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Adler Law E-Letter
March 2010 |
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Law Offices of Steven M. Adler, PLLC
666 Old Country Road, Suite 605
Garden City, New York 11530
Phone: (516) 876-1105
Fax: (516) 794-0463
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Greetings!
This month, we have two very interesting articles for you to read. The first was written by Dolores and it discusses the options many homeowners face when trying to become Medicaid eligible. The second article discusses your rights when faced with the possibility of nursing home neglect or abuse.
If you have an interest or a concern with respect to any particular legal subject, please contact me at the firm and I would be happy to discuss your topic in a future issue of Adler Law.
Thank you.
Sincerely,
Steven M. Adler
SPRING IS IN THE AIR! | |
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| Medicaid and the
Principal Residence. What are your choices?
Paying for the high costs of long term care today can be financially devastating. For many couples the principal residence is their most valuable asset and protecting that asset in the event one or both spouses should need long term care is of primary concern for them as well as their children. Qualifying for Medicaid in order to pay for those costs will alleviate that burden. Medicaid is a joint federal/state program which pays for the medical care costs of people with little or no resources. This article will discuss three options available to many couples who choose to remove the principal residence from the resource limit allowed by Medicaid. The decision as to the appropriate option will be guided by several factors such as the transfer's effect on Medicaid eligibility, gift taxes, cost basis issues, and potential capital gains tax consequences.
The first option is an outright gift transfer of the residence. While this option is fairly simple to accomplish, involving a deed transfer and possibly a gift tax return, the downside may be substantial because the transferees (usually the children) would take as their cost basis the parents' cost basis. In other words, when the children eventually sell the residence, they may have to pay a huge capital gains tax for which they cannot claim any exclusion. In addition, the transfer may trigger a gift tax depending on the value of the residence. Further, the transfer will trigger a penalty period in the event a Medicaid application is filed within five (5) years of the transfer (the Medicaid "look back" period). Finally, the parents may be at the mercy of the children as they have not retained any ownership rights.
The second option is a transfer of the residence with a retained life estate. This option also involves a simple deed transfer but includes a statement in the deed reserving to the parents the right to the use and occupancy of the residence for the remainder of their lifetimes. In this case, the children cannot exercise their ownership rights while the life estates exist without the consent of the parents. Conversely, the parents cannot exercise certain ownership rights without the consent of the children. In addition, since Medicaid allows the value of the retained life estate to be subtracted from the total value of the residence when determining the period of ineligibility, this transfer may produce a shorter penalty period than an outright transfer or even a transfer to a trust. Further, since the parents retain a life interest in the residence, the children will receive a "step-up" in cost basis of the residence at the surviving parent's death. This means that when the children eventually sell the residence they may have little or no capital gains tax. This option sounds great unless the issue arises of selling the residence during the term of one or both of the parents' life estates. Since the parents only own a life interest in the residence, not only would they need their children's consent to the sale, but upon the sale the capital gains tax exclusion they would otherwise enjoy ($500,000.00 per couple, $250,000.00 per individual) could be severely diminished thereby potentially causing capital gain taxes to be due.
The third option, a transfer of the residence to an Income Only Trust, also called a Medicaid Qualifying Trust, can alleviate the capital gains tax problem. The trust, as long as it is structured properly, will allow the parents to be taxed from an income tax standpoint as the owners of the trust so that upon a sale of the residence, during their lifetimes, their entire capital gain exclusion will be available to them. Further, the Income Only Trust will not trigger any gift tax concerns since the transfer of the residence to the trust will not be characterized as a gift. In addition, since the parents also reserve a life interest in the residence through the trust, their continued use of the residence is fairly secure. Lastly, once the residence passes at the death of the surviving parent, the children will still receive a stepped up cost basis so that when they sell the residence, there would be little or no capital gains tax. Of course, the costs associated with creating a Medicaid Qualifying Trust may be greater than with an outright transfer or a transfer with a retained life estate. Also in the event the parent applies for Medicaid within five years of the transfer, the entire value of the residence will be used in determining the penalty period unlike the deed transfer with a retained life estate.
The transfer of the residence to an Income Only Trust not only provides protection of the residence in the event long term care is necessary, but also provides income and gift tax benefits while preserving the parents' entire capital gains tax exclusion. This is a good option if there is uncertainty as to whether the residence can be retained until the death of the surviving parent. However, if the need for long term care is most likely to happen within the five year Medicaid look back period, a transfer with a retained life estate and the reduced penalty period that could result may be the better choice. As with any legal issue, each case should be examined on its individual merits and an attorney familiar with these issues should be consulted in order to choose the best option and implement it properly.
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Employee Spotlight
Meet Sharon Iacuzzo. As the firm's office manager, Sharon is usually the first person you will speak to or meet with when contacting our law firm. You can be assured that Sharon will assist you whenever Steven or Dolores are unavailable.
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Nursing Home Neglect
You have rights!
 Many of us trust nursing homes and hospitals to care for the people we love. Many times that trust is well placed, other times it is not. Abuse and neglect in nursing homes and even hospitals has become a serious problem. Nursing home abuse and/or neglect can involve not only the physical well-being of the resident, but also the mental, and/or psychological well-being of the resident. However, there is hope. The Nursing Home Bill of Rights was created to help protect families just like yours.
Today, nursing homes and hospitals can be held liable for their neglect and/or abuse of those individuals under their care and supervision. If you know of someone who may have been mistreated in a nursing home or in a hospital, give us a call to discuss the matter in greater detail. We can help! |
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This is a special thank you note in appreciation for all you have done for me.
Julia T.
I am thankful for your kindness and professional advice to me and my family. I hope that soon I will be needing your services. Vera F.
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The Law Offices of Steven M. Adler, PLLC are committed to providing their clients with the highest level of professional legal services at reasonable prices. Steven M. Adler, Esq., along with the rest of his law firm's highly competent support staff, gives all of his clients the personal attention and the legal expertise which they are entitled to receive. The Law Offices of Steven M. Adler, PLLC takes pride in the quality, effectiveness and efficiency of their legal services.
Law Offices of Steven M. Adler, PLLC
666 Old Country Road, Suite 605
Garden City, New York 11530
Phone: (516) 876-1105
Fax: (516) 794-0463
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Mention this E-Letter to Receive a Free Consultation
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