Top 3 Retiree Tax Mistakes

Many things change when you retire. Don’t let taxes spoil your retirement.

Tax planning is different after retirement. You might think that a lower income level and fewer deductions will lead to a care-free tax season. Unfortunately, taxes are just as unforgiving in retirement as they are pre-retirement.

You need to understand how retirement benefits and investment returns are impacted by federal and state laws. 

Prevent Top 3 Retiree Tax Mistakes
According an article in Kiplinger, “3 Tax-Planning Mistakes Retirees Too Often Make,” these are the three most common mistakes:

Tax Loss Harvesting
Tax loss selling means selling a capital asset, like a stock, for a loss to offset a gain realized by the sale of other investments. The result is that the investor avoids paying capital gains on recently sold investments. Retirees with stock holdings should review their holdings every year to determine their market exposure and any tax consequences of selling stocks with substantial capital gains.

Unfortunately, the tax code isn’t very beneficial to stock losses. Stock losses can be used to offset gains.  However, if you have excess losses over gains, you can only take an extra $3,000 annually to offset other income. If your loss is more than $3,000, you can carry it forward into future years. If your loss is big, you could be waiting some time to realize the full advantage of this. Work with a CPA or a tax professional on a fully maximized tax strategy.

As Kenny Rogers says, “you’ve got to know when to hold ‘em”

Too Small Income Distributions
While many experts work on how to limit required minimum distributions (RMDs), there are some good reasons for taking larger distributions. With a lower income, retirees may discover they’re in a lower tax bracket and they want to minimize their tax burden. However, they don’t see what can happen when they die: the money in their IRAs get passed on to their beneficiaries as an inherited IRA. Alternatively, the recipients can elect to take a complete distribution of the IRA and get hit with income tax on the whole thing! New tax laws may get rid of some of this burden, so stay tuned for updates from us!

Taxes on Social Security
It’s not uncommon for people to think that Social Security isn’t taxable. Unfortunately, the IRS is out to get retirees as well. Here’s how it works:

  • Retirees with minimal income won’t pay federal taxes on their benefits, but if they have additional income, there will be a percentage that’s taxable. Minimal usually means under $25,000.00 in a year.
  • If the income is less than $25,000 for single filers or $32,000 for joint filers, your benefits are all tax-free.
  • If the provisional income is between $25,000 and $34,000 as a single filer or between $32,000 and $44,000 as a joint filer, you’re taxed on up to 50% of your Social Security benefits. But if your provisional income exceeds $34,000 as a single filer or $44,000 as a joint filer, you’ll be taxed on up to 85% of your benefits.
  • To protect your retirement income and savings, every year should begin with a review of taxable income to see how it will impact your Social Security benefits. That includes evaluating your tax bracket. 

Talk With an Expert
As a good start for 2019, we recommend you talk with a financial planner or CPA about your retirement tax outlook.

If we can help you with creating trusts, updating your will, or other legal tools to better plan for your retirement and take care of your loved ones, give us a call at 817-638-9016 to schedule an appointment. Happy New Year! 

Travis Weaver, Attorney
Weaver Firm – Attorneys Serving Wise County, Tarrant County, Denton County, & Surrounding Area

Travis Weaver, Attorney

Guardianship & Other Solutions for Helping Those Who Cannot Help Themselves

Are you considering a guardianship for someone who may be having trouble caring for their own needs? In certain situations, alternatives to guardianship are the best and most cost-effective solutions to help someone who cannot help themselves. These alternatives include power of attorney, supported decision king agreements, management trusts, and non-legal solutions involving psychological help and family care.

Even if someone is being abused, neglected or exploited, they may not need a guardian. A complaint can be made to Adult Protective Services at 1-800-252-5400.

If the person is in a nursing home or other facility, a complaint can be made to the Texas Department of Health and Human Services at 1-800-458-9858. If the person is in a facility and their rights are not being respected, a complaint can be made to the Texas Long-Term Care Ombudsman at 1-800-252-2412.

