We have been working on a publishing project with Middle Alabama Area Agency on Aging (M4A) to produce dementia friendly resources for professionals and caregivers. This booklet was published in June 2017 and can be read here. To download you will need to go to the publishing platform, Issue, to create a free account or download the pdf here. Printed copies may be obtained by contacting M4A at (205) 670-5770 or toll free (866) 570-2998.
The term “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, at which time it passes to the other owner, referred to as the person with the remainder interest. Life estates can be used to avoid probate while giving a house to children without losing the ability to live in the home, remaining responsible for property tax – with the benefit of homestead and age related tax exemptions, remaining responsible for homeowner insurance, yet creating ownership in the children at the death of the parent. This type of deed can play an important role in Medicaid planning since Medicaid does not assign any value to a life estate when the parent applies for Medicaid to pay for nursing home care. If the transfer occurred prior to five years before application, there will be no penalty for the transfer.
In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.
Another example of use of life estates is when a spouse who owns property in only his or her name wants to leave that property to his or her children from a former marriage but wants the later in life spouse to be protected and have a place to live. That person might write a will leaving a life estate to the spouse with the remainder to his or her children on the death of the spouse. This comes up not infrequently when individuals want to protect property passed to them by family and who want to keep that property in their blood line while protecting the spouse as well.
When the life tenant dies, the house will not go through probate, since at the life tenant’s death the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states that have not expanded the definition of estate recovery to include non-probate assets, which includes Alabama at the time this is being written.
Although the property will not be included in the probate estate, it will be included in the taxable estate. Depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation. However, the joint federal lifetime estate tax exemption and gift tax exclusion is $5,490,000, so few people are actually subject to estate tax.
The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share and the larger the share of the remaindermen.
Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if Medicaid application is made within five years of the transfer. Further, purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property and live in the house for more than a year.
For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid. Just be aware that there may be some local variations on how this is applied, so get good advice before finalizing arrangements involving a life estate if long term care could be a future concern.
Taxpayers with long-term care insurance policies can deduct some of their premiums from their income. Whether you can use the deduction requires comparing your medical expenses to your income in a complicated formula.
Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income. In tax year 2016, taxpayers 65 and older only need medical expenses to exceed 7.5 percent of their income, but in 2017, taxpayers 65 and older will have the same 10 percent rule as everyone else.
The amount of long-term care insurance premium that is deductible is based on the taxpayer’s age and changes each year. For the 2016 tax year, taxpayers who are 40 or younger can deduct only $390 a year, taxpayers between 40 and 50 can deduct $730, taxpayers between 50 and 60 can deduct $1460, taxpayers between 60 and 70 can deduct $3,900, and taxpayers who are 70 or older can deduct up to $4,870 in premiums.
What this means is that taxpayers must total all of their medical expenses and compare them to their income. For example, suppose 64-year-old Frank has an adjusted gross income of $30,000 and long-term care premiums totaling $5,000 as well $1,000 in other medical expenses. Ten percent of $30,000 is $3,000. Frank can only deduct any medical expenses that exceed $3,000. The 2016 limit for deducting long-term care premiums is $3,900. That means Frank can only count $3,900 of his long-term care premiums. If he adds the $3,900 in long-term care premiums to the $1,000 in other expenses his total medical expenses are $4,900. He can deduct $1,900 in medical expenses from his income.
If Frank is 70 in 2016, the calculation changes because his medical expenses only need to exceed 7.5 percent of his income, which would be $2,250. The amount of premiums he can deduct is also increased because of his age–he can deduct up to $4,870 in premiums. Subtracting the income limit from his medical expenses ($4,870 in long-term care premiums and $1,000 in other expenses), Frank can deduct $3,620 in medical expenses from his income. In 2017, Frank will only be able to deduct medical expenses that exceeded 10 percent of his income, so the amount he can deduct will go down.
Our quarterly newsletter, Elder Law Bookmarks, was sent today. Articles included in the newsletter are:
- People with Disabilities Can Now Create Their Own Special Needs Trusts
- Is it Better to Remarry or Just Live Together?
- Repealing Obamacare Will Have Consequences for Medicare
- For Better or Worse, States Are Turning to Managed Care for Medicaid Long-Term-Care
- Make Reviewing Your Estate Plan One of Your New Year’s Resolutions
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I am frequently asked if a parent can reimburse a child or other individual for expenses paid for the benefit of the parent during the spend down phase preceding application for Medicaid without running into problems with Medicaid. In short, the answer is no unless there is evidence of a debt incurred in the form of a written agreement, promissory note, etc., for which the payment is made. This is a harsh and difficult position for many caregivers who do not think twice of paying moving expenses, deposits, medical expenses, etc., for a parent only to find that later they cannot be reimbursed because they did not make a formal agreement.
