1. New and unified estate tax, gift tax and generation-skipping transfer tax exemption rates have been set.

Without the ACT, the federal estate tax exemption would have fallen back to the 2001 level of $1 million and the estate tax rate for estates valued over this amount would have maxed out at 55%.  The ACT changes that.  For the years 2011 and 2012, the federal estate tax exemption will be $5 million and the estate tax rate will be maxed out at 35%.  An estate tax exemption is the amount of money you can own at death before the federal government will tax the remaining assets.  In 2009, the exemption rate was $3.5 million.  In 2010, the estate tax exemption was repealed such that no estate tax was owed to the federal government regardless of the amount of money with which you passed away.  The new $5 million estate tax exemption rate is obviously better than the $3.5 million rate in 2009, but is not as advantageous as the 2010 unlimited exemption amount.  However, it will still be an attractive exemption amount for many of you with estates totaling under $5 million.

In addition to the return of a limited estate tax exemption, the estate tax has also become unified with federal gift and generation-skipping transfer taxes such that the gift tax exemption and generation-skipping tax exemption are also $5 million each and the maximum tax rate for both of these taxes is also 35%.  The gift tax exemption is the amount an individual can gift over his or her lifetime and not pay a gift tax.  The gift, if over $13,000 per person, per year, must be recorded with the IRS, but no immediate tax consequences will occur.  At the same time, however, if you gift during your lifetime, your estate tax exemption will be reduced by the same amount.  For example, if you gift $2 million in 2010 and pass away in 2011, your estate tax exemption will only be $3 million instead of the whole $5 million.  The same is true for the generation-skipping tax which is applied if you skip a generation (i.e. give gifts directly to your grandchildren or great grandchildren.)

2. “Portability” of federal estate tax exemption for married couples.

Perhaps even more advantageous is the advent of “portability” of the federal estate tax exemption.  Prior to the ACT, couples wanting to take advantage of each of their federal estate tax exemption amounts needed to undergo specific estate planning that allowed them to capture their exemption amount before leaving their spouse their estate.  Tools such as Credit Shelter Trusts and “AB Trusts” were needed to accomplish this goal.  Under the ACT, no such planning is needed.  The new $5 million exemption per person is portable between spouses so your spouse will automatically pass on her exemption amount.  In other words, married couples can now pass on to their children $10 million free from any federal estate tax even without sophisticated estate planning documents.  Portability applies to lifetime gifts as well as to assets that pass through an estate plan.

3. Does the ACT affect Medicaid Planning?

You should note that the ACT does not affect the advantages of Irrevocable Medicaid Trusts that are designed to protect assets from creditors while allowing a person to qualify for Medicaid.  Those trusts are still very much needed if you want to hedge against the risk of losing your hard earned savings or your home to exorbitant long term health care costs.  Remember that pre-planning for Medicaid requires that transfers of assets be done 5 years prior to applying for Medicaid benefits.  Moreover, trusts remain a good tool for privacy, avoiding probate, and insuring that children from prior marriages are provided for even if you pass away before your current spouse.

Finally, many estate planning issues still remain.  The ACT is only in effect through 2012, at which time the entire system will be revisited yet again.  Furthermore, although the federal exemption amounts have risen to $5 million per person, the New York State estate tax exemption is still $1 million.  Proper estate planning is still essential to save taxes on both the state and federal estate tax levels if you exceed the exemption thresholds.

We at the Law Office of Craig A. Andreoli, P.C. are cautiously optimistic about the ACT until we see how the IRS starts applying the new laws in practice.  It is our pleasure to keep you informed and up to date on current happenings in estate planning.  If you want more information about the ACT and whether or not the ACT directly affects you and/or your spouse, please feel free to contact us.

As my grandmother grew older, my parents moved her and my Aunt Lucy out to Long Island.  Shortly after that, my grandmother was diagnosed with Alzheimer’s disease.  She struggled with it for 12 years.  The severity of the disease started out small, but rapidly affected her health and memory.  At the onset of the disease, my Aunt Lucy cared for my grandmother exclusively.  During the last 5 years of the disease, however, when the task of caring for my grandmother became too great for one person, a   team of aides was brought in to give her “around the clock” care.  Since my grandmother had never sought the advice of an Elder Law attorney before she became ill, nor did my Aunt Lucy seek such advice when my grandmother became ill, the choice was made to use my grandmother’s hard earned savings to privately pay for her health care needs.   That pretty much wiped out all of my grandmother’s hard earned savings.

