On demand 1h 06s Intermediate

Medicaid Asset Protection Trusts

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Medicaid Asset Protection Trusts

Long term care expenses can deplete savings or impoverish many people very quickly, and most do not insure for such expenses. This CLE course will provide elder law attorneys with a method for Medicaid and Veterans’ Aid & Attendance planning and funding long-term care. We will discuss the purpose and function of asset protection trusts and review tips for preparing them for clients.

Transcript

- Hello, everybody, and welcome to today's CLE about Medicaid Asset Protection Trusts. My name is Evan Farr. I'm a certified elder law attorney and a member of the NAELA Council of Advanced Practitioners, and you can read all about me if you'd like in the materials that accompany this CLE. Let's get right into the meat of the presentation. Very important for all estate planning and elder law attorneys to understand why clients want to set up Medicaid asset protection trusts, and the reason is to protect their assets from the expenses of long-term care and to protect themselves and their families from going broke because long term care expenses are catastrophic for most people. 70% of individuals become impoverished within a year of going into a nursing home. That was a study by AARP, I don't know, about 10 years ago. Another big study by Unum Insurance found that 46% of long term care claimants were under age 65, so this isn't just for elderly clients, although typically the types of trusts we're talking about today are done by people over 65. But they can be done for people younger, especially if they have something like an early onset of dementia. And long term care insurance is not the answer, because only about 10% of Americans have that. The expenses, if you're not familiar with it, of course, this differs depending on where you are in the country, but in my area of the country, which is Northern Virginia, Maryland, and DC, assisted living runs between seven and 11,000 a month, nursing homes are 12 to 16,000 a month, and 24-hour in-home care, 20 to 30,000 a month. Of course, that's what most people want, but, of course, most people cannot afford that kind of in-home care. The goal of doing a Medicaid asset protection trust, and that's a limiting term, because what you're gonna find out is the so-called Medicaid asset protection trust we're talking about is for much more than Medicaid. It actually, in fact, the version that I use and license to attorneys around the country is called the Living Trust Plus, which I think is a better name than a Medicaid asset protection trust, because it protects your assets from probate, plus lawsuit, plus Medicaid, plus veterans benefits, and we'll talk about all of this. We'll touch on it a little bit, but the goals of these trusts are to help people qualify for benefits, primarily, that Medicaid and/or this Veterans Aid and Attendance benefit. And the whole goal of doing these trusts is not typically to preserve an inheritance for children. Sometimes that is a goal, but for most of my clients, their children are doing well financially. They don't need to protect assets for their clients. They're doing it to preserve their own dignity and quality of life, meaning that the assets that have been protected in this trust can be used by the spouse or a trusted child or other loved one to make life better for the person on Medicaid in the nursing home, to pay for things like replacing lost or broken eyeglasses or dentures or hearing aids, new clothing, better food, hiring a private sitter to take the person in the nursing home, your client, to the bathroom every couple of hours, so they don't wind up sitting in soiled diapers for hours a day, which is sadly what happens to a lot of people in nursing homes. Of course, for married clients, protecting income and assets for the healthy spouse is very important. Protecting the family home, very important, of course, if there's a healthy spouse, and often when there's a adult child living there that may have come to live with the parents to help take care of the parents. And again, sometimes it is about preserving an inheritance. Quick overview of basically five ways to pay for long term care. Of course, privately out of pocket, often until the client goes broke, not a great idea. Most clients don't want to do that. Sadly, that is what most people do because they don't know about elder law or Medicaid asset protection planning, because there's only 500 of us certified elder law attorneys in the country, and, of course, there's a lot of other elder law attorneys that say they do elder law, and you may be one of those, where you primarily do estate planning, which is, of course, a type of elder law. But as far as this type of complex Medicaid asset protection, there really is a very small percentage of attorneys that do this kind of planning. So, sadly, most clients private pay until they run out of money. Hopefully, you're gonna learn today that that's not the way to do it. Traditional long-term care insurance is great if people have it. Again, less than 10% of the population have it, and it's a dying field because the costs are getting outrageously expensive