Guardianship Process

If the alternatives don’t work, even with supports and services, it may be necessary for someone to be placed under a guardianship.

Every guardianship application must be accompanied by a Physician’s Certificate of Medical Examination. This should be completed by neurologist or psychiatrist and, ideally, by someone who knows the person well. If the person will not agree to see a doctor, the Approved Guardianship Attorney can apply for an Independent Medical Examination.

If you do not want to be the guardian but think that a guardian is needed, you can ask the probate court to look into the matter by sending a Court-Initiated Guardianship Information Letter.

Guardianship Attorney
If the person does need a guardian, the application must be brought by an Approved Guardianship Attorney. Some probate and county courts have lists. There is also a list on the State Bar of Texas website.

While an Approved Guardianship Attorney may only be registered in one county, many practice in surrounding counties as well. Texas also requires a JBCC registration which can be found here. (http://www.txcourts.gov/jbcc)

We’re glad to help you better understand your options for guardianship or a different solution for someone who cannot care for themselves. We have deep experience in these matters and can help you navigate these legal waters. Give us a call to schedule an appointment today at 817-638-9016.

Types of Guardianship

Guardianship of the Person
Guardianship of the person is often sought when a person with an intellectual or developmental disability turns 18 or when a person with dementia refuses to stay in a memory care facility or nursing home. In the case of a person with intellectual or developmental disabilities “aging out” or turning 18, Texas law requires evidence of a need for guardianship. A small bond is required.

This solution may allow the guardian to decide:

  • where the person lives or works
  • who they marry
  • application for a mental health detention (with immediate notice to the probate court)
  • the right to vote is usually preserved, but not the right to carry a gun

Guardianship of the Estate
Guardianship of the estate (also called, “conservatorship”) may be needed when the person has more than Social Security in income or a lot of assets but can no longer manage their finances and does not have an agent under a Durable Power of Attorney or has an untrustworthy agent.

If the person only receives Social Security benefits, someone may be appointed their representative payee, avoiding the expense and trouble of guardianship. A bond is required based on the person’s yearly income and total assets. Every year a guardian of the estate must present a sworn accounting, complete with receipts.

 

Travis Weaver, Attorney

Travis Weaver, Attorney

2018 Year-End Tips for Financial Planning

If you haven’t looked at year-end financial breaks, I have news for you–the time is NOW!
Here’s a quick list of important tax-cutting or planning actions to take before Dec. 31, 2018! 
–Update your will to find tax breaks or fix tax consequences before year-end
–If you’re a veteran, talk to a lawyer before giving away money or property–especially if you need assisted living care
–Donate gifts of cash or stocks to your favorite charities now
–Assess business changes to cut taxes now or push taxable decisions to 2019

Read more below for explanations on actions needed before Dec. 31, 2018.

Why update your will before Dec. 31?
Reveal tax breaks or deal with tax problems before year-end deadline

New baby or grandbabies? You now have another potential tax deduction. But, remember– anyone under the age of 18 cannot inherit property in Texas. We recommend you place any inheritance for minors in a testamentary trust in your will. This helps you avoid guardianship issues and allows you to specify the age of inheritance (age 25, age 30, or older).

Happily married again? Congratulations! Divorce? It happens. Your tax status can change with with either of these life events. As far as your will–make sure the new spouse is the beneficiary on all your documents. Or, name someone else as beneficiary if you’re now free of a spouse. Too often we see estate plans where an ex-spouse is still a primary beneficiary. Staying friends is one thing . . .but inheritance?

Move to Texas recently or move away? Different states mean different tax and probate rules. State income tax factors into your tax return. You may need to file separate returns for different states. Your will should reflect your new place of residence to avoid costly probate. For example, California probate is difficult and expensive. Texas probate is straightforward and cost-effective by comparison. While Texas allows valid wills from other states to be presented in a probate case, we always recommend new Texas wills for clarity and to cover any issues which may have arisen in the last few years.

