Irrevocable Trust

Asset Protection is Inheritance Protection

Published on: September 8, 2023 | by Ettinger Law Firm

Two overriding questions govern your choices in an elder law estate plan. First, what will happen to your assets when you pass away? Second, what will happen to your assets if you need long-term care? A comprehensive plan covers both issues. You must protect assets from going to long-term care costs so that the assets may transfer to your beneficiaries instead.

Plan A, and the best protection from long-term care costs, is long-term care insurance. Factors to consider include the daily benefit amount and an inflation rider that keeps pace with the increasing cost of nursing homes. Long-term care insurance also pays for home health aides, which allows you to “age in place,” rather than go to a facility.

If you don’t have, or cannot get, long-term care insurance, Plan B is the Medicaid Asset Protection Trust (MAPT). Assets that have been in the MAPT for a minimum of five years are protected from nursing home costs and, under upcoming laws, two and a half years for home care.

Taxation of Trusts

Published on: July 13, 2023 | by Ettinger Law Firm

Revocable living trusts, where the grantor (creator) and the trustee (manager) are the same person, use the grantor’s social security number and are not required to file an income tax return. All income and capital gains taxes are reported on the individual’s Form 1040.

Irrevocable living trusts come in two main varieties, “grantor” and “non-grantor” trusts. Non-grantor trusts are often used by the wealthy to give assets away during their lifetime and for all income and capital gains taxes to be paid either by the trust or the trust beneficiary but not by them. Gifts to non-grantor trusts are reported to the IRS but are rarely taxable. Currently, the annual exclusion is $17,000 per person per year to as many people as you wish. However, if you go over the $17,000 to any one person you must report the gift to Uncle Sam, but they merely subtract the excess gift from the $12,920,000 each person is allowed to give at death. Most of our clients are “comfortably under” as we like to say. These gifts then grow estate tax-free to the recipient.

Grantor trusts, such as the Medicaid Asset Protection Trust (MAPT), are designed to get the assets out of your name for Medicaid purposes but keep them in your name for tax purposes. You continue to receive income from the MAPT and pay income tax the same as before. The MAPT files an “informational return” (Form 1041) telling the IRS that all the income is passing through to you. Gifts to non-grantor trusts take the grantor’s “basis” for calculating capital gains taxes on sale, i.e. what the grantor originally paid and, if real estate, plus any capital improvements.

Trusts Create Order Out of Chaos

Published on: March 17, 2023 | by Ettinger Law Firm

At Ettinger Law Firm, we are fond of saying “trusts create order out of chaos” — for three major reasons:

First, as noted in previous columns, an ever-increasing number of Americans suffer a period of legal disability later in life. Without your own private plan for disability, consisting of a trust and a “prescription strength” elder law power of attorney, you run the risk of a state appointed legal guardian. Do you want the people you choose to be in charge in the event of your disability, with the freedom to act immediately in your best interests, or do you want the state to appoint someone who will require court permission to protect your assets and your family — which permission is sometimes denied. A guardianship proceeding is expensive, time-consuming and stressful — in other words, chaotic. Trusts create an orderly process whereby your appointed trustees consult with your elder law attorney and are free to act immediately without court interference.

Secondly, trusts avoid probate court proceedings on death whereby wills, even though supervised by an attorney, with two witnesses and a notary, must first be proven to be valid in court proceedings. The client has no control over probate court proceedings – the time they will take or the amount they will cost. Typically, it takes months and, not unusually, one to two years or more. Meantime, property cannot be sold and assets cannot be reached to pay bills. In other words, chaos. With a trust, the trustee may act immediately upon death, list property for sale and access investments and bank accounts.

When Does a Trust Make Sense

Published on: February 17, 2023 | by Ettinger Law Firm

By now most people know that trusts avoid probate which is required with a will — if there are “probatable” assets, in other words those in your name alone. While many assets can be set up to avoid probate by putting joint owners on or by naming beneficiaries, titles to real estate in New York may not have beneficiaries and there are tax and liability reasons for not naming joint owners on real estate. As a result, real property generally goes through probate.

Other reasons to use trusts, besides avoiding probate for the home, are as follows:

Out-of-State Property. New York residents who own property in another state face two probates, one in New York and another in the other state. However, you may transfer both properties into your New York trust and avoid the “multiple probate problem”.

Saving Half on the Nursing Home Doorstep

Published on: December 12, 2022 | by Ettinger Law Firm

What do you do when a client comes in to see you and says that his mother is going into a nursing home and she has $300,000 in assets. In fact, mom scrimped and saved all of her life to have this nest egg and now she desperately wants to see her children get an inheritance.

Although you may protect all of your assets by planning five years ahead of time with a Medicaid Asset Protection Trust, all is not lost if nothing has been done and the client finds herself on the nursing home doorstep.

The advanced elder law technique, used to protect assets at the last minute, is called the “gift and loan” strategy. Here’s how it works. Let’s assume, for the purposes of our example, that the nursing home costs $15,000 a month. When mom goes into the nursing home, we gift one-half of the nest egg, in this case one-half of $300,000, or $150,000, to her children. Then we lend the other $150,000 to the children and they execute a promissory note agreeing to repay the $150,000 in ten monthly payments of $15,000 per month, together with a modest amount of interest. Now we apply for Medicaid benefits. Medicaid will impose a penalty period (i.e., they will refuse to pay) for 10 months on the grounds that the gift of $150,000 could have been used to pay for mom’s care for 10 months. Medicaid ignores the loan since it was not a gift. It is going to be paid back, with interest, according to the terms of the promissory note. What happens is that the ten loan repayment installments will be used to pay for mom’s nursing home care during the penalty period. Just when the loan repayments are finished, the penalty period expires and Medicaid begins to pick up the tab. Lo and behold, the children get to keep the $150,000 gift and mom has saved some of the inheritance for her children.

