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Nancy Burner

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By Nancy Burner, ESQ.

Nancy Burner, Esq.

Most veterans are not aware of the wide range of benefits they may be entitled to under the United States Department of Veterans Affairs even if they did not directly retire from the military or suffer injuries in the line of duty.

For example, there is a benefit referred to as the improved pension through the Department of Veteran’s Affairs (VA), more commonly referred to as Aid and Attendance Pension (A&A). Assuming you meet the eligibility requirements, the VA permits payments to caregivers (including family members, but not spouses) for care provided to the veteran and/or the spouse.

This benefit is also commonly used for veterans and/or their surviving spouses who reside in an assisted living facility. This monthly benefit can be used along with income in order to prevent the depletion of assets for care services. There are three main requirements to qualifying for Aid and Attendance.

First, the claimant must have served at least 90 days active duty with one day served during wartime. There are specific wartime periods: World War II (Dec. 7, 1941 – Dec. 31, 1946); Korean conflict (June 27, 1950 – Jan. 31, 1955); Vietnam era (Feb. 28, 1961 – May 7, 1975, for veterans who served in the Republic of Vietnam during that period; otherwise Aug. 5, 1964 – May 7, 1975); or Persian Gulf War (Aug. 2, 1990 – through a future date to be set by law or presidential proclamation as well as current Iraq and Afghanistan war veterans). The claimant must have received a military discharge “other than dishonorable.”

Second, the claimant must be declared permanently and totally disabled. The definition for “permanently and total disability” is residing in a nursing home, total blindness, or so nearly blind or significantly disabled as to need or require the regular aid and attendance of another person to complete his or her daily activities. In most circumstances, if the claimant can show he or she requires assistance with at least two activities of daily living (e.g., bathing, dressing, ambulating), the disability requirement is satisfied.

Third and final, the claimant must meet the financial means test. Unfortunately, there is no set financial standard, which can make it very difficult to ascertain if the claimant qualifies for the benefit. As a general rule, the claimant should not have more than $50,000 to $80,000 in net worth excluding the home of the claimant.

Additionally, the claimant must make a showing that his or her monthly unreimbursed medical expenses exceed his or her monthly income. When making this determination, the claimant should add up all of his or her monthly medical costs, including but not limited to the cost of services provided by professional caregivers as well as family members and rent paid to an assisted living facility.

Once all three prongs are satisfied, the veterans and/or spouse can receive this pension. The maximum benefit available for a single veteran in 2017 is $1,794 per month. A widow of a veteran is eligible for a maximum benefit of $1,153 per month in 2017. A married veteran is eligible for $2,127 per month in 2017. A veteran couple is eligible for $2,841 per month in 2017.

It is imperative to understand that currently there is no look-back period for VA planning, which makes asset eligibility and planning possible in most cases. There is planning that can be done in order to qualify the veteran or the surviving spouse for this benefit.

The application process can be lengthy, but the claimant can always seek help from a local accredited VA attorney or through the United States Veteran’s Services Agency, Human Services Division. If the benefits are denied, applicants should be aware that the decision for these claims can be appealed by the veteran and/or the surviving spouse.

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

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Normally, one person is appointed as an agent on a health care proxy.

By Nancy Burner, ESQ.

QUESTION: I recently signed a health care proxy naming my daughter to make health care decisions for me. Is she able to access my medical records and speak to Medicare and my supplemental health insurance company?

ANSWER: It depends on the information your health care agent is attempting to gather. A health care proxy is a document in which you designate an agent to make health care decisions for you in the event you are unable to make these decisions for yourself.

The health care proxy often contains language allowing your health care agent to hire and fire physicians and health care professionals. Federal regulations, specifically HIPAA, or the Health Insurance Portability and Accountability Act, make it difficult for anyone, even a spouse, to obtain any medical information on your behalf absent a properly executed health care proxy.

You must read the health care proxy carefully and make sure the document gives your agent the ability to do exactly what you would like them to do, for example, have access to your medical records. It is also important to note that signing a new health care proxy will revoke the previous health care proxy you may have signed in the past. This is important when you take the time to establish a comprehensive health care proxy and then go to the hospital and sign a very basic health care proxy with the staff at the hospital, which will revoke the comprehensive one you signed previously.