Inherit property or purchase a home in another state? This change almost always affects your tax situation and likely has probate consequences for your will. No one ever said, “I want to probate a will in two states.” If you have valid Texas estate planning, these documents cover any and all property you own in Texas. If you own property outside of Texas, especially real estate, we recommend placing this property in a simple revocable trust. This avoids multi-state probates and allows you to transfer the property seamlessly without further court involvement.

Buy or sell a big item? Maybe you finally bought that boat you’ve always wanted. Don’t forget to invite us on your next trip! Just kidding–kinda. If this is for personal use, it probably won’t qualify as a tax deduction. But, maybe the boat can be used in part to entertain clients? Let’s talk. This asset definitely should be added to your will along with designating what happens to it if you’re not around.

Is your will’s executor still a good choice? This decision may affect your taxes and far more–your entire family’s inheritance or anyone else designated to benefit from your will.

Let me give a good example. Let’s say you are an elderly gentleman and you have a nice new friend named Anna Nicole Pith. This friend is quite a bit younger than you and is kind enough to offer to serve as your executor. Now let’s say this friend starts borrowing money from you and maybe even steals a car or boat from you. We recommend finding a new executor. If you don’t trust the people named in your documents, find new people. Don’t have ideas? Ask us to brainstorm for you.

Why should I care about the VA’s rule changes for long-term care?

You should care because your decision to give away money or property before Dec. 31 could mean you or your spouse won’t qualify for long-term nursing home care or assisted living benefits. This year VA long-term care benefits changed to require a three-year look-back period for aid and attendance to veterans or their spouses who are in nursing homes or assisted living facilities. The rule change also affects those who need help at home with everyday tasks like dressing or bathing. This means that moving assets during the three years prior to applying for these benefits could affect your eligibility. 

In addition, a new net worth maximum of $123,600 has been established.

The new rules are similar to Medicaid in their requirements and similar types of financial planning using trusts and other property transfer tools are still available.

You may benefit from meeting with an attorney to discuss the ways to transfer your property or money and still qualify for VA long-term care or assisted living benefits.

Here are the basics:

  • Applicants are required to disclose all financial transactions within the three years prior to submission of the application.
  • Applicants who transfer assets to put themselves below the net worth limit within three years of applying for benefits will now be subject to a penalty period. During this penalty period, the applicant will not be eligible for VA benefits. This can last as long as five years.
  • There are limited exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a disabled child.
  • Gifts count towards this penalty period. 
  • Taking your name off of bank accounts also counts as a gift or unqualified transfer of assets for VA and Medicaid purposes. 

Basically, if you think you have a new trick for getting rid of assets, the VA and Medicaid case workers have seen it before. To learn more, check out our detailed article on this subject or call 817-638-9016 to schedule an appointment

Do I have to give a charitable gift before Dec. 31?
Yes, you do–if you want a tax deduction. Here’s the IRS break down:

How charitable giving tax deductions work
You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2018. This is true even if you don’t pay the credit card bill until 2019. Also, a check will count for 2018 as long as you mail it in 2018.

Wait! There’s more! Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift.

Gifts of stock require more detailed planning. Let us know if you want to give away stock as you need to understand the most beneficial way to handle this transaction—for your own tax consequences and to best benefit the charity. If you need help in planning stock or property sales for maximum tax benefits, call us at 817-638-9016 for an appointment with an estate planning attorney. 

Why Do Business Changes Matter?
Assess Before Dec. 31 & Avoid Unexpected Tax Outcomes

Ask yourself the questions below to do a quick assessment of your business changes over the past 12 months. If “YES!” is the answer to any of them, you may need to talk with us or your CPA about tax consequences. And, you may need to update your will:
• Buy or sell a business?
• Get a new partner or dissolve a partnership?
• Buy or sell business assets including property, buildings, equipment, cars, etc.?
• Declare bankruptcy?
• Make tons of money with your new business idea?
• Added new staff—possibly some relatives?

Make sure your estate plan matches the current state of your business. We want your wills, trusts, power of attorneys, and more to match your business plan in a seamless transition plan.

Need help? Call our office at 817-638-9016 to schedule an appointment.  

