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CDPAP gives Medicaid recipients an alternative way to receive home-care services. Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

The Consumer Directed Personal Assistance Program (CDPAP) is a Medicaid program that allows a Medicaid applicant, or their representative, to choose the individual (or individuals) to provide care at home rather than using an aide from a home health agency. 

Under the Medicaid process, once an applicant is approved for Medicaid, they will undergo at least one assessment to help determine how many hours of care the applicant will receive with a managed long-term care (MLTC) plan. The applicant then signs up with a home-care agency that contracts with the MLTC, and aides are sent to the home to provide the hours of care.

If the applicant is unhappy with the current aide, he or she can request that the agency replace the aide; however, the agency has full discretion on choosing a substitute. The agency only needs to make sure that they are providing the care set up by the predetermined hours.  

There are also limits as to what the aide can do in terms of the care they provide. An aide can assist with most tasks, such as walking, bathing, grooming, light cleaning and cooking, but they cannot perform “skilled tasks,” such as administering medication. 

For example, if an applicant is diabetic and requires daily insulin injections, the aide is not allowed to administer the injection. An aide, however, can give certain cues, such as placing medication in front of the patient, letting them know it is time to take said medication.

Many applicants are satisfied with the care provided by the home health aides, but there are some that may require an aide that can perform skilled tasks, or others already have an established relationship with a specific aide and do not want to switch to a different caregiver.

Under CDPAP, any individual can be hired as the caregiver so long as said individual is not a legally responsible relative, such as the applicant’s spouse or guardian.

The applicant, or their representative, will determine who the aide will be, their work schedule, and what kind of assistance the aide will provide. There is no prerequisite to be certified as a home health aide or registered nurse. Training the aide occurs at the home and the aide gets paid through Medicaid. The aide can perform skilled tasks that are not otherwise allowed under the standard Medicaid program.  

It is important to note that under CDPAP, the aide is considered an independent contractor, not an employee of the agency.  The applicant is therefore fully responsible for finding and setting up the care. The applicant will also not be able to take advantage of some of the benefits an agency provides, such as sending in backup care if the current aide is sick or cannot work for whatever reason.   

To discuss your options, you should contact an elder law attorney who has extensive experience in this field and can navigate the Medicaid system to help provide you with the best care for your specific needs.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office

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Out-of-date beneficiary designations are a common and costly mistake. Stock photo

By Linda Toga, Esq.

Linda Toga, Esq.

THE FACTS: My brother Joe was dying from cancer and wanted to be sure that all of his assets passed to his wife, Mary, upon his death without the need for court intervention. He mentioned this a number of times, so I assumed he had taken the necessary steps to ensure that his wishes were honored. 

The car Joe drove was in Mary’s name and the house in which he lived was jointly owned with Mary. However, Joe had substantial assets in separate bank and brokerage accounts. After Joe died, Mary was told by the bank and brokerage company that Joe never signed any documents indicating that he wanted his accounts to pass to Mary automatically upon his death. 

THE QUESTION: Is there any way Mary can get access to the funds in Joe’s accounts without getting authority to do so from the Surrogate’s Court?

THE ANSWER: Unfortunately for Mary, she will have to petition the Surrogate’s Court for authority to access Joe’s accounts. If Joe died with a will and the will names Mary as executrix, Mary will need to file a petition seeking letters testamentary. The petition, an original death certificate and a fee based upon the value of the accounts must be filed with the Surrogate’s Court in the county where Joe lived at the time of his death. Once letters testamentary are issued to Mary, she will be able to access the funds and, assuming she is the only beneficiary under the will, do whatever she deems appropriate with the funds. 

If Joe died without a will, Mary will have to petition the court seeking letters of administration. The process and the fees for the administration proceeding are similar to those associated with a probate proceeding. Again, once letters are issued to Mary, she will have the authority to access the funds in the account. Mary will be required to distribute the funds in accordance with the NYS intestacy statute that governs the distribution of estates of people who die without a will. If Joe had children, they will be entitled to a share of the money in the accounts to the extent it exceeds $50,000. 

Based on your description of the assets in the separate accounts as “substantial,” I am assuming there is more than $30,000 at issue. If that is not the case, Mary can file with the Surrogate’s Court an affidavit in relation to a small estate to get authority to access the funds in the accounts. The account numbers and the balance in each account must be provided in the affidavit. Mary will be issued a certificate for each account giving her authority to access the account.