A New York appellate court case recently confirmed this application of the Medicaid regulations by allowing a penalty to be imposed on the transfer of assets to a caregiver daughter without presenting a written agreement to evidence the debt. Matter of Krajewski v. Zucker (N.Y. Sup. Ct., App. Div., 3rd Dept., No. 522888, Dec. 8, 2016).
In that case Jessie Krajewski lived with her daughter for two years before entering a nursing home. Ms. Krajewski’s husband withdrew money from their joint bank account to reimburse the daughter for her caregiving expenses. After Ms. Krajewski entered the nursing home, she applied for Medicaid. The state imposed a penalty period based, in part, on the transfers made to her daughter.
Ms. Krajewski appealed, arguing that because the transfers were made to reimburse her daughter for her care, the payments were not made in order to qualify for Medicaid. After a hearing, the state upheld the penalty period, and Ms. Krajewski appealed her case in court.
The N.Y. Supreme Court, Appellate Division, affirmed the agency decision, holding that Ms. Krajewski did not rebut the presumption that the transfers were made in order to qualify for Medicaid. The court found that there was no evidence of a written agreement between Ms. Krajewski and her daughter and the only evidence consisted of handwritten summaries of Ms. Krajewski’s living expenses, which was not enough to rebut the presumption.
The lesson to take from this case is that when a caregiver pays expenses for a person who will be applying for Medicaid, it is essential to have written proof of the debt before reimbursing the caregiver for those expenses. While this is a general rule for transfer of money to a caregiver, be aware of the fact that in Alabama more requirements need to be met to reimburse a family caregiver for actual care provided. If you want to establish such an arrangement it is important to seek legal advice first.
On October 10, 2016, Jan taught the first of a two part presentation on Elder Law at Osher Lifelong Learning Institute (OLLI) at Auburn University entitled Elder Law: Enhancing the Lives of Seniors Through Education, Planning For What Comes Next. The second session will be taught on Monday, October 17, 2016, at 2:30 p.m. at The Clarion in Auburn, Alabama.
Topics covered in this training include: Older Americans Act Legal Assistance; Important Documents Needed for Proper Planning; Authority Issues; Long-term Care Levels of Care and Payment Options; Medicaid for Long-term Care; Special Needs Planning; Probate; Administration of Estates; Planning for Last Remains and Funerals.
A 39 page Keynote presentation covering these topics is provided to course participants.
Anyone interested in this and the many other learning opportunities available through OLLI can learn more by visiting the OLLI website.
According to ElderLaw Answers:
In recent years, nursing homes have increasingly asked — or forced — patients and their families to sign arbitration agreements prior to admission. By signing these agreements, patients or family members give up their right to sue if they believe the nursing home was responsible for injuries or the patient’s death.
Now, in an unexpected move, the federal Centers for Medicare and Medicaid Services (CMS) is forbidding nursing homes from entering into binding arbitration agreements with a resident or their representative before a dispute arises. The agency has issued a final rule prohibiting so-called pre-dispute arbitration agreements in facilities that accept Medicare and Medicaid patients, affecting 1.5 million nursing home residents. After a dispute arises, the resident and the long-term care facility could still voluntarily enter into a binding arbitration agreement if both parties agree.
For years, patient advocates have contended that those seeking admission to a nursing home are in no position to make a determination about giving up their right to sue. Families are focused on the quality of care, and forcing them to choose between care quality and forgoing their legal rights is unjust, the advocates said. Courts have sometimes struck down arbitration agreements as unfair, but others have upheld them.
“Clauses embedded in the fine print of nursing home admissions contracts have pushed disputes about safety and the quality of care out of public view,” the New York Times wrote in its coverage. “With its decision, [CMS] has restored a fundamental right of millions of elderly Americans across the country: their day in court.”
The nursing home industry has countered that the new rule will trigger more lawsuits that could increase costs and force some homes to close. Mark Parkinson, the president and chief executive of the American Health Care Association, said that the change “clearly exceeds” CMS’s statutory authority.
Although the rule could be challenged in court, for now it is scheduled to take effect on November 28, 2016, and will affect only future nursing home admissions. Pre-existing arbitration agreements will still be enforceable.