Liquidating assets for nursing home. The Homestead and Medicaid Planning.



Liquidating assets for nursing home

Liquidating assets for nursing home

The Homestead as an Exempt Resource For purposes of Medicaid eligibility, a homestead is an exempt resource if it is essential and appropriate to the needs of the household. The amount will be increased, beginning , based on the percentage increase in the consumer price index. A reverse mortgage or home equity loan may be used to reduce the equity interest in the homestead. The limitation shall be waived in the case of hardship.

The homestead includes the home, land, and integral parts of the property such as garages and outbuildings. It may be a condominium, cooperative apartment, or mobile home, but not a vacation home, summer home, or cabin. All property which is contiguous to the homestead is also considered exempt. The homestead of an SSI related applicant-recipient a person who is 65 years of age or older, certified blind, or certified disabled loses its exempt status if the owner moves out of the home without the intent to return, and no spouse, child under 21 years of age, certified blind or certified disabled child, or other dependent relative is living in the home.

When Is a Homestead an Available Resource: Intent to Return Home, below. Otherwise the homestead becomes an illiquid resource. If the SNT holds title to the house, it is not considered a resource of the beneficiary even if the beneficiary moves out of the house. As an equitable owner of the trust, the beneficiary is considered to be living in her own home for purposes of Medicaid and Supplemental Security Income SSI.

The beneficiary of an SNT does not receive in-kind income if she lives in the home because of her ownership interest and her SSI will not be affected if the beneficiary pays rent to the trust.

If the beneficiary lived in the home during the month in which it is purchased either outright or with a mortgage , SSI will treat the home as in-kind income and the SSI benefit will be reduced by a maximum of one-third, for the month of purchase only. Monthly mortgage payments and expenditures for other shelter or household operating expenses made by the trust are also considered as the receipt of in-kind income to the beneficiary.

However, payments for improvements or renovations that improve the value of the home are not considered in-kind income to the beneficiary. Dealing with the Home as an Illiquid Resource Resources which cannot be readily converted to cash such as real estate will nevertheless be considered available resources. New York previously allowed eligibility contingent upon liquidating illiquid resources. This regulation states that the provisions of 18 N.

The issue of a homestead as a resource rarely arises since the institutionalized person usually has a subjective intent to return. However, where there is no intent to return, private pay arrangements with the nursing home will have to be made. Intent to Return Home A person who owns a home and becomes institutionalized will not be eligible for Medicaid unless he or she has an intent to return home.

For this purpose, a subjective intent to return home controls, even if there is no reasonable expectation that the person will be discharged and return home. If the agency prevails after adequate notice is provided and a hearing if requested , a lien can be imposed on the home even if there is a subjective intent to return home. If an institutionalized person is not reasonably expected to return home, the home loses its exempt status.

Liens Against the Real Property of an Institutionalized Person In contrast to the determination whether the home is an available resource, the controlling factor for the imposition of a lien is whether the person is permanently absent and not reasonably expected to be discharged. The local department may not impose a lien on real property unless a person is permanently absent because she resides in a medical institution and is not reasonably expected to be discharged.

In addition, no lien may be imposed on the home of a person receiving Medicaid extended coverage under the Partnership for Long-Term Care Program, after the person has exhausted the coverage and benefits under an approved long-term care insurance policy.

The local Department of Social Services must provide adequate notice and prove at a hearing that the person cannot reasonably be expected to be discharged from the institution and return home. If the person returns home, the lien dissolves. A lien is prohibited against the real property of a person who is permanently institutionalized if one of the following lawfully resides in the home: Exempt and Non-Exempt Transfers of the Homestead No penalty period is imposed on transfers made for full and adequate consideration e.

If a home or other asset is sold for less than fair market value, the uncompensated portion of the transfer is used to calculate the penalty period. The creation of the joint ownership in real property is considered to be a transfer of assets for purposes of Medicaid eligibility and may result in the imposition of a penalty period during which Medicaid will not pay for the cost of nursing home care.

Certain transfers of a homestead are exempt from imposition of a Medicaid penalty period of ineligibility for nursing facility services. The homestead includes the home, land and integral parts such as garages and outbuildings. The homestead may be a condominium, cooperative apartment or mobile home. Vacation homes, summer homes or cabins are not considered to be homesteads. Exempt assets may be transferred without penalty because such a transfer would be exclusively for a purpose other than to qualify for Medicaid.