 It is unfortunate that Mary will have to seek court intervention in order to access Joe’s accounts, but she should take some comfort in the fact that the probate/administration proceedings are not burdensome and that her situation is not unusual. Clients frequently find that the steps taken by a decedent were not sufficient to ensure that their estates pass as the decedent wished. 

To avoid this situation, I encourage my clients to periodically review all beneficiary designation and transfer on death forms that have been filed and to review how jointly held property is titled. These steps are critical to ensuring that the client’s estate plan truly reflects the client’s wishes. 

Linda M. Toga, Esq. provides legal services in the areas of estate planning and administration, wills and trusts, guardianship real estate, small business services and litigation from her East Setauket office.

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A bypass trust was designed to prevent the estate of the surviving spouse from having to pay estate tax. Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

For a traditional married couple, the estate planning has become simpler in many ways. Before the estate tax was increased on both the state and federal level, we were fixated on saving estate taxes. Simple techniques like bypass and marital trusts and insurance trusts called ILITs were the gold standard in estate planning. Today many of those types of plans are irrelevant and maybe even harmful in an estate plan.

Bypass trusts are trusts created in the estate of the first spouse to die. So, for example, if a husband died when the exemption was $1.0, his will left $1.0 million in his bypass trust to protect his exemption (the amount he could pass to a nonspouse tax free) and then the balance would be distributed to his surviving spouse tax free. The idea was that when the second spouse died, she would have her own exemption and the monies in the bypass trust would pass tax free to the next generation.

If the exemption was $1.0 (or more) when the survivor died, then both the bypass trust amount and the exemption amount when the second spouse died would escape estate taxation. This is the most common type of estate plan that was utilized in the last 25 years and many clients still have these documents in place. In instances where the first spouse has died, there still exists a bypass trust for the benefit of the surviving spouse. For those couples with these types of estate plan but with assets under $5.25 million, it’s not too late to change them.

But, what if one spouse has died and the surviving spouse is still alive with assets in a bypass trust. Is there more planning to be done?   

Assume a couple in 2000 with $1.8 million worth of assets. Husband died and $1.0 million was payable to the bypass trust under his will for the benefit of his wife. According to the terms of the trust: (1) she can have all the income, (2) she is entitled to distributions for her health, education and support, and (3) a trustee can distribution all the trust assets to her for any purpose, even if the trust is depleted. The purpose of this trust was clearly to shield the first million of the estate from estate taxes when the surviving spouse later died but gave the trustee the power to make unlimited distributions to the spouse.

Now also assume the wife has, in the intervening years, protected her own $800,000 from the cost of long-term care by placing those assets into an irrevocable trust. In the meantime, the bypass trust has grown to $1.6 million dollars. There are two glaring problems: Capital gains tax and cost of long-term care.

When the surviving spouse dies, the assets in her irrevocable trust will be counted as part of her taxable estate. If she dies this year, she will have a New York state estate tax exemption of $5.25 million (increasing to $5.49 million in 2019) and her federal exemption is $11.18 million. Clearly, she does not have a taxable estate. Her assets will pass tax free to the next generation. However, the assets in the bypass trust will have a capital gains tax for any growth in principal.

Assuming the capital gain of $600,000 and a capital gain rate of 33 percent, there could be a capital gains tax of just under $200,000. If the bypass trust assets were not in the trust, but in the surviving spouse’s estate, there would be no estate tax and no capital gains tax. In this case, assuming no other facts, it would be best to distribute the assets to the surviving spouse and allow the assets to obtain a “step-up in basis at her death.”

The second problem with the bypass trust is that the broad distribution rights under the trust makes those trust assets available to pay for the spouse’s long-term care. She has protected her own assets, but likely the $1.6 million is available to be spent down. In this case, if the trustee were to distribute the trust assets to the surviving spouse, she could add those assets to her irrevocable grantor trust. She would enjoy the income in the trust, her estate (i.e., her heirs) would get a step-up in basis on her death, and the assets could be shielded for the cost of nursing home care or catastrophic illness after five years.

This same scenario applies in the case of insurance trusts that were created during the life of the first spouse to die. The trust was likely intended to shield the surviving spouse’s estate from estate taxes, but the increased exemptions make the insurance trust unnecessary. There is an income tax return due each year that is a burden in both time and money. There is no step-up in basis at the death of the surviving spouse, and the assets are probably not protected from the cost of long-term care.

