Category Archives: Testamentary Trusts

Five Issues in Massachusetts Medicaid Planning

December 11, 2010 – 8:40 am

by: Brian E. Barreira, Esq.

Most Living Trusts Sold at Seminars Don’t Work for MassHealth Purposes

Often overlooked in the estate tax planning process is that a funded trust that avoids probate is often considered available by MassHealth (i.e., Medicaid) to pay for the surviving spouse’s nursing home care. Thus, funding a revocable trust for the sole purpose of avoiding probate can place a surviving spouse in a worse position than if probate avoidance had not been accomplished.

Testamentary Trusts
There is one type of trust that spouses can establish for each other that meets the criteria established under both federal law and Massachusetts regulations for being considered unavailable to a MassHealth applicant: a discretionary testamentary trust. Under a federal Medicaid law that has been in effect since 1985, an unfunded trust that was funded by the deceased spouse’s will is not considered available for payment of the nursing home care of the surviving spouse to the extent that distributions are discretionary.

Irrevocable Trusts Also Allow Capital Gains Tax Planning

Irrevocable trusts are subject to a 5-year lookback period, and can sometimes place an elderly person in a worse position when applying for MassHealth than other types of gifts. Since an irrevocable trust is effective only if its principal cannot be distributed to the person who established it, attempting to preserve the use of the principal to pay for home care or assisted living is not possible. An irrevocable trust can be drafted, however, to allow principal distributions from the trust to others who can opt to pay for the home care or assisted living. If the irrevocable trust triggers the grantor trust rules as to the trust principal, such as by the reservation of a special power of appointment, the grantor can maintain use of the $250,000.00 capital gains exclusion upon a sale by the trust.

Long-Term Care Insurance Policies Can Preserve the Home

If a person ever received any type of MassHealth benefits, a post-death estate recovery claim for reimbursement can be made against the person’s probate estate. Under current MassHealth regulations, a 2-year, $125.00 per day long-term care insurance policy can exempt the home from post-death estate recovery for MassHealth long-term care (but not community care) benefits. This regulation replaced the prior requirement of $50.00 per day, which was grandfathered for individual long-term care insurance policies issued before March 15, 1999.

Immediate Annuities As a Last-Minute Option for the At-Home Spouse

The purchase of an immediate annuity can place a community spouse in a worse financial position than going through the MassHealth appeal process. In cases where the MassHealth appeal process would not preserve all assets, an immediate annuity can help, but the MassHealth appeal process is financially preferable because it can preserve not only all assets but also some or all of the institutionalized spouse’s income for the benefit of the community spouse. The payout period of the annuity cannot exceed MassHealth’s determination of the life expectancy of the community spouse. Under the immediate annuity route, however, MassHealth eligibility is not effective until the date the annuity is irrevocably purchased, so it is important that a qualified elder law attorney make a determination of which is the better route as early in the planning process as possible.

By Brian E. Barreira | Also posted in Annuities, Irrevocable Trusts, Long-Term Care Insurance, Preserving Assets & Income for the Spouse, Protecting the Home, Revocable Trusts, Tax Issues | Tagged , , , , | Comments (1)

Fitting Medicaid Issues and Long-Term Care Insurance into Estate and Gift Tax Planning

December 1, 2010 – 11:10 am

by: Brian E. Barreira, Esq.

Proper estate planning should not ignore long-term care issues, such as the following:

(1)  Any gifts or other transfers for less than full value, including $13,000.00 gifts and other annual exclusion gifts, are considered to be disqualifying transfers for Medicaid purposes.

(2)  The average current cost of a semi-private room in a Massachusetts nursing home is now roughly $300-320 per day, which amounts to $9,000-9,600.00 per month or $108,000-115,000 per year. Persons with Alzheimer’s disease who can no longer remain at home run the risk of an extended nursing home stay, reputedly averaging 8-9 years. With a potential long-term care cost of roughly $864,000-1,035,000, how can intelligent estate and gift tax planning be done without factoring long-term care insurance into the process? It is difficult for an estate planner to recommend making large gifts if the remaining assets will possibly be insufficient to meet the client’s foreseeable needs.

(3)  Often overlooked in the estate and gift tax planning process is how a revocable trust established by a now-deceased spouse is viewed if the surviving spouse applies for Medicaid. A funded trust that avoided probate is often considered completely available for the surviving spouse’s care, so funding a revocable trust for the sole purpose of avoiding probate can place a surviving spouse in a worse position than if probate avoidance had not been accomplished.

(4)  There is one type of trust that spouses can establish for each other that meets the criteria established under both federal law and Massachusetts regulations for being considered unavailable to a Medicaid applicant: a discretionary testamentary trust. Under a peculiar federal Medicaid law, an unfunded trust that was funded by the deceased spouse’s Last Will and Testament is not considered available for payment of the nursing home care of the surviving spouse to the extent that distributions are discretionary. In essence, a bypass or credit shelter trust can be established under the decedent’s Last Will and Testament that has only the surviving spouse as a beneficiary, with no required distributions of income or principal. The surviving spouse should not be given a general power of appointment over the trust or any other power to make withdrawals.

By Brian E. Barreira | Also posted in Gifts & Disqualifying Transfers, Long-Term Care Insurance, Preserving Assets & Income for the Spouse, Revocable Trusts, Tax Issues | Tagged , , , , , | Comments (0)