In addition to the health care proxy, you can sign a HIPAA release form, which would allow the individuals listed in your health care proxy access to your medical records. The health care proxy itself may give the same authority; however, the HIPAA release form is a very simple form that is easily recognizable by most hospitals and doctors offices. This can simplify the process to get medical records instead of using the health care proxy.

In order for your agent to deal with Medicare or another health insurance company, even a properly drafted health care proxy is typically not enough. In many circumstances, a durable power of attorney is required in order for a third party to speak with these companies on your behalf. A validly executed power of attorney will allow you, the principal, to designate an agent to act on your behalf and virtually step into your shoes with respect to all of your matters. The HIPAA can facilitate the exchange of information between your health care providers and health insurance companies with your agent.

If you want to ensure that your designated agent has the ability to communicate on your behalf, there are a few steps that you can take now in conjunction with getting your estate planning documents in order. If you are enrolled in Medicare, there is a simple way of getting your agent on file. If you visit https://www.medicare.gov/MedicareOnlineForms/AuthorizationForm/OnlineFormStep.asp, you will be able to fill out an electronic form in order to make sure Medicare will speak to your agent in the event of your incapacity. Additionally, if you have other insurance or supplemental insurance, call the individual company and find out how to get your agent on file.

When a loved one is sick or incapacitated, the family is usually under a lot of stress and needs to deal with multiple agencies. If the authority is already established, it may help to alleviate some of the complications loved ones face. If you have any questions regarding your estate planning documents, you should visit your local elder law attorney.

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.

Being hyperfocused on avoiding probate can be an estate planning disaster. First, what exactly is “probate”? Probate is the legal process whereby a last will and testament is determined by the court to be authentic and valid. The court will then “admit” the will to probate and issue “letters testamentary” to the executor so that the executor can carry out the decedent’s intentions in accordance with the last will and testament.

That usually involves paying all funeral bills, administrative expenses, debts, settling all claims, paying any specific bequests and paying out the balance to the named beneficiary or beneficiaries. Avoiding probate can be accomplished by creating a trust to hold your assets during your lifetime and then distributing the assets at your death in the same manner and sequence as an executor would if your assets passed through probate.

Typically, this would be accomplished by creating a revocable trust and transferring all nonretirement assets to the trust during your lifetime, thereby avoiding probate at your death. Retirement assets like 403Bs, IRAs and nonqualified annuities are not transferred to revocable trusts as they have their own rules and should transfer after death by virtue of a beneficiary designation.

Retirement assets should not be subject to probate. The designation of a beneficiary is vital to avoid costly income taxes if retirement assets name the estate or default to the estate. The takeaway here is that you should make sure that you have named primary and contingent beneficiaries on your retirement assets.

If you name a trust for an individual, you must discuss that with a competent professional that can advise you if the trust can accept retirement assets without causing adverse income tax consequences. Not all trusts are the same.

Avoiding probate can be a disaster if it is not done as part of a comprehensive plan, even for the smallest estate. For example, consider this case: Decedent dies with two bank accounts, each naming her grandchildren on the account. This is called a Totten trust account. Those accounts each have $25,000. She has a small IRA of $50,000 that also names the grandchildren as beneficiaries. She owns no real estate. Sounds simple, right?

The problem is that the grandchildren are not 18 years of age. The parents cannot collect the money for the children because they are not guardians of the property for their minor children. Before the money can be collected, the parents must commence a proceeding in Surrogates Court to be appointed guardians of the property for each child. After time, money and expenses, and assuming the parents are appointed, they can collect the money as guardian and open a bank account for each child, to be turned over to them at age 18. The IRA would have to be liquidated, it could not remain an IRA and the income taxes will have to be paid on the distribution.

I do not know of a worse scenario for most 18-year-old children to inherit $50,000 when they may be applying for college and seeking financial aid, or worse, when deciding not to go to college and are free to squander it however they want.