While the trusts in this example give the trustee wide latitude in distributing trust assets to spouses, not all trusts are the same. If the trustee does not have the power to distribute outright to the spouse, there may be an alternative way to accomplish these objectives. New York state has a very generous decanting statute that may be utilized to “fix” the trust. It may not be too late.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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A pet trust will ensure that a pet is cared for when its owner dies. Stock photo

By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS: About a year before he died, my father bought a puppy that he adored. His name was Gizmo. My father’s will provided that $15,000 was to be left to the person who agreed to take care of Gizmo after my father’s death. My father told me that he set aside $15,000 because he assumed Gizmo would live a long time and that it would cost that much to cover his food and vet expenses.

Immediately after my father’s funeral, my brother Joe took it upon himself to bring Gizmo to his house. A week later, Gizmo was hit by a car and died. My brother is now insisting that he is entitled to the $15,000 since he “agreed to take care of Gizmo” after my father’s death. I feel he should be reimbursed for whatever expenses he incurred in connection with Gizmo’s care and burial but that the balance of the $15,000 should be divided between all of my father’s children like the rest of his estate.

THE QUESTIONS: Is my brother entitled to the full $15,000? Does it make a difference that Gizmo’s death could have been prevented if my brother had him on a leash?

THE ANSWER: I cannot say how the Surrogate’s Court would handle this situation because a strict reading of the language of the will suggests one outcome while fairness dictates another. An argument can certainly be made that your brother is entitled to the money because he took Gizmo in and cared for him, even though it was for a very short period of time.

On the other hand, if your brother’s decision to let Gizmo out without a leash led to the dog’s death, an argument can be made that he breached his duty to take care of Gizmo and should not get the money. You can also argue that your father intended the money to be used for Gizmo’s care and not as compensation to a caregiver.

Regardless of which position may prevail in court, the issues raised by what has happened underscores the importance of pet owners being very specific about their wishes when it comes to their pets. Simply setting aside money for a pet’s care is not sufficient. Pet owners should include in their wills a pet trust to be administered in accordance with the pet owner’s wishes. If your father’s will had included a well-drafted pet trust, the question of who is entitled to the $15,000 would be addressed.

I suggest that pet owners arrange in advance for someone to take care of their pet in the event they are unable to do so either because of disability or death. Possible caregivers should be asked if they are willing and able to take the pet in and care for the pet on relatively short notice. Once a caregiver is identified, family members and other potential caregivers should be advised of the arrangement to avoid misunderstandings. Informal arrangements usually work well if they are not long term.

For example, a neighbor may agree to watch a dog while its owner is in the hospital or immediately following the owner’s death. The intent is simply to ensure that the pet is cared for until long-term arrangements can be made. Money is usually not addressed in these types of informal arrangements. 

When it comes to the long-term care of a pet, I suggest that my clients include in their wills a pet trust. How much money the owner wishes to earmark for the pet’s care is clearly one of the things that must be addressed but it is only one of many. The trust should also identify the person who will become the pet’s caregiver and set forth the types of care the pet is to receive.

For example, does the owner want the pet groomed on a monthly basis and, if so, by whom? Does the pet need certain types of food or should certain foods be avoided? Does the pet suffer from any ailments that require medication or close monitoring? If so, the pet’s vet should be identified. Providing this sort of information will help ensure that the pet gets the care that it needs from people with whom it is comfortable.

In addition to addressing the care a pet will receive during its life, a pet trust should provide the caregiver with instructions with respect to the handling of the pet’s remains after it dies. This information is useful to the caregiver who will certainly want to honor the pet owner’s wishes.

A pet trust should also set forth the amount of money the executor of the estate is to distribute to the trustee of the pet trust. The job of the trustee is to then distribute the funds in the trust to the caregiver as needed to be used for pet’s benefit. The owner should state what types of expenses are covered by the trust and whether the caregiver is entitled to compensation in exchange for caring for the pet.

The pet trust should also provide instructions for the trustee with respect to the distribution of the trust assets that remain after the pet has died. Had your father included such instructions in his will, you and your brother would not be at odds now.

Pet owners who want to create a pet trust should discuss their ideas and concerns with an experienced estate planning attorney.

Linda M. Toga, Esq. provides legal services in the areas of estate planning and administration, wills and trusts, guardianship real estate, small business services and litigation from her East Setauket office.

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There are planning tools an individual can employ to potentially safeguard wishes after death. Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

Inheritance is the practice of passing on property upon someone’s death. The rules of inheritance differ from state to state.  