and people who have had these policies generally have had their premiums go up, often multiple times, often doubling or tripling the premiums from the time they've purchased the policy. There's a better, newer type of long term care insurance, which is a hybrid type of coverage. This is usually a combination of a life insurance policy with a long term care benefit or an annuity with a long term care benefit, or even an IRA annuity, which is redundant, 'cause the A in IRA can stand for annuity or account or arrangement. But anyway, these combination policies are often much more desired, these days, much more desired by clients, because it's not a use it or lose it type of benefit. And then, the two programs we'll be talking about today, the Veterans Aid and Attendance for certain wartime veterans and Medicaid. Very important to understand that using a Medicaid asset protection trust or doing any other type of Medicaid asset protection is absolutely, completely legal and ethical. We of course do not hide assets. Hide is literally a dirty four-letter word in the elder law field. We legally protect assets. Sometimes it's called sheltering assets, but completely legal, completely appropriate, just like income tax planning. When people do their taxes every year, if they work with a good accountant, their goal is to maximize deduction and credits and get the biggest tax refund they're entitled to. No one thinks that it's ripping off the government to maximize your tax refund, yet that's exactly what people do with Medicaid planning. You're trying to maximize a tax refund, essentially, because who do you think pays for Medicaid? All of us attorneys do, all of our clients do, because it's part of our taxes. It's not a specific fund like you pay into for social security or Medicare, but two of the top line items in the federal budget and in the budget of every state are Medicaid and education, so that means a huge percentage of your taxes, my taxes, and your clients' taxes are going to fund the Medicaid system. And if you are smart enough and your client is smart enough to get help to protect their assets and to get some of those Medicaid tax dollars back to benefit them or their loved one, it's a no brainer, no different from income tax planning. No different from estate tax planning. Many of you may remember the $600,000 or million dollar estate tax exemption, when a lot of our clients needed to do estate tax planning, and I'm sure you did that and had no qualms about it, nor did your clients. You were trying to pay less taxes to the government. That's what everyone wants to do. The other important thing to understand is that this type of asset protection is required to help our clients overcome our country's discriminatory health insurance system. And by this, what I'm talking about is the fact that long term care is treated differently from healthcare, and our health insurance system doesn't pay when a disease results in the need for what our society calls long term care, help with bathing and dressing and going to the bathroom and so forth. Why this is completely unfair is pointed out with just a simple example. I give this example to clients every day, let's take a look at John and Joe, two neighbors. John has a cancerous brain tumor and Joe has Alzheimer's, which is plaques and tangles in the brain. Well, John's gonna get all of his cancer treatment covered by health insurance, including Medicare, if he's over 65, whether it's chemotherapy, radiation, surgery, all of the above, whether it comes back or spreads and he has to get this treatment again. Even if it's only gonna extend his life for a few months, health insurance is gonna cover all of that. But you look at his neighbor with Alzheimer's, plaques and tangles, the medical system throws up its arms and says, sorry, we don't have any way to treat these plaques and tangles. There's a couple drugs that might slow down the symptoms, but it doesn't eliminate the plaques and tangles, and the result is that the care that Joe is going to need because of his Alzheimer's is eventually long-term care, nursing home care. It's the care he needs as a result of the disease he has. Just like, for the neighbor with the brain cancer, the brain tumor, Medicare and health insurance covers the care he needs for the disease he has, but for Alzheimer's, health insurance doesn't cover the care that is needed because of the Alzheimer's disease. Why is this fair? I submit it's not. It's completely discriminatory, but it's political, and it's just our health insurance system that says long term care is somehow fundamentally different from healthcare, simply because doctors don't have a cure for things that result in long term care. And not that cancer is necessarily even cured. Again, it might be giving someone an extra few months of life through hundreds of thousands of dollars of treatment. Health insurance, happy to pay for it. Another big issue with clients not doing this type of planning is because this type of planning is very poorly understood, and that's because, as I mentioned earlier, there are so few of us experienced elder law attorneys. Again, about 500 of us certified in the entire country. Medicaid is actually the most complex