Medicaid Spousal Impoverishment Figures for 2012:

The new minimum community spouse resource allowance (CSRA) is $22,728, and the new maximum CSRA is $113,640. The new maximum monthly maintenance needs allowance is $2,841. The minimum monthly maintenance needs allowance remains $1,838.75 until July 1, 2012.

Income cap

The income cap for 2012 applicable in “income cap” states will be $2,094 a month.

Medicaid home equity limit

Minimum: $525,000; Maximum: $786,000

Gift and estate tax figures

Federal estate tax exemption: $5.12 million for individuals

Lifetime tax exclusion for gifts: $5.12 million

Generation-skipping transfer tax exemption: $5.12 million

The annual gift tax exclusion remains at $13,000. 

Long-Term Care Premium Deductibility Limits for 2012

The Internal Revenue Service has announced the 2012 limitations on the deductibility of long-term care insurance premiums from taxes. Any premium amounts above these limits are not considered to be a medical expense.

Benefits from per diem or indemnity policies, which pay a predetermined amount each day, are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $310 per day (for 2012), whichever is greater.

For details from the American Association for Long-Term Care Insurance, click here.

Medicare Premiums, Deductibles and Copayments for 2012

• Basic Part B premium: $99.90/month (was $96.40 for most beneficiaries)
• Part B deductible: $140 (was $162)
• Part A deductible: $1,156 (was $1,132)
• Co-payment for hospital stay days 61-90: $289/day (was $283)
• Co-payment for hospital stay days 91 and beyond: $578/day (was $566)
• Skilled nursing facility co-payment, days 21-100: $144.50/day (was $141.50)

Premiums for higher-income beneficiaries:

• Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $139.90 (was $161.50).
• Individuals with annual incomes between $107,000 and $160,000 and married couples with annual incomes between $214,000 and $320,000 will pay a monthly premium of $199.80 (was $230.70).
• Individuals with annual incomes between $160,000 and $214,000 and married couples with annual incomes between $320,000 and $428,000 in 2010 will pay a monthly premium of $259.70 (was $299.90).
• Individuals with annual incomes of $214,000 or more and married couples with annual incomes of $428,000 or more in 2010 will pay a monthly premium of $319.70 (was $369.10).

Rates differ for beneficiaries who are married but file a separate tax return from their spouse:

• Those with incomes between $85,000 and $128,000 will pay a monthly premium of  $259.70 (was $299.90).
• Those with incomes greater than $128,000 will pay a monthly premium of $319.70 (was $369.10).

For more information, click here.

Social Security Benefit Changes for 2012

Monthly federal Supplemental Security Income (SSI) payment standard will be $698 for an individual and $1,048 for a couple.

Average monthly Social Security retirement payment: $1,229 a month (was $1,186) for individuals and $1,994 (was $1,925) for couples

Maximum amount of earnings subject to Social Security taxation: $110,100 (was $106,800)

For a complete list of the 2012 Social Security changes, go to: http://www.socialsecurity.gov/pressoffice/factsheets/colafacts2012.htm

The trust document in question forbids distributions of principal to the person who created the Trust. The problem with this particular document is that it contained “standard” language that, when combined with State law, could cause certain directions to be “construed and qualified in light of the instrument as a whole.”

Certain discretionary Trustee powers caused the Trust assets to be available for nursing home spending.

First, the Trustee was given the power to terminate Trust.  Many Trusts allow the trustee to close the trust when the value of the assets become so small and it becomes too expensive to run the trust. In this case, if the Trust was terminated, the assets were to be passed out “the beneficiaries.”  The Trust creator/Medicaid applicant was deemed to be one of the allowable “beneficiaries.”  As a result, the Medicaid applicant was deemed the owned of the assets and did not qualify for Medicaid.

A second discretionary power given to the Trustee, the ability to reclassify income, created issues.  The trust creator was an eligible recipient of Trust income and not principal.  Hence, the term, Irrevocable Income Only Trust.  If the Trust creator qualifies for Medicaid, the income is still payable to the Medicaid recipient’s nursing home even though the Trust principal is protected.  In this case, the Trustee was given discretion to decide what was to be defined as income. The Trustee could decide that all of the assets of the trust were “income.”  This definition of the Trust assets would therefore permit the Trustee to legally transfer all the assets to the Trust creator who is the income beneficiary.  This caused all of the Trust principal to be “owned” by the Medicaid applicant.