This, of course, is not the case with a homestead where there is specific legislation as described above limiting the exempt transfers. Transfer of assets will now also effect eligibility for SSI. The law provides for transfer exceptions for the home and other resources similar to those in the Medicaid law. The purpose of Medicaid planning is to preserve assets and establish or maintain eligibility for Medicaid. A guardian may undertake with permission of the Court the exempt transfer of a homestead.

Queens County , was authorized to transfer a home to a son of the incapacitated person, reserving a life estate in the incapacitated person, and to transfer liquid assets to the other children of the incapacitated person, provided sufficient resources were retained to pay for the cost of care during the period of ineligibility. Medicaid estate recovery against a recipient is usually only an issue if the recipient had exempt resources such as a homestead. As stated above, if the Medicaid was otherwise correctly paid, estate recovery in New York is limited to property passing under a valid will or by intestacy and does not include property passing by operation of law such as a trust, or property jointly held with right of survivorship.

No adjustment or recovery against an estate or on a lien may be made until after the death of a surviving spouse and only when there is no surviving minor, blind, or disabled child. There are also provisions for waiver of estate recovery if there is undue hardship. The State may, but is not required to, give special consideration where the estate is the sole income producing asset of the survivors such as a family farm or business with limited income , is a homestead of modest value, or there are other compelling circumstances.

In addition, the Manual authorizes states to reject undue hardship claims if estate planning strategies were used to divest assets in order to avoid estate recovery or the hardship claimed is the inability of a beneficiary to maintain a pre-existing lifestyle. Regulations proposed by the New York Department of Health state that undue hardship may be present where the estate consists of a family farm or business or other compelling circumstances determined on a case by case basis.

The Department of Health has indicated that a waiver may be approved if the estate consists of a family home of modest value and that local Medicaid agencies are obligated to consider claims of undue hardship although regulations have not yet been enacted.

Caution should be taken not to confuse these estate recovery rules with the recovery rights against the estate of a legally responsible spouse. The New York Court of Appeals has analyzed the right of recovery against the estate of a spouse of a Medicaid recipient. Without the ability to pay, the court held that the spouse was not a legally responsible relative under New York Social Services Law Section 3 a. Not having sufficient income is generally considered to have no more than the Community Spouse Resource Allowance and exempt resources such as a homestead.

Limits on Enforcement of a Lien Against a Homestead The amount that may be recovered from enforcement of the lien is limited to the value of services provided while the person was in permanent absence status because the home did not become subject to a lien until the recipient stopped residing there permanently.

See similar provisions involving exempt transfers of a homestead, above. The provisions restraining adjustment or recovery of a lien must be read together with the provisions prohibiting liens and recoveries and the separate provisions governing exempt transfers. A lien is prohibited if a spouse, a minor, blind, or disabled child, or a sibling who has an equity interest in the property resides in the home. The enforcement provisions therefore only apply when a caretaker child resides in the home or, after a lien is placed against real property, a person in one of the protected classes begins to reside in the home.

Anomalously, the local department may therefore have a greater right under estate recovery provisions than through enforcement of a lien when a sibling or caretaker child resides in the house. This may enable the local department to obtain recovery from an estate that includes a house in which a sibling who has an equity interest or a caretaker child resides. Life Estates For many older clients who own their homes, a transfer of the home while reserving a life estate is an attractive Medicaid planning option.

Under the life estate, the grantor has the right to use and occupy the premises, and is responsible for paying costs and expenses in the absence of other directions in the conveyance. From a tax perspective, the reserved life estate gives the donee a stepped-up basis equal to the fair market value of the property at the death of the grantor.

This limits the amount of capital gains tax liability upon a subsequent sale. Only the value of the remainder interest is considered an uncompensated transfer for Medicaid purposes. The life estate is not treated as an available resource, although any rental income or profits received by the life tenant is considered income reduced by applicable costs, expenses and taxes. The life tenant in possession has been considered the property owner for purposes of taxation and tax exemptions under both the veterans and senior citizens tax exemptions.

The Attorney General has stated that the life tenant in possession should be designated the owner for purposes of the assessment rolls and considered the property owner for purposes of taxation and tax exemptions.