area of law in our country. Some really interesting and kind of humorous quotes here, the United States Supreme Court, in the one case that went up to the Supreme Court, called the Medicaid laws an aggravated assault on the English language and resistant to attempts to understand it. and the U.S. Court of Appeals for the Fourth Circuit, based on a Virginia federal case, called the Medicaid Act one of the most completely impenetrable texts within human experience and dense reading of the most tortuous kind. And this gives you an idea of the complexity and why there's only about 500 of us certified elder law attorneys in the country. So the benefits that we elder law attorneys help people get, and that this Medicaid asset protection trust can help your clients get, is long term care Medicaid, which pays for nursing home care, or home care in some states with limited hours. Like where I practice in Virginia, Maryland, and DC, to give you an example, Virginia will pay for up to eight hours a day of home care for someone who needs the nursing home level of care. DC will pay for up to 16 hours a day, and Maryland won't pay for any in-home care. Some parts of the country have PACE programs, which are basically a daycare program that serves people on Medicaid and Medicare. The Aid and Attendance Benefit for qualified veterans, we'll look at what qualified means in a second, but the benefit, not nearly as valuable as Medicaid, but still helpful to pay for in-home care and care in an assisted living facility. Single veteran over $24,000 a year, married veteran over 29,000 a year, and even a surviving spouse, almost 16,000 a year, and these are tax-free amounts. So quick look at how do people get Medicaid? I touched on a moment ago that you have to, whether you're getting in-home Medicaid or nursing home Medicaid, or in some states, assisted living facilities have, there's a waiver where people can get Medicaid if they're in assisted living, but regardless of where they are, in every state, the Medicaid applicant has to be medically in need of whatever that state deems to be the nursing home level of care. Your income in every state has to be lower than the cost of care. In some states, if you have income over a certain amount, it has to go into a special type of trust called a Miller trust, or also known as a qualifying income trust. And in other states, it doesn't matter if your income is above that limit. The bottom line is it either goes to the nursing home, that income, while you're alive and Medicaid pays the difference, or that excess income goes to a trust while you're alive and Medicaid pays the difference, and then Medicaid gets the money from the trust when you die. Medicaid, of course, looks at gifts, the five-year lookback period, which, hopefully, you've all heard of, but which we will talk about, in case you don't understand how it works. And Medicaid, of course, looks at your countable assets, and this is where elder law attorneys come in and asset protection trusts come in as to turn countable assets into not countable assets, so that the person's amount of countable assets, when it comes time to filing for Medicaid, are below the state limit. That state limit for most states across the country is $2,000, which is the SSI limit. Some states, as an example here, you see the other two states I practice in, DC and Maryland have a slightly higher limit, New York, much, much higher, so it does vary by state. Veterans Aid and Attendance, I told you I would talk about. The service requirements for this benefit are the veteran has to have been a minimum of 90 days active duty, and at least one day during war time, that's it. They don't have to have seen combat or been overseas. They just have to meet those two requirements, and they can't have been dishonorably discharged. And then, they have to meet, of course, financial and medical criteria. They have to have a need for, basically, assisted living and their assets have to be very low, below a net worth threshold, which is about 130,000, changes each year. And, of course, the VA looks at the person's income, but they don't look at the gross or even the net income. They look at income for VA purposes, or IVAP, which is income minus the person's recurring monthly medical expenses. And by expenses, we're really talking about the expenses for the in-home care or the assisted living that the person is getting. All right, you do need to have a basic overview of Medicaid, even if you're just doing estate planning. Real quick, there's eight different bodies of law for the federal level, for the state level, you got the statutes, the administrative regulations, case law, and policy manual, excuse me, and there are basically two very important and interrelated rules that all of you need to understand, and that's the look back period and the penalty, the transfer penalty. So let's quickly look at those. I hope most of you understand that, for Medicaid eligibility, there's a five-year look back period. What this means is when someone applies for Medicaid, the application asks whether the applicant or the applicant's spouse has made any gifts, whether that's to an individual or a charity or a trust, like the Medicaid asset protection