2010 – An Unusual Year for Tax Law

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2010 – AN UNUSUAL YEAR FOR TAX LAW

There is no federal estate tax this year.  Since the State of Hawaii has no inheritance tax, Hawaii residents can die this year with any amount of assets and pay no death taxes at all.  This is only for the year 2010.  For someone dying in 2011 or later years, any assets not inherited by a spouse or a charitable organization will be taxed, starting at a tax rate of 41% from the first dollar over 1 million, and going up as high as 55% for amounts over 3 million dollars.

The strange law this year and next year is a result of the 2001 tax act.  The 2001 tax act was supposed to get rid of the estate tax.  The 2001 tax act provided that the amount exempt from estate taxes would be $1,000,000 in 2002 and 2003, $1,500,000 in 2004 and 2005, $2,000,000 in 2006, 2007 and 2008, $3,500,000 in 2009, with no estate tax at all in 2010.  However, the bill that passed Congress contained a “sunset clause.”  The sunset clause provided that unless Congress in the future voted to extend the law, this new tax law would expire after December 31, 2010.  Like Cinderella’s beautiful carriage turning back into a pumpkin, just after midnight on December 31, 2010, the tax law will go back to what it was in 2001, which was that only 1 million dollars is exempt from the estate tax.  Therefore, there is no estate tax, but only for this year.  Remember, however, that Congress and the President can change the law again at any time.

Another important change is in the law regarding the stepped up basis.  (See my October 2009 Estate Planning Insights column about the stepped up basis.  You can find a copy in my blog at www.okuralaw.com.)  The usual stepped up basis rules do not apply in 2010, but will again apply starting January 1, 2011.  The 2010 basis rules are called the “Modified Carry-over Basis” rules.  If a person dies in 2010, the tax basis in the property will be the lower of the basis before the person died, or the fair market value at date of death.  However, the executor can increase the basis of assets owned at death up to the lesser of fair market value or 1.3 million dollars, plus up to the lesser of fair market value or 3 million dollars for property passing to a surviving spouse.  To qualify for the increase in basis, the property has to be in the name of the person who dies, or in her revocable living trust.  Although some experts differ on this issue, it is my opinion that property in which a person dies in 2010 with a life estate will not get a step up in basis.

Another important tax change in 2010 is with Roth IRA conversions.  Using a Roth IRA is a wonderful way to invest.  Although you do not get a tax deduction when you put money into the Roth IRA, it grows tax free, and you can take it out tax free.  You do not have to start taking distributions at age 70 ½.  You can leave part or all of it to children or grandchildren, who can take it out over their entire life, totally tax free!  The law has not allowed Roth IRAs for single persons earning more than $110,000 a year or married couples earning more than $160,000 a year.  However, in 2010, regardless of large income, a person may be able to convert a traditional IRA, 401(k) plan, profit sharing plan, 403(b) plan, 457 plan or even an inherited 401(k) into a Roth IRA.  Income tax must be paid on the conversion, and it could be a huge tax, but thereafter the Roth IRA and its profits are tax free forever.  It is possible to set up a Roth IRA to invest in real estate, private corporations and LLC’s, etc. and there are techniques for legally reducing the taxes payable upon conversion.

© OKURA & ASSOCIATES, 2010



2010 Estate Planning Update

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2010 ESTATE PLANNING UPDATE

Happy New Year!  For those of you who had a difficult time in 2009, I sincerely hope that 2010 will be a better year for you.  Here is a 2010 update on important numbers used in Estate Planning and Medicaid Planning.

How much money and property can a person have at death without paying estate taxes? For someone who dies in 2010, everything is tax-free!  There is no federal estate tax this year.  But from 2011, only $1,000,000 is tax-free.  Congress will probably change the estate tax law again in 2010.  I will inform you in this column of changes.

How much can a person give away without paying a gift tax? Effective January 1, 2009, you can give $13,000 each year to each person without having to report it to the IRS.  (The amount is still $13,000 in 2010.)  You can give any amount to a husband or wife who is a U.S. citizen without reporting to the IRS.  If you give more than $13,000 in 2010 to any person in one year, then the amount over $13,000 is a “taxable gift.”  You have to file a gift tax return to report the gift, but you can give up to $1,000,000 of taxable gifts in your lifetime without paying a gift tax.  However, if you give assets away, there will probably be a Medicaid penalty if you need nursing home care.  Do not give away assets (not even your home) without expert advice about the effect of both gift tax laws and Medicaid laws.