Formerly, the beneficial owner of property held in trust was not considered the owner for tax purposes. Therefore placing a home into a revocable living trust may protect it from estate recovery. Unlike a transfer with a retained life estate or a transfer to joint ownership, the transfer to a revocable trust triggers no penalty for Medicaid purposes because it is merely a change in the form of ownership.

It should be noted that it is unclear if all criteria for a Medicaid lien are met, whether a lien could be placed against a homestead in a revocable trust. Although the transfer into the revocable trust is merely a change in the form of ownership, if assets are later gifted from the revocable trust, during the look-back period it would triggera penalty for institutional Medicaid.

Sometimes a homestead is placed into an irrevocable trust. A homestead may also be placed into an irrevocable trust commonly referred to as Medicaid Qualifying Trusts or income only trusts. To the extent principal may be returned to the grantor of a trust, it is considered or deemed an available resource of the grantor. Payments allowed or made to or for the benefit of the grantor are considered available income. The income interest may include any net rental income from the property placed in the trust.

A transfer into an irrevocable grantor trust that prohibits payment of principal to the grantor is subject to the 60 month look back period and will create a penalty period of ineligibility. The transfer of the homestead to such an irrevocable trust would trigger the penalty period. In addition to an income interest, the trust would commonly give the grantor the right to live in real property owned by the trust.

However, unlike a life estate, Medicaid does not allow a reduction in the value of the transfer based on the retained life interest in the trust property. Trusts were commonly used to accomplish transfers of the homestead and provisions such as a testamentary power of appointment were included that would avoid the payment of gift tax.

Provisions for lifetime powers of appointment were also included in order to preserve the homestead exemption from capital gains tax in case the home was sold. Powers of appointment should not effect the validity of the trust for Medicaid purposes. However, changes to the state and federal gift tax law make them unnecessary in most cases. Strategies for the Community Spouse A community spouse may establish at a fair hearing or at a support proceeding in family court that the Medicaid minimum monthly maintenance needs allowance MMMNA is inadequate because of exceptional circumstances causing significant financial distress.

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Liquidating assets for nursing home

The Homestead as an Exempt Resource For purposes of Medicaid eligibility, a homestead is an exempt resource if it is essential and appropriate to the needs of the household. The amount will be increased, beginning , based on the percentage increase in the consumer price index.

A reverse mortgage or home equity loan may be used to reduce the equity interest in the homestead. The limitation shall be waived in the case of hardship. The homestead includes the home, land, and integral parts of the property such as garages and outbuildings. It may be a condominium, cooperative apartment, or mobile home, but not a vacation home, summer home, or cabin.

All property which is contiguous to the homestead is also considered exempt. The homestead of an SSI related applicant-recipient a person who is 65 years of age or older, certified blind, or certified disabled loses its exempt status if the owner moves out of the home without the intent to return, and no spouse, child under 21 years of age, certified blind or certified disabled child, or other dependent relative is living in the home.

When Is a Homestead an Available Resource: Intent to Return Home, below. Otherwise the homestead becomes an illiquid resource. If the SNT holds title to the house, it is not considered a resource of the beneficiary even if the beneficiary moves out of the house.

As an equitable owner of the trust, the beneficiary is considered to be living in her own home for purposes of Medicaid and Supplemental Security Income SSI. The beneficiary of an SNT does not receive in-kind income if she lives in the home because of her ownership interest and her SSI will not be affected if the beneficiary pays rent to the trust.

If the beneficiary lived in the home during the month in which it is purchased either outright or with a mortgage , SSI will treat the home as in-kind income and the SSI benefit will be reduced by a maximum of one-third, for the month of purchase only.

Monthly mortgage payments and expenditures for other shelter or household operating expenses made by the trust are also considered as the receipt of in-kind income to the beneficiary. However, payments for improvements or renovations that improve the value of the home are not considered in-kind income to the beneficiary. Dealing with the Home as an Illiquid Resource Resources which cannot be readily converted to cash such as real estate will nevertheless be considered available resources.

New York previously allowed eligibility contingent upon liquidating illiquid resources. This regulation states that the provisions of 18 N. The issue of a homestead as a resource rarely arises since the institutionalized person usually has a subjective intent to return. However, where there is no intent to return, private pay arrangements with the nursing home will have to be made. Intent to Return Home A person who owns a home and becomes institutionalized will not be eligible for Medicaid unless he or she has an intent to return home.