trust we're gonna be looking at in a second, within the previous five years. And five years is not always five years. Sometimes it's more like five years and a month, so you gotta be careful there, too, because of when states qualify people for Medicaid. So if there are transfers in the past five years, they have to be disclosed to Medicaid, 'cause, of course, failure to disclose constitutes Medicaid fraud, and you certainly do not want to be helping a client commit Medicaid fraud. And related to this five-year look back is the transfer penalty, so Medicaid looks at any uncompensated transfers that were made within that five-year look back. They add up the total amount of all of those transfers in the five-year look back, and they divide that number by what's called a penalty divisor, which is different in every state. And that penalty divisor results in a number of months of ineligibility for Medicaid, which is called a penalty period, which can be longer than five years. And this five years, by the way, that's in every state except California, which dances to its own beat. But the key is, to get this penalty period started, you have to apply for Medicaid first, so in some situations, you would want to do that to get the clock running, but never in the context of doing a Medicaid asset protection trust. When we're doing a Medicaid asset protection trust, the goal is always to wait out the five years before we apply for Medicaid. And from a high level, it's also important to understand that there are two types of Medicaid planning. There is pre-planning, using an asset protection trust, which is what we're talking about today, and then, in a separate CLE, I'm going to be talking about Medicaid crisis planning, which is done more at the time of need, when someone is close to needing or already needs nursing home level of care. So, to look at level three, or, I'm sorry, to look at the Medicaid asset protection trust, the Living Trust Plus, again, this is what I call the trust in my firm and I've licensed this to about 60 attorneys around the country, and if you're interested, by the way, feel free to go to livingtrustplus.com if you want to look into getting licensed, but this is a special type of irrevocable asset protection trust that protects your client's assets from probate, plus lawsuits, plus veterans aid and attendance, plus Medicaid. You can see why I call it the Living Trust Plus, because it's not just for Medicaid. It's much more than just a Medicaid asset protection trust. This is a graphic, explain how this trust works mechanically. We start in the top left corner. This is your client's home or homes and money, unprotected right now. We set up the Living Trust Plus and we move their assets into the trust, where they are protected immediately from probate, plus lawsuits, plus they're protected after three years in connection with that veteran's aid and attendance benefit, which has a three-year look back, similar to the Medicaid five-year look back. Plus, they're protected after five years for Medicaid. Plus, very importantly for our clients, our clients can change the trustees and the beneficiaries of this trust, so even though this is an irrevocable trust, as you hopefully know, your clients don't know, irrevocable does not mean set in stone, you can't change anything about it. On the contrary, irrevocable just means what it says. It means that the grantor, the settlers, the creators of the trust cannot unilaterally revoke the trust or take the money out of the trust, but they can reserve the right to change the trustees and change the beneficiaries. Plus, the creator of the trust, your client, if they're still mentally competent, they can be the trustee of the trust, at least in most states. Your client will have full use of the real estate. They will still live in the home, pay the taxes, insurance, upkeep, utilities, et cetera. Retirement accounts, such as IRAs and 401ks, can't go in the trust unless the client cashes out the proceeds and pays the taxes, and retirement income, like social security or pensions, and the person's checking account, where that retirement income goes into, those stay outside of the trust, so the settler of the trust, your client, continues to receive their income, pay their monthly bills the same way they do now. Nothing changes there. Looking to the right side of the trust, you'll see that we have a back door, so as I explain this to my clients, this is like a vault, this trust. The clients put their assets in this front door of the vault, and there should be an arrow right here, which, for some reason is missing. But the money goes into the vault and that vault door gets locked and the key gets thrown away, so the clients can never get the assets out. But this vault is unique in that it has a back door, and at any time, the trustee of the trust, which, again, in most states, can be the client, can make a back door distribution to the beneficiaries of the trust. Beneficiaries are typically trusted adult children, and they can then give the money back to your client or use it for their benefit by paying for in-home care or assisted living or giving them money back to go on a vacation, or what have you. The income taxation of this