3 Tips About When Crisis Medicaid Planning Is Appropriate

Published on: January 6, 2021 | by Ettinger Law Firm

Medicaid is a joint federal and state program available to people who meet certain asset requirements that help pay for long-term care costs. Long-term care unfortunately often presents financial challenges for individuals in the United States including both the elderly as well as others who provide care for family members and lose income as a result. Despite these potential challenges, Medicaid is still one of the best methods in countless situations to pay for long-term care. Adequate planning for Medicaid can let you qualify for the program without experiencing financial hardships. To better help you navigate Medicaid, this article reviews some important tips to understand about the Medicaid planning process.

# 1 – Inform Yourself in Advance

Given that it is both a federal and state program, Medicaid standards differ based on the state in which a person lives. While other states have different names for the system, New York state calls the program Medicaid. A person in New York qualifies for Medicaid if that individual has high medical bills, receives Supplemental Security Income (SSI), or meets certain financial requirements. Unfortunately, however, many people wait to learn about Medicaid until catastrophic events occur that necessitate immediate planning. An increased risk exists during crisis that a person will listen to misinformed individuals. If you have any questions or concerns about Medicaid or the role it can play for your loved one, it is a much better idea to speak with a knowledgeable attorney.

2020 Medicaid Rates for Community and Nursing Home Medicaid in New York

Published on: August 28, 2020 | by Ettinger Law Firm

Medicaid is state and federal funding that pays for long-term care costs, either at home, called “Community Medicaid,” or in a nursing home, called “Institutional” or “Nursing Home Medicaid.” The Medicaid rates change every year for income and asset requirements to determine eligibility for benefits. Following are the 2020 New York rates.

A single applicant for Community Medicaid may keep up to $15,750 in assets and $875 in income. If the applicant’s income is greater than the limit, a “Pooled Income Trust” created by a non-profit organization may shelter the excess income to make the applicant eligible for community Medicaid.

A married applicant for Community Medicaid may keep up to $15,750 in assets and $875 in monthly income. The non-applicant spouse may keep their own income and keep up to $128,640 in assets. The rules are different if one spouse is enrolled in a Managed Long Term Care Plan. The applicant spouse may keep $409 of monthly income and the other spouse may keep $3,216 of monthly income. The healthy spouse may keep between $74,820 and $128,640 in assets. “Spousal Refusal” is another option that may help the healthy spouse keep more income and assets. A review of the couple’s income and assets helps determine which approach is more favorable.

Estate Planning Measures for Unmarried Couples

Published on: October 7, 2016 | by Ettinger Law Firm

According to the 2010 Census, over 7.5 million unmarried couples or 15 million people, live together, a sharp increase from the 3.2 million unmarried couples living together in 1990. This increase in cohabitation has been attributed to a number of different factors, including increased living costs, decisions to marry later or not at all, and until recently, due to legal barriers for same sex couples.

There are many legal benefits to marriage, including rights to social security, immigration rights if one party is not a citizen, surviving spouse benefits, estate benefits, as well as joint bankruptcy filings and the right to refuse to testify against a spouse in a legal proceeding. However, these reasons alone are not justification to get married, which many couples are finding is not for them.

In order to ensure that your partner gets inheritance in the event of your passing, it is critical that the couple executes estate planning documents such as a will or trust. Naming your partner in your will ensures that they will be the beneficiary of the assets and property executed in the document. Additionally, name your partner as your beneficiary on all pensions, retirement accounts, and insurance policies and check those policies to determine if naming a non-family member is allowed or subject to specific rules.

LONGEVITY INSURANCE – DEFERRED INCOME ANNUITY

Published on: December 29, 2015 | by Ettinger Law Firm

Deferred income annuities are a financial product that, by definition, are paid in one premium and payout after at least one year after purchase. While they have been around for quite some time, although they are only beginning to come into their own as a part of a sound retirement strategy. Deferred income annuities are more colloquially known as longevity insurance, especially when purchased by retirees for when they reach 80 to 85 years of age. Much of the increase in sales for longevity insurance can be tied to an IRS bulletin formally published in The Federal Register on July 21, 2014 that allows for the recipient of the deferred income annuity to defer taxation until the age of 85. As with any formal federal rulemaking determination, there is a long period of time for study and public comment. As such, on February 2, 2010 the Departments of Labor and Treasury publicly requested comment on the issue of allowing for use of these annuities, with a second round with a specific regulation tied to it, that commenced on February 3, 2012.

HYRBRID ANNUITY

Traditionally there were generally two types of annuities. The first is the variable annuity with guaranteed benefits and the second type is the immediate annuity. The variable annuity with guaranteed benefits is wildly popular, with $39.8 billion in sales in just the first quarter of 2011 alone. Often these annuities do not encourage or sometimes even permit the beneficiary to tap into the annuity until years after the initial purchase.

Low Expectations for Federal Long-Term Care Commission

Published on: March 1, 2013 | by Ettinger Law Firm

Last year federal legislation was passed affecting elder care issues. In particular, the new law eliminated a floundering attempt to create a national long-term care insurance program. At the same time, the law also called for the creation of a commission to study issues of senior care financing, delivery, and workforce needs. Known as the “Long-Term Care Commission,” the general idea was that the diverse Commission would investigate the issues, create policy proposals, and submit the ideas to Congress to spur possible legislation.

The Status Update

Unfortunately, as a recent Forbes story shares, the Commission is still in dock and there are serious doubts as to whether it will be able to achieve its mission at all. The first issue is that the slate of 15 people to sit on the panel have yet to be decided upon. Apparently the White House has yet to make its three choices, and nothing can be done until the roster is actually complete.