2012 Estate Planning Update (January 2012)

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Sanford Okura
on January 20, 2012
in Estate Planning, Estate Taxes and Gift Taxes and Medicaid and Nursing Home Costs
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Here is a 2012 update on important numbers used in Estate Planning and Medicaid Planning in Hawaii.

How much money and property can a person have at death without paying estate taxes?

Under a temporary federal law, $5,000,000 is tax free this year. From January 1, 2013, only $1,000,000 will be tax free.  There is a bill in Congress, introduced on November 17, 2011, called the “Sensible Estate Tax Act of 2011,” which proposes to reduce the exemption to $1,000,000 immediately. You can track this bill at http://www.govtrack.us/congress/bill.xpd?bill=h112-3467. There is also a Hawaii Estate Tax.  The State Tax Department is saying that $3,500,000 is tax-free.  The law is ambiguous.  It could be argued that the state exemption is meant to be the same as the federal exemption – $5,000,000.

How much can a person give away without paying a gift tax? You can give $13,000 each year to each person without having to report it to the IRS.  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 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 for 2012, you can give up to $5,000,000 of taxable gifts in your lifetime without paying a gift tax.  This amount goes down to $1,000,000 in 2013. For the wealthy, now is the time to give.  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? A husband and wife together can have $115,640 in assets and still have Medicaid pay for the nursing home costs for one of them. (The amount was $111,560 last year.) This $115,640 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 $786,000 of equity in a home. (The equity limit was $750,000 last year.)

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.    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 $2,841 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 $2,841.  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 in Hawaii if a person dies with real estate of any value, or other assets worth over $100,000, which are not in a revocable living trust, not in joint names with right of survivorship, and do not name a beneficiary.

© OKURA & ASSOCIATES, 2012



Protect Your Home From Medicaid Liens – Part 3 (May 2010)

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Sanford Okura
on May 21, 2010
in Medicaid and Nursing Home Costs
. 6 Comments Tags: , , , .

PROTECT YOUR HOME FROM MEDICAID LIENS (PART 3)

Last month and the month before, I explained how to protect your home from Medicaid liens.  In my April column, I described how a parent can transfer the family residence to the children, and keep a “life estate.”

The life estate allows the parent to continue to live in the home for life.  If the parent goes into a nursing home and receives Medicaid help, the government can still put a Medicaid lien on the property.  The lien is like a mortgage.  The government uses it to secure repayment of all the payments it made to the nursing home on behalf of the Medicaid recipient.  However, the Medicaid lien attaches only to the life estate.  When the parent dies, the life estate disappears.  The children then receive the property free and clear of the lien.  I know this works.  Our law firm has used this technique for hundreds of clients.  When the client passes away with a Medicaid lien on the life estate, we contact the Attorney General’s office, prove to them that their lien was only on a life estate and that the life estate holder has died, and ask them to remove the lien.  So far we have been successful 100% of the time.

Some people have concerns about the life estate.  I will now discuss some of these concerns.  Suppose mother transfers the residence to daughter and reserves a life estate.  What happens if the daughter dies first?  The first problem is that if the daughter dies, her ownership interest in the residence will have to go to court for probate.  That problem is easily solved.  Instead of having mother transfer the property directly to her daughter, have the daughter first set up a Revocable Living Trust for herself.  Then mother can transfer the property to her daughter’s Revocable Living Trust, and keep a life estate for herself.  If the daughter happens to die first, there will be no probate.

A more serious problem is this:  what if the daughter dies first and her share of the property goes to her husband, who remarries? When he dies, it goes to his new wife instead of to the grandchildren.  Or what if the daughter has a car accident and is sued, or has serious financial problems or goes through bankruptcy?  The daughter’s share of the property is taken away by a creditor, and when mother dies, the property goes to the creditor. Or what if the daughter gets a divorce, and the divorcing husband tries to go after part of the property?

Don’t worry!  There is a way to protect against these problems.  This is what you can do.  Instead of transferring the property directly to your son or daughter, set up an irrevocable trust.  Your son or daughter can be trustee of the irrevocable trust.  You transfer your property to the irrevocable trust, but keep a life estate.  The irrevocable trust can say that if your daughter dies before you, the property goes to her children rather than to her husband.  The trust can also protect the property from divorce.  The irrevocable trust can also say that if the son or daughter is sued, the person suing the son or daughter cannot touch the property in the irrevocable trust.  The parent can safely live in the house all of his or her life.  When the parent dies, then the property is transferred from the irrevocable trust to the child or children inheriting the property.  If you prefer, the trust can be a “generation skipping trust” and keep protecting the property for the child in case the child gets a divorce or dies with lots of assets.

If you have been afraid to use the life estate technique because child might die, get divorced, or be sued, there is no need to worry.  You can transfer your residence to an irrevocable trust, keep a life estate, and sleep peacefully at night.

