By Steven J. Gibbs, Esq.
When folks are doing estate planning in Florida, they often are trying to take care of those they love the most, and this is one of my favorite things being a Florida estate planning attorney.
However, many don’t realize that their generosity can backfire if they fail to consider the relative circumstances of those loved ones on the receiving side – this is especially common with “self help” DIY estate planning. One such circumstance concerns how an inheritance can jeopardize Medicaid eligibility or create penalties.
As I’ve written in the past, a lump sum payment or a gifted asset coming from an estate can jeopardize need based SSI special needs disability benefits. This same concept applies to other areas of Florida Medicaid with most impact in the area of long term skilled nursing benefits for chronic conditions.
One would think that simply declining the gift would preserve the benefits, and yet this isn’t the case because penalties can apply. However, there are ways to plan so that the maximum benefits are obtained from the gift and penalties can be avoided.
Estate Bequests, Disclaimers and Medicaid Penalties
A Bequest From An Estate To Someone On Medicaid Cannot Be Simply “Disclaimed” Because A Medicaid Penalty Will Apply.
By definition, filing what is known as a Qualified Disclaimer (“disclaimer”) is what an estate beneficiary does when he or she does not wish to claim an inheritance share. Sometimes, a disclaimer can be beneficial for estate tax purposes or to avoid the claims of creditors against that beneficiary. So, one would think that a beneficiary who is currently receiving Medicaid assistance or seeking to qualify could just disclaim his or her inheritance. Prior to 1993, that was exactly the case.
Since the pass of the OBRA (Federal Omnibus Reconciliation Act) in 1993, the disclaimer of an inheritance has been deemed a “disqualifying transfer” under the Medicaid Rules and this results in a penalty for the Medicaid recipient. The length of the penalty and the amount will vary based upon the amount of transfer and the local “State” laws because each state is allowed to divide the “sum” of the transfer by the average cost of care in the State. Worse yet, many states after 1993 began imposing a penalty for the disclaimant’ s spouse also under the theory that the inheritance assets would have been available to repay Medicaid for costs expended.
Interestingly, the problem of not being able to disinherit a spouse has resulted in a fair amount of hand wringing among elder law attorneys in Florida and other states.
The solution to keep from having to “spend down” the entire estate is most often to allocate a certain percentage of the estate to the surviving spouse in a special trust of some type. In most common law states, the spouse who cannot be disinherited may claim what is called an “elective share” of the estate. Cases have shown that Medicaid may attempt to penalize the spouse based upon the elective share amount.
Using Testamentary Special Needs Trust for Medicaid Planning
For Beneficiaries On Medicaid, A Bequest To A Testamentary Special Needs Trust May A Solid Alternative.
For a spouse on Medicaid or a non-spousal beneficiary such as an adult child, that share of the estate can be allocated to a Testamentary Special Needs Trust of some type. For a spousal beneficiary, the amount allocated should probably be calculated to represent the “elective share amount”. The nature of the spousal trust could be what is called an “income only trust” or it could be a “special needs trust” and the preferred type varies among elder law attorneys. For a non-spouse, a special needs trust prepared with the appropriate qualifying provisions can be an effective strategy to avoid the penalty, especially, in my opinion, for non-spousal beneficiaries under age 65 who are receiving SSI/Medicaid.
The take away from all of this is twofold. First, if you’re estate plan unwittingly includes someone who is receiving either Medicaid or SSI (special needs) benefits, you need additional measures in your plan to assure they do not get disqualified. Second, proper spousal planning should be considered now in order to avoid consequences to a Medicaid qualified spouse upon the passing of the other spouse who is not on Medicaid. All of this of course, requires expert guidance, so please feel free to reach out and connect with our office today.
Steven J. Gibbs is a trust and estate planning attorney who provides complete Estate Planning, Trust Planning, Business Planning, Asset Protection, Elder and Medicaid Planning, Real Estate, Probate and Trust Administration legal services in Florida and California. Steve’s main offices are located in Fort Myers, Florida, and San Juan Capistrano, California. Estate planning legal services are provided statewide in these locations.
The Gibbs Law Office was founded by Steven Gibbs in January 2009 upon the commitment to provide client-centered legal services.
Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.
Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expectations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.
Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was admitted to the California State Bar in 2014.
Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.
Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”
Address: 8695 College Pkwy Ste 2012, Fort Myers, FL 33919
Phone: (239) 415-7495