If the grandparent had created an estate plan that created trusts for the benefit of the grandchild, then the trusts could have been named as the beneficiaries of the accounts and the entire debacle could have been avoided. The point is that while there are cases where naming individuals as beneficiaries is entirely appropriate, there are also times that naming a trust as beneficiary is the less costly option, and neither should be done without a plan in mind.

When clients have a large amount of assets and large retirement plans, the result can be even more disastrous. Consider the case where a $500,000 IRA names a child as a direct beneficiary. If a properly drawn trust for the benefit of the child was named as beneficiary, there would be no guardianship proceeding and the entire IRA could be preserved and payments spread out over the child’s life expectancy, amounting to millions of dollars in benefits to that child over their lifetime. If payable directly to the child, there will be guardianship fees and the $500,000 will likely be cashed in, income taxes paid and the balance put in a bank account accruing little interest and payable on the 18th birthday of the beneficiary.

The concern is that individuals are encouraged to avoid probate by merely naming beneficiaries but with no understanding of the consequences. At a time when the largest growing segment of the population is over 90, it does not take long to figure out that the likely beneficiaries will be in their 60s, 70s or older when they inherit an asset.

Thought must be given to protecting those beneficiaries from creditors, divorcing spouses (one out of two marriages end in divorce) and the catastrophic costs of long-term care. Whether the estate is large or small, most decedents want to protect their heirs. A well-drafted beneficiary trust can accomplish that goal.

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.

As you may know, Medicare will pay for a patient to receive rehabilitation in a facility if they have a qualifying stay in a hospital: being admitted to the hospital for two nights. The first 20 days of rehabilitation are completely covered by Medicare. The 21st through the 100th day will have a co-payment of $161 per day. This co-payment may be covered by a Medicare supplemental plan.

However, it is important to note that while there is a potential to receive 100 days of rehabilitation, it may be determined that rehabilitation is no longer needed and the discharge will be set up.

The facility is required to give written notice that they believe Medicare will no longer cover the patient. This comes as a “Notice of Medicare Non-Coverage.” This notice gives the patient the right to appeal the decision. In order to make an effective appeal, it is important to know the appropriate standard that the law requires the facility use in making a determination.

That standard was inconsistent with Medicare regulations. The true standard is whether the patient needs the rehabilitation to maintain activities of daily living.

In 2011, a federal court case was decided on this issue. In that case, Medicare skilled nursing service recipients challenged the failure to improve the standard. The settlement agreement by the parties rejected the failure to improve the standard and stipulates that the standard for terminating services is not whether the patient’s condition is likely to improve but rather whether the condition will worsen if services are terminated.

Therefore, skilled services should be continued so long as skilled therapies are needed to maintain the patient’s ability to perform routine activities of daily living or to prevent deterioration of the patient’s condition. This represents the current legal standard for denying skilled nursing coverage under Medicare.

Even though this issue was settled by the courts years ago, many patients are finding it is not being followed by facilities. It is important for the patient and their advocates to know the proper standard so they can make an appropriate appeal.

On Feb. 2, 2017, a new federal court decision stated that the standard is established but it is not being adhered to by facilities. The decision is forcing an educational campaign to be enacted so professionals at facilities and individual Medicare recipients are aware of the appropriate regulations. The plan will include a Centers for Medicare and Medicaid Services website dedicated to this issue and the explanation of the appropriate standard.

Receiving the maximum amount of rehabilitation days possible is the right of all Medicare recipients.

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.

For many, the question of how to best care for our aging loved ones becomes a reality sooner than we think. Most people, when given the option, would prefer to age in place, remain in their homes for as long as possible receiving the care services they need in a familiar setting surrounded by family. For many, the Community-Based Long-Term Care Program, commonly referred to as Community Medicaid, makes that an affordable and therefore viable option.

Oftentimes we meet with families who are under the impression that they will not qualify for these services through the Medicaid program due to their income and assets. In most cases, that is not the case. Although an applicant for Community Medicaid must meet the necessary income and assets levels, it is important to note that there is no “look back” for Community Medicaid. What this means is that for most people, with minimal planning, both the income and asset requirements can be met with a minimal waiting period, allowing families to mitigate the cost of caring for their loved ones at home.