During one of my last conversations with my grandmother, she asked “who are you?” before she stopped mid sentence and pointed out the window.  She saw an angel.  My grandmother was upset that I did not see the angel.  The angel might have actually been there, calling for my grandmother, because she passed away soon thereafter, but I don’t think an angel would have allowed my grandmother’s circumstances to cause her family such stress and pain.

My parents, who did not need my grandmother’s money, never insisted on having my grandmother pursue proper estate planning.  After 12 long years, my grandmother had nothing left.  It all went to her medical care.  In all my life, I have never met a person, who before getting sick, was as generous as my grandmother.  She always showered her children and grandchildren with gifts, and more importantly, love and affection.  At the end, she had neither to give.

What if she had estate planning in place?  What might have been different?  First, she could have saved most or all of her assets had she not needed to pay out of pocket for her long term health care.  Second, she could have left those remaining assets to the person who made the biggest difference in her life, my Aunt Lucy, who devoted her entire life to care for her and her family.  If someone was deserving of my grandmother’s hard earned savings, it most certainly was my Aunt Lucy.  However, even if there were assets left to give, my Aunt Lucy would not have been a beneficiary because my grandmother had no Will.  Without a Will, all of my grandmother’s assets would have gone to her living children, even though her children were financially secure and did not need the money.  Finally, my family could have suffered a lot less grief and worry had my grandmother’s wishes regarding her finances and advanced health directives been set forth in proper estate planning documents.  Lesson learned….take care of your affairs while you are in good health.  Don’t leave matters to chance!

Family Dynamics

To understand the 5 Secrets to Obtaining Medicaid Benefits in New York State, you must first understand the answer to the question…. Why would I ever need Medicaid?

There are only 3 ways to pay for Long Term Health Care.

1. Private pay: Reach into your pocket every month and pull out the $12,000 plus nursing home fee.  If you are fortunate enough to afford such a luxury, you probably do not need to think about Medicaid planning.
2. Long Term Health Care Insurance: You can privately insure yourself against having to pay the full cost of nursing home fees.

However, the premiums for such policies tend to be significant and you must be in good health, in other words, insurable.  Long Term Health Insurance is an excellent option for the small amount of you who fall into this category.

1. Medicaid: Medicaid is a Federal program that will pay for most of your Long Term Health Care needs.  Medicaid is the single largest payer of Long Term Health Care in the country.

Chances are, Medicaid is the right choice for you.  However, you need to know the rules of Medicaid to successfully have them pay for your Long Term Health Care needs.  Those rules can be maddening to understand, so we thought it would be an excellent idea to try and simplify them for you.  Look for my Next Blog “The Rules of Medicaid” for the answers.

Medicaid is a means tested-program.  In short, it means that you must be poor.

What does poor mean in terms of Medicaid?  It means that you can only have a certain amount of money and possessions (called Resources) in your name.  It also means that your well spouse (a/k/a Community spouse) can only have a certain amount of Resources in his or her name.

In addition, depending on the type of Medicaid benefits you receive, Medicaid will only let you, and your spouse, keep a portion of your income.  The break down looks like this for 2009, and appears will be the same for 2010.

The institutionalized person (person in a nursing home) can only have:

• Resources: – maximum of $13,800 of non-exempt assets.
• Income Level: $50 per month.

The Community spouse (healthy spouse) is allowed to keep:

• Resources: – minimum of $74,820 and a maximum of $109,560.
• Income Level: – $2,739 of the couple’s combined income.

If the couple’s or institutionalized person’s resources exceeds $74,820 or $13,800, respectively, then the excess normally must be spent on the cost of the Long Term Health Care before Medicaid eligibility can be established.

Anything above the Resource level may cause the Department of Social Services (the government organization that oversees the Medicaid program at the County level) to deny your Medicaid application or force you to contribute towards your health care.

Can I transfer assets out of my name to drop down to those Resource levels?

Yes, but for nursing home care, Medicaid will look back over the 5 years preceding the date of your Medicaid application to see if you transferred assets out of your name.  If it sees a transfer in the last 5 years, they will penalize you.  The penalty is a one month denial of Medicaid benefits for approximately every $11,000 you transferred.  The penalty is there to dissuade you from transferring your assets rather than spending them on your Long Term Health care costs.  My next Blog will reveal the 5 Secrets!

FACT: According to the Agency for Health Care Policy and Research, 4 out of every 10 people over the age of 65, will wind up in a nursing home at some time.

FACT: The average cost of nursing home care on Long Island is approximately $12,000 per month.  That number can even be much higher depending upon the nursing home facility and the required care.