How much in assets can a husband and wife have and still qualify for Medicaid to pay nursing home costs for one of them? Effective January 1, 2009, a husband and wife together can have $111,560 in assets and still have Medicaid pay for the nursing home costs for one of them.  (The amount in 2010 is still $111,560.)  This $111,560 is in addition to the following exempt assets, which the government will not count: necessities such as clothing, furniture and appliances; motor vehicles; funeral or burial plans; one burial plot for each family member; one wedding ring and one engagement ring, and up to $750,000 of equity in a home.

If a person is not married, or if both husband and wife need nursing home help, how much in assets can each have and still qualify for Medicaid for nursing home costs? A single person can have $2,000; a married couple can have $4,000.

If you give away assets to your children, how long do you have to wait before you can qualify for Medicaid for nursing home costs without a penalty? The answer is 5 years.  (It is 3 years for transfers to individuals made before February 8, 2006.)  However, this does not mean that you have to wait 5 years before getting Medicaid help.  There are ways to reduce or eliminate the penalty period.

If a person qualifies for Medicaid for nursing home costs, how much of the family income can the spouse keep? The spouse who is not in the nursing home (“community spouse”) can keep all of his or her own income (social security checks, pension checks, etc.).  If the income of the community spouse is less than $2,739 per month, the community spouse can also be given some of the income of the one in the nursing home to bring the community spouse’s income up to $2,739.  (This figure was $2,739 in 2009 as well.)  The one who is in the nursing home has to use the rest of his or her income towards nursing home costs, except for $50 a month, which can be kept.

When is a probate necessary? Probate is necessary if a person dies with real estate of any value in his name only or as a tenant in common.  With assets other than real estate, probate is necessary if a person dies with assets worth over $100,000 which are not in a revocable living trust or joint account, and do not name a beneficiary.

© OKURA & ASSOCIATES, 2010



Tenants by the Entirety

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TENANTS BY THE ENTIRETY

            Most married couples in Hawaii buy their home as “tenants by the entirety.”  Many have transferred their home to their trusts.  Which is better?  To own your home as tenants by the entirety, or to put your home into your trusts?  Let’s look at the advantages and disadvantages.

            First, I apologize to those of you who are unmarried, divorced or a widow or widower.  “Tenancy by the entirety” can only be used by a married couple.  Read the most recent deed for your property.  See if you own the property as “tenants by the entirety.”  It is also possible to own real estate, savings accounts, stocks and bonds as tenants by the entirety.

            With tenancy by the entirety, if one dies, the property goes to the surviving spouse without going to court for probate.  One spouse cannot sell any part of the property without the signature of the other spouse.  The main advantage of tenancy by the entirety is asset protection from lawsuits.  If somebody sues either the husband or the wife and wins the lawsuit, the person suing cannot touch the property.  To take away the property, the person suing would have to win a lawsuit against both husband and wife.

            When husband and wife put their home into their trusts, they lose the tenancy by the entirety protection.  If one of them gets sued, the person suing could go after the half of the property that is in the trust of the spouse being sued.  Only $30,000 of the value of one property is protected if the person being sued is the head of a family or 65 years of age or older.  For others, only $20,000 of the value of one property is protected.  With tenancy by the entirety, 100% of the property is protected.

            If you are married and have trusts should you put your property into the trusts, or keep owning it as tenants by the entirety?  If you put it in the trusts, you will not have to worry about probate if you die, but a person who sues you could go after the property.  If you keep the property out of the trusts, and own it as tenants by the entirety, it is protected from lawsuits.  However, if both husband and wife die together in an accident, then there will have to be two probates.  If one dies, the property will go to the survivor without probate.  The survivor should then put the property into her trust before she dies. 

            If the husband and wife have A-B trusts and own enough assets to be taxed by the estate tax, then owning the property as tenants by the entirety could cause a problem.  When one dies, and the property goes to the surviving spouse, she has more assets and therefore a greater chance for an estate tax problem when she dies.  This problem can be reduced by having the surviving spouse “disclaim” the half of the property that is supposed to come to her, and cause it to go into the deceased spouse’s trust.  However, disclaiming real estate requires going through probate.