So you can see, a seemingly mundane clause can negatively impact planning and result the failure of well intentioned planning.   The Court did conclude that properly drafted trusts will be viable Elder Law tools going forward.  This article simply reflects the need for care at every turn in the Elder Law planning process.  We will continue to use the Medicaid Irrevocable Asset Protection Trust as a centerpiece of the planning process, but will use this case and others like it to continue assisting clients protect their family assets.

Douglas L. Kaune is a partner with the law firm of Unruh, Turner, Burke & Frees, P.C. having three offices in the Western Suburbs of Philadelphia, PA.  He practic in the legal areas of Estate Planning, Estate Administration, Elder Law and Asset Protection.  Please call his office at 610-933-8069 to schedule an appointent.

All estate plans should include, at minimum a Last Will and Testament and a General Durable Power of Attorney.  A Revocable Living Trust can also be used to avoid probate and to manage your estate both during your life and after you are gone.  Irrevocable Trusts are incorporated into the plan for greater Medicaid and Nursing Home Asset Protection and/or Inheritance Tax and Federal Estate Tax protection.  In addition to these documents, medical directives, also known as Living Wills, allow you to appoint someone to make medical decisions on your behalf.

Will

A will is a legally executed document which explains how, when and to whom a person would like his or her property distributed after death.  Under Pennsylvania law, an individual may prepare a will in his or her own handwriting as long as it is dated at the top and signed at the bottom/end of the document.  However, such wills (holographic wills) risk ambiguity and incompleteness if they are not reviewed by an attorney.  Ambiguity or incompleteness can render a will ineffective or can give a will a different interpretation than the testator (person who “makes” a will) intended.  Holographic wills often result in protracted litigation in the probate court system which can cause delays and can by costly.  Attorneys generally will ensure that a will is clearly and effectively drafted, typed, and then executed in accordance with the corresponding State law where signing takes place.  Furthermore, holographic wills or older wills may not coordinate the other assets you own such as insurance policies, IRAs, pensions, and the taxes on such property.

A will also appoints an executor to carry out the mandates of the will.  A will is especially important if you have minor children because it allows you to creates trusts for minor children and to name trustees and a guardian.  However, many types of property or forms of ownership pass outside of the control of a will.  Jointly-owned property, property in trust, life insurance  and property with a named beneficiary, such as IRAs or 401(k) plans, all must be handled in a way that incorporates them with the will planning.  Specific attention must be paid to the beneficiary designations to insure that a successful plan is carried out.

Trust

A Trust involves a legal relationship in which the owner of certain property (known as the Grantor or Settlor) transfers such property to a person or institution (known as a Trustee) to hold and administer for the benefit of a person or institution (known as a beneficiary).  A Trust established under a Will comes into existence after the death of a testator and is known as a testamentary Trust.  A Trust effective during a person’s lifetime is referred to as a Living or Inter Vivos Trust.  If the Settlor (the creator of the Trust) retains the right to modify the Trust, it is revocable.  However, if the Settlor expressly forgoes the right to change the terms of the Trust and retains no interest in the property he or she transferred to the Trust, it is irrevocable.

Irrevocable trusts can perform many functions.  Accordingly, there are many different types of irrevocable trusts, including but not limited to: Medicaid Asset Protection Trusts, ILITS (Irrevocable Life Insurance Trusts); QPRTS (Qualified Personal Residence Trusts, BCT (Beneficiary Controlled Trusts), and GST Trusts (Generation Skipping Transfer Tax Trusts), and Grantor Retained Annuity Trusts (GRATS).  Even among these trusts there are many different permutations that are used to adapt to each client’s particular needs.

Power of Attorney

A person who gives Power of Attorney to another person (known as the Agent) authorizes that person to act as his or her legal agent.  A Power of Attorney may be limited to a certain time and task (e.g., representing an individual at a real estate closing) or it may be a complete and general Power of Attorney which authorizes another individual to act with complete legal authority.  A “durable” Power of Attorney retains its effectiveness even if the person who granted the Power of Attorney becomes incompetent.  A Power of Attorney ceases to have effect upon the Grantor’s death.

