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It’s time to answer another reader question:
Dear Attorney Guertin:
My mother is law is 86 years old. In December she moved in with us after her husband passed away. She has dementia, although we did not know this when she moved in. Sometime down the road she may need nursing home care. If she gives away $13,000 to each of her children and grandchildren, will this be taken away from them if she runs out of money in 2-3 years?
M
North Branford
M- It is true that the IRS allows any person to gift up to $13,000 to any single person. This means that any person can give up to $13,000 to any number of individuals without having to file a gift tax return or paying any gift taxes on the transfer. However, when the question is framed in the context of nursing homes and Medicare it might not be a good idea to gift money out of your estate to “real people.” Although it is permissible to give funds away under the Internal Revenue Code, the State of Connecticut may be looking for those funds should your mother-in-law need nursing home care provided by Medicaid.
In order for an asset not to be considered when a person is applying for Medicaid, it needs to be out of the applicant’s estate for five years. Imagine a situation where assets are gifted out in year 1 and in year 3 those assets are needed for nursing home care. If the person does not have the money to pay for their care they will need to apply for Medicaid. When you apply for Medicaid, the State will ask for all sorts of information about your assets, including questions about transfers you have made- and believe me, they will investigate. Funds that were gifted out will count as an available asset if they were gifted within the five year window. What happens if those assets that were gifted out have been spent, or were lost in a lawsuit or a divorce? If the assets are not available (to pay for your care) a penalty period will be assessed against the Medicaid applicant. Imagine that nursing home care in Connecticut costs 15,000 per month. If the applicant gifted out $45,000 the year before they applied for Medicaid they would be assessed a three month penalty- meaning they would need to pay for their own care for three months.
Gifting to a “real person” is not the best idea and is quite risky. A better idea would be to gift those funds to an entity such as an Asset Protection Trust. An Asset Protection Trust is irrevocable by nature. The grantor (the person who funds the trust) will have no control over the Trust. Typically, a trusted family member serves as Trustee and manages the assets in the Trust. The Trust has beneficiaries which will take under the trust after you die.
Asset Protection Trusts are better recipients of the gifted assets because they don’t get sued or get into car accidents or divorced. If funds are needed to pay for your care they are available through the Trustee. If you want to play it completely safe an Asset Protection trust is the way to go.
If you would like to learn more about what an Irrevocable Asset Protection Trust can do for you and your family, Guertin and Guertin, LLC will be hosting a no cost, informational workshop on protecting assets on November 2, 2011 at 6pm. If you would like to attend, please call our office at 203-234-7400.
Most people never think that they will ever end up in a Nursing Home. However, the sad reality is that almost half of the population will spend some time in a nursing home during their lifetime. Currently, the average time spent in a nursing home is 2.5 years
A long term stay at a nursing home can be financially devastating for you and your family. Connecticut Nursing home care rates of $12,000-$15,000 per month can quickly eliminate a lifetime’s worth of hard work. Long term care in a nursing home can devour your savings and force your home to be sold at a “fire sale” price to pay for your care.
When people are faced with choosing between preserving their assets and paying for care, there really is no choice, unless the costs of long term care in a nursing home are planned for. Giving away your money (to a child, for example) before needing long-term care may sound like a good idea, but it can be risky. Children get divorced, sued, have creditor issues, or can become catastrophically ill. The assets gifted to your child could be lost through divorce, lawsuits, etc. and would not be available to you. Furthermore, due to restrictive gifting laws, you may not qualify for Medicaid because you gave your money away.
An Irrevocable Asset Protection Trust (IAPT) provides an opportunity for individuals, both single and married to protect their assets long term. These assets could be available to you at sometime in the future to pay for things that Medicaid does not, or for an individual’s spouse or as a legacy for future generations, without the risks associated with giving these assets away to another individual.
An IAPT is a legal entity separate from the person who creates it (the Grantor). It is created by signing a Irrevocable Trust Agreement where the Grantor irrevocably transfers assets to a third person called the Trustee (often the Grantor’s children or other relative) who holds that property in Trust for the benefit of the people who are named as beneficiaries.
Timing is extremely important when establishing an IAPT. “Beat the Clock” is the name of the game. In order for an IAPT to work it must be set up well in advance of anticipated nursing home care (currently 5 years). After the passage of enough time the assets held by the IAPT will be insulated from the ravages of a long term stay in a nursing home, as well as creditor issues, and lawsuits. Furthermore, the assets held inside of the trust will pass to your beneficiaries probate free and within weeks, as opposed to months if these assets were to pass through the probate process.
If you would like to learn more about protecting your assets, Guertin and Guertin, LLC offers a free consultation on protecting your assets. Give us a call at 203-234-7400 to schedule your appointment today. We also will be hosting informational workshops on this topic and others this fall- be on the lookout for dates and times. If you’d like to be added to our mailing list (to be notified of future workshops) drop us a line at info@guertinlaw.net.
