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In my blog post last week I wrote about 1st party special needs trusts, which are helpful in maintaining Medicaid benefits for someone who may receive an unexpected inheritance or the proceeds of a personal injury settlement.  1st party SNTs, however, can only be funded when the beneficiary is under age 65.  So what options are available if the beneficiary is over the age of 65? As I mentioned last week, some Medicaid recipients are not receiving much in the way of benefits.  It may be better for them to terminate those benefits.  They can then preserve some of the assets thru the use of a Medicaid qualifying trust.  This would trigger a 5 year look back but, again, if little to no Medicaid benefits are being received this could work fine.  The funds are available to use as needed for 5 years after which reapplying for Medicaid would be possible. For someone in a nursing home on Medicaid that obviously won’t work but there are other alternatives.  Depending on the size of the inheritance or settlement to be received, purchases of exempt assets, such as a wheelchair accessible van or a home which could allow the individual to be cared for in a non institutional setting, may be

I have written previously in this blog about situations that call for a 1st party special needs trust.  For example, we receive calls from personal injury attorneys who have achieved settlements for their clients who are on Medicaid.  In other cases clients on Medicaid receive an inheritance from a family member which is to be paid out directly to them instead of being paid to a 3rd party special needs trust. While a 3rd party trust can be funded no matter the age of the beneficiary, a 1st party special needs trust has an age restriction.  It cannot be funded after the beneficiary reaches age 65.  This obviously presents a problem for individuals in the above situation who have “aged out” of a 1st party SNT.  What then can be done with a lump sum of assets that will push the beneficiary over the asset limit of $2000 and cause the loss of government benefits? For some clients who are Medicaid eligible, they are not receiving much - or sometimes nothing at all - in the way of benefits.  Losing those benefits wouldn’t cause them a hardship. For others, however, who are in nursing homes for example, losing these benefits would require them to use these assets towards the

In last week’s post, I explained how a Medicaid compliant annuity (MCA)works in a married couple situation.  This week we’ll see how it can be helpful in the case of a single Medicaid applicant. An MCA can be useful in preserving some assets when there is no chance of waiting out a 5 year look back period because the individual needs care now.  It can also cover the cost of care during the time frame of an expected Medicaid penalty for transfers that were made several years before a Medicaid application was even a thought in anyone’s mind. Remembering that the MCA converts assets to income, here’s how it works.  Let’s say that Jane resides in a nursing facility and has $200,000 of assets which exceed the asset limitation of $2000 for Medicaid eligibility.  If Jane transfers some of those assets out of her name - for example, to a Medicaid qualifying trust - that transfer will create a Medicaid penalty which starts when Jane applies for Medicaid and meets all the requirements to qualify, but for the amount that was transferred.   The problem is that she can’t meet those requirements and get the penalty started without spending down the remaining amount of the $200,000 that she

In last week’s post I explained what makes an annuity a Medicaid compliant annuity (MCA).  This week I’ll explain how MCAs are helpful in qualifying for Medicaid.  If you are a frequent reader of this blog you know that Medicaid is a needs based benefit with an asset limitation and also income restrictions. What makes the MCA work is that it converts an asset to income.  A Medicaid applicant can have no more than $2000 in countable assets to his/her name.  In the case of a married couple the combined countable assets of both spouses is totaled and then divided in half.  The healthy spouse can keep one half of the assets but only up to a maximum, which currently is $130,260. Income on the other hand is treated under what is called the “name on the check” rule.  The healthy spouse’s income is not considered in determining Medicaid eligibility for the ill spouse.  It doesn’t matter how much income the healthy spouse has.   That’s why the MCA works.  It converts the excess countable assets that are over the asset limit to income for the healthy spouse.  The key though is that the annuity can’t be converted back to a lump sum.  Otherwise it will still be counted as an asset.  That’s why it

We have recently received a number of calls inquiring about Medicaid compliant annuities.  Similar to QITs which I wrote about here a couple of months ago, there is much misunderstanding of what is and is not a Medicaid compliant annuity (MCA) and when it can be used.  First, let’s clearly define an MCA. An annuity must be a single premium immediate annuity to be considered Medicaid compliant.  This means that the annuity is purchased with a single lump sum, known as the premium.  Annuities are insurance contracts in which the premium is given to the insurance company in return for an agreement in which the company pays the insured back his or her money over time with interest.  An immediate annuity begins the payments immediately within 30 days as opposed to a deferred annuity which does not start the payments until some future date. So, is that it?  Not quite.  The annuity must also be noncancellable and non assignable.  Once purchased you are locked into a monthly payment schedule.  You can’t cancel the contract and get your remaining premium back in a lump sum and you can’t sell it to a third party for a lump sum.  In other words, you can’t change your mind after making the purchase.   The payments under the

In my post last week, I reviewed what we know so far about President Biden’s proposed tax law changes.  One change would increase the tax rate on capital gains, which currently is taxed at a  lower rate than  regular income. Another change relates to the provision that wipes out the capital gains tax for assets that are passed at death.  This provision is what is known as the “step up in basis”.  It has saved many Americans who have inherited assets, hundreds of thousands of dollars or more.  Here’s how it works. Normally, if I buy a stock for $1 and sell it for $10, I must pay tax on the $9 of gain.  If I hold the stock, however, till I die and my children inherit it, the basis becomes what it was worth when I died.  This allows my heirs to avoid tax on the gains during my lifetime.  In my example, I would only owe tax on any gain above $10. President Biden plans to restrict but not entirely eliminate the step up in basis.  The first $1,000,000 of capital gains would be eligible for the step up in basis, thus exempting the tax on gain up to that limit.  A married couple would be able to each exclude $1,000,000.  Additionally, if