For this purpose, a subjective intent to return home controls, even if there is no reasonable expectation that the person will be discharged and return home. If the agency prevails after adequate notice is provided and a hearing if requested , a lien can be imposed on the home even if there is a subjective intent to return home.

If an institutionalized person is not reasonably expected to return home, the home loses its exempt status. Liens Against the Real Property of an Institutionalized Person In contrast to the determination whether the home is an available resource, the controlling factor for the imposition of a lien is whether the person is permanently absent and not reasonably expected to be discharged.

The local department may not impose a lien on real property unless a person is permanently absent because she resides in a medical institution and is not reasonably expected to be discharged. In addition, no lien may be imposed on the home of a person receiving Medicaid extended coverage under the Partnership for Long-Term Care Program, after the person has exhausted the coverage and benefits under an approved long-term care insurance policy.

The local Department of Social Services must provide adequate notice and prove at a hearing that the person cannot reasonably be expected to be discharged from the institution and return home.

If the person returns home, the lien dissolves. A lien is prohibited against the real property of a person who is permanently institutionalized if one of the following lawfully resides in the home: Exempt and Non-Exempt Transfers of the Homestead No penalty period is imposed on transfers made for full and adequate consideration e.

If a home or other asset is sold for less than fair market value, the uncompensated portion of the transfer is used to calculate the penalty period. The creation of the joint ownership in real property is considered to be a transfer of assets for purposes of Medicaid eligibility and may result in the imposition of a penalty period during which Medicaid will not pay for the cost of nursing home care.

Certain transfers of a homestead are exempt from imposition of a Medicaid penalty period of ineligibility for nursing facility services. The homestead includes the home, land and integral parts such as garages and outbuildings. The homestead may be a condominium, cooperative apartment or mobile home.

Vacation homes, summer homes or cabins are not considered to be homesteads. Exempt assets may be transferred without penalty because such a transfer would be exclusively for a purpose other than to qualify for Medicaid.

This, of course, is not the case with a homestead where there is specific legislation as described above limiting the exempt transfers. Transfer of assets will now also effect eligibility for SSI. The law provides for transfer exceptions for the home and other resources similar to those in the Medicaid law.

The purpose of Medicaid planning is to preserve assets and establish or maintain eligibility for Medicaid. A guardian may undertake with permission of the Court the exempt transfer of a homestead. Queens County , was authorized to transfer a home to a son of the incapacitated person, reserving a life estate in the incapacitated person, and to transfer liquid assets to the other children of the incapacitated person, provided sufficient resources were retained to pay for the cost of care during the period of ineligibility.

Medicaid estate recovery against a recipient is usually only an issue if the recipient had exempt resources such as a homestead. As stated above, if the Medicaid was otherwise correctly paid, estate recovery in New York is limited to property passing under a valid will or by intestacy and does not include property passing by operation of law such as a trust, or property jointly held with right of survivorship.

No adjustment or recovery against an estate or on a lien may be made until after the death of a surviving spouse and only when there is no surviving minor, blind, or disabled child. There are also provisions for waiver of estate recovery if there is undue hardship. The State may, but is not required to, give special consideration where the estate is the sole income producing asset of the survivors such as a family farm or business with limited income , is a homestead of modest value, or there are other compelling circumstances.

In addition, the Manual authorizes states to reject undue hardship claims if estate planning strategies were used to divest assets in order to avoid estate recovery or the hardship claimed is the inability of a beneficiary to maintain a pre-existing lifestyle. Regulations proposed by the New York Department of Health state that undue hardship may be present where the estate consists of a family farm or business or other compelling circumstances determined on a case by case basis.

The Department of Health has indicated that a waiver may be approved if the estate consists of a family home of modest value and that local Medicaid agencies are obligated to consider claims of undue hardship although regulations have not yet been enacted. Caution should be taken not to confuse these estate recovery rules with the recovery rights against the estate of a legally responsible spouse.

The New York Court of Appeals has analyzed the right of recovery against the estate of a spouse of a Medicaid recipient. Without the ability to pay, the court held that the spouse was not a legally responsible relative under New York Social Services Law Section 3 a.