In New York, a decedent generally cannot disinherit his spouse. This principle is governed by Estates, Powers and Trusts Law Section 5-1.1-A (Right of Election by Surviving Spouse) and requires that the surviving spouse receive a portion, or share, of the decedent’s estate. The surviving spouse’s share will be equal to the greater of $50,000 or one-third of the decedent’s estate.

The right to elect to take your spousal right of election is governed by time frames. An election under this section must be made within six months from the date letters testamentary are issued but no later than two years after the date of the decedent`s death. A written notice of the election is required to be served upon the executor, or upon the person named as executor in the will if the will has not yet been admitted to probate. The written notice must then be filed and recorded with the Surrogate`s Court.  

Conversely, a decedent can disinherit a child. However, it is important to note that a child falls into a certain class of individuals who have the right to contest your will even if they are specifically disinherited, whether or not they are named as a beneficiary under your will or if they were left with a disproportionate share of your estate. A disinherited child has the right to challenge or contest your will because, had you died without a will, your child would receive a share of your estate through the laws of intestacy.  

However, there are planning tools an individual can employ to potentially safeguard wishes after death. An in terrorem provision in a decedent’s will “threatens” that if a beneficiary challenges the will then the challenging beneficiary will be disinherited instead of inheriting the full gift provided for in the will. An in terrorem clause is intended to discourage beneficiaries from contesting the will after the testator’s death. New York law recognizes in terrorem clauses, however, they are strictly construed.   

Keep in mind that simply having an in terrorem clause in your will may not be enough to dissuade beneficiaries from potentially challenging your will. Theoretically, however, for an in terrorem clause to have any weight at all, a beneficiary under a will must be left a substantial amount to incentivize their compliance with the will. 

An in terrorem clause may have no effect on a beneficiary who was not left anything under a will as they risk losing nothing by challenging the will. While in terrorem clauses may be effective in minimizing a will contest, for some it holds no power.  

As with many things in life, one size does not fit all. A successful estate plan takes all personal and unique factors to an individual into consideration. The documents are only part of the problem and solution. The fact is, there is no substitute for competent legal advice.   

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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By Linda M. Toga, Esq. 

Linda Toga, Esq.

THE FACTS: My father executed a will many years ago in which he disinherited my older brother, Joe, and named me as executor of his estate. Joe had been estranged from the family for years. My father recently passed away. I have looked through all of my father’s papers and cannot find the will. I vaguely remember my father telling me that he put his will in his safe deposit box so that it would not get lost, but the bank manager will not allow me to access the box. 

THE QUESTIONS: How can I gain access to my father’s safe deposit box? If my father’s will is in the box, how should I proceed? 

THE ANSWER: Many people mistakenly believe that their safe deposit box is the best place to keep their will. While the will may be safe locked in the safe deposit box in the bank, it will not necessarily be accessible when needed. 

When the holder of a safe deposit box dies, the box is supposed to be sealed. This means the box is not to be opened unless the person seeking access to the contents of the box provides the bank with either a court order directing the bank to open the box or evidence that the person has been granted authority from the court to handle the decedent’s estate. 

If you cannot find your father’s will and believe it is in his safe deposit box, you must obtain an order from the Surrogate’s Court directing the bank to open the box. To do that, your attorney will need to file an application with the court in the county where your father lived in which he or she provides your father’s name and address, his date of death, your relationship to your father and the location of the bank where the safe deposit box is located. 

A small fee is required by the court for filing the application and providing to you a certified copy of the order when it is issued. 

Once the court issues the order, you should arrange with the bank for a bank officer to open your father’s safe deposit box in your presence. The officer is required to take an inventory of the contents of the box and, if your father’s will is there, to send the will to the Surrogate’s Court that issued the order. All other items that are in the box must be returned to the box. You will not be able to remove the other items until your attorney files a petition for letters testamentary and the court issues those letters to you.

 If it ends up that your father’s will is not in his safe deposit box, and you cannot locate it elsewhere, rather than petitioning for letters testamentary, your attorney will need to petition for letters of administration. Once you have obtained either letters testamentary or letters of administration, you will have full authority to access your father’s safe deposit box and to remove the contents.

 As an aside, if you cannot provide the original will to the court as part of the probate process and are issued letters of administration, you will be required to distribute to your estranged brother a share of your father’s estate pursuant to the NYS intestacy statute, regardless of what you believe your father may have wanted.