            So what should you do?  If you are young and healthy and not worried about being sued, put your property into your trusts.  If you are worried about being sued, either get a high level of insurance coverage, or keep your property as tenants by the entirety, or both.  If you are elderly and your assets will never be subject to the estate tax, then consider taking your home out of your trust, give it to your children, but keep a life estate as tenants by the entirety.  (A “life estate” means you own your home for the rest of your life.)  That way you don’t have to worry about probate, lawsuits, or nursing home costs.  A single person can also give away the home but keep a life estate, to protect it from probate and nursing home costs. 

 © OKURA & ASSOCIATES, 2009



New Medicaid Rules Are Now Effective

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            The February 2006 Estate Planning Insights column was entitled “Big Change in Medicaid Laws.”  On February 1, 2006, Congress passed the Deficit Reduction Act of 2005.  President Bush signed the bill into law on February 8, 2006.  This new federal law makes important changes to the rules about qualifying for Medicaid for nursing home costs.  These are the biggest changes in this area of law since 1993. 

            According to the Deficit Reduction Act, some important parts of the new law were to be effective from February 8, 2006.  However, the Medicaid program is a joint federal and state program.  The State of Hawaii needed to amend its Medicaid rules found in the Hawaii Administrative Rules.  We kept waiting for the new rules, but Hawaii was very slow in adopting them.  In the July 2009 Estate Planning Insights column I announced that the new rules were coming up for public hearing on July 28, 2009.  Finally, I can inform you that the new Hawaii Medicaid rules became official on October 18, 2009. 

            The delay in the new rules was a blessing for many of our clients.  During the last 3 ½ years, our law firm was able to help many clients legally transfer assets to loved ones, and then qualify for Medicaid for nursing home costs.  Probably all of them would have lost much more of their assets to nursing home costs if the new rules had been in effect.  You can read about some of the important changes in the law in the July 2009 Estate Planning Insights column, a copy of which is in my July 2009 blog at www.okuralaw.com.  You can read the actual new rules in my blog entitled “Notice of Public Hearing and DHS Proposed Rule Change.”    

            There are two important things you must understand as a result of the new rules.  The first is that in order to protect assets from nursing home costs, you must take action more than five years before you enter a nursing home. In the past, you could give away $100,000, and then qualify for Medicaid for nursing home costs 13 months later.  Now, when you give away assets, if you apply for Medicaid for nursing home costs any time within 5 years, there will be a penalty.  The penalty is a period of time during which Medicaid will not pay for your nursing home costs.  In order to avoid a penalty, plan on transferring assets at least 5 years before you need to enter a nursing home. 

            The second important thing is this:  do not turn in an application for Medicaid for nursing home costs until you have consulted with a Medicaid Planning specialist.  Let me show you why.  Suppose mother transfers ownership of her home to her son.  The house and lot are worth $600,000.  A little more than 5 years later, mother, who has less than $2,000 of assets, enters a nursing home and applies for Medicaid.  Son gets to keep the home, and Medicaid pays for Mother’s nursing home costs. 

            Suppose, instead, that after transferring the home to her son, Mother applies for Medicaid one day before 5 years have gone by.  There will be a penalty of more than 5 years and 7 months.  Under the new rules, the penalty period begins not when Mother transferred the home to her son, but when she applies for Medicaid.  Although she has already waited almost 5 years after transferring the home to her son, now she must wait another 5 years and 7 months, a total of 10 years and 7 months before Medicaid will help her!  It is important to know what to transfer, when to transfer, to whom to transfer, how to transfer, when to apply for Medicaid, and when not to apply.  There are so many ways to make a mistake that it is best to consult with a Medicaid Planning attorney before turning in the Medicaid application.    

              

© OKURA & ASSOCIATES, 2009

ESTATE PLANNING ATTORNEYS



The Stepped Up Basis

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In estate planning, it is important to understand “stepped up basis.”  When you buy property (for example, real estate or stocks) your “tax basis” in the property is the amount you pay for the property.  When you sell the property, you have profit or “gain” equal to the difference between the sale price and tax basis.  You have to pay “capital gains taxes” on your gain.

For example, suppose you bought a vacant lot many years ago for $10,000.  Now, that same land is worth $110,000.  If you sell that land for $110,000, your gain is $100,000 ($110,000 minus $10,000).  You have to pay capital gains taxes on that gain.  The federal capital gains tax rate for property held more than one year is generally 15%.  The State of Hawaii rate is 7.25%.  You would have to pay $22,250 in taxes.  (If you itemize deductions, you can take a deduction the following year on your federal income tax return for the state taxes paid.)

