December 15, 2019










Community Medicaid in New York State

How to Stay at home and protect your assets and income

In New York, the Community Based Medicaid program will pay for the cost of a home health aide. When applying, the local department of social services considered the applicant’s income and assets and whether the Medicaid applicant requires the assistance with the activities of daily living. The following is a breakdown of how DSS evaluates each for a New York Community Medicaid application.

Activities of Daily Living

An individual over the age of 65 is considered “disabled” and therefore entitled to Community Medicaid benefits if they need assistance with the activities of daily living, These include bathing, dressing, toileting and feeding. For most that are interested in Community Medicaid, this is not a difficult a difficult threshold to reach. Any applicant with the onset of dementia or Alzheimer’s or with physical disabilities that limit their ability to live on their own, is sufficiently “disabled” enough to receive Community Medicaid benefits.

Income

Income is calculated by adding the following: Social Security, Pensions, income from rental properties or other investments, and require minimum distributions from retirement accounts. Under Community Medicaid rules in New York, the Medicaid recipient is entitled to keep $787 per month of their income. The remainder of the recipients income is called a “spenddown”. The Medicaid recipient is required spend the remainder on the cost of the aide. Medicaid will pay the difference.

Most of those who can stay at home will have expenses far exceeding the $787 limit. Medicaid understands this and allows for an exception. The often used exception is called a “Pooled Income Trust”.

Clearly, for many recipients of Community Based Medicaid, loss of income would prevent them from remaining in their homes. Enter the Pooled Income Trust. A Pooled Income Trust is similar to a bank account, however it administered by a Non-profit Trust Company, such as NYSARC Trust Services or AHRC.

If Mr. Smith has a monthly income of $2,787 in Social Security and pension income, and he is receiving Medicaid benefits for home care in her Long Island home, he has $2,000 in “excess income” under the current Medicaid rules. As a result, Mr. Smith is required to send a check each month in the amount of $2,000 to his home care agency as a contribution to the cost of his care.

However, when Mr. Smith joins a qualified pooled income trust, his $2,000 check will be sent to the trust instead of his home care agency. The trust will then be able to pay any of Mr. Smith’s expenses, such as his utilities, his food, or his clothing, from his own funds or even the taxes on his Long Island home. Mr. Smith will continue to receive his Medicaid home care, as well.

The pooled income trust contains the funds of many disabled persons and is managed by a non-profit organization that maintains separate accounts for each individual. In order to participate in the trust, the disabled person (or his representative acting under durable power of attorney) signs an agreement with the trust. Under this agreement, upon the beneficiary’s death, if there are any remaining funds they are kept by the trust.

Those who wish to participate in a pooled income trust will have to establish that they are disabled, but findings of disability by the Social Security Administration or by Medicaid are valid for this purpose.

Assets

For Medicaid purposes in New York, assets include any real property owned by the applicant or savings in the form of money markets, CD’s, stocks, bonds, cash values in insurance policies, and other non-retirement investments. When applying for Community Medicaid in New York, the applicant’s total assets must be under $13,800. Clearly, most individuals in New York City, Queens, Brooklyn, and Long Island, are worth more than $13,800.

Many have heard of a five-year look-back period on asset transfers when applying for Medicaid. It is true that a five-year look back period exists – but only for Institutional Medicaid application where the applicant is residing in a nursing home. When applying for Community Based Medicaid applications in New York, there is no five-year look back. Therefore, an applicant can transfer their assets in month and apply for benefits the following month. The best way to transfer assets can only be determined on a case by case scenario. While in some cases it may be appropriate to transfer assets to other family members, including adult children, in other cases it would more advisable to transfer the assets to an Irrevocable Trust.

Most people are not aware of the eligibility requirements for Community Based Medicaid in New York. This is unfortunate because many individuals who could be eligible are spending down their savings on the cost of a home health aide. Whether an individual requires an aide for the first time (perhaps they are leaving a rehab facility) or have had an aide with them and are paying privately, many can eligible for Community Medicaid benefits with the proper planning.

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Trusts and Taxes

Grantor Trusts

Any Trust which is created by an individual and where the individual transfers assets to the trust and the assets remain in the trust for the lifetime enjoyment of that individual. The Individual is referred to as the Grantor.

Examples of Grantor Trusts and the various Tax implications of each

Revocable Trust – Trust whereby the Grantor reserves the right to revoke any term of the trust during their lifetime. The grantor transfers assets such as property, investments and savings to the trust. The grantor typically names himself and his spouse as Trustee.