An individual who is applying for Medicaid Home Care may have no more than $14,850 in nonretirement liquid assets. Retirement assets will not be counted as a resource so long as the applicant is receiving monthly distributions from the account. An irrevocable prepaid burial fund is also an exempt resource. The primary residence is an exempt asset during the lifetime of the Medicaid recipient; however, if the applicant owns a home, it is advisable to consider additional estate planning to ensure that the home will be protected once the Medicaid recipient passes away.

With respect to income, a single applicant for Medicaid is permitted to keep $825 per month in income plus a $20 disregard. However, if the applicant has income that exceeds that $845 threshold, a pooled income trust can be established to preserve the applicant’s excess income and direct it to a fund where it can be used to pay his or her household bills.

These pooled trusts are created by not-for-profit agencies and are a terrific way for persons to take advantage of the many services available through Medicaid Home Care while still preserving their income for use in meeting their monthly expenses.

Functionally, the way that these trusts work is that the applicant sends a check to the fund monthly for that amount that exceeds the allowable limit. Together with the check, the applicant submits household bills equal to the amount sent to the trust fund. The trust deducts a small monthly fee for servicing these payments and then, on behalf of the applicant, pays those household bills.

As you can see, this process allows the applicant to continue relying on his monthly income to pay his bills and, at the same time, reduce his countable income amount to the amount that is permitted under the Medicaid rules. An individual who is looking for coverage for the cost of a home health aide must be able to show that they require assistance with their activities of daily living. Some examples of activities of daily living include dressing, bathing, toileting, ambulating and feeding. In fact, where the need is established, the Medicaid program can provide care for up to 24 hours per day, seven days per week.

The Community-Based Medicaid Program is an invaluable program for many seniors who wish to age in place but are unable to do so without some level of assistance.

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

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By Nancy Burner, Esq.

In December 2014 the federal government passed a law known as the Achieving a Better Life Experience Act, also known as the ABLE Act. This law allows family members of a disabled person to create an account that is exempt from federal income tax to be used for certain “qualified expenses” related to the person’s disability. This act is created under the same provisions of the tax code as 529 plans for college savings although they have different rules governing the plans.

Unlike the college savings plans, the beneficiary of the New York ABLE Act accounts must have been deemed disabled prior to 26 years old. If a beneficiary is entitled to Supplemental Security Income (SSI) or Social Security Disability Income (SSDI), they are automatically eligible. However, if they are not entitled to these sources of income, there are other methods of proving disability that will establish eligibility. The account can be created by any person, and the owner can be the beneficiary or their parent, legal guardian or representative of that beneficiary.

However, it is important to note that there is a maximum contribution of $14,000 annually, the federal gift tax exemption amount. Each beneficiary can only have one ABLE account created for their benefit. This could create an unintended tax liability if there is no coordination among the persons that wish to contribute to the account. ABLE accounts are meant to supplement the government benefits that a disabled person is receiving. In New York, ABLE account funds are not counted as a resource at all for Medicaid eligibility for the disable beneficiary of the account. For an individual who is receiving SSI, the account is not considered a resource as long as it is below $100,000.

The benefit of having an account like this is that the disabled individual can access the account on their own without requesting a distribution from a trustee as they would have to do with a supplemental needs trust. The accounts can be used to pay for “qualified expenses,” including but not limited to education, transportation, training, legal fees, etc. The expense must be one that is related to the person’s disability and provides them with a resource that will improve their health, independence or quality of life. If the funds are misappropriated to an expense that does not fall into this category, there is a 10 percent penalty and the full amount of the nonqualified expense will be deemed an available asset for Medicaid or SSI eligibility purposes.

Upon the death of the account beneficiary, there is a payback to the Medicaid program for services rendered. This payback includes services to the beneficiary starting on the date the account was created. If a beneficiary received services for 20 years before the account was created, there is no payback to Medicaid for the prior 20 years of services.