trust is it's a grantor trust, so all of the income is taxed to the settler, your client, even though they're not receiving the income, because the income stays inside the trust, for the most part, though there is a version of this trust, which we'll talk about briefly, where the clients can receive the income. I call it a income distribution trust, also known as an income-only trust, but those have fallen out of favor for the most part in the last decade or so. Because this is a grantor trust, for IRS purposes, not only is the income taxed to the settlers, but they're still entitled to the $250,000 capital gains exclusion on the sale of the primary residence, of course, doubled for a married couple. And if the house remains in trust until the death of your client, then their children will inherit the property at the full step-up in basis, as long as IRS doesn't do away with the whole step-up in basis concept. So this, in a nutshell, is how the trust works. This is another summary, just without the graphic. There's no change to your client's checking account, no change to their retirement income. They retain the right to live in their home. They get immediate protection from probate, plus lawsuits, plus protection after three years for Veterans Aid and Attendance if they or their spouse is a qualified veteran, and protection after five years for Medicaid. And your clients remain in control, because your client can be the trustee. If they're not the trustee, they can change the trustee. They can always change the beneficiaries. That's as simple as changing their will, because the will has a, there's a limited power of appointment reserved in the trust, letting the beneficiary, or, I'm sorry, letting the settler change the beneficiaries of the trust via their will. And the settler always has that indirect access to principle through the back door of the trust, and there's also indirect access because, like almost all irrevocable trusts, this trust can be terminated by agreement of all interested parties through what's called a non-judicial settlement agreement if you are in a state that has the Uniform Trust Code. All right, moving on. Come on, come on, slide. Sorry, there we go. All right, so the benefits of a trust versus an outright gift are a lot, so, you know, a lot of people say, well, why don't we just give the house to the kids? And a lot of people make the mistake of doing that, but there are at least these seven benefits of a trust versus an outright gift. With a trust, the settler can remain the trustee and maintain investment control, maintain the ability to sell the house, live in the house, make distributions from the trust. We have the limited power of appointment to change beneficiaries, and it's always testamentary. In some states, it can be a lifetime power of appointment. We use a lifetime power of appointment regularly, in addition to a testamentary power of appointment. Of course, if you make an outright gift, it's gone. You have no more control. You can't change the beneficiaries of an outright gift. If your children go and sell the house and kick you out, tough noogies, you know? It's hopefully not likely to happen, but it could, or the kids get sued and they own your house, well, there goes the house. They could lose it in a lawsuit, in a judgment, in a bankruptcy, a divorce, all the problems of transferring to an individual. Number three, the power to remove and replace trustees, again, you have this with a trust, not with an outright gift, ability to change trustees at any time. The Section 121 Capital Gain Exclusion we talked about a minute ago, that can be huge. That, along with the step-up in basis, if the grantor dies while the home is still in the trust, those are lost, as you know. With an outright gift, your clients are giving away their cost basis, so if they bought a property for 30,000 and it's now worth $400,000 40 years later, and they just give the house away to the kids, they're giving the kids their $30,000 basis, which means the kids are gonna face, potentially, a huge capital gains tax when they eventually sell the house. And we all know how important that step-up in basis can be, so preserving that through this type of trust is one of the huge reasons for doing this trust and not an outright gift. And, of course, the creditor protection, not just for your clients, the creators of the trust, but we can build in spendthrift creditor protection for the beneficiaries. So, obviously, when you just make an outright gift, it's an outright gift and it's exposed to the children's creditors and could be gone at any moment, as we said, through a lawsuit, divorce, bankruptcy, what have you. With a trust, you can provide that your house and your other assets stay in an ongoing what I call a beneficiary asset protection trust. It's also known as a spendthrift trust for the beneficiaries, so that their creditors can't get at it for the rest of their lifetime. All right, so where does the law of these trusts come from? Well, excuse me, the statutory authorization came from OBRA '93. This talked about income-only trust, which is one type of Medicaid asset protection trust, and so, these have been clearly allowed since 1993. And they were done even