Confusing Medicaid with Other Government Programs (Part 2)
Last week I was telling you about the call I received from Lou. His dad had been living in senior housing but now needs nursing home care. Dad has $80,000 left in assets which he plans to spend down and then apply for Medicaid. When I asked Lou about gifts and other transactions over the past 5 years he told me that his dad had set up an irrevocable trust just before applying for senior housing. Since it wasn’t a problem in terms of qualifying for the housing program, Lou figured it would be the same for Medicaid but he was wrong. That’s because the housing program focused on income and not assets. How much income he had, determined his eligibility as well as how much rent he paid. I explained to Lou that the irrevocable trust assets were only relevant so far as the income generated from them (ie. interest or dividends). Keep in mind that there are different housing programs that can sometimes have different rules but many of the programs work this way. Medicaid, on the other hand, does look at the assets. First, I told Lou that just because his dad has an irrevocable trust
Confusing Medicaid with other Government Programs
The other day, Lou called me about his dad, who had been living in senior housing for a few years. His health has deteriorated and he now needs nursing home care. Lou’s plan is to spend down the $80,000 his dad has left, applying it towards the nursing home bill. Sounds like a solid plan. Lou wants help with the Medicaid application. I asked him about gifts and other transactions over the past 5 years, the Medicaid look back period. Lou was pretty confident he didn’t have a problem. He told me that he had set up an irrevocable trust and transferred a few thousand dollars into it shortly before Dad moved to the senior housing. Since it wasn’t a problem when he applied for the housing he figured it wouldn’t be for Medicaid either. That’s where Lou got it wrong. While eligibility for senior housing is generally needs based, the rules are quite different from Medcaid. Government benefit programs can have very different rules. Next week I’ll explain exactly where Lou’s mistake was.
A Personal Story
About a month ago, my parents’ health took a sudden turn and it led me down the path that many of our clients and their families face, tackling long term care. In our case, it was an accident outside their home. My mom broke her leg. My dad suffered some bumps and bruises but nothing worse than that. As elder care attorneys, Laurie and I are very familiar with the range of service available when a crisis arises and the amazing work performed by rehab facilities, social workers, care managers, therapists and home health care agencies. We relied upon the people we have come to trust and recommend to our clients to help my mom. The recovery process is a slow one but with the guidance and care she has received, and will continue to receive, she’s on the mend. We have been lucky in that, until now, both my parents have been healthy and independent. However, I always knew of the likelihood that this time would come. I am always reminded of a conversation I had some time ago with the child of a 95 year old parent who called me seeking help. She said, “I just never thought
VA Pension not Income for Medicaid Purposes (An Update)
Last year I wrote about an important court ruling in a case that impacts Medicaid and VA Aid and Attendance benefits. Several elder law attorneys filed a lawsuit against the State of New Jersey which, despite being in clear violation of federal law, insisted on counting VA Aid and Attendance benefits as income for purposes of determining eligibility for Medicaid. This impacted many applicants who were denied Medicaid because, with the VA benefit, their income exceeded Medicaid’s income cap . The judge in that case, Galletta v. Velez, agreed that the State of New Jersey was flat out wrong. Last month came word that New Jersey has agreed to issue a Medicaid Communication to all its county agencies advising them that they may not count the Aid and Attendance as income for eligibility purposes. In addition, the State agreed to pay the plaintiffs’ attorney fees and costs . As I have always explained to my clients about Medicaid, the State often takes a position that is blatantly wrong because it knows that it can get away with it. The high cost of appealing a decision and fighting it out in court makes it impractical and in many cases just
Are We in Danger of Losing the Step Up in Basis (Part 2)
Last week we were discussing potential changes to the tax laws proposed by President Obama that would eliminate the step up in basis. Obama claims the target is wealthy Americans but the change could have a much bigger impact on average middle class citizens. That’s because with the federal estate tax exemption currently at $5.43 million, only estates larger than that number must pay federal estate tax. While New Jersey estate taxes kick in on estates greater than $675,000, removing the step up in basis still means that many heirs would have to pay an additional tax on assets they inherit. Let me give you a very common scenario we see. Mom passes away and leaves her assets to her children. Those assets include Exxon stock she and Dad bought many years ago. The stock is now worth $500,000. The total estate is worth $1,000,000, including her home which Mom and Dad purchased for $20,000, which is now worth $400,000. Under current tax laws the children get a step up in basis on both the stock and the home. Presuming they sell the home immediately after Mom’s passing, there would be no capital gains tax
Are We in Danger of Losing the Step Up in Basis?
A few weeks back, President Obama proposed, in his State of the Union address, that the “step up in basis” provision of the capital gains tax be eliminated. While Obama claims that he wants to eliminate a loophole for the rich, such a change could have a bigger impact on the average middle class American. But before I explain why, let’s first review what the step up in basis is exactly. Certain assets, such as stock, mutual funds and real estate, appreciate in value over time. I bought stock in ABC Company for $1. If it is now worth $10 and I sell it, I have a gain of $9. That gain is subject to something called capital gains tax. The gain is calculated by subtracting the sale price minus the basis, which usually is the purchase price. (There are cases where the basis gets adjusted but we’ll keep our example simple.) There are certain instances where I may not have to pay capital gains tax. One such instance is if I hold onto that stock and don’t sell it before I die. Instead, I transfer it to my heirs