Absent a Power of Attorney, if an individual becomes incapacitated, no one may gain access to his or her assets or make other important medical, financial or legal decisions for his or her benefit without going through the expensive, traumatic, and cumbersome process of declaring the person incompetent, and establishing a court appointed Guardianship.

Medical Directives

A Medical Directive or Living Will states an individual’s preferences with regard to heroic measures and whether or not they should be taken to preserve his or her life if there is no chance of recovery from a tragic illness or injury. Under Pennsylvania law now explicitly recognizes such documents.  However, even in Pennsylvania, Living Wills have some limitations.  There is, however, a legal and moral persuasiveness under the state statute and a new United States Supreme Court case.  Living Wills can be an important part of an estate plan at any age as they remove some of the heavy emotional burden of life and death medical decisions from family members and they sometimes can eliminate the erosion of an individual’s estate through avoidance of interminable medical bills.

Medical powers-of-attorney are used to designate one or more people to step into the patients shoes to make medical decisions.

Beneficiary Designations

Many assets pass outside of a will,  i.e., a will does not control disposition of all estate taxable assets.  Retirement plans, 401k’s, IRAs, insurance policies, joint property with right of survivorship, in-trust-for accounts, and pay-on-death accounts all pass outside the control of a will.  To ensure that a will control’s disposition of assets and to obtain all tax advantages, it is frequently necessary to designate one’s estate or a trust under a will as beneficiary.  This type of beneficiary designation must be handled properly and with extreme care or assets could be exposed to creditors’ claims or unwanted income or estate tax consequences.  Legal counsel is highly recommended.

To read more about one of the most popular Medicaid Asset Protection Trusts read this article.

To read about naming a Trust as beneficiary of and IRA or 401k or other tax deferred asset click here.

To read more about the Power to Modify Beneficiaries click here.

Please contact Douglas L. Kaune at 610 933 8069 to review your estate planning and Elder Law goals or those of a parent or loved one.

To understand those assets that the PA DPW cannot reach at the death of a Medicaid recipient, let’s first look at those that the estate recovery can require repayment from.  Probate assets are those that are in the decedent’s name alone and which are not owned jointly with another person or designated to transfer by beneficiary designation.  Examples of probate assets upon someone’s death are: 1. a real estate interest owned in the decedent’s single name, 2. a bank account owned in the decedent’s single name, 3.  a stock account owned in the decedent’s single name; and 4.  a vehicle owned in the decedent’s single name.  Therefore, to avoid estate recovery, you should look to transform any assets owned by the Medicaid recipient into non-probate assets so that they will transfer outside of the Department of Public Welfare estate recovery upon the death of the Medicaid recipient.

Non-Probate Assets which are not subject to estate recovery include property owned jointly by the decedent and another person.  For example, real estate owned jointly by a former Medicaid recipient with his or her spouse, friend, child or sibling cannot be recovered.  Life insurance proceeds paid directly to a designated named beneficiary are outside of the recovery process.  Assets of the decedent which had been placed in trust during his or her lifetime are free from recovery.  Additionally, PA estate recovery cannot go after irrevocable funeral reserves and certain trusts for disabled beneficiaries.

The process of converting assets to non-probate status is an important planning tool, but is frequently overlooked.  Take this prototypical case pattern:  Husband and wife own significant assets.  Wife enters a nursing home.  Husband’s and wife’s assets are spent down to required levels and Wife qualifies for nursing home.  Husband retains his allowable spousal share of the assets such as a primary residence worth $400,000, cash in the amount of $110,000 and an IRA of $400,000.  That is over $900,000 in assets!!  Husband does not seek proper planning advice and keeps his old will and does not change beneficiaries.  Husband lives for 5 more years while Medicaid pays for wife’s care.  When husband dies all assets transfer to wife who is in the nursing home.  The inheritance causes wife to go off of Medicaid and she begins privately paying for her care.  Wife does not seek proper planning advice and she leaves all assets in her name alone so that upon her death all assets remaining are probate in nature.  She lives for 3 more years after husband’s death having a probate estate of $550,000.  As a result PA DPW will have a claim against wife’s probate estate in the amount equal to the 5 years of care Medicaid had paid for during husband’s lifetime. This estate recovery claim would likely be between $350,000 to $450,000 depending on the monthly care cost paid by the Medicaid.