before that, but the law in 1993 clarified exactly how they worked, and there's a quote here, which I'm not gonna bother reading, 'cause it's confusing and it's in my materials. What made that less confusing were two letters from federal government officials, the head of what was then called HCFA, the Healthcare Financing Administration, now known as CMS, the Center for Medicare and Medicaid Services, and these two letters from the head of the agency are called the Richardson letter and the Streimer letter. So the Richardson letter, this is important, clarify that if no portion of the trust corpus may be distributed to an individual, okay, that's the key, now, she says, "i.e., an income-only trust," then no portion of the trust is deemed a resource of the individual for Medicaid eligibility purposes. So that's because the attorney writing the letter to which this question was being answered was asking about an income-only trust, as opposed to a trust which simply did not allow the settler to receive any distributions from the trust, which clearly is encompassed within the concept here, because, in that case, the first sentence, the first clause simply applied, no portion of the trust corpus may be distributed to an individual, ever. And then, in the Streimer letter, a couple years later, it made it clear that the transfer to the irrevocable trust is what Medicaid looks at, and they do not look at transfers made out from the irrevocable trust to someone other than the settler. And, of course, transfers in a properly drafted Medicaid asset protection trust can never be made to the settler. They have to go out to someone other than the settler, And those do not incur an additional penalty period. Now, these letters are really important, and these are part of the body of law that makes up, the law of why these Medicaid asset protection trusts work, and some of you may be wondering, how can a simple letter from an administrative agency be part of the law? Well, it is because there are cases which we'll talk about in a moment that say that it is presumed that all administrative actions are made in accordance with statutory provisions, and these letters were official letters from the head of a government agency clarifying the law, and these still stand as a clarification of the law. Why is this the case? Well, we'll look at two cases. One sums up the rule back in 1969, the court stated that the actions of an administrative agency will be presumed valid, reasonable, correct, and taken in knowledge of material facts. And then we have a much more recent case that we all lived through, which was the Bush v. Gore case, the whole hanging chad thing, and the U.S. Supreme Court, there, they decided with the highest election official of, I forget whether the state electoral board or the federal electoral board, but the whole outcome here was that the Supreme Court said the election process is committed to the executive branch of the government through duly designated officials, all charged with specific duties. The judgements of these officials are entitled to be regarded by the courts as presumptively correct. So, here again, fairly recently, we have the Supreme Court saying that the actions of an official government agency are presumed correct, and that's why these two letters are very important. So I mentioned earlier there are some variations of this trust. The one that is used most often is the one where I showed you the graphic, where the settler has no right to receive any distributions of the trust, but sometimes we give the settler the right or the requirement to receive income from the trust. Typically, that is ordinary income, which is interest, dividends, and rent. And, typically, I only do these if a client relies on rental income for their survival and they don't want to have to get rental income through the back door of the trust every month. Another variation is sometimes a trust will be written to specifically give the settler the right to reside in the residence. Usually, that's done through a separate agreement, but sometimes it's written into the trust, though that has been challenged in at least one state. Ultimately, Medicaid, the Medicaid agency, this was in Massachusetts, lost the challenge, but it's not something that you want to risk if you don't have to. And sometimes these trusts are written as non-grantor trusts for veterans asset protection purposes, because the VA looks at all taxable income to the grantor. If the grantor is being taxed on the income and it shows up on their tax return, even though they're not receiving it, it could hurt them from getting the Veterans Aid and Attendance benefit or reduce the amount of the benefit that they're entitled to. And then, another variation of that is a trust that I prepare frequently, where it's actually a grantor trust as to the beneficiaries, because the beneficiaries can demand all the income annually. And again, we do this for veterans so that the income is not attributable to the veteran. Settler control is a crucial feature of this trust. Again, the settler can be the trustee. If they're not, in most states, some states have had Medicaid challenge that, so be careful. If you're new to this, you need to get involved