Wishing you peaceful and relaxing holidays,

Travis Weaver, Attorney
tweaver@WeaverLegal.net

Veteran’s Affairs (VA) Major Rule Change Affects Long-term Care

Photo of battered combat boots

VA’s Major Rule Change Affects Qualifying for Long-term Care Benefits

This year, the Department of Veterans Affairs (VA) finalized its long-threatened new rules making it more difficult to qualify for long-term care benefits.  The VA offers aid and attendance to veterans or their spouses who are in nursing homes or assisted living facilities or who need help at home with everyday tasks like dressing or bathing.

The rules establish an asset limit, a look-back period, and asset transfer penalties for claimants applying for VA pension benefits, including the Aid and Attendance benefit, that require a showing of financial need. This new rules are similar to Medicaid in their requirements and similar types of planning are still available.

Currently, to be eligible for the Aid and Attendance benefit, a veteran (or the veteran’s surviving spouse) must meet certain income and asset limits that are dependent on his or her healthcare costs and life expectancy.

 

The new regulations set a net worth limit of $123,600, which is the current maximum amount of assets (in 2018) that a Medicaid applicant’s spouse is allowed to retain, and will be indexed to inflation in the same way that Social Security increases.

But, in the case of the VA, this net worth number will include both the applicant’s assets and income. The income for a veteran or a veteran’s spouse includes social security, pension, and certain other types of income. An applicant’s house (up to a two-acre lot) will not count as an asset even if the applicant is currently living in a nursing home or assisted living facility. Additionally, applicants will also be able to deduct medical expenses — including payments to nursing homes and assisted living facilities — from their income. This is a crucial point. You need to keep track of your medical expenses and money you’ve spent on care recently.

The regulations also establish a three-year look-back provision. This is a significant penalty period, but is still two years less than the Medicaid look-back period. Applicants will have to disclose all financial transactions within the three years prior to submission of the application. Applicants who transfer assets to put themselves below the net worth limit within three years of applying for benefits will now be subject to a penalty period, during which they are not eligible for VA benefits, that can last as long as five years. There are limited exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a disabled child. Gifts count towards this penalty period. Taking your name off of bank accounts also counts as a gift or unqualified transfer of assets for VA and Medicaid purposes. Basically, if you think you have a new trick for getting rid of assets, the VA and Medicaid case workers have seen it before. To learn more, check out our detailed article on this subject or call 817-638-9016 to schedule an appointment

Under the new rules, the VA’s penalty period will be determined by dividing the amount transferred that would have put the applicant over the net worth limit by the maximum annual pension rate (MAPR) for a veteran with one dependent in need of aid and attendance.

For example, assume the net worth limit is $123,600 and an applicant has a net worth of $115,000. The applicant transferred $30,000 to a friend during the look-back period. If the applicant had not transferred the $30,000, his net worth would have been $145,000, which exceeds the net worth limit by $21,400. The penalty period will be calculated based on $21,400, the amount the applicant transferred that put his assets over the net worth limit (145,000-123,600).

The new rules went into effect on October 18, 2018. The VA will disregard asset transfers made before that date.

Veterans or their spouses who think they may be affected by the new rules should contact the attorneys at the Weaver Firm at 817.638.9016.

 

Why You Need a LadyBird Deed Now

Ladybird deeds are a crucial part of elder law planning and Medicaid planning. If you are on Medicaid or think you might be soon, you need a ladybird today.

What is a ladybird deed? It’s a deed where the owner of the property deeds his or her interest in the property to someone else at the owner’s death. 

Why would someone want a ladybird deed? Two reasons:

  1. A ladybird deed allows you to avoid going through probate for the property covered in the deed
  2. A ladybird deed protects your property against the state or a governmental agency trying to recover against your property for health care costs.
  3. Other great benefits of ladybird deeds:
  •   You can always revoke the deed and take back the transfer

  •   Other family members may be rewarded for helping the client by a change of estate plan implemented simply by signing and recording a new Transfer on Death Deed.