This horribly negative result could have been avoided or softened if;  1.  husband had prepared his estate plan to either disinherit his wife or create a special needs trust for her benefit; or, 2.  even if husband failed to  properly plan, wife or her power of attorney (agent) could have modified the ownership of assets so that they transferred non-probate at her death.

This fact pattern serves to illustrate only one of the many cases where proper planning could thwart the PA estate recovery program.  These are legal and powerful planning options that can serve to protect hundreds of thousands of dollars.

To review this additional article on the Estate Recovery Program click here.

To review this Unruh, Turner, Burke & Frees, P.C. article on the definition of probate and non-probate assets click here.

Please contact Douglas L. Kaune at 610 933 8069 to review your case in greater detail.

Although Medicaid recipients do not have to be given notice of the estate recovery program, the Department of Public Welfare has an informational brochure about the estate recovery program which is provided to Medicaid recipients  and their families when benefits are initiated.  It is also expected, but not required that each DPW caseworker will discuss the estate recovery program with the recipients and their families.

It is sometimes difficult to focus on all of the related issues during the Medicaid application process.  It is understandable that the applicants and their families are not necessarily paying close attention to the details of estate recovery while their primary concern is for the nursing care placement and overall well being of their family member.  That being said, proper titling of assets and strategies relating to beneficiary designations can make tens of thousands of dollars of difference to the Medicaid recipient’s family after his or her death.  We encourage you to pay attention to the caseworker during the application process and make sure that you familiarize yourself with estate recovery and the nuances that can be used to your advantage.  Although, you might not think it is important, the estate recovery issues could impact your or your loved one’s estate in cases like those mentioned below.

There are some exceptions to the estate reach of the estate recovery program. Medical assistance paid on behalf of a recipient before he or she reached age 55 is not subject to repayment.  The program also authorizes recovery only where Medicaid paid for specific types of services such as nursing home care and home care such as that provided through the Waiver Program.  Other medical care and hospital care may be exempt from recovery.

Pennsylvania actually has a shorter estate recovery reach than many other states.  Pennsylvania only permits recovery of probate assets.  Probate assets are those in the decedent’s name alone and which do not pass to a joint owner or a designated beneficiary.  Other states are permitted by their laws to seek recovery from jointly owned property and assets passing through beneficiary designation at death.  Probate assets are easily identifies because it will be necessary for an executor, administrator of appointed estate representative to be appointed in order for the probate asset to be accessed.

It is important to note that assets such as IRA’s, 401k’s, Annuities and life insurance payable to the decedent’s estate are subject to estate recovery.  Make sure to have the beneficiary designations properly constructed to avoid the estate recovery when possible.

Although there might not be an expectation of significant assets in the name of a Medicaid recipient at the time of his or her death, it is possible that there could be more than anticipated.  As a matter of qualifying for Medical Assistance, he or she likely had little to nothing in the way of assets.  That being said, there are a number of scenarios whereby a Medicaid recipient could own assets at death.

Some of those common scenarios are:

1.  The decedent owned a primary residence that was not sold because the owner/Medicaid recipient stated a possible intention to return.  Therefor the real estate was still there at the recipient’s death and in the decedent’s name.

2.  The decedent was married at the time he or she qualified for Medicaid.  His or her spouse died before the medicaid recipient and did not properly plan his or her estate and thereby left assets to the spouse who was still on Medicaid and living in a nursing home.  It is important to note that this scenario can be avoided through proper planning, but is often overlooked.

3.  The decedent was the named beneficiary of a deceased family member or friend and certain assets were paid to him or her after he or she had been receiving Medical Assistance.

4.  The decedent was receiving Medicaid during his or her lifetime.  Subsequent to qualifying for Medicaid, he or she successfully won a lawsuit that paid out a large settlement.

These are only some of the more common scenarios where assets are owned by the decedent which could potentially be available for estate recovery.  It is important in these cases to enter into proper planning to turn the assets into non-probate status so that any balance at death can escape estate recovery.