The ABLE Act provides a new and creative vehicle for disabled persons to have access to additional assets while maintaining their government benefits. However, these accounts are, in most cases, a supplement to traditional planning for persons with disabilities. If a beneficiary has multiple persons that wish to leave assets to them that may exceed $14,000 per year in contributions or $100,000 in total, a supplemental needs trust will be more beneficial than the ABLE account. Money that is contributed to a disabled person from a third party can go into a trust that does not require payback to the Medicaid program. If funds are given outright to the disabled person who subsequently places it into a trust, this is considered a first-party supplemental needs trust and it also requires a payback to Medicaid.

New York State signed the ABLE Act into law in December 2015. However, these accounts are not yet available to New York State residents. While the state says they may be available at the end of 2016, there is no set date for the program launch.

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

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By Nancy Burner, Esq.

While discussing an estate plan with a client, she stopped me and said “What is probate.” Sometimes we forget to explain the simplest concepts. Probate is the process by which a last will and testament is given effect. Under New York State Law, a will is admitted to probate after the executor files a Petition for Probate with the decedent’s will attached and gives proper notice to the individuals that would have inherited from the decedent had the decedent died without a will. The proceeding for the probate of a will takes place in the Surrogate’s Court in the county where the decedent resided at the time of his or her death. The probate proceeding gives the interested parties (distributees) the right and opportunity to object to the probate of the will.

Typically, we advise that a client that creates a will consider if there are any circumstances that will make the probate proceeding an expensive one. For instance, is any distributee being disinherited? If so, that disgruntled distributee may come to Surrogates Court and object to the will. The litigation objecting to a will can be long and drawn out — and expensive as well. Are there missing heirs that must be found before the will can be probated? If so, it could be very expensive and time-consuming to find all the individuals that are required to be given notice and an opportunity to object. Is there real property owned by the decedent in different states? If so, then the will would have to be probated in each state. If any of these circumstances exist, you may want to avoid probate altogether.

We also suggest avoiding probate if you are the surviving spouse and your spouse is or has received Medicaid benefits. Medicaid has a lien against the spouse’s estate for any Medicaid benefits paid for the other spouse within 10 years of the death of the surviving spouse.

Another reason to avoid probate is if you have a disabled beneficiary as the Surrogate’s Court may appoint a guardian ad litem to protect that person’s interest. That could be another delay and cost to the estate.

The next question to consider is how do you avoid probate? One way to avoid probate is to name beneficiaries on all your accounts. But I rarely, if ever, suggest that a client resort to this solution without first considering the consequences. First, it may not be possible to name beneficiaries on all your accounts. What if your beneficiaries are minor’s or disabled? If that is the case, the minor or disabled beneficiary would have to have a guardian appointed to collect the bequest. This is also timely.

For minor’s, the guardian would have to put the money in a bank account, earn little or no interest and turn the money over to the beneficiary when he or she turned 18. If the account was a retirement account, the result is even harsher. The IRA or other retirement account would have to be liquidated, all income taxes paid and then put into a custodial account at a bank, earn little interest and then be paid to the beneficiary at age 18.

Most clients, when given the choice, would rather protect their heirs from divorcing spouses, Medicaid liens, creditors and taxes than avoid probate. We can protect beneficiaries by having their assets paid to trusts. This can be done in a will (and probate) or by avoiding probate altogether by using a revocable trust.

The important point here is that it is a mistake to make the avoidance of probate the overriding consideration when embarking upon an estate plan. Not everyone needs a revocable trust, but some people will be well served by using a trust, if the circumstances make probate impractical.

One size does not fit all. A successful estate plan takes all factors into consideration. In a world where people are computer savvy and everything is available on the internet, it is easy to believe that you can just do it yourself. The fact is attorneys are called counselors at law for a reason. 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 Nancy Burner, ESQ.

Many people who own real property, whether it is a family home or a vacation home, have a common estate planning goal: protect the house and transfer it to the next generation.

