Medicaid Trusts

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.

Eight Good Reasons to Plan Your Estate

Published on: December 23, 2022 | by Ettinger Law Firm

1. Makes sure your estate goes to whom you want, when you want, the way you want. Most estate plans leave the assets to the next generation outright (i.e., in their hands) in equal shares. However, with a little bit of thought on your part, and some guidance from an experienced elder law estate planning attorney, you may dramatically improve the way your estate is ultimately distributed. For example, you may delay large bequests until children or grandchildren are older or give it to them in stages so that they have the chance to make some mistakes with the money without jeopardizing the whole inheritance. Similarly, you may place conditions on receipt of money such as “only upon graduation with a bachelor’s degree” or “only to be used to purchase an annuity to provide a lifetime income for the beneficiary”. The possibilities, of course, are endless.
1. Allows you to give back to the people and places that have helped you. Again, most people leave their assets to their children in equal shares. Yet time and again we see children who really don’t need the money or, unfortunately, don’t deserve it. Even when they do need and deserve it, there is a place for remembering those people and institutions who have helped make you what you are today.
1. It proves stewardship by showing your family that you cared enough to plan for them. When you put time, thought and effort into planning your affairs it sends a powerful message to your loved ones. You are saying that you handled the matter with care and diligence. This will reflect itself in how the money is received, invested and spent by your heirs.

BANKRUPTCY AND MEDICARE – A FRAUDULENT TRANSFER IS A FRAUDULENT TRANSFER

Published on: January 16, 2016 | by Ettinger Law Firm

The Eastern District of Virginia Bankruptcy Court issued an opinion on a case with a unique factual scenario almost three years ago, on February 6, 2013 in the case of In Re Woodworth, (Bankr. E.D. Va., No. 11-11051-BFK, Feb. 6, 2013). The case is important because it speaks to the larger issue of fraudulent intent and how even when a trust settlor relies on a seemingly befitting and authoritative disclaimer against fraudulent conveyances, a Court can still find fraud. It also speaks to the vital need to consult with competent counsel for all major financial decisions, to insure that those decisions do not impact eligibility for medicaid or other government programs.

The case centered on a woman’s attempt, and seeming initial success, at what the Court characterized as medicaid fraud. The case involved the debtor, Holly Woodworth and her mother, Dorothy Lee Stutesman. Assuming that the facts of the opinion are accurate, it seems that Ms. Stutesman was rather poor in her money management skills. Ms. Stutesman first entrusted her husband to manage her finances and then her daughter, Ms. Woodworth, after her husband passed away. Most specifically, she first invested a very large sum of money, at least $143,000, with Merrill Lynch, although she used Ms. Woodworth’s social security number to open and listed her as the account owner. Both Ms. Woodworth and Ms. Stutesman both testified under oath that this arrangement was to protect the money from those who would prey on Ms. Stutesman’s lack of financial ability. Most importantly, Ms. Stutesman added that in addition to her desire to protect the money from potential scammers, she did not want assets in her name, in order to be eligible for Medicaid and other public benefits, if and when she should need them. In 2010, after the hit to the stock market, the parties created a trust.

The Bankruptcy Court found the language of the engagement letter that came along with the creation of the trust noteworthy and for good reason. Most specifically, the engagement letter stated that the trust “avoids creditors claims of fraudulent conveyance and civil conspiracy to divest yourself of valuable assets, and avoids IRS trigger for a taxable transaction.” Id. At 3. Both parties recognized that the money in the Merrill Lynch account and then trust was Ms. Stutesman’s. Ms. Woodworth filed bankruptcy due to events and factors unrelated to the trust, although she claimed that she only held title to the funds in the trust but no equitable interest.

New York Medicaid & Obamacare Roll Out

Published on: October 30, 2013 | by Ettinger Law Firm

Anyone who has watched a nightly news broadcast or browsed a new website likely heard this month about the roll-out of Obamacare (the colloquial name for the large-scale healthcare overhaul known as the Affordable Care Act). In the past we discussed the way that the new law offers additional opportunities with expanded Medicaid services.

Most recent discussion relates to problems with the website created to allow consumers to purchase new insurance via health care exchanges. Luckily, New York essentially had its own separate sign-in system that was not plagued by the problems with the federal site which was used by those in states which had not set up their own programs.

Beyond the technical issue, how has everything worked out thus far in New York?

Genes & Life Insurance – Brewing Controversy

Published on: September 9, 2013 | by Ettinger Law Firm

Life insurance is a common tool used by New Yorkers to protect loved ones in the event of an uncertain future. At other times it is a useful way to transfer assets to a new generation, often with significant tax benefits. While there are different types of life insurances (term, universal, whole), the basic idea is the same. An individual enters into a contract with the insurance company to send monthly payments (premiums) in exchange for a lump payment to the insured’s beneficiaries in the event of death.