If you or a loved one are facing nursing care needs and you have questions about the estate recovery program and how best to navigate to process, please contact Douglas L. Kaune at 610 933 8069 or dkaune@utbf.com to discuss your case more fully.  Unruh, Turner, Burke & Frees, P.C. – Offices in Phoenixville, Malvern and West Chester.

The initial issue for many with disable children is awareness of this exception.  An applicant for Medicaid must be aware of this and other exceptions as it is not the Pennsylvania Department of Welfare’s obligation to make him or her aware of the planning options and exceptions.  It is very important for the applicant to be fully informed of his or her rights and the opportunities he or she might have to protect assets from nursing home spending. We want to avoid a scenario whereby a person with a disabled child could enter a nursing home, spend all of his or assets only to find out later that everything could have been protected.  Knowing the law can result in hundreds of thousands of dollars of savings.

A second consideration is the form of gift made to the disabled child.  It is almost always appropriate to make a gift for a disabled child to a Special Needs or Supplemental Needs Trust.  You can read this article on Special Needs Trusts to more fully understand the rationale for using this type of trust rather than making an outright gift.  Suffice it to say, an outright gift to a disabled beneficiary might disqualify him or her from government benefits such as social security disability (SSDI) or Medicaid.

Earlier this year (May 2011), the Pennsylvania Department of Public Welfare (DPW) provided additional guidance to caseworkers throughout the State for the disabled child exception to the 5 year ineligibility rule.

• · The policy statement confirmed that assets composed of both income and resources may be transferred without penalty to an individual’s disabled child.  The disability must be consistent with Social Security (SS) standards and must be documented.

• · It was confirmed that there is no age limitation for who can receive the gift.  The individual’s disabled child can be an adult or a minor.

Read this earlier article detailing gifting to special needs trusts for disabled children in order to protect family assets and qualify for Medicaid.

This additional guidance provides us with security that the disabled child transfer exception is available in Pennsylvania (PA) and what steps we need to take to make sure clients and their children fully qualify.  Please contact Douglas L. Kaune at 610 933 8069 or dkaune@utbf.com to review the disabled child exception and other Elder Law or Estate Planning considerations.

One of the responsibilities of elder law attorneys in Pennsylvania (PA) is to assist the Community Spouse to maximize the amount of income they can retain once their spouse enters a nursing home.  We recognize that life will continue for the Community Spouse well after their spouse has entered the nursing home.  He or she will continue to have significant expenses going forward including, but not limited to maintenance of their home, real estate taxes, car and home owners’ insurance, rent or mortgage, health care, food and clothing.

Take Care Of You And Your Spouse

The client must submit documentation to the Pennsylvania Department of Public Welfare (Referred to as “DPW”) requesting that they perform an asset assessment at the time the Institutionalized Spouse enters a nursing home.

To learn more about Pennsylvania Department of Public Welfare and their programs click here.

Generally, the resource assessment is the process for determining how much of the marital asset base can be retained by the Community Spouse even after his or her spouse enters a nursing home.  Conversely, the process also determines the portion of the marital assets that must be spent down before the Institutionalized Spouse becomes eligible for Medicaid.  The resource assessment process has and will be reviewed in more detail in other articles on this site.

Suffice it to say, the resource assessment is very important as it relates to the Community Spouse’s ability to retain a portion of the marital assets.  The resource assessment is also a stepping stone to a determination of the portion of the marital income the Community Spouse will be permitted to retain.  Although I will not detail the resource assessment here, I do want readers to know that there a number of pitfalls relating to the timing of the submission and the valuation of assets for the resource assessment.

Once the resource assessment is complete and the Department of Public Welfare in Pennsylvania has made an asset retention finding, the Community Spouse will have an opportunity to submit a DPW worksheet for determination on the portion of the marital income that he or she may retain during the time the Institutionalized spouse is receiving Medical Assistance/Medicaid.

This is often a critical juncture for the Community Spouse.  We want to obtain the Community Spouse’s Maximum Monthly Maintenance Allowance (MMA) within the guidelines set by the Department of Public Welfare (DPW).  The Department of Public Welfare releases figures annually that represent the minimum and the maximum amount of marital income a Community Spouse may retain.