  1. Income Taxes– The grantor typically reserves the right to the income that the Trust generates. This includes rental income from property and dividends and interest from investments. As a result any income generated from the Trust is attributed to the grantor. The Tax ID for the Trust can be the social security number of the grantor or they can obtain an EIN from the IRS.It is possible to create a Revocable were the grantor assigns the income of the trust to another individual, such as a child. In this instance, the income is taxed to that beneficiary.
  2. Gift Taxes – Because a revocable trust can be revoked by the Grantor, it is considered an incomplete gift. As such there is no gift tax implications.
  3. Estate Taxes– Assets transferred to a revocable trust are considered to be part of the Grantors estate. Therefore, the value is added to the Grantor’s total estate and used in any estate tax calculation.A revocable trust can include a Credit Shelter provision or QTIP language. In either scenario, the grantor’s assets will pass to a testamentary trust (Credit Shelter Trusts are also disclaimer trusts – meaning that the surviving spouse has to disclaim the assets for them to pass to the trust). The purpose of establishing these trusts is to limit the estate tax liability.

    An example of how it works: Married individuals are worth $5,000,000. If they did not do anything, and one spouse passed away, the surviving spouse would be worth the entire $5,000,000. Upon their passing, the heirs would be responsible for a potentially large estate tax bill.

    By placing assets into a Credit Shelter or QTIP Trust, the assets of the spouse who passes first remain in their estate for tax purpose. The surviving spouse has limited access to those assets, however, the assets do not pass to children until the passing of the second spouse. Because the “disclaimed” assets remain in the estate of the first spouse, the children benefit from the exemptions of each parent. As a result, in the example above, each estate would be values at $2,500,000. Assuming the Federal Estate Tax exemption is $2,500,000, the children would not be responsible for a federal estate tax (there would still be a NY State Estate Tax). However, if they did not plan, assuming the same numbers, the children would be responsible for approximately $1,000,000 in federal estate taxes upon the death of the second parent.

Irrevocable Income Only Trust (IIOT)– Trust whereby the Grantor does not reserve the right to revoke any term of the trust during their lifetime. It is typically done to protect assets against the cost of long term care (home health aide or nursing home)

  1. Income Taxes – The grantor typically reserves the right to the income that the Trust generates. This includes rental income from property and dividends and interest from investments. Often spouses who create a Irrevocable Income Only Trust would create a joint trust. Therefore, an EIN should be requested from the IRS. However, if it is a sole individual, their SSN can be used.
  2. Gift Taxes – An IIOT is also an incomplete gift when the grantor retains an interest income and a limited power of appointment to change the beneficiaries in their Will. No Gift taxes owed.
  3. Estate Taxes – Cannot include Credit Shelter or QTIP language. All assets included in Taxable estate.

Supplemental Needs Trust – Trust whereby the Grantor places assets into a trust for the benefit of a disabled individual.

  1. Income Taxes – New EIN for the Trust is recommended. A tax return will be done for the Trust because the income does not go to the grantor or beneficiary but remains in the trust.
  2. Gift Taxes – When an individual transfers assets to an SNT for the benefit of another individual, they should file a gift tax return if the yearly transfer exceeds $13,000.
  3. Estate Taxes – Included in the estate of the disabled individual.
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Client Case Study: Be Organized, or else

A few months ago, I met with a client who wished to update his Last Will and Testament and learn how to protect his assets against the cost of Long Term Care. He was widowed, had a partner of 10 years and two children from his previous marriage. He was 85 years old. His assets included his primary residence and modest savings, mostly in the form of CD’s.

He wished to leave his assets to his partner and one of his daughters – disinheriting the other daughter. Because of this – and because he wanted to protect his assets – I suggested that he create an Irrevocable Trust. This would help protect his assets in case he had to be placed in a nursing home or require the assistance of a home health aide. More importantly, perhaps, it would allow his estate to avoid the probate process – especially important when disinheriting a child.

Probate is the process of proving the validity of the will and administering the estate. During this process, all children are asked to be involved by consenting to the appointment of the named Executor – including those who are disinherited. Because he wanted to disinherit a child, I thought that the probate process could be difficult for his partner and other daughter.

He decided to take my advise and create a Trust and then transfer his assets to the trust, including the deed to the house. We began the process by drafting and executing the Trust agreement. Unfortunately, he could not find the deed to his house. He took more time to try and locate the deed, but to no avail could not locate it. We eventually found the deed with the assistance of a Title company.

Unfortunately, before we had time to draft and sign the deed, my client passed away. The house, therefore, was not owned by the Trust. Accordingly, the house would pass through the Will, forcing probate. Because the Will states that one of his daughter is not to inherit, we expect there to be a contested proceeding.

It is all too common for individuals not to know exactly where their important documents are located. Whether they be Wills and Trusts, Powers of Attorney and Health Care Proxies, Deeds and Health Insurance information, or a list of bank accounts, it is important that you be organized and know where everything is located so that when the time, comes there are not unnecessary delays that cause unnecessary problems.