Naturally, the amount that you have to pay in a monthly premium to receive a certain size of lump sum depends on different factors. The life insurance underwriting process is complex, but it usually seeks to evaluate one’s general risk of dying in a certain period. Age is huge factor. It will cost far less for a 20 year to purchase the same value insurance as a 75 year old.

Factors That Can Be Considered

Editorial Calls for Preserving Medicaid Spousal Refusal in New York

Published on: March 12, 2013 | by Ettinger Law Firm

It is not easy for many local residents to understand all of the ins and out of the Medicaid program. While Medicaid is a critical tool that provides support for local seniors who need long-term care, it can be a whirlwind of stress, anxiety, and frustration when families attempt to navigate the administrative waters and understand what they need to do to join. Making matters worse is that fact that Medicaid qualification is based on income, and so most families are forced to “spend down” assets before receiving aid. Without proper planning, this means that many families are forced to shed most of their assets just to receive the extra care they need–loosing property and savings built up over a lifetime.

This situation seems particularly damaging for certain families, including those with one healthy spouse and the other in need of care. Fortunately, in those situations the option of “spousal refusal” exists. This essentially allows a healthy spouse to divest property from the other, such that the sick spouse qualifies for care without the healthier spouse losing most everything as well.

Eliminating the Refusal?

Panel Cites Misspent New York Medicaid Funds

Published on: February 20, 2013 | by Ettinger Law Firm

Several executives are in hot water this week as federal officials approved the final draft of a report that rips the use of New York Medicaid funds. All budgets are getting a close look these days as officials try to figure out ways to minimize shortfalls, and Medicaid is often given particularly close analysis because it represents such a large portion of annual expenditures. That is true at all levels of government. Because Medicaid is a joint program paid for by state and federal coffers, all lawmakers have some incentive to study the spending and offer efficiency proposals.

The latest report, entitled “Billions of Federal Tax Dollars Misspent on New York’s Medicaid Program” took a critical look at the compensation of executives at many New York nonprofit hospitals which rely on Medicaid support. In particular, as explained in a Journal News story, at least fifteen of those executives reportedly earned more than half a million dollars in compensation last year; another hundred earned over $200,000.

Besides the general outrage at the potential misuse of funds, all of these developments may factor into decisions by policymakers in crafting changes to Medicaid. As a result, these news items may, in small ways, impact future options for New York residents on Medicaid. In fact, the report specifically called out our state’s current spending, noting that “New York’s per-resident Medicaid spending is nearly double that of Pennsylvania and more than double that of California and the entire country.”

Challenging the New York Nursing Home Surcharge Tax for Private Payers

Published on: February 7, 2013 | by Ettinger Law Firm

Many seniors and their families only learn about the significant cost of nursing home care when they begin planning for it later in life. New York is one of the most expensive in the country, with annually costs reaching $100,000 or more to live in a skilled nursing facility. NY elder law attorneys and other senior advocates always recommend as early preparation as possible, because getting a jump on the issue keeps more options open. For the majority of residents, Medicaid support is usually needed. The earlier this is planned for, the more property can be spared for being “spent down” to qualify for Medicaid.

Conversely, some seniors of more means (or more early planning), may have saved enough personal assets to pay for nursing home care on their own. Some pay for care for a few years and then switch over to Medicaid when their resources are exhausted.

Unfair “Granny Tax?”

Legislators Issue Call to Protect Medicare & Medicaid From Fiscal Cliff Talks

Published on: December 13, 2012 | by Ettinger Law Firm

Talks between President Obama and Speaker of the House John Boehner to avert the “fiscal cliff” continue this weeks. While not the only leaders involved in the effort, most disagreement on the issues exist between the President and House Republicans. Some observers are confident that the parties will reach an agreement before the January first cliff. However, members of the public remain skeptical, and many are rightly worried about how the automatic cuts and tax increases will affect them.

New York seniors are likely wondering whether their Medicare or Medicaid support will be changed in any way as a result of going over the cliff or in a compromise to avoid it. While we will not know for sure until things are more settled, some members of Congress recently came forward to issue their support for protecting the full value of the programs.

As reported by Now NY, the group of Democratic Senators and House members held a conference this week arguing that no deal to avoid the cliff should include cuts to Medicare or Medicaid. This is stark contrast to some other policymakers who argue that there is no way to get a deal without actually conceding some budget cuts for those programs.