Instead of selling that land, suppose you give it to your son.  Your son’s tax basis in the land is $10,000.  When he sells that land for $110,000, he will have to pay the capital gains tax of $22,250.

Now, here is the tax planning opportunity.  Suppose after you bought that land for $10,000, you did not sell it and you did not give it to your son.  Instead, you hold on to the land until you die.  Your son inherits the land from you.  Then he sells it for $110,000.  He does not have to pay any capital gains taxes at all!  When you die owning that land, the tax basis in that land changes or “steps up” from $10,000 to $110,000 (the fair market value on the date of death.)  It is as if your son bought the property from you for $110,000.  When he sells it for $110,000, his gain is zero ($110,000 sale price minus $110,000 tax basis equals zero).  Therefore, his tax is zero.  Your son saves $22,250 in taxes by inheriting property from you instead of getting it from you while you are still alive.

This stepped up basis rule also applies to stocks, your home, and rental property.  (With rental property, the tax basis goes down every year as you depreciate the property.)  It does not apply to annuities or IRAs.  Here is another exception.  If you give property to someone, and that person dies within one year, and you or your spouse inherits that same property from that person, then you do not get a stepped up basis.

One of the best ways to get a stepped up basis for your home is to give it to your children, but keep a “life estate.”  You have given the home away, and protected it from nursing home costs, but you have the right to live there for the rest of your life.  When you die, because you kept the right to live there, the property gets a stepped up basis.  Your children could then sell it for the date of death value without paying any taxes.  (However, there is no stepped up basis if a person dies with a life estate in the year 2010.)  Our law firm has developed other techniques for getting a stepped up basis in other kinds of property such as rental property and stocks.

In 2009, a person can die with up to $3.5 million without paying any death taxes.  For many people, death taxes are no longer a problem.  We need to be paying more attention to capital gains taxes which our children or other loved ones may have to pay if they sell property we give to them.  Before you give away any real estate or stocks that have gone up or down in value, check with an estate planning specialist as to how the tax basis rules will affect your gift.

          

© OKURA & ASSOCIATES, 2009



Do Not Resuscitate

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“DO NOT RESUSCITATE”

With an Advance Health Care Directive, you can make “end of life” decisions.  You can choose to die naturally, without life support.  However, if your heart stops beating, emergency medical personnel will resuscitate you, even if you have an Advance Health Care Directive.

Some people who suffer pain or have a terminal illness would rather not be resuscitated.  To allow people to refuse resuscitation, the “comfort care only” law was created in 1994.  It provides a way for others to know quickly if a person does not want to be resuscitated when his breathing or heart stops. It requires wearing a special bracelet or necklace.  When emergency medical personnel see the bracelet, they provide only “comfort care,” without trying to resuscitate.  However, there is a problem with the law.  Even if you are wearing the special bracelet, a person can resuscitate you if his conscience requires it.  You can learn more about this law on the Department of Health’s website at www.hawaii.gov/health.  At that website, do a search for “comfort care.”  You can request forms for the comfort care only document and the special bracelet or necklace (which costs $9.50) by phoning (808) 733-9210.      

On July 16, 2009, House Bill 1379 became law without the Governor’s signature.  This new law is called Physician Orders for Life-Sustaining Treatment (POLST).  These Physician Orders cover tube feeding, like an Advance Health Care Directive, and also cover resuscitation, like a “comfort care only” document.  You can request not to be resuscitated if your heart stops beating.  It also covers “medical interventions.”  You can choose comfort measures only, limited additional interventions, or full treatment.  These are actual doctor’s orders, which both you and your doctor sign.  It is a two-sided form, with information on both the front and back.   These orders must be followed by medical personnel, if they know that you have a POLST form.  Under the “comfort care only” law, medical personnel can resuscitate you against your wishes, and are protected from lawsuits.  Under POLST, if someone knows you have a POLST form and resuscitates you against your wishes, you could probably sue that person.  Therefore, if the emergency medical personnel know about your POLST form, they are more likely to follow your “do not resuscitate” wish than if you have a “comfort care only” document.