Although you will eventually gain access to the contents of your father’s safe deposit box, the administration of your father’s estate will clearly be delayed and additional estate expenses will be incurred in order to determine if, in fact, he put his will in his safe deposit box. To avoid the delay and expense I recommend that clients keep their wills and other important papers at home in a water/fire resistant safe or storage box. 

Linda M. Toga provides personalized service and peace of mind to her clients in the areas of estate planning, wills and trusts, Medicaid planning, marital agreements, estate administration, small business services, real estate and litigation. Visit her website at www.lmtogalaw.com or call 631-444-5605 to schedule a free consultation.

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By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS: My mother recently passed away. She and my father were divorced and my mother was in a long-term relationship with Tom. My mother prepared her will before she met Tom. After living with Tom for many years, my mother made changes to her will by writing in the margins of the pages of the will. The changes were advantageous to Tom. She also prepared a written statement that provides that Tom was to receive all of the funds in her bank account at the time of her death. The written statement was signed and notarized.

THE QUESTIONS: When my mother’s will is admitted to probate, what effect, if any, will the notes in the margins and the written statement have on the administration of my mother’s estate? In light of the fact that he is not mentioned in the original will, is Tom entitled to a share of my mother’s probate estate?

THE ANSWER: Without seeing the will and the written statement, I cannot conclusively state that Tom is not entitled to a share of your mother’s probate estate. However, from the information you provided, it appears that the handwritten changes to the will and the notarized statement will not be enforceable. That is because your mother apparently did not comply with the requirements set forth in the New York statutes pertaining to the execution of amendments to a will. 

Certain formalities must be observed when a will or an amendment to a will, known as a codicil, is executed by a testatrix (a woman signing a will.) Different states have different laws that govern the execution of a will. New York Estates, Powers and Trusts Law (EPTL) 3-2.1 provides, among other things:

1. that a will must be signed by the testatrix at the end of the document,

2. that no effect shall be given to any matter that follows the signature of the testatrix other than an attestation clause signed by witnesses,

3. that no effect shall be given to any matter preceding the testatrix’s signature that was added subsequent to the execution of the will, 

4. that the testatrix shall sign the will in the presence of at least two attesting witnesses who have been advised that the document they are signing is the testatrix’s will, and

5. that the witnesses must sign an attestation clause stating that the testatrix advised them that they were witnessing the execution of her will and that they did so in her presence and the presence of the other witness. The attestation clause is considered part of the will. 

In addition to the attestation clause, most attorneys who supervise the execution of wills have the attesting witnesses sign an affidavit stating that they witnessed the execution of the will by the testatrix, that she was of sound mind and acting voluntarily and that they witnessed the signing of the will at the request of the testatrix. This affidavit is not considered to be part of the will but is generally stapled to the back of the will.  

Based upon EPTL 3-2.1, the handwritten notes in the margin are clearly not enforceable since they were added to the will long after your mother executed the will in the presence of witnesses. As such, they will not carry any weight, and the executor will not be obligated to take them into consideration when administering the estate. 

As for the statement that your mother signed in the presence of a notary, unless it was also signed in the presence of two witnesses who affixed their signatures at the end of the attestation clause following your mother’s signature, the written statement does not comply with the requirements of the statute. Consequently, to the extent the written statement conflicts with the provisions of the original will, it will not be enforceable. 

Unless the executor and the beneficiaries under your mother’s will are inclined to give effect to the handwritten changes and your mother’s written statement, Tom will not be receiving a share of your mother’s probate estate. This may be a good outcome for the beneficiaries but, assuming your mother was of sound mind when she made the changes and truly wanted Tom to be a beneficiary of her estate, it means that your mother’s wishes are not being honored. That result is unfortunate and could have been avoided if your mother retained an experienced estate planning attorney to prepare a new will or a codicil for her. 

Under the supervision of an attorney it is more than likely that the proper formalities would have been followed when a new will or codicil was signed, ensuring that your mother’s wishes would be honored. 

Linda M. Toga provides personalized service and peace of mind to her clients in the areas of estate planning, wills and trusts, Medicaid planning, marital agreements, estate administration, small business services, real estate and litigation. Visit her website at www.lmtogalaw.com or call 631-444-5605 to schedule a free consultation.  