  •   If someone in the family falls on hard times an needs extra help, the estate plan can be changed with a new deed.

  •   The grantor reserves the right to sell or mortgage the property without consent of the grantee.

  •  If creditors of a remainder owner threaten action affecting the property, the grantor can protect his or her interests by appointing the remainder to someone else. This would not be a fraudulent transfer if the life tenants are not “debtors” as to the creditors.

  •  The deed creates no Medicaid transfer penalty; and at the death of the grantor, title will pass under such a deed outside the grantor’s probate estate and will therefore not be subject to Texas estate recovery under the current state law.

    Call us today at 817.638.9016 to discuss ladybird deed and other ways to protect your property from the state and from probate.

Estate Planning With 401(k), SEP, and 401(B) Plans

Many of you have retirement plans. If you are reading this article and don’t have a beneficiary designated, stop reading and go designate a proper beneficiary right now! This designation trumps your estate planning documents.

Who Can be Named as a Beneficiary?

  • Individual- 

    Naming an individual as beneficiary of a retirement plan helps protect the account from divorce, creditors and, in some states, bankruptcy and benefits from being subject to favorable tax treatment.

  • Estate-

    Retirement plans payable to an estate are subject to probate which can:

         delay the receipt of such funds

         potentially expose them to creditor claims,

         and necessitate the listing of such assets on the probate inventory

  • Charity-

    Benefits can be distributed to a charitable organization,

    In this plan, the charity receives the benefits free of income tax, as opposed to an individual beneficiary who must pay income tax on the benefits that he receives from a traditional requirement plan.

    Further, any benefits left to charity qualify for an estate tax deduction in a decedent’s estate. This is a win-win.

  • Trusts-

    A trust may be named as the beneficiary of a retirement plan, but it cannot be a Designated Beneficiary.

    However, the beneficiaries of a trust may be treated as Designated Beneficiaries if the trust meets certain criteria.

    The criteria are as follows:

    (i) the trust must be valid under state law;

    (ii) the trust must be irrevocable (either upon creation or upon the death of the owner);

    (iii) the beneficiaries must be identifiable from the trust instrument (essentially, the Internal Revenue Service needs to be able to identify the beneficiary with the shortest life expectancy); and

    (iv) proper documentation (a list of all of the beneficiaries of the trust or a copy of the trust instrument itself) must be provided to the plan custodian by October 31 of the calendar year immediately following the calendar year in which the plan owner died

    If you need help designating a beneficiary or drafting Wills and Trusts, please contact us today! Proper beneficiary designation can save you thousands in inheritance related investment losses.

    817.638.9016

When Your Loved One Does Not Leave a Will

The process becomes more complicated and elaborate, when no will is left by the deceased. An application to determine heirship may be required along with an application for Letters of Administration.

The court determines who is entitled to inherit the property in question through an heirship proceeding which includes the consideration of spouses, children, grandchildren, siblings, parents, etc.

In the heirship proceeding, the Court generally appoints an attorney ad litem which conducts independent investigation into the decedents of the deceased to assist the court in determining the heir.

Once the ad litem proffers a report, an heirship hearing occurs presided by a judge. Two disinterested witnesses, meaning those unrelated to the deceased, are required to testify regarding the heirs.

Satisfied that all heirs have been discovered, the presiding judge will sign a judgment, documenting these heirs along with the percentage each heir is entitled to receive of the estate.

The judge will then issue Letters of Administration to the person chosen as the administrator. Letters of Administration serve essentially the same purpose as Letters Testamentary.

Providing for Special Needs Kids–Using Special Needs Trusts

As the mom or dad of a special needs child, your heart and hands are already full. With a Special Needs Trust, your child continues receiving government benefits and enjoys an enhanced life–with the trust funds paying for the extras including:

  • Paying you for providing care to your child
  • Paying for fun trips and activities for your child
  • Setting aside savings for your child’s future needs

To schedule an appointment with Travis Weaver, attorney, or Rick Weaver, attorney, about creating a Special Needs Trust, call 817-638-9016. To learn more about this essential legal tool, check out our extensive Q & A below: 

Why is a Special Needs Trust essential?