However, there is a problem with POLST.  It does not provide for a special bracelet for emergency medical personnel to know that you have a POLST form.  In order to make the POLST form clearly visible, it is usually printed on bright lime-green paper.  It is recommended that you post a copy where it can easily be seen, such as on your refrigerator, bedroom door, or on a bedside table.  If you are in a hospital or nursing home, perhaps it should be posted near your bed. You should tell your relatives and friends that you have such orders, and what your wishes are.   

The POLST form may be downloaded from the Kokua Mau website at www.kokuamau.org.  On the homepage you will see where to click to download the POLST form.  Kokua Mau is an organization concerned about end of life care.  They played a major role in getting the POLST law passed in Hawaii.  They recommend printing out the form on 8 ½” x 11” paper, with the color being Lime No. 102053 from Kaleidoscope at Fisher Hawaii.  A black and white form is legal, and even a copy is acceptable, but the bright lime green color will make it easier for people to notice in an emergency.

If you are serious about not wanting to be resuscitated if your heart stops, I recommend that you get ­both the POLST form and the “comfort care only” document and bracelet or necklace.  Then, if an emergency occurs while you are shopping or at a restaurant, emergency medical personnel will see your bracelet.  Also, keep a copy of the POLST form in your purse or wallet.

© OKURA & ASSOCIATES, 2009



Small Estates

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            When a person dies with $100,000 or less in assets, there are simple ways to settle the estate. One way is to use an Affidavit for Collection of Personal Property. Another way is to have the clerk of the circuit court open a Small Estate proceeding. 

            Before we discuss these procedures, let’s review the definition of an “estate.”  When a person dies, that person is called a “decedent.”  If the person has a revocable living trust, all assets in the trust are part of the trust estate. These assets will go to beneficiaries according to the terms of the trust.  They are not included in the “decedent’s estate.” The decedent’s estate includes assets which were in the name of the decedent only, without a beneficiary, and without a joint tenant. Also, assets owned by the decedent as a tenant in common are part of the decedent’s estate. The decedent’s estate is sometimes called the “probate estate” or simply, the “estate.” Assets which have a beneficiary named, such as an IRA or life insurance, go directly to the beneficiary without probate. Also, assets that are held in joint tenancy or tenancy by the entirety go to the surviving owners without probate.  These assets are not part of the decedent’s estate.

            Suppose a person dies with the following assets:  $1,000,000 of real estate in his revocable living trust; $100,000 in a joint bank account with his wife;  $50,000 in an IRA with his daughter as beneficiary; 1/5 of a vacant lot worth $500,000 which he owns with his brothers and sisters as a tenant in common, and $5,000 in a credit union account in his name only. Upon death, the $100,000 of real estate owned as tenant in common and the $5,000 in the credit union account would have to go through a probate proceeding.

            This estate would have to go through probate because the value is more than $100,000.  If this person had put his 1/5 share of the vacant lot into his revocable living trust, then there would have been no need for a probate.

            If a person dies with $100,000 or less in assets, with no real estate, the assets can be collected by using an Affidavit for Collection of Personal Property.  An “affidavit” is a notarized statement. The Affidavit for Collection of Personal Property must be signed by the person claiming the property, and must be accompanied by a death certificate. The affidavit form is sometimes provided by the financial institution.  Otherwise, it can be obtained from the court or from an estate planning attorney. Motor vehicles can be claimed by signing an affidavit at the county Department of Motor Vehicles. The value of motor vehicles does not have to be counted to see if the decedent had more than $100,000.

            If the person dies with any real estate in his name only or as a tenant in common, even if the estate is not more than $100,000, a court proceeding is necessary.  The Small Estates division of the circuit court can help you with a small estate proceeding without your having to hire an attorney. They charge a fee of 3% of the value of the estate, plus court filing fees and newspaper publication costs. If there are no complications, a small estate proceeding takes an average of 10 to 12 months, which is about as long as a regular probate should take.

            One disadvantage of the small estate proceeding is that you cannot sell the property until everything is finished. If you want to sell the real estate without having to wait for a year or so, you would probably be better off hiring an attorney to do an informal probate proceeding.  With an informal probate, you can start advertising the property for sale immediately, and you can sell it as soon as the court appoints a personal representative, which may take about 6 weeks after you retain an attorney.

         

© OKURA & ASSOCIATES, 2009

Sanford K. Okura received his Doctor of Jurisprudence Degree from Stanford University in 1976.  He specializes in Estate Planning and Medicaid Planning to protect assets from nursing home costs, probate and estate taxes.

