Medicaid is the primary government program that offers long-term care benefits (such as assistance with dressing, eating, transferring in and out of bed, walking etc). In order to be elibigle for these benefits in your home or in a nursing home, you must meet both medical and financial elibility requirements. Most people erroneously believe that you must be broke to meet the financial eligibilty requirements. This is not true. In fact, pre-crisis planning for long-term care benefits can protect you from having your wealth disqualify you from receivign Medicaid long-term care benefits. Medicaid Asset Protection Trusts (MAPTS) are the fundamental pre-crisis planning tool so long as you not need Medicaid long-term care benefits within the next five years. (If you need Medicaid long-term care benefits now, then you are in crisis mode. And the strategies you would employ to quailfy for Medicaid without going broke would not include transfering your assets to a MAPT.) Below we discuss the scope of Medicaid and how MAPTs can be used a pre-crisis planning technique. Background on MedicaidMost people know Medicaid to be the state- and federally funded health program for lower-income persons of all ages. However, most people do not know that Medicaid is also the program to pay for long-term care (which is not considered healthcare). Because Medicaid was intended for the neediest of us, Medicaid imposes specific rules on how much income and resources the needy can have and still qualify for benefits. Hence most people think that you have to go broke in order to qualify for Medicaid benefits. Each state has different rules for how much an applicant may have in income and assets to qualify for Medicaid. To qualify for Medicaid, you must fall under your state’s corresponding limit, which can be as low as $2,000 for an individual and $3,000 for a married couple. These resource limits can also vary depending on whether a person applies for institutional or nursing home care, community-based services, or regular Medicaid. If your assets are above the resource limit that would allow you to qualify for Medicaid, you may be able to engage in planning that will allow you to qualify for Medicaid. Pre-crisis planning often involves establishing a Medicaid Asset Protection Trust (MAPT) which should be created and funded five-years before appling for Medicaid. If properly drafted and funded five years before applying for benefits, a MAPT can enable you to qualify under the eligibility rules (the front-end) and protect your assets from Medicaid recovery rules on the back-end. How Does a MAPT Work?A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to transfer assets to it so that Medicaid will not count these assets toward your resource limit when determining whether you qualify for Medicaid benefits. A MAPT must be in writing and properly acknowledged. You must also pick a trustee (not yourself) to manage the trust and its assets. The trustee can be a family member whom you trust. A MAPT must be created with sufficient time to avoid running afoul of Medicaid lookback periods. When it comes to qualifying for Medicaid, transfers to trusts are subject to a 60-month (five-year) lookback period. That is why this type of planning should be done before the need for Medicaid arises, preferably as early as possible. In addition, assets to be put in the MAPT actually need to be transferred before the 5-year look-back period. In the case of real estate, you must transfer the deed to the trust. Stocks and bonds must be registered in the name of the MAPT. While you no longer own assets after they are transferred to a MAPT, and assets may not revert to you, you can still benefit from these assets. For example, if you transfer your home to a MAPT, you may still be able to live there. In other situations, income generated from the trust principal may be paid to you (although you cannot liquidate or withdraw the principal). However, note that this income can be counted as available income for purposes of Medicaid eligibility. Can You Protect Your Home With a MAPT?People frequently wish to use a MAPT to protect their homes as it is their biggest assett and they want their loved-ones to inherit the family home. When examining any asset, including your home, under the Medicaid rules, you must consider both eligibility requirements (front-end) and the recovery rules (back-end). For example, if your home is under the equity limit then Medicaid may not “count” your home as an asset that falls within your resource limit. However, not being counted as a resource does not mean that your home is safe from Medicaid. You must also consider the estate recovery rules. These rules impose on every every state, including the District of Columbia, a requirement - after the Medicaid beneficiary dies - to recover from the beneficiary's estate what Medicaid had paid for the beneficiary's care. Following the estate recovery rules, a home may or may not be exempt from recovery. In some circusmtances the home will be exempt if there is a surviing spouse or disabled child still living in the home. However, if there is no applicable exemption to the circumstances in place, then the Medicaid recovery program may impose a lien on the family home in the course of trying to recover that amount of money Medicaid paid for the beneficiary's care. A proper planning strategy, which may include using a MAPT, can avoid this scenario. MAPTs also offer a certain degree of flexibility. For example, if you need to downsize to a smaller home, the MAPT can sell the house, receive the proceeds of the sale, and then purchase an apartment where you may reside. The new property is still protected from Medicaid, and the lookback does not start over. There are also some other features of MAPTs that lessen the sting of “irrevocability.” You may retain the power to change the trustee or beneficiaries of the trust. Other Assets That Can Be Placed in a MAPT Many types of property can be placed in a MAPT to help you qualify for Medicaid. Examples include:
The fees associated with preparing a MAPT can be costly, ranging from a few to several thousand dollars. Every person’s situation is unique, and you should not assume a MAPT is suitable for you without speaking to us. If you want to discuss how a MAPT may be included in your estate plan, its consequences and much more, then please contact us now. Imagine your children having a financial safety net, a source of funds to support them through education, a business venture, or even a difficult time in their lives. This is what a trust can provide for your children, and it doesn't mean they'll become entitled or irresponsible. When we hear the phrase "trust fund kid," we often think of spoiled, wealthy individuals who don't appreciate the value of money. However, the reality is that most trust fund kids are simply young people who are fortunate enough to have a financial cushion. A trust is a legal arrangement that allows you to set aside money or property for the benefit of someone else, typically your children. The trustee, some you appoint including your own child, is responsible for managing the trust assets and distributing them to the beneficiaries according to the terms of the trust. Trusts can be created for a variety of reasons, such as:
Estate Tax Efficiency - Reducing the Size of Second BiteLeaving your child wealth in trust can provide significant future estate tax benefits for your child. If your child keeps the trust funds separate from his or her own assets, the trust assets will not be included in the child's estate tax obligations at the time of the child's death. Since the trust is considered a separate legal entity from the child, the assets held in the trust are not considered to be owned by the child. As a result, the child's estate tax liability will only be based on the assets that the child personally owns, which can significantly reduce their potential tax burden. However, certain exceptions to this rule exist such as exercising a power of appointment (i.e., the child directing the funds in the trust to another beneficiary), which will make the trust assets countable in the child's estate. To ensure that the trust assets are not included in the child's estate, the child's trust must be carefully structured and adhered to - which always require the ongoing assistance of an experienced estate planning attorney. There are other benefits to setting up a trust for your children. Here are just a few:
How to Avoid the Traps of Trust Fund KidsSome additional tips for avoiding the negative stereotypes associated with trust fund kids:
Final ThoughtsA trust can be a valuable tool for protecting your children's future. By following these tips, you can help ensure that your children benefit from your trust without becoming entitled or irresponsible.
Increasingly, people in the United States say they are looking to relocate permanently to another country, and even more people are interested in buying real estate outside the United States and living there at least part-time. The practical implications of leaving the United States, including taxation and estate planning issues, cannot be ignored. Escaping Uncle Sam is not as easy as hopping on a plane to a far-flung location. One of only two countries, the United States imposes citizenship-based taxation meaning that where a U.S. citizen is - they may owe taxes to the United States. Moreover, expatriates who live and own assets (accounts and property) in more than one country need to have a legally authorized representative to make financial decisions for them when they are not physically present in a particular country. This requires working with attorneys in each country where they have assets. Living Abroad Can Mean Double TaxationJust as double taxation means that expatiates living abroad could end up paying income tax twice on the same income—once to their home country and again to the United States, double taxation may apply to estate taxes as well. Foreign assets are subject to U.S. estate taxes, so any property, whether domestic or foreign, an American citizen owns could be subject to this tax . These same foreign assets held in another country might additionally be taxed under that country’s wealth transfer rules. Other than renouncing U.S. citizenship, which is expensive, U.S. expatriates, along with any other taxpayer who owes a return (i.e., many non U.S. persons may be required to file income and estate tax returns), can take advantage of the foreign death tax credit. This credit is available to any taxpayer, including U.S. expats living outside the United States, to claim a credit on estate, inheritance, legacy, or inheritance tax paid to a foreign government. US Taxpayers and International Wills An estate plan limited to U.S. laws may be insufficient for anybody holding property outside the United States. Whether living outside the United States or residing in the United States and owning property abroad, a good estate plan will include either a will specific to the foreign property or sometimes if authorized an international will.
Specific Wills - International Convention Not EnoughNotwithstanding the availability of international law, a will specific to the foreign country ("situs will") will likely make administration more flexible. Requiring a personal representative (executor) appointed by a U.S. state court to participate in another country's proceeding or even mange property outside the United States may prove burdensome, particularly if that person does not speak the language of that country. Thus, a good estate plan may have multiple wills. The primary instrument could be a will (or preferably a trust) created under U.S. state law to cover the U.S. assets while a second will, the situs will, would govern the property in the additional country. Incapacity and Absence PlanningIncapacity planning or authorizing others to act in your absence will certainly require planning specific to the host country.
Does Your Estate Plan Match Where You are Living? Whether you are living outside the United States, have plans to relocate to another country, or just want to invest in property outside the United States, you will have to adapt to a new culture and new laws, including laws that affect taxation and estate planning. Your current estate plan may be inadequate to deal with legal questions raised by these decision, leaving you at risk of losing control of your health and your assets.
Careful estate planning can help address the challenges of calling more than one country home. Due to differences in laws, it may be necessary to work with experienced attorneys in each country. We are available to assist you to make sure your estate plan reflects your decisions to living abroad or purchasing property outside the United States, and we can help you identify foreign counsel to make sure your estate plan is complete for your life and property outside the United States. |
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