with your state chapter of the National Academy of Elder Law Attorneys and get on your local state Listserv, find out what works and doesn't work in your state. But in most states, the settler can be the trustee. Medicaid doesn't care about that. The settler can retain the right to remove and replace the trustee and retains a limited power of appointment, as we talked about already, to change the beneficiaries at any time. Now, the question you're gonna get from a lot of clients is, well, what if I don't make it the five years for Medicaid? Well, that's okay. Depending on how much money the client has to start and how much goes into the trust, you can still protect a lot of assets using this type of trust. Here's a very simple example. This was a client of mine from years ago, but this is a story like probably 15 of our clients over the years, very similar. Joan came to me, she was 72, completely healthy. She had $800,000 of assets. 400,000 was a house, 300,000 in a brokerage account, and 100,000 in an IRA, and she kept the IRA out of the trust because she didn't want to pay a higher tax rate if she were to have cashed that out. And she has $20,000 of annual income from social security, fairly common. And we thought she was gonna make the five years 'cause she was 72 and healthy when she came to us, but she had a stroke three years later and she wound up in a nursing home at a cost of 10,000 a month. So the question for her family became, okay, now what? How do we, what do we do now? Is the trust useless because she didn't make it the five years? And the answer is, of course not. We just have to figure out how are we gonna pay this 10,000 a month for the next two years, to pay privately for the nursing home. And the answer, in her case, was easy. Keep in mind, she's got 20,000 of annual income that's gonna go to the nursing home, so we only have a shortfall of $100,000 per year, so we gotta get $100,000 for two years. Well, the first year, we simply liquidated her IRA and used that to pay for the nursing home. And by the way, she didn't have to pay any taxes when she liquidated that IRA, even though it was all taxable income because she got a medical expense deduction, because all of that money was going to the nursing home, which is a medical expense. And in the second year, the broker simply liquidated $100,000 from that $300,000 brokerage account. The trustee made a backdoor distribution to one of the trust beneficiaries, who then turned around and used that money to pay for the second year of the nursing home, along with mom's income. So the end result is now we're past the five-year look back. We were able to apply for Medicaid, and what was left in the trust is protected, and what was left? Well, ignoring inflation, what was left was a house worth 400,000 and 200,000 left in a brokerage account. So she came to me with $800,000 of assets. At the end of the day, in five years, she had $600,000 left, protected, and we got her on Medicaid. So we protected, even though she only made it three years, we protected 6/8, which is, of course, 3/4, which is, of course, 75% of her assets, which is a really good result, to protect 75% of her assets, even though she only made it three years out of the five years. Okay, so, hopefully, everybody understands that concept. Now, next, I want to touch on, that Joan, in this example, did not want to cash out her IRA is because she only had 20,000 a year of income, which put her into this 12% tax bracket, right here in the middle. If she had cashed that IRA, it would've come to about half of that income, more than half, into the 22% tax bracket, an extra 10%. So that's what makes sense for her, and worked out well because she needed that money to pay for her care after three years anyway and got the medical expense reduction, so it was a good result. But some cases from our clients, they're going to want to cash out money from their retirement accounts, pay the taxes now, and put the after-tax amount into the trust, because many of our clients, especially married couples, they're somewhere here in the 22% bracket or the 24% tax bracket. And so, let's say a couple has $150,000 of retirement income per year and they've got 500,000 in an IRA. Well, if you do the math, or let's make it 140,000 to make the math easier. So they got 140,000 of income. That means they could take out $200,000 a year for the next four years and stay within the 24% tax bracket. And jumping from 22 to 24 is not a big deal, because these tax rates, in 2026, are scheduled to go up. 22 is going up to 25, 24 is going up to 28, reverting to what the tax rates were in 2016. So if people can max out this 24% tax rate, whether it's a single individual maxing out the 170 or a couple maxing out the 340, in my mind, it's a no brainer from a financial standpoint to lock in these low taxes before they go up and they wind up higher taxes later. So there are a lot of clients that this applies to, because a lot of clients do have a lot of money in retirement accounts. And with that, I will thank you all for watching. I hope you have learned a lot, and I would encourage you to sign up for my other CLE that is on crisis planning and Medicaid. Hope you have a great day. Take care.