This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)

This column is for general information only.  The facts of your case may change the advice given.  Do not rely on the information in this column without consulting an estate planning specialist.



New Rules for Nursing Home Medicaid

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            On February 8, 2006, President Bush signed the Deficit Reduction Act.  This federal law made big changes to Medicaid for nursing home costs.  Important parts of the new law were supposed to be effective from February 8, 2006.  However, the Hawaii Department of Human Services only recently announced Hawaii’s proposed new rules based on the federal law.  The public hearing on the new rules will be held on July 28, 2009. 

             One of the big changes involves the home.  Under the old law the home was an exempt asset.  A single person in a nursing home could own a home worth millions of dollars, and still qualify for Medicaid if he had $2,000 or less.  The new proposed rule is that a person cannot get Medicaid help for nursing home costs if the home equity interest exceeds $750,000.  For example, if the home is worth $800,000 and there is no mortgage on it, the person cannot qualify for Medicaid.  If the home is worth $800,000, and there is a $100,000 mortgage on it, then the equity is $700,000, so the person could qualify for Medicaid if he has $2,000 or less.

            Another change is the “look back” period.  Under the old law, there was a 3 year look back for gifts to individuals and a 5 year look back for gifts to an irrevocable trust.  This does not mean that if you gave anything away there would be a 3 year wait before Medicaid would help you.  The 3 year look back meant that when a person applied for Medicaid for nursing home costs, the government would look back in time to see if the person gave anything away during the last 3 years.  If something of value (such as money or property) was given away during the last 3 years, then a penalty would be calculated.  The penalty is a number of months during which Medicaid will not pay the nursing home costs.  The idea is that Medicaid will not pay for nursing home costs for the period of time during which the person could have paid his own nursing home costs with the assets he gave away.

            Under the new law, the look back period is 5 years for gifts made on or after February 8, 2006.  This means that when a person applies for Medicaid for nursing home costs, if anything was given away during the last 5 years, a penalty will be calculated.

            A more serious change under the new law is the time when the penalty period begins.  Under the old law the penalty began in the month that assets were given away.  Under the new law, the penalty begins after the person already requires nursing home level of care and has $2,000 or less ($111,560 or less for a married couple). For example, suppose that a person gave away enough assets to create a 1 year penalty.  Under the old law, if a person gave away the assets on February 7, 2006, and had to enter a nursing home in July 2009, the penalty period would have begun in February 2006, and would have ended on January 31, 2007.  If the person has less than $2,000 in July 2009, he would qualify for Medicaid immediately.  However, if the person gave away the assets on February 8, 2006 or later, the new law applies, and the penalty period begins when he enters the nursing home in July 2009, and continues for 1 year.  Medicaid will not pay for his nursing home costs for 1 year!

            With the new rules, advance planning should begin earlier, preferably more than 5 years before the person has to go into a nursing home.  If advance planning is not done and someone ends up in a nursing home, be sure to consult a specialist in Medicaid Planning.  There still may be ways assets can be protected without spending all of it.

            You can read the actual proposed new law and notice on our blog posted July 9, 2009.  

© OKURA & ASSOCIATES, 2009

Sanford K. Okura received his Doctor of Jurisprudence Degree from Stanford University in 1976.  He specializes in Estate Planning and Medicaid Planning to protect assets from nursing home costs, probate and estate taxes.

This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)

This column is for general information only.  The facts of your case may change the advice given.  Do not rely on the information in this column without consulting an estate planning specialist.



Notice of Public Hearing and DHS Proposed Rule Change

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The following is a copy of the Notice of Public Hearing on the proposed changes to Hawaii’s Medicaid rules found in Hawaii Administrative Rules.  The public hearing is scheduled for July 28, 2009.  Many of the proposed changes are required by the Deficit Reduction Act of 2005, which was signed into law by President Bush on February 8, 2006.  The Notice of Public Hearing gives a nice brief summary of Medicaid for long-term care services and of each of the new sections which are being proposed. – Sanford K. Okura

