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What is the “Lookback Period”?
Medicaid looks back 60 months from the date of a
Medicaid application to determine whether you have made
any gifts. The lookback period is only an audit period
during which time Medicaid has the right to review all
of the financial records of the applicant (and the
spouse of the applicant, if applicable).
Am I Ineligible For Medicaid If I Have
Transferred Assets Within The Lookback Period?
Whether a period of ineligibility applies depends on the
amount and date of the gift, the identity of the
recipient, and the type of Medicaid benefit you seek.
Transfers to spouses and disabled children are not
subject to a penalty and additional exceptions may apply
if the applicant transferred his or her residence. The
transfer penalty is only for nursing home care and the
LTHHC (“Long Term Home Health Care”) Program. The
transfer penalty can be shorter or longer than 60
months. There is no transfer penalty for Medicaid home
care.
Are Gifts Under $12,000 Excluded from the
Medicaid Transfer Penalty?
A gift of under $12,000 is subject to the Medicaid
transfer penalty rules for nursing home care and the
Long Term Home Health Care program even though the gift
is excluded for federal gift tax purposes.
Do Gifts in Excess of $12,000 Require a
Gift Tax Payment?
Gifts in excess of $12,000 are subject to Federal gift
tax, but the amount of the gift will be offset by the
$1,000,000 Federal gift tax exclusion. Therefore, no
gift tax is actually due unless the donor’s total
lifetime gifts exceed $1,000,000.
Are Life Insurance Proceeds Tax Free?
Generally, the receipts of life insurance proceeds are
income tax free but not estate tax free. Proper planning
can be undertaken, however, so that life insurance
proceeds are also estate tax free. For example, an
Irrevocable Insurance Trust can be utilized.
Should I have a Durable Power of
Attorney?
It is advisable to have a Durable Power of Attorney if
you have at least one person whom you trust implicitly
who is also willing to manage your financial affairs in
the event you become incapacitated. If you become
incapacitated and you have not executed a proper Durable
Power of Attorney, a costly guardianship proceeding
would likely be necessary to obtain authority from the
court to manage your affairs.
Do Revocable Trusts Avoid Estate Taxes?
A Revocable Trust does not avoid estate taxes although
it may avoid the probate process. The Trust assets will
be part of the grantor’s estate for estate tax purposes.
However, married couples can save estate taxes by having
Revocable Trusts which contain a Credit Shelter Trust
(also known as a By-Pass Trust.)
Can Revocable Trusts Protect Assets from
Medicaid?
A Revocable Trust does not protect assets from Medicaid
and the nursing home. The Trust assets are considered
available for the purpose of determining Medicaid
eligibility. Creditors such as a nursing home can also
make a claim against the Trust assets. Only a properly
drafted Irrevocable Trust will protect the assets from
Medicaid and the nursing home.
Is Estate Planning Necessary For
Individuals With Under $1,000,000 In Assets?
Everyone should implement estate and long term care
planning to protect one’s assets and to preserve one’s
dignity. A Durable Power of Attorney with Health Care
Proxy and Living Will can ensure ongoing decision making
in the event of a disability. Wills and Trusts can
ensure a proper disposition of your assets at the time
of your death. Long Term Care Planning can protect your
assets from Medicaid and the nursing home. There are
also Federal and State income tax issues which affect
people with under $1,000,000 that should be addressed
(for example, IRA distributions, basis rules, and
capital gains on the sale of a residence).
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