By Steven J. Gibbs, Esq.

Hello Friends & Colleagues!

It is common knowledge among estate planning professionals that reducing the size of larger estates is a key component of limiting the Federal Estate Tax exposure.  Estate reduction may be accomplished through gifting to individuals and other entities, such as Irrevocable Trusts, or pursuing other “spend down” strategies.

However, not always considered is the importance of reducing your estate for purposes of long term Medicaid eligibility. In truth, the extremely high cost of long term medical care impacts many more estates than the estate tax issue because of the increases in the Federal Estate Tax exemption, which is $5,430,000 for singles and just a tad over $10,800,000 for married couples.   Planning to preserve as much of the estate while accommodating the cost of long term medical care is the focus of this article.

1. Downsizing Your Estate Is An Important Consideration For Medicaid Planning Purposes Because It Is A Means Tested Program Based Upon Assets And Income.

When thinking about downsizing an estate, estate planning professionals are most often focusing on limiting Federal Estate Taxes.  However, we know that the Baby Boomers are aging and beginning to require long term “skilled nursing” care, and these costs can be staggering.  Transfers of assets out of your estate can, in many cases, literally salvage the remaining estate.  Gifting can be a great strategy for both tax planning and Medicaid planning purposes and currently $14,000 (per spouse) may be gifted to as many beneficiaries as desired.  Of course any transfers, including those allowed for tax purposes are still subject to the “look back” period for Medicaid as discussed below.
2. With Average Monthly Costs Of Skilled Nursing Care Ranging Between $5,000 and $10,000 Per Month, An Estate Can Be Depleted Quickly And May Be Avoided With Proper Spousal Planning And Gifting Strategies.

Without a plan, an aging couple will be required to “spend down” an estate in order to qualify an ill spouse for Medicaid assistance.  However, wise planning under the current laws may preserve the estate for the benefit of the well spouse while allowing an ill spouse to qualify.   Currently, there is no penalty if one spouse “transfers” assets to another spouse for Medicaid purposes.  However, for an ill spouse to qualify for Medicaid, Medicaid only allows the “Community Spouse” to keep approximately $116,000 (currently) in non-exempt assets.  So, a common approach is to allocate the spending of any additional funds toward improving any exempt assets such as the marital homestead.  Additionally, assets such as IRAs might not be considered a countable asset, and there are other strategies such as Personal Service Contracts, Promissory Notes and the “spousal refusal of support” that may be considered to preserve as much of the estate as possible.

3.  It Is Important To Consider Timing, The Look Back Period and Penalties When Considering These Strategies As Part of An Overall Plan.

The “look back period for Medicaid is currently 5 years in most States including Florida.  This means that “Transfers” to individuals or entities such as Irrevocable Trusts can keep assets in the family so to speak if transfers are made prior to the look back period.  After 5 years a transfer will not impact Medicaid eligibility and if a transfer was made within the lookback period, a penalty would be assessed based upon the value of the asset transferred divided by the average monthly cost of care.  So, as an example, if the fair market value of the asset transferred was $100,000 and the average cost of care in the State is $10,000, then the penalty period for Medicaid benefits would be 10 months.

4. Transfers To A Joint Revocable Living Trust Established By Both Spouses Will Not Be Effective.

When considering “transfers” of assets between spouses, for purposes of starting the clock on the look back period, transferring assets to a Joint Revocable Trust is really not a transfer, even if only one of the spouses is the Trustee.  To make it effective, the well spouse must take title, either individually or in his/her own trust.

5.  There Is An Element of Fortune Telling In All Of This So Even Good Strategies Can Experience Difficulty.

In all of the above strategies, there is always an element of fortune telling.  For this reason, sometimes it is a difficult determination whether to transfer assets to a “well spouse”, especially if that spouse has some health problems also, or if we are dealing with a second marriage with children from a first marriage.  All of these issues must be considered and carefully “weighed” by an experienced elder law attorney prior to making moves because every move carries potential consequences.

As always, these are all general principles that may or may not be advisable based upon one’s unique circumstances, and…

I hope this is helpful.

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 recently admitted to the California bar. Keeping abreast of law changes in these three States, as well as the United States, assists him in all aspects of the types of law the firm practices.

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.”

8695 College Parkway #2330
Fort Myers, Florida 33919

Phone: 239-415-7495

Fax:  239-243-9029

Email: info@gibbslawfl.com