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\nFor most of us, our home is our one prized asset. Especially when we get to a certain age, this place becomes our identity, a place where we can \u201cfeel\u201d independent \u2013 physically, financially, emotionally & even socially, as we are surrounded by our friends, many of whom moved into the neighborhood when we did. Therefore, it is natural for us to consider this one thing of value that we can pass down to our children one day.<\/p>\n
However, just one health event impacting a person\u2019s Activities of Daily Living (ADL\u2019s) could leave him or her helpless. They would either need to obtain the services of a home health care agency (for help at home) or move to an assisted living or nursing home \u2013 all of which comes with skyrocketing costs that will likely deplete any middle class family\u2019s assets depending on how long the person lives. Families would then be compelled to either sell the home or worse, lose it to the government because of something called \u201cMedicaid recovery\u201d.<\/p>\n
To better understand how and when the above 2 situations could play out, it is important to have a basic understanding of the Medicaid program that supports the Aged, Blind and Disabled with its Medicaid Managed Long Term Care Services and Supports. The program services those individuals who are unable to perform 3 out of the 6 ADLs (Clinical Eligibility). However, once Clinical Eligibility is established, they must pass the Financial Eligibility test. This is a little more complicated. The government puts people into 3 different categories \u2013 those who are wealthy and have the means to privately pay for any long term care event on their own; those who are very poor (at or below the government\u2019s threshold) and need the government\u2019s help now to pay for such care and finally, those who are part of the middle class who are neither too poor to meet the government\u2019s threshold nor too rich to pay for this on their own. As a result, the devastating costs of long term care could wipe out any modest savings they may have accrued over the years.<\/p>\n
In determining financial eligibility, it is important to know that Medicaid treats income differently than assets (or resources). If the gross monthly income exceeds a certain income limit, an individual can establish and fund a Qualified Income Trust or QIT with the excess income that is above the limit and still qualify for Medicaid. However, for asset limits, barring certain exempt assets (like the home), an individual cannot have even a dollar more than the $2k threshold at the time of submitting the Medicaid application or this individual will be considered over-resourced. Therefore, these individuals have to \u201cspenddown\u201d their assets to Medicaid\u2019s thresholds in order to qualify for such benefits.<\/p>\n
At the time of this article, an individual living in New Jersey(1<\/em>) is allowed an income cap of $2,829 per month and less than $2k in assets\/resources. Added to this limitation, the Medicaid agency will also look back 5 years from the date of the application to see if any assets were transferred out of the individual\u2019s name as a possible gift. All gifts would be totaled up and a penalty assessed based on a formula and this in turns translates to a penalty period when Medicaid benefits will not be paid out until the penalty period has passed.<\/p>\n However, once an individual is approved for Medicaid and the benefits commence, a lien starts accruing on his or her estate. Upon the death of the Medicaid recipient, the government \u201crecovers\u201d what it spent on the individual during lifetime from any exempt assets that may be in the individual\u2019s estate. If there are none, there is no recovery but if there is a home in the estate, then the government\u2019s lien must be satisfied before money gets paid out to the family. If the lien amount is significant (which it usually is), many families do not get to see the home or any of the proceeds from the sale, because it all has to get paid back to the government.<\/p>\n While there are several exceptions and exemptions from the above, this article focusses on the middle class who may have some opportunity to plan ahead with the use of trusts to ensure that at the very least, they may be able to protect their home from being subject to Medicaid recovery.<\/p>\n Before we delve into the specifics of how these trusts work, know that not all trusts are made equal. There are several types of trusts(2)<\/em> but in this article we are discussing a specific type of trust that can hold the primary residence and it is set up as an Irrevocable Living Grantor Trust. Grantor Trusts are trusts where the Grantor (also known as the Settlor or Trustor) continues to be responsible for any income tax and capital gains tax generated from the trust assets during his or her lifetime but has no ownership rights over the trust assets from an estate\/gift tax standpoint or for Medicaid liability purposes. Additionally, with some sophisticated drafting techniques, we can also ensure that the home gets preferential capital gains tax treatment both during the lifetime of the Grantor as well as upon death. This then makes these trusts an invaluable planning technique for many middle class families seeking to protect their one prized possession.<\/p>\n To quote Justice Bracken: In the matter of [Kashmira] Shah, 257AD2d275, 282-283, supra<\/em><\/p>\n (1) Although Medicaid is a federal program, it is state run and each state has its own twist to the program which residents need to be familiar with and abide by
\n\u201cThe complexities [of the law] should never be allowed to blind us to the essential proposition that a man or a woman should normally have the absolute right to do anything he or she wants to do with his or her assets, a right which includes the right to give those assets away to someone else for any reason or for no reason. We would only amplify this by saying that no agency of the government has any right to complain about the fact that middle class people confronted with desperate circumstances choose voluntarily to inflict poverty upon themselves when it is the government itself which has established the rule that poverty is a prerequisite to the receipt of government assistance in the defraying of the costs of ruinously expensive, but absolutely essential, medical treatment.\u201d<\/p>\n
\n(2) For a detailed explanation of the various types of trusts, refer to our article on Wills vs. Trusts here<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"... continue reading<\/a>.","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/posts\/2119"}],"collection":[{"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/comments?post=2119"}],"version-history":[{"count":11,"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/posts\/2119\/revisions"}],"predecessor-version":[{"id":2138,"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/posts\/2119\/revisions\/2138"}],"wp:attachment":[{"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/media?parent=2119"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/categories?post=2119"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/estateelderplanning.com\/wp-json\/wp\/v2\/tags?post=2119"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}