One way to transfer real property to your beneficiaries during your life is to execute a deed with a life estate. For the owner, this means that you will retain the right to live in the home until your death, but upon your demise, the property will be fully owned by your beneficiaries. Because you retained a lifetime interest in the property, you would still be able to claim any exemptions with respect to the property.

There are several benefits to executing a deed with a life estate. First, it is easy and relatively inexpensive. Because the property is a transfer, it will start the look-back period for Medicaid. For nursing home care, the transfer must be more than five years prior to your application for coverage. There is no look-back period for home care, so the property would be considered “unavailable” in the month after the transfer. Moreover, when you pass away, the beneficiaries will get a “step-up” in basis that will eliminate or lessen capital gains tax due if they did sell the property. 

However, the negative aspects to this kind of transfer typically outweigh its benefits. The first is loss of control. Once you have transferred the deed to your beneficiaries, they own it. If you wanted to sell the property or change who received it, you would have to get the permission of those to whom you initially transferred the property. If one of your beneficiaries dies before you, their estate will own a piece of your house. If their estate pays to their spouse, you could have in-laws owning your property when you would have preferred that share to go to the decedent’s children.

Lastly, if the property is sold during your lifetime, you may incur a capital gains tax. When a person sells their primary residence, they receive a $250,000.00 exemption, which means that a tax would only be imposed if the gain on the property was more than $250,000.00. However, when your ownership interest is a life estate, you do not get the full $250,000.00 and therefore may inadvertently incur a tax. For Medicaid purposes, if the house is sold, your interest in the property will be valued and what was once an exempt asset will convert to cash. If this cash amount plus what you already have exceeds the Medicaid asset limit, currently $14,850.00, you would be ineligible for Medicaid.

Another way to transfer real property at death is to create a last will and testament with specific provisions with respect to that property. For instance: “My Executor shall distribute my real property located at 1 Smith Street, Smithsville, New York, to my children, in equal shares.” This means that upon your death, your executor would probate your will in Surrogate’s Court and once they receive approval from the court, they could effectuate the transfer to your children as desired.

The benefit to this kind of planning is that you retain complete control over the property until your death. The downside is that it provides no asset protection and your beneficiaries would have to wait until the probate process is completed before they received the real property.

Moreover, any disinherited heirs would have the opportunity to object to your will. If you have children and are treating them equally, then this would not be a concern, but for those who are treating children unequally or for those who do not have children and are leaving property to a nonfamily member, a traditional will may not be the best option.

The last way to devise real property is through a trust. While there are many different types of trust, for the purposes of this article we can divide them into two categories: revocable vs. irrevocable trusts. A revocable trust allows the creator to maintain complete control over the property in the trust, whereas an irrevocable trust typically limits your access to the property and forces you to designate someone other than yourself (or your spouse) as the trustee. All trusts avoid the probate process. Similar to a will, the property would continue for your benefit during your life and would not transfer to the beneficiaries until after your death.

In addition to avoidance of probate, irrevocable Medicaid trusts protect the property in case you need Medicaid to cover the cost of long-term care in the future as transfers to irrevocable Medicaid trusts begin the five-year look-back period even though you maintain control over the asset. This control is in the form of the ability to change your trustee and your beneficiaries any time. The house can be sold at any time and a successor property purchased without incurring any negative tax consequences.

The biggest negative to the trust is the cost to set it up. Typically, attorneys charge more to prepare a trust than a simple will or deed transfer.

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

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By Nancy Burner, Esq.

The Question:

My mom has been a recipient of Community Medicaid. As her condition is deteriorating, it is apparent that she will require long-term care in a nursing facility. I have heard that her Community Medicaid will pay for the nursing facility. Is that correct?

The Answer:

No, Community Medicaid will not pay for long-term care in a nursing home. Community Medicaid is the program that covers care at home; such has a personal care aide. Chronic Medicaid is the program that covers nursing home care. The requirements and application process for Community Medicaid and Chronic Medicaid are very different. An individual is unable to receive both Community and Chronic Medicaid simultaneously, so it is important to know the differences and make sure you have the correct Medicaid in effect.    