To achieve the Maximum Monthly Maintenance Allowance, the applicant must document all expenses and all sources of income.  It is important that all eligible expenses are included and that you portray the income sources in a way that is most favorable to the Community Spouse’s efforts to maintain economic security.  Once the worksheet is completed, you will have a very good idea of the amount of monthly income the Community Spouse is permitted to receive.

If the total income earned by husband and wife is below the Maximum Monthly Maintenance Allowance then the Community Spouse will have a relatively brief opportunity to take steps to increase his or her own Monthly Maintenance Allowance.

This opportunity could be lost quickly so decisive steps must be taken.   One of the best options will be the purchase of an actuarially sound Immediate Annuity.  This planning option allows the Community Spouse to transform assets that would otherwise have to be “spent down,” before the Institutionalized Spouse becomes eligible for Medicaid into an income stream.  This allows the Community Spouse to both increase the income stream while his or her spouse is in the nursing home and also to maintain that increased income stream should the institutionalized spouse pre-decease him or her.

The relatively short period of time following the first spouse’s entry to a nursing home is very important for the financial well being of the Community Spouse.    The Community Spouse should seek professional assistance to insure they are protected to the greatest extent possible.

To read how you can avoid or prolong your need for a Nursing Home  for you and or your spouse click on our article Veteran’s Benefits Can Help With Assisted Living Costs.

Also, read this review of the benefits of Long Term Care Insurance.

Douglas L. Kaune is a partner in the Estate & Trust and Elder Law sections of Unruh, Turner, Burke & Frees, P.C.  Please call Doug at 610 933 8069 to discuss your planning needs and to schedule a no obligation initial consultation.

Douglas L. Kaune

Medical Power Of Attorney

The  medical power of attorney (MPOA) contains very broad medical powers ranging from selecting doctors and authorizing surgery in an accident situation to making final decisions when someone is in a hospital and not expected to recover.  The Medical Agent is also given the authority Agent to select and sign entrance documents for a nursing home.   However, the MPOA can be revoked so long as the person who originally created it is mentally and physically able to do so.  The process for revoking a MPOA is simple and requires no Court proceedings.  One only needs to send a letter to the Agent documenting his or her wish to revoke the MPOA.  As a result, the person granting the MPOA can refuse to go to or stay in a nursing home regardless of the actions of their named Agent if they still maintain their mental and physical capabilities.

Guardianship

If you believe your parent or loved one needs nursing home care, but is refusing it, you might have an alternative.  If your parent or loved one has lost mental capacity, you can seek guardianship over their person and estate.

The guardianship should be a last resort action as it can be more time consuming, expensive and restrictive than a FPOA and MPOA combination.  However, where your parent or loved one  cannot sign a power of attorney or has wrongly revoked one, the guardianship process might be a necessity and will serve an important purpose.  The guardianship will require a Court determination on the parent’s or loved one’s mental capacity.

The Court appointed guardianship cannot be easily revoked and will allow you to make more authoritative decisions on nursing care.  The guardianship process serves to provide Court backing for all necessary decisions.  It also allows the nursing home and other medical professionals to feel comfortable that the guardian is authorized to make decisions and that their position will not be revoked or undermined.

Read this article for a further review of the Guardianship process in Pennsylvania and some tips for avoiding or defeating a Guardianship contest.

As noted, we will try every other option before seeking guardianship.   Despite this, we know it is an important legal option.   If you need assistance with a guardianship process or other Elder Law or Estate Planning issue please contact Doug Kaune at 610 933 8069 or dkaune@utbf.com.

The Medicaid Intentionally Defective Grantor Trust (MIDGT) might give you the opportunity to have the proverbial cake and eat it too.  Our clients have long used the Medicaid Asset Protection Trust in various forms to shelter some or all of their assets from the ever rising cost of long term nursing home care.  The irrevocable trust option offers significant protections to the person making gifts to protect assets from nursing home spending.  These protections make gifts to an irrevocable trust a much more powerful option than gifts outright to children.  Read this related article which outlines some  of the general benefits of the Medicaid Asset Protection Trust and compares the use of the irrevocable trust to outright gifting.