OKURA & ASSOCIATES, 2010

ESTATE PLANNING ATTORNEYS



Protect Your Home From Medicaid Liens – Part 2 (April 2010)

Published
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Sanford Okura
on April 16, 2010
in Medicaid and Nursing Home Costs
. 20 Comments Tags: , .

PROTECT YOUR HOME FROM MEDICAID LIENS (PART 2)

Last month we discussed the dangers of having the government put a Medicaid lien on your home and property if you end up in a nursing home.  Remember, a “revocable living trust” cannot protect your home from nursing home costs.

Some senior citizens who are worried about Medicaid liens just give the house to the children.  I do not think this is wise.  There are many cases in which the parents gave the home to the children, then the children kicked the parents out of the home!  Even if your own child would never kick you out of your home, maybe your son-in-law or daughter-in-law would.

There was a case in Honolulu in which an elderly father and mother had only one son.  The son was married but had no children.  The parents went to a lawyer  and gave their home to their son.  They kept living in the house.  The son and his wife got into a terrible car accident.  The son died first.  Then the son’s wife died.  When the son died, the house went to his wife.  When the wife died, the property went to her parents!  Her parents lived in Germany.  The couple in Germany sold the house!  The elderly couple in Hawaii were kicked out of their own home in their old age!  Because of cases like this, I do not recommend that you just give your property to your children.

In my opinion, the best way to protect your home from Medicaid liens is to give the property to your children, but to keep a “life estate.”  Keeping a “life estate” means that you legally own the property as long as you are living.  Nobody can kick you out.  Yet, you have legally given away a “future interest” in the property to your children.  This means that your children already own the property now, but cannot use it while you are living.  If you were to pass away, the children would automatically be the full owners of the property.

If you give your home to your children (or other loved ones), but keep a life estate, these are some of the consequences:  1) you cannot take the property back unless your child agrees; 2) you cannot mortgage or sell the property unless your child agrees; 3) if you do sell the property while you are living, you will get only part of the money from the sale, and your child will get part of the money; 4) when you die, the value of the property will be counted with your other assets to see if you have more than $1 million (if you do, there may be an estate tax.)  5) If you apply for Medicaid within 5 years, there will be a penalty period ( a period of time during which Medicaid will not pay nursing home costs).

There are several advantages to giving away your property while you are living, but keeping a life estate:  1) you will still be entitled to the homeowners exemption from property tax; 2) you can live in your home for the rest of your life; 3) there will be no probate of your home when you die; 4) a Medicaid lien cannot take the property away from your children; 5) when you die, the property gets a “stepped up basis” so that if your children sell the property, they will pay little or no capital gains taxes (because of the 2001 Tax Act, there will may be no stepped up basis if you die in the year 2010.)

If you already have your property in a revocable living trust, you can still use the life estate technique.  You just take the property out of your revocable living trust, put it back in your own name, then give it to your children, keeping a life estate.  If more senior citizens did this, more children would be protected from Medicaid liens on the family home.

OKURA & ASSOCIATES, 2010



Protect Your Home From Medicaid Liens (March 2010)

Published
by
Sanford Okura
on March 20, 2010
in Medicaid and Nursing Home Costs
. 46 Comments Tags: , , .

PROTECT YOUR HOME FROM MEDICAID LIENS

More and more senior citizens are becoming concerned about nursing home costs.  No one really wants to go to a nursing home.  Nearly every elderly person would prefer to stay at home.  However, no matter how much children love their parents, caring for an elderly parent at home can be so stressful that a stay in a nursing home often becomes necessary.  A Kaiser Family Foundation Survey in 2003 found that if you are 65 years of age or older, there is a 45% chance that you will spend some time in a nursing home.  The average nursing home stay is 2.4 years.

Medicaid is the most common way of paying for nursing home costs.  When you apply for Medicaid for nursing home costs, they will count your assets to see if you qualify.  They do not count the value of your home.  However, there is a trap here.  Even though the Medicaid rules say that your home is an “exempt” asset which is not counted when you apply for Medicaid, once you are on Medicaid, they may be able to put a lien on your home.  A lien is like a mortgage.  It will guarantee that the government will be paid back money that they pay for your nursing home costs.

For example, suppose you have to spend the last 3 years of your life in a nursing home.  Suppose you have very little in assets besides your home.  Medicaid pays your nursing home bills, but puts a Medicaid lien on your home.  At a cost of $9,000 per month, your nursing home stay could cost $324,000!  After you pass away, you owe to the government the entire amount they paid for you.  The government will approach your children who are hoping to inherit the home.  They will give your children a chance to go to a bank to borrow the money to pay off the amounts Medicaid paid for your nursing home costs.  If your children want to keep the home, they are forced to buy it.  If they cannot afford to do that, the government could sell the home, and keep the proceeds from the sale, up to the amount that is owed to them.  If there is any money left over after all expenses, your children get to keep the extra.