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The first question that must be answered is whether you are determined a resident of New York. Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

We have seen many clients considered “snowbirds,” those who maintain a residence in New York but travel down south during our harsh winters. For our snowbird clients who want to create estate planning documents and plan for possible care needed in the future, it is important to determine if you should see an attorney in New York or elsewhere. 

The first question that must be answered is whether you are determined a resident of New York or of the other state you are visiting. Some factors to determine residency include the amount of time spent in each state, your mailing address, which state your driver’s license is held, where your car is registered, where you are registered to vote and where you file your income taxes.

Once you determine which state is your primary residence, there are other considerations to be examined regarding your estate plan. Snowbirds should consider where they plan on living in the future and where they think they will likely receive care. There may be a possibility that you move down south upon retirement but you plan to move back to New York to be with family members when you are in need of assistance. Since most clients do not have a plan set in stone, they should have estate planning documents, which may include Medicaid asset protection, that would cover them in either state.

Because the laws governing estate planning and Medicaid benefits differ from state to state, it is advisable that you have your documents reviewed by an attorney in both states to ensure that they comply with the laws in both places. For example, there is an additional signature required on a last will and testament in Florida that is not required in New York. Complying with Florida law when executing a last will and testament will not invalidate the document if it is probated in New York. This will avoid any issues or delay in administration if your will is probated in Florida. 

Additional examples of differences in the law are for powers of attorney and advance directives, including health care proxy and living will documents. Since these are state-specific laws, they often have different terminology that can be confusing when moving between locations. 

For a health care proxy in New York the person named to make your medical decisions is called your “agent.” In Florida the term for the agent acting as your health care proxy is a “surrogate.” In Florida the term used under the law to name the default agent appointed is “proxy.” This could cause unnecessary confusion and should be addressed by your estate planning attorney. 

The language and powers listed in your power of attorney will also differ by state. This becomes especially important when your agent is assisting in long-term care planning. You should make sure that your power of attorney includes all of the possible powers your agent may need should you need long-term care whether it is by privately paying or applying for Medicaid to cover your care costs. This may include: the power to prepare, sign and amend a trust agreement; allow for transfers of assets to your agent; and enter into contracts for caregivers or home health care services. 

For our snowbird clients it is important to consider where you are likely to receive care in the future. We recommend that you have your estate planning documents reviewed by an elder law and estate planning attorney in New York and your warm winter destination. 

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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By Nancy Burner, ESQ.

Nancy Burner, Esq.

Gifting and Medicaid planning is commonly misunderstood. We often see clients who believe that the gifting rules for Medicaid are the same as the IRS gifting regulations. 

The IRS allows a person to give up to $15,000 per person annually without penalty. Under the code, all gifts made in any given year are subject to a gift tax. However, the first $15,000 gifted to each individual in any given year is exempted from the gift tax, and for that reason, for many individuals, gifting during their lifetime is a way to distribute wealth and reduce their taxable estate at death. Medicaid is not the same.  

Oftentimes, seniors and their children believe that this same exemption holds true for Medicaid eligibility, and that gifting this amount of money away annually will not affect them should they need to apply for Medicaid benefits in the future. 

Medicaid requires that all Medicaid applicants account for all gifts and transfers made in the five years prior to applying for Institutional Medicaid. These gifts are totaled, and for each approximately $13,053 that was gifted, one month of Medicaid ineligibility is imposed. It is also important to note that the ineligibility begins to run on the day that the applicant enters the nursing home rather than on the day that the gift was made.  

For example, if someone has approximately $180,000 in his or her name and gift annually $15,000 to each of four children, the $180,000 would be gone in approximately three years. Under the IRS code, no gift tax return would need to be filed and no tax would be owed. If at the end of those three years the individual then needed Medicaid, those gifts would be considered transfers “not for value” and would have made him or her ineligible for Medicaid benefits for approximately 13 months.  

In other words, the individual would need to privately pay for the nursing home care for the first 13 months before Medicaid would kick in and contribute to the cost of care. 

The amount the individual would pay on a monthly basis would depend on the private monthly cost of care at the nursing facility. If the nursing facility costs $17,000 per month, the individual would need to pay that amount for 13 months totaling approximately $221,000.  

What makes this even more difficult for some families is that an inability to give the money back or help mom or dad pay for her or his care is not taken into consideration, causing many families great hardship. It is important for families who have done this sort of gifting to know that there are still options available to them.  

An elder law attorney who concentrates his or her practice on Medicaid and estate planning can help you to optimize your chances of qualifying for Medicaid while still preserving the greatest amount of assets.      