Clients are now considering a relatively new blend of a traditional estate planning tool, the Intentionally Defective Grantor Trust  (IDGT) and the Medicaid Asset Protection Trust.  The assets transferred to the MIDGT  are still protected from nursing home spending after the necessary gifting Medicaid ineligibility period, however there is another potential perk.  The person making the gift (Grantor) to the MIDGT has to pay the income tax on the earnings on the MIDGT assets.  Yes, you read that correctly.  The Grantor might actually want to pay the income tax rather than have the Trust pay the income tax.

By paying the income tax on the earnings of the Trust assets, the Grantor is actually allowing the Medicaid Asset Protection Trust to grow without being reduced by income taxes, they are also likely to pay income tax at a lower rate than would the Trust entity and are likely to be able to take advantage of many personal income tax deductions that the Trust would not be able to avail itself of.  Medical care cost deductions are often available to individuals who enter into Elder Law planning.   This are often significant and can be used to offset gains in the MIDGT.  If the Trust had been made responsible for paying the income tax, the individual’s medical care costs could not have been used.

The MIDGT is not for every client looking to protect assets from nursing home spending.  A Grantor has to be willing and able to both forego the right to the income paid from the Trust and simultaneously pay the income tax.  This can be a complex yet beneficial option that should be discussed in depth with your Elder Law and accounting advisors.  It is just one more of the powerful tools and options we have at our disposal when assisting with the plans to save assets from nursing home spending.

If you would like to review the MIDGT or other Medicaid Asset Protection Trust options, please contact Douglas L. Kaune at 610-933 8069 or dkaune@utbf.com.

Douglas L. Kaune, Esq.

Douglas has conveniently located offices in Phoenixville, Malvern and West Chester, PA.  He is a Partner with the law Firm of Unruh, Turner, Burke and Frees, P.C. serving clients in Chester, Montgomery, Delaware, Philadelphia, Berks and Bucks counties.

Douglas L. Kaune, Esq.

I recently met with a client of mine who related a story to me about a family friend who just finished spending $1,000,000 on her nursing home care.  Luckily the client gave me permission to share that story in general terms so that others might learn that these economic disasters are real.  This story will hopefully alert others to the perils of waiting too long to enter into Medicaid and Nursing Home Planning in Pennsylvania (PA).

The woman referenced was, but no longer is, the prototypical millionaire next door, living modestly, not spending and therefore accumulating a nice estate.  She is a widow and has three children all living outside of Philadelphia (PA).  She spoke frequently of helping her children by leaving them her estate when she passed away.  She was an apparently healthy and hearty 73 year old when she had a stroke.  She had not signed a financial power of attorney  or medical power of attorney.

After the stroke, she was no longer able to live at home, she needed to enter a nursing home and could not sign a power of attorney document because of diminished mental capacity.  As a result, one of her children had to go to court to obtain guardianship  over her person and estate.  The guardian was not permitted by law to enter into Medicaid or Nursing Home Planning because that planning was deemed to be “detrimental” to the person over whom guardianship had been granted.

The guardian has therefore been spending $65,000 to $100,000 per year over the last 15 years on the nursing home fees, medications and related items.  The guardian has just spent the last of the estate assets and her mother has just qualified for Medicaid at the age of 88.  There will be nothing left to distribute to her children at her death.

Obviously, this is an extreme story, but it should serve as a wake up call to anyone who thinks “It won’t happen to me” or “I have enough money to cover the cost of Nursing Care” or “I have plenty of time to do Elder Law Planning.”  You never know when the time for nursing care might arrive.

If you are a Pennsylvania (PA) resident or resident of another state, please take the time to consider Elder Law Planning now.  You can sign a financial power of attorney that specifically authorizes Medicaid Planning and unlimited gifting.  You can consider transferring some portion of your estate to a Medicaid Asset Protection Trust and many other planning opportunities.  Understand your planning options now so you can take steps to help preserve your estate.

Read this article on early gifting to a Medicaid Asset Protection Trust.  And this article on the Medicaid Financial Power of Attorney for some additional insight into these important topics.

Please contact Douglas L. Kaune at 610 933 8069 or dkaune@utbf.com to discuss your case and the planning options available to you.