If you leave money or property directly to your special needs child, either in a will or through intestacy (dying without a will), the inheritance your child receives will endanger his or her ability to receive benefits under government programs such as Supplemental Security Income (SSI) and Medicaid.

What is a Special Needs Trust?

A Special Needs Trust, also known as a Supplemental Needs Trust, is created to hold cash or property for your special needs child. Funds from the trust can be used to help your special needs child–yet still allow the child to receive government benefits like Medicaid or SSI. As described earlier, if the child owns these assets outright, he or she may not qualify for government benefits. 

Funds from the Special Needs Trust may also be used to pay yourself and other family members for caregiving duties. This helps make up for a parent’s lost income. Since many special needs children require around-the-clock care, making it impossible for a parent to hold a job, this benefit may help relieve financial stress and ensure your child receives the best possible care–from you.  

What does my special needs child gain with a Special Needs Trust? 

A properly drafted and executed Special Needs Trust shelters assets for a special needs child or other disabled person, while allowing the child to benefit from government programs offering support to disabled individuals. 

Your special needs child may be eligible for Supplemental Security Income (SSI), Social Security Disability Insurance (SSD), Medicare and Medicaid. Consider this brief summary about qualifying for these programs:

  • SSI is a needs-based program available if certain income and resource limitations are met.
  • In most states including Texas, people receiving SSI are automatically entitled to Medicaid.
  • To qualify for SSI and Medicaid, a single person must own less than $2,000 of countable assets.
  • Those with countable assets greater than $2,000 can lose their eligibility for benefits. 

Won’t any trust work? Unfortunately, no. 

Here’s why — support trusts (most common trusts are support trusts), which direct that funds be used for the health, welfare, and support of a beneficiary like a special needs child, will usually disqualify a the child from receiving government benefits. This is because the assets in a support trust are counted as the child’s resources.

A Special Needs Trust allows a parent (the trustee) to use trust funds to add to, not replace, the government benefits for which your special needs child qualifies.

Here’s how it works: 

  • To maintain eligibility for needs-based support, your special needs child (the beneficiary) cannot have control over the assets in the Special Needs Trust.
  • Your special needs child cannot manage the assets, have the right to demand distributions of income or property from the trust, name the Trustee or change the terms of the Special Needs Trust.
  • The use of the Special Needs Trust’s assets for the benefit of a special needs child is determined by the parent (Trustee).
  • Because your special needs child (the beneficiary) does not have a claim to the assets in the trust, this means the trust assets are not countable resources and do not affect the special needs child’s eligibility for benefits.
  • As a result, the special needs child continues receiving government benefits, while still enjoying the benefits of the funds or property in the trust–for things like travel, entertainment, and other  supplemental needs that may greatly enhance your child’s quality of life. 

Who can serve as a trustee of a Special Needs Trust? 

  • The Trustee can be a parent, family member, friend, or private professional trustee.
  • In the case of a self-settled special needs trust, the person making the gift to create the trust can also serve as trustee. A self-settled special needs trust requires a payback provision for any governmental benefits received. All other special needs trusts do not require such payback provisions. 

Want to schedule an appointment to talk with us about setting up a special needs trust? Call Travis Weaver, attorney, or Rick Weaver, attorney, today at 817.638.9016. 

The Weaver Firm Guide to Trusts

photo of beneficiary checks from trust payout

What the heck is a “trust” and why should I care? Good questions. The answers may save you money, time, and headaches.

To help you understand, we’ve provided a quick and easy overview below for a variety of trusts. Let’s start with a few basic trust terms  and definitions–

Trust Terms & Definitions

  • Trustee: The person designated in the Trust Agreement to take possession of the trust assets and manage those assets. He must also preserve and manage the assets according to the provisions in the Trust agreement.
  • Trust Agreement: The Trust Agreement is the document that creates the Trust and sets out the provisions related to the Trust. For instance, it will generally designate the trustee, the beneficiaries, and the purposes of the Trust. It will also typically include provisions designed to guide the trustee in fulfilling his duties.
  • Grantor: The person(s) who creates the Trust Agreement. In order for the Grantor to create a valid trust, he must designate a trustee and a beneficiary. He must also transfer assets into the Trust.
  • Beneficiary: The Trust Beneficiary is the person(s) who receives the benefit of the assets in the Trust.