Notice of Public Hearing – click to view PDF

The following is a copy of the proposed changes to the Hawaii Administrative Rules dealing with Medicaid for long-term care services.  The Hawaii Department of Human Services proposes to repeal Section 17-1721-45, which deals with assets which have been given away by a person applying for Medicaid assistance to pay nursing home costs.  Parts of the repealed section which are still relevant are incorporated into the new proposed Subchapter 8.  The new proposed Subchapter 8 also includes other changes in rules which are required by the Deficit Reduction Act of 2005, which was signed into law by President Bush on February 8, 2009. The State of Hawaii has not yet implemented the changes in the federal Medicaid laws which were supposed to be effective from February 8, 2009.  The long awaited Hawaii Medicaid rule changes are now coming up for public hearing on July 28, 2009.  Once these proposed rules are adopted, they will make it more difficult for a person to give away assets and then qualify for Medicaid for nursing home costs.  However, with proper planning, there still are ways that assets can be protected from Medicaid liens and nursing home costs. – Sanford K. Okura

DHS Proposed Rule Change – click to view PDF



The Special Needs Trust

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THE SPECIAL NEEDS TRUST

            Suppose you have a child with a disability.  Perhaps the child was born with a mental disability.  Perhaps he or she was born with a physical disability.  In some cases, the child may have been normal at birth, but later in life acquired a mental disability, or acquired a physical disability.  You love the child and want to provide the best possible care for your child.

            Because of the disability, the child qualifies for government benefits.  Perhaps the child receives Medicaid benefits.  Medicaid is a joint federal and state program which provides important medical benefits.  Perhaps the child receives Supplemental Security Income, known as “SSI.”  SSI is a program of the Social Security Administration.  It provides cash payments to persons in need who are 65 years of age or older, blind, or with a disability. 

            In order to qualify for Medicaid or SSI, the person with the disability must have $2,000 or less in assets.  Also, there are certain income limits.  (Please understand that the usual poverty level income limits do not apply to someone in a nursing home who needs Medicaid help.  Even persons with large retirement income can qualify for Medicaid for nursing home costs with proper planning.)  You love your child, and want to provide for the care of your child, but if you do, the child may lose valuable Medicaid or SSI benefits.  This is where a Special Needs Trust can be very useful.

            A Special Needs Trust is a kind of trust specially designed to provide for a person with a physical or mental disability.  The term “Special Needs Trust” is used in the United Kingdom and Ireland, as well as in the United States.  In the U.S., Special Needs Trusts are sometimes called Supplemental Needs Trusts.  Both terms mean the same thing.

            A Special Needs Trust is used to provide financial help for a person with a disability who receives government benefits, or who may in the future need government benefits.  The trust can be set up by a father or mother, grandparent, aunt or uncle, or anyone else concerned about the person with a disability.  The person with the disability could be a minor child, an adult child, or even an elderly person in a nursing home.  The Special Needs Trust is written in such a way that the person with the disability will not lose Medicaid or SSI benefits.  The trust assets are not considered assets of the person with the disability, so he or she still has less than $2,000.  Yet, the Special Needs Trust can provide money for “special needs” or “supplemental needs” besides what Medicaid or SSI provides, without disqualifying the person from Medicaid or SSI benefits.

            “Special needs” might include things like dental care, unreimbursable medical expenses, supplemental nursing care, recreation, cultural experiences, outings, travel, telephone, television, computer, reading and education.  The idea is that the special needs trust provides money for things or activities which make the person’s life more rich and enjoyable, without losing the government benefits.

            Many times a parent has two or more children, of which one has a disability.  When the parent makes a will or trust, the parent may have been advised to leave everything to the healthy children so that the child with a disability is left out of an inheritance.  This is not necessary.  With a Special Needs Trust, the parent can leave an inheritance for both the healthy children and for the child with a disability.  The child with a disability can continue to enjoy government benefits, and also enjoy a richer life because of financial help from the Special Needs Trust.  When the child with the disability dies, the money remaining in the Special Needs Trust can then go to the healthy children, or if they are gone, to grandchildren.

            With a special needs trust, the parent does not have to feel guilty about disinheriting a child with a disability.

              

© OKURA & ASSOCIATES, 2009

Sanford K. Okura received his Doctor of Jurisprudence Degree from Stanford University in 1976.  He specializes in Estate Planning and Medicaid Planning to protect assets from nursing home costs, probate and estate taxes.

This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)

This column is for general information only.  The facts of your case may change the advice given.  Do not rely on the information in this column without consulting an estate planning specialist.



© Okura & Associates, 2008