For 2016, an individual applying for Community Medicaid can have no more than $14,850, not including their home, in resources and no more than $845 per month in income. Qualified funds such as IRAs or 401(K)s are exempt, but the applicant is required to take periodic distributions that are counted as income each month.

While these limitations may seem daunting, the good news about Community Medicaid is that there is no look-back period and the individual can opt to use a pooled trust to preserve any excess income above the $845. That means someone looking to get care at home can transfer assets and set up a pooled trust in one month and be eligible for Community Medicaid in the following month.

This is much different than Chronic Medicaid. For 2016, an individual applying for Chronic Medicaid can have no more than $14,850 in resources, including a home, and no more than $50 per month in income. There is no pooled trust option to protect the excess income.

Like Community Medicaid, qualified funds such as IRAs or 401(K)s are exempt, but the applicant is required to take periodic distributions that are counted as income each month.

Chronic Medicaid has a five-year look-back. The look-back refers to the period of time that the Department of Social Services will review your assets and any transfers that you have made. To the extent that the applicant has made transfers or has too many assets in their name to qualify, they will be ineligible for Medicaid.

However, there are some exempt transfers that the applicant can make that will not render them ineligible. If transfers were done in order to qualify the individual for Community Medicaid, those same transfers may pose an issue for a Chronic Medicaid application. 

Due to the differences in Community and Chronic Medicaid requirements and regulations, it is imperative to consult with an expert.

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

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By Nancy Burner, Esq.

The typical Medicaid trust is a grantor trust for income and estate tax purposes. The grantor trust rules came about after high earners tried to lower their income tax consequence by scattering their income to various trusts over which they maintained control. By spreading their income out, the earners were subject to the lower tax brackets since each trust was considered a separate entity, rather than all the income being taxed to one individual.

Eventually, the IRS caught on to this technique and the grantor trust rules were born. The grantor rules state that if the grantor, that is, the creator of the trust, maintains certain “strings” of control over the trust, such as the right to principal or the right to change the beneficiaries, then all the income from said trusts must be reported on the grantor’s individual tax return.

In addition, the IRS imposed compressed tax rates for trusts. For instance, in 2016 once the income of a trust exceeds $12,500.00, the trust is taxed at the highest tax bracket of 39.6 percent. An individual would have to earn $415,050 to reach that rate. Similarly, a trust can be a grantor trust for estate tax purposes. This would mean that despite the fact that the grantor transferred assets to an irrevocable trust during their life, if they retain certain rights under the terms of the trust, the assets are still includible in their estate for estate tax purposes.

While this combination of new rules from the IRS does not help to lower income or estate tax, it provided for the perfect vehicle for Medicaid planning. Nursing Home Medicaid imposes a penalty for any transfers made within the 5 years prior to the date of the application. If assets are transferred to a trust, the trust must be irrevocable and must provide that the grantor has no right to principal in order for Medicaid to consider the asset unavailable for eligibility purposes. Individuals interested in Medicaid planning were anxious to protect assets but did not want to give up complete control of their assets, nor did they want to incur any negative tax treatment. The grantor trust rules solved those concerns.

While Medicaid does prevent the trust from returning principal to the grantor, the grantor can still receive any income earned in the trust, can retain the right to reside in any real property in the trust and can change the trustee or beneficiaries at any time.

Moreover, because the grantor retains the right to reside in any real property in the trust, the grantor is still entitled to any real property tax exemptions and still receive their $250,000 capital gains exemption if the property is sold.

As mentioned above, if properly drafted, a grantor trust will provide that any income generated within the trust will be reported on the creator’s individual tax return, thus eliminating the possibility of a compressed tax rate.

Additionally, since the assets are still includible in the grantor’s estate when they pass away, there will be a 100 percent step-up in cost basis equal to the fair market value as of the date of their death. This means that if a grantor purchased her home for $30,000.00 in 1980, the property will be re-assessed upon her death to the fair market value. Therefore, when the beneficiaries sell the property there will be no capital gains tax incurred.

Not all trusts are created equal. If you are considering a Medicaid trust, consult with an elder law attorney in your area to learn more.

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

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