QUESTION: Would you be able to afford those fees should you or a loved one need to be placed in a nursing home?

Medicaid is a Federal program that will pay for most of your Long Term Health Care needs.  Medicaid is the single largest payer of Long Term Health Care in the country.

Chances are, Medicaid is the right choice for you.  However, you need to know the rules of Medicaid to successfully have them pay for your Long Term Health Care needs.  Those rules can be maddening to understand, so we thought it would be an excellent idea to reveal 5 secrets about the Medicaid program.

Secret 1:      No penalty for transferring assets to a spouse. You can legally transfer as many assets as you want to your well or community spouse and not suffer a penalty from Medicaid.  That’s right, you can transfer $1 million if you wish to your spouse, and still successfully apply for Medicaid benefits, so long as you use Secret # 2 along with the transfer.

Secret 2:       Spousal Refusal. In New York State, a well or community spouse can sign a statement refusing to pay for the medical expenses of the institutionalized spouse and Medicaid, in New York, will determine eligibility of the applicant without considering the resources of the community spouse.  This is known as “spousal refusal”.  This will allow for the institutionalized spouse to receive nursing home care services right away and have those services paid for by Medicaid.

Secret 3:       You can legally transfer all your assets away to a disabled child. If you have a child that is receiving Social Security Disability, you can hand over all of your resources to that child, thereby protecting your assets and still have Medicaid pay for your Long Term Health Care immediately. A pretty nifty tool if you fall under this category.

Secret 4:       No look back period for Home Care. If the institutionalized spouse needs only non-nursing or custodial care (ex: toileting, bedding, assistance walking around, etc.), and that care takes place at home…there is no look back period of 5 years.  The look back period is 0 days!  That means you can transfer all your wealth away and the 1^st day of the month following the transfer, you could be eligible for Medicaid benefits. A great option if you are not in need of full blown nursing home care.

Secret 5: Preplan!! The ability to preserve your assets and still have Medicaid pay for your future Long Term Health Care can be greatly increased if you just plan for that in advance.  Plan when you are healthy and the 5 year look back period will not be such a huge obstacle.  With preplanning you will still be able to keep control of your assets and you will avoid having to rely on the first 4 secrets. Transfers can take place to an irrevocable trust, or to other non-exempt recipients not discussed in this article.

Keep in mind that the information contained in this article is a simplification of the extremely complex rules and laws surrounding New York State Medicaid.  By transferring assets to another person or to an irrevocable trust, you can protect all or part of your savings, but often times there can be adverse tax consequences and/or a penalty period of ineligibility.

It is always a wise idea to have the rules and concepts behind Medicaid explained to you by an experienced attorney who concentrates on Medicaid Planning. Furthermore, it is best to consult an attorney before making any transfers on your own.

Call the Law Office of Craig A. Andreoli, P.C. for a complimentary consultation on Medicaid Planning.  We can help advise you as to whether with proper planning you can qualify for New York State Medicaid benefits.

In New York, some of your assets will be distributed pursuant to the terms of your Last Will and Testament and others will not.  Typically, a Will only has the legal capacity to distribute assets such as homes, bank accounts and shares of stock that were only in your name, when you passed away.   Assets that do not typically pass through a Will include jointly held assets or assets that have a named beneficiary such as life insurance, jointly held bank accounts, retirement accounts, and living trusts.  Those types of assets are distributed directly to the named beneficiaries or joint owner without passing through the Will, but are still a part of the taxable estate.

One of the most important reasons why you need a Last Will and Testament is to protect your children in the event you should die while they are still minors.  In your Will you can choose an appropriate guardian to care for them until they reach an age of maturity.  In New York, if you pass away without a Will, the State will appoint a guardian for your children.  Do you really want New York State determining the fate and future of your minor children? 

No minor children?  A Last Will and Testament is also important to have in making distribution decisions.  A Will allows you to tell the world how you wish to dispose of your possessions (house, money, jewelry, etc.) upon your death.  Choose who should be a beneficiary.  Without a Will and your possessions are distributed pursuant to New York State Law.

Moreover, in a Will you can designate the person who you rely on the most to manage the money.  You may want to place it in a trust to be distributed upon your death to whomever you chose and at whatever age you think is appropriate.  This is particularly important if you are trying to insure that your money goes to your children or children from a prior marriage that may not be in line to receive anything if you pass away before your second spouse.

Finally, but not exclusively, having a properly drafted Last Will and Testament in New York can save you and your spouse from paying any unnecessary New York State and Federal estate taxes.  This enables you to pass on more of your hard earned money to the people you love.