Because of the great danger of losing the home to nursing home costs, it becomes important to understand how you can protect your home from Medicaid liens.  The first thing to remember is that a Revocable Living Trust will not protect your home from nursing home costs!  This is one of the most common misunderstandings.  Many people have a “living trust” and think they are safe.  A living trust (also called Revocable Living Trust) will protect your assets from probate, but it will not protect from nursing home costs.

The government will not place a lien on your home as long as your spouse is living in the home.  The danger is that the spouse who is living in the home could die first, or also end up in a nursing home.  Then the home is no longer protected from Medicaid liens.  This kind of problem can be prevented by advance planning.  In my opinion, the best method for protecting the home from nursing home costs is for the parents to give the home to the children, but to keep a “life estate.”  A “life estate” means that the parents can live in the home for the rest of their lives.  Yet, they have given the home to the children.  (For those of you who do not have children, I apologize for always talking about children.  This technique will work just as well with a niece or nephew or anyone else you choose to inherit your home.)  In next month’s column, I will explain in more detail how this life estate method works.

OKURA & ASSOCIATES, 2010



New Medicaid Rules Are Now Effective (November 2009)

Published
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Sanford Okura
on November 29, 2009
in Medicaid and Nursing Home Costs
. 0 Comments Tags: , .

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



New Rules for Nursing Home Medicaid

Published
by
Sanford Okura
on July 30, 2009
in Medicaid and Nursing Home Costs
. 0 Comments Tags: , , .

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.

 

 



Medicaid Planning

Published
by
Sanford Okura
on May 29, 2009
in Medicaid and Nursing Home Costs
. 4 Comments Tags: , , , , .

MEDICAID PLANNING

             I am thinking about a meeting I had recently.  The daughter of a client came to discuss her mother’s situation.  Mother is elderly.  She suffers from congestive heart failure.  Recently, she was so weak that she was hospitalized for a while.  Then she was transferred to a nursing home.  For now, Medicare is paying for the nursing home cost.  When Medicare stops paying in a few weeks, mother will have to pay the bill herself.  This nursing home costs about $10,000 a month!  Daughter met with a social worker to discuss finances.  The social worker found out that mother has saved up quite a bit of money.  Medicaid will not pay for mother’s nursing home costs until she has less than $2,000.  The social worker advised the daughter that mother should “spend down” her money until she has less than $2,000.  She suggested different ways that mother could spend down the money.  When mother heard that she could not give money to her daughter and grandchildren, she was upset.  She had worked hard and saved money.  She wanted her daughter and grandchildren to have it. 

            Some of the advice given by the social worker was correct.  Some of it was wrong.  I told the daughter that it is not true that mother has to spend all of her money.  Some of it can be given to the daughter and grandchildren.  The social worker’s advice would have resulted in the unnecessary loss of tens of thousands of dollars.  I do not blame the social worker.  She was trying her best to help this family. 

            It is just impossible for anyone to give proper advice for Medicaid Planning unless the person is an expert in it.  The Medicaid laws are very complicated.  There are federal Medicaid laws and state Medicaid laws.  The Hawaii Administrative Rules on Medicaid are very complicated.  The Department of Human Services has internal memos and policies regarding Medicaid that are generally not shared with the public.  There are interpretations of rules which I believe are in the heads of specialists at the Department of Human Services which are not written down.  The only way a person can become an expert in Medicaid Planning is to spend years studying the law and actually working on Medicaid cases to see how the rules are interpreted.  As I have explained some of our creative Medicaid Planning techniques to Medicaid eligibility workers, I have discovered that the vast majority of Medicaid eligibility workers who handle Medicaid applications every day are not experts in the Medicaid law.  In my opinion, among the thousands of attorneys in Hawaii, less than 1% are experts in Medicaid Planning.  I had a case last year in which a woman came to me after being given wrong Medicaid advice by an attorney who specializes in Estate Planning, but not Medicaid Planning.

            If you have a loved one in a nursing home or about to enter a nursing home, you cannot rely on the advice of friends or relatives.  You cannot rely on the advice of well meaning social workers and Medicaid workers.  You cannot even rely on the advice of an attorney unless he or she is an expert in Medicaid Planning.  If you find an attorney who specializes in Medicaid Planning, before you hire him, ask him how many Medicaid Planning cases he has handled.  If it is less than a dozen cases, be careful.  If you were having brain surgery, you would not want to be the first patient on whom the surgeon is operating.

            Some people in nursing homes are paying thousands of dollars a month, waiting until they run out of money, when they can qualify for Medicaid.  This is a sad and unnecessary loss of money.  In most cases, some money can be saved by proper Medicaid Planning.  In some cases, 100% of the money can be saved!  It is true that the Medicaid laws are becoming stricter as the years go by. However, there is still room for creative Medicaid Planning.   

© 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