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office. 

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By naming a trustee to decide the amount of distributions to be taken, the account holder can rest assured that the IRA savings won’t be squandered. Stock photo

By Nancy Burner, ESQ.

Nancy Burner, Esq.

One of the most misunderstood planning strategies is that retirement funds, such as 401(k)s, 403(b)s, traditional individual retirement accounts (IRAs) and Roth IRAs, should not name a trust as designated beneficiary. My clients are often advised by their financial adviser to name individuals and not trusts, even minor or disabled beneficiaries. That could be the most expensive mistake made by a retirement account holder and one I often see. The IRA retirement trust is the answer.

First, clients are concerned about protecting their beneficiaries from claims of creditors: that is, divorcing spouses, judgment creditors and Medicaid if the beneficiary needs long-term care.  

While IRA accounts are protected from creditors of the original account holder and surviving spouse, the same is not true for inherited IRAs. The Supreme Court of the United States has ruled that when someone other than the spouse inherits an IRA, the account is subject to beneficiary’s creditors. Thus, if parents want to protect their child, they can name a trust as the beneficiary of the account, instead of naming the child directly. Correctly written, the trust can allow the trustee to use the beneficiary’s life expectancy, commonly referred to as a “stretch IRA.” 

Under federal tax law, designating an individual as the beneficiary of a retirement account results in tax efficiencies by allowing the beneficiary to take the benefits over their life expectancy based upon the beneficiary’s age at the time of the owner’s death and the use of an IRS actuarial table. 

Each year the beneficiary of the IRA must take a minimum distribution from the inherited IRA and must pay income tax on the distribution. The balance of the IRA continues to grow tax deferred, only distributions are taxable. Therefore, a young beneficiary will be able to defer the tax longer (commonly known as “stretch”) and enjoy exponential growth. In the case of a Roth IRA, the account holder has already paid the tax, so the beneficiary can continue to have tax-free growth, not tax deferred, over his or her life expectancy.

In order to use the trust beneficiary’s life expectancy, the trust must meet the following criteria: 

The trust must be valid under state law; the trust must be irrevocable by the time of the account holder’s death; the trust beneficiaries must be identifiable within the trust document; the retirement beneficiary custodian, issuer, administrator or trustee must be provided with a copy of the trust document by Oct. 31 of the year after the year of the retirement owner’s death and there must be an agreement to that information in the event it is ever changed; and all the “counted” beneficiaries of the trust are “individuals.”

Typically, trusts that satisfy the above criteria will qualify for the stretch. The trusts are drafted as either a conduit trust or an accumulations trust. 

The simplest trust is a conduit trust, which allows the trustee to decide on the amount and timing of any and all distributions from the trust. However, any distributions taken must be paid immediately to the beneficiary — who must be an individual. The trust can be drafted to give the trustee the power to take only minimum distributions or distributions more than the minimum.  

The second type of trust is a qualified accumulation trust. This trust permits the trustee to accumulate annual minimum required distributions in the trust after the distributions are received from the inherited retirement benefit and is used for beneficiaries that have existing creditor problems to protect the annual distributions from a creditor’s reach. 

If the payment were to be paid to the beneficiary outright, the creditor would be able to take the distribution. This type of trust is also used for a supplemental needs trust for a disabled individual. Since most supplemental needs trusts are intended to protect government benefits, it is imperative that the distributions be permitted to accumulate in the trust.  

Under New York law, for example, the beneficiary (other than supplemental needs beneficiary) can be her own trustee with the power to make distributions to herself for an ascertainable standard of health, education, maintenance and support without subjecting the trust to claims of her creditors. In cases where the beneficiary is unable to act as trustee, because of lack of maturity, irresponsibility or disability, someone else can be named as trustee. Importantly, the trustee will be the “gatekeeper” and take minimum distributions and exercise discretion to take even more from the IRA if needed and permitted by the trust terms.  

By naming a trustee to decide the amount of distributions to be taken, the account holder can rest assured that the IRA savings won’t be squandered. Beneficiaries that are not financially savvy can create tax problems by taking distributions without considering the income tax consequences. Not only will the distributions be taxable, the distribution may put the beneficiary in a higher tax bracket for all their income. 

Retirement funds are often the largest assets in a decedent’s estate and usually given the least amount of consideration. Consideration should be given to naming a retirement trust as the designated beneficiary.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office. 

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