If you have questions that you’d like answered here, please email me at marc@guertinlaw.net.
Marc Guertin, is a partner at Guertin and Guertin, LLC, a law firm dedicated to Estate Planning, Elder Law, Trust and Probate Administration. He is co-author of Planning for the Future: A Practical Guide to Estate Planning and Avoiding Bad Heir Days. Visit us on the web: www.guertinandguertin.com. Call us at 203-234-7400 for a free consultation. Read Marc’s blog at: www.deathslittleinstructionbook.wordpress.com. Guertin and Guertin, LLC is located at 26 Broadway in North Haven, Connecticut
Selecting a nursing home for a loved one is one of the most important and difficult decisions that you may be asked to make. This decision is usually made during a time of crisis, frequently when a family member is ready to leave the hospital after a serious illness or operation. It would be easier on everyone if this decision could be planned for. However this is usually not the case. Just remember, be nice to your kids… they are going to pick out your nursing home.
The first issue to decide is whether or not a nursing home is really necessary. Would some type of home services be adequate? This issue should be discussed with your physician, as well as other healthcare providers. There are many types of services available for people who choose to remain at home, such as home health care, adult day care centers, respite care (where another person can provide the caregiver some relief to allow for shopping, errands, or just a little “down time”) and hospice in-home care.
An option for those individuals who do not need the level of care that nursing homes provide is an Assisted Living Community. These communities provide many of the benefits of a skilled nursing facility but in a more home-like setting. They do not provide skilled nursing care, but will assist the resident in various activities such as dispensing medication, cleaning their room or apartment, providing meals, as well as various activities. Often the monthly cost of these communities is considerably less expensive than skilled nursing facilities, and may have special programs and special living arrangements for folks with cognitive impairments like dementia
Once it has been determined that an individual needs care in a nursing home you should allow that person, if they are able, to be a part of the process of selecting a facility. Ask professionals in the field, friends or acquaintances who have been in a similar situation for information. The Connecticut State Agency on Aging has an Ombudsman program that can provide information on particular nursing homes, however you should also visit different homes to see what they are like. Talk to staff members, other residents and their families. You should visit each home more than once and at different times of the day. Ask if they have activities for the residents. Ask to see menus for daily meals. Also, ask what the costs are at each home. Another thing you may want to do is to just walk around the home and observe the condition of the facility and the residents.
Nursing homes have their own doctors. You should find out about the doctors, their credentials, how often they visit and if they are willing to meet with the family to discuss plans for treatment.
Federal law requires that residents have the right to be free from restraints administered for the purpose of discipline or convenience and not required to treat medical conditions. If you see residents in restraints, you should question the facilities staff about the nursing home’s policy on restraints.
Be sure to visit more than one nursing home before you decide. You can be on a waiting list at many homes and then choose the home you want. A little advanced planning can save you from having to make a quick decision when you are forced to find a nursing home in an emergency. And remember… be nice to your kids!
The topic of gifting comes up often when discussing how to qualify for Medicaid (Title 19). It usually occurs during a larger discussion on appropriate ways to spend a person’s assets in order to receive Medicaid. A client’s child or children will often ask about the permissibility of making gifts to children, spouses, grandchildren and others. After all, isn’t that allowed by the Internal Revenue Service?
First things first: What are we really talking about here? Usually what the question means is: Can mom and dad gift us money to shrink the amount of their assets in order to qualify for Medicaid benefits? The answer is no.
The IRS does permit any individual to make gifts up to $13,000 per year to any number of people without incurring a gift tax or having to file a gift tax return- that’s the good news. While everybody is in good health and flush with cash it is a great idea to make gifts (if you can afford to). It is a great way to transfer wealth, tax free, as well as control the size of your estate in contemplation of estate taxes.
Usually we don’t talk about the “Good News” unless there is a little “Bad News.” Okay, I know everybody was feeling good about hearing the IRS permits you to make these gifts. Well, the bad news is that these gifts will not work under the Medicaid rules. Eligibility for Medicaid is determined by the amount of assets an individual or couple has. When assessing whether an individual is eligible for benefits, Medicaid looks back five years for transfers of assets. If assets were transferred out of the applicant’s estate within the past five years those assets will be included to calculate eligibility- most of the time the effect of this is to disqualify the applicant from benefits for a certain amount of time (depending on the amount of the gift).
If you are contemplating making gifts, think twice, can you really afford to make the gift? Understand the downstream consequences of that gift. My best advice is to get in contact with a good attorney and/or a CPA to guide you through the tricky rules of making a gift. Leave it to the IRS and Medicaid to suck all of the fun out of giving your money away.
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