Not having sufficient income is generally considered to have no more than the Community Spouse Resource Allowance and exempt resources such as a homestead. Limits on Enforcement of a Lien Against a Homestead The amount that may be recovered from enforcement of the lien is limited to the value of services provided while the person was in permanent absence status because the home did not become subject to a lien until the recipient stopped residing there permanently.

See similar provisions involving exempt transfers of a homestead, above. The provisions restraining adjustment or recovery of a lien must be read together with the provisions prohibiting liens and recoveries and the separate provisions governing exempt transfers. A lien is prohibited if a spouse, a minor, blind, or disabled child, or a sibling who has an equity interest in the property resides in the home. The enforcement provisions therefore only apply when a caretaker child resides in the home or, after a lien is placed against real property, a person in one of the protected classes begins to reside in the home.

Anomalously, the local department may therefore have a greater right under estate recovery provisions than through enforcement of a lien when a sibling or caretaker child resides in the house.

This may enable the local department to obtain recovery from an estate that includes a house in which a sibling who has an equity interest or a caretaker child resides. Life Estates For many older clients who own their homes, a transfer of the home while reserving a life estate is an attractive Medicaid planning option. Under the life estate, the grantor has the right to use and occupy the premises, and is responsible for paying costs and expenses in the absence of other directions in the conveyance.

From a tax perspective, the reserved life estate gives the donee a stepped-up basis equal to the fair market value of the property at the death of the grantor. This limits the amount of capital gains tax liability upon a subsequent sale. Only the value of the remainder interest is considered an uncompensated transfer for Medicaid purposes. The life estate is not treated as an available resource, although any rental income or profits received by the life tenant is considered income reduced by applicable costs, expenses and taxes.

The life tenant in possession has been considered the property owner for purposes of taxation and tax exemptions under both the veterans and senior citizens tax exemptions. The Attorney General has stated that the life tenant in possession should be designated the owner for purposes of the assessment rolls and considered the property owner for purposes of taxation and tax exemptions.

Formerly, the beneficial owner of property held in trust was not considered the owner for tax purposes. Therefore placing a home into a revocable living trust may protect it from estate recovery. Unlike a transfer with a retained life estate or a transfer to joint ownership, the transfer to a revocable trust triggers no penalty for Medicaid purposes because it is merely a change in the form of ownership.

It should be noted that it is unclear if all criteria for a Medicaid lien are met, whether a lien could be placed against a homestead in a revocable trust. Although the transfer into the revocable trust is merely a change in the form of ownership, if assets are later gifted from the revocable trust, during the look-back period it would triggera penalty for institutional Medicaid. Sometimes a homestead is placed into an irrevocable trust. A homestead may also be placed into an irrevocable trust commonly referred to as Medicaid Qualifying Trusts or income only trusts.

To the extent principal may be returned to the grantor of a trust, it is considered or deemed an available resource of the grantor. Payments allowed or made to or for the benefit of the grantor are considered available income. The income interest may include any net rental income from the property placed in the trust.

A transfer into an irrevocable grantor trust that prohibits payment of principal to the grantor is subject to the 60 month look back period and will create a penalty period of ineligibility. The transfer of the homestead to such an irrevocable trust would trigger the penalty period.

In addition to an income interest, the trust would commonly give the grantor the right to live in real property owned by the trust. However, unlike a life estate, Medicaid does not allow a reduction in the value of the transfer based on the retained life interest in the trust property.

Trusts were commonly used to accomplish transfers of the homestead and provisions such as a testamentary power of appointment were included that would avoid the payment of gift tax. Provisions for lifetime powers of appointment were also included in order to preserve the homestead exemption from capital gains tax in case the home was sold.

Powers of appointment should not effect the validity of the trust for Medicaid purposes. However, changes to the state and federal gift tax law make them unnecessary in most cases. Strategies for the Community Spouse A community spouse may establish at a fair hearing or at a support proceeding in family court that the Medicaid minimum monthly maintenance needs allowance MMMNA is inadequate because of exceptional circumstances causing significant financial distress.

Liquidating assets for nursing home

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2 Comments

  1. You thus get an immediate tax deduction and future income from the donated assets. You would usually create it in your last will or living trust.

  2. Secondly, retirement accounts such as IRAs or k s are not appropriate to transfer to asset protection trusts because of tax implications of liquidating these accounts. You should only transfer assets to an irrevocable trust when you are confident that you have no present creditors. Transfer of assets will now also effect eligibility for SSI.

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