Types of Trusts – Overview

Testamentary Trusts 

  • The concepts of wills and trusts combine when you consider the creation of a Testamentary Trust.
  • These trusts are created under your will and control the management of your assets after your death.
  • These trusts have a wide array of uses, but they are very often used to provide for the management of assets for minors and young children in the event they might become entitled to receive property under a will.

Revocable Living Trusts 

  • In recent years, the use of Revocable Living Trusts as a substitute for traditional estate planning has exploded in many states.
  • In Texas, however, these trusts as effective estate planning alternatives have limited usefulness.

Educational Trusts 

  • One of the primary concerns that many parents and grandparents have is setting aside money to provide for education for their children and grandchildren.
  • In spite of this desire, those same parents and grandparents recognize that the best interests of their children is not served by giving large sums of money to minors or young adults who might rather buy a car than pay for an education.
  • As a result, the use of an Educational Trust becomes a very appropriate option for providing money for education while making sure the money is used appropriately.

Spendthrift Trusts 

  • Another concern of people creating trusts is that they want the assets of the trust to be protected from the attacks of potential creditors of either the Grantors or the Beneficiaries of the Trust.
  • Spendthrift provisions can be incorporated into a Trust, which will then protect the trust assets from attack.

Crummey Trusts 

  • People making gifts into Trusts generally make those gifts for a variety of reasons.
  • However, regardless of the reason, they do not want to give up their money and pay gift taxes on top of giving away their money.
  • The Crummey trust provisions make it possible to make gifts to a trust while excluding some portion or all of the gift from potential gift tax complications.

Irrevocable Life Insurance Trusts 

  • Life insurance policies can very often present estate tax problems for the person who owns the policy.
  • To combat the estate tax complications, the Irrevocable Life Insurance Trust provides an alternative to own a life insurance policy while completely excluding the proceeds from the estate for tax purposes.

Medicaid Gifts and Trusts

How Do Assets and Trusts Impact Medicaid Eligibility?

Medicaid eligibility requires minimal personal assets.

Your health care needs will increase as you age.

That is a given.

With this increase, your health care bills will also increase.

That is a given.

Some people turn to Medicaid for financial assistance.

That is not such a given.

What is Medicaid?

Medicaid is a government program managed by states to help with medical and long-term care costs.

It is needs-based, meaning individuals must qualify financially for eligibility.

In order to prevent individuals from merely making transfers of their property, either outright or in trust, to qualify for Medicaid, there is a penalty period imposed on transfers made within five years of applying for Medicaid. 

If an individual establishes a trust using some of his or her own funds, where the individual is the sole beneficiary or one beneficiary in a pool of beneficiaries, the trust may be considered a resource for Medicaid purposes.

This is particularly true if the trust can be revoked — a revocable trust– and the assets can be pulled back into the name of the Medicaid applicant, she said.

Third Party Trust

If the trust is created by a third party, with third party funds, for the benefit of the Medicaid applicant, then the answer would depend on the specific terms of the trust and whether or not the settlor — the person who created the trust — is the spouse of the Medicaid applicant.

That’s because income and asset limitations are imposed on the community spouse in order for the applicant spouse to qualify for Medicaid.

The state may also have the right of recovery against the estate of a deceased Medicaid recipient for Medicaid benefits paid to such individual during his or her lifetime. Always use a ladybird deed or a transfer on death deed for real property.

For starters, you cannot simply transfer (gift) assets to your loved ones to become eligible.

In fact, the transfers would need to occur more than five years before the Medicaid application.

Work with an experienced elder law attorney to determine if Medicaid is a viable option for you.

Contact us at 817.638.9016