care in July 2015. She

    spends her savings and is under $2000 and eligible in

    October, 2015. In Alabama, divisor is $5800, so penalty

    period in March 2017 and in Florida, divisor is $8346 so

    penalty period is 12 months, she would be eligible in

    October, 2016

    • No long term care costs as little as $5800.00 in Alabama

    17

  • Cost of long term care relating to

    Penalty • Can also vary within a state

    • For example in New York, the costs vary by region:

    --Central: $8,768

    --Long Island (Nassau and Suffolk counties): $12,390

    --New York City (5 boroughs): $11,843

    --Northeastern: $9,414

    --Northern Metropolitan: $11,455

    --Rochester: $10,660

    --Western: $9,442

    18

  • Cost of long term care relating to

    Penalty • Is there another option in this example other than moving

    to New York?

    -- Mom transfers her home worth $100,000 to

    daughter in July 2011. She falls, hits her head, and enters

    a nursing home for long term care in July 2015. She

    spends her savings and is under $2000 and eligible in

    October, 2015. In Alabama, divisor is $5800, so penalty

    period in March 2017 and in Florida, divisor is $8346 so

    penalty period is 12 months, she would be eligible in

    October, 2016

    19

  • Cost of long term care relating to

    Penalty • If you said apply in August, 2016, you win!!

    • Remember the 5 year lookback, if you wait to apply until

    August 2016, then the 5 years has run…

    • NO PENALTY

    • If you apply in July of 2016, call your insurance carrier

    • THE PROBLEM: Most nursing homes have your client

    sign a Medicaid application on admission and routinely

    file them

    20

  • Special types of cases

    • Annuities

    • IRAs or other types of retirement accounts

    • Promissory notes

    • Depends to a certain amount on state specifications

    • Beware, in some cases, Medicaid will count unavailable

    assets as available, spurring litigation

    21

  • Impact of ACA

    • Affordable Care Act

    • For expansion states, individuals or families of higher

    income may now qualify for Medicaid

    • ACA uses modified adjusted gross income (MAGI) to

    determine eligibility, ex: family of 4 making less $95,400

    an