Presenter(s)

EFJ
Evan Farr, JD
Certified Elder Law Attorney, NAELA Council of Advanced Practitioners
Farr Law Firm

Credit information

Jurisdiction
Credits
Available until
Status
Alabama
    Not Offered
    Alaska
    • 1.0 voluntary
    August 31, 2024 at 11:59PM HST Available
    Arizona
    • 1.0 general
    August 31, 2024 at 11:59PM HST Available
    Arkansas
    • 1.0 general
    August 31, 2024 at 11:59PM HST Approved
    California
    • 1.0 general
    August 31, 2024 at 11:59PM HST Approved
    Colorado
    • 1.0 general
    Unavailable
    Connecticut
    • 1.0 general
    August 31, 2024 at 11:59PM HST Available
    Delaware
      Not Offered
      Florida
      • 1.0 general
      Pending
      Georgia
      • 1.0 general
      Unavailable
      Guam
      • 1.0 general
      August 31, 2024 at 11:59PM HST Available
      Hawaii
      • 1.0 general
      August 31, 2024 at 11:59PM HST Approved
      Idaho
        Not Offered
        Illinois
        • 1.0 general
        September 3, 2024 at 11:59PM HST Approved
        Indiana
          Not Offered
          Iowa
            Not Offered
            Kansas
            • 1.0 general
            Pending
            Kentucky
            • 1.0 general
            Pending
            Louisiana
            • 1.0 general
            Pending
            Maine
            • 1.0 general
            December 31, 2026 at 11:59PM HST Self-apply
            Minnesota
              Not Offered
              Mississippi
                Not Offered
                Missouri
                • 1.0 general
                August 31, 2024 at 11:59PM HST Available
                Montana
                  Not Offered
                  Nebraska
                  • 1.0 general
                  December 16, 2024 at 11:59PM HST Approved
                  Nevada
                  • 1.0 general
                  December 31, 2025 at 11:59PM HST Approved
                  New Hampshire
                  • 1.0 general
                  August 31, 2024 at 11:59PM HST Available
                  New Jersey
                  • 1.2 general
                  May 2, 2025 at 11:59PM HST Approved
                  New Mexico
                    Not Offered
                    New York
                    • 1.0 areas of professional practice
                    August 31, 2024 at 11:59PM HST Available
                    North Carolina
                    • 1.0 general
                    Unavailable
                    North Dakota
                    • 1.0 general
                    August 31, 2024 at 11:59PM HST Available
                    Ohio
                    • 1.0 general
                    Unavailable
                    Oklahoma
                    • 1.0 general
                    Pending
                    Oregon
                    • 1.0 general
                    August 30, 2025 at 11:59PM HST Approved
                    Pennsylvania
                    • 1.0 general
                    Pending
                    Puerto Rico
                      Not Offered
                      Rhode Island
                        Not Offered
                        South Carolina
                          Not Offered
                          Tennessee
                          • 1.0 general
                          Pending
                          Texas
                          • 1.0 general
                          Pending
                          Utah
                            Not Offered
                            Vermont
                            • 1.0 general
                            August 31, 2024 at 11:59PM HST Approved
                            Virginia
                            • 1.0 general
                            Pending
                            Virgin Islands
                            • 1.0 general
                            August 31, 2024 at 11:59PM HST Available
                            Washington
                            • 1.0 law & legal
                            August 31, 2027 at 11:59PM HST Approved
                            West Virginia
                              Not Offered
                              Wisconsin
                                Not Offered
                                Wyoming
                                  Not Offered
                                  Credits
                                    Available until
                                    Status
                                    Not Offered
                                    Credits
                                    • 1.0 voluntary
                                    Available until

                                    August 31, 2024 at 11:59PM HST

                                    Status
                                    Available
                                    Credits
                                    • 1.0 general
                                    Available until

                                    August 31, 2024 at 11:59PM HST

                                    Status
                                    Available
                                    Credits
                                    • 1.0 general
                                    Available until

                                    August 31, 2024 at 11:59PM HST

                                    Status
                                    Approved
                                    Credits
                                    • 1.0 general
                                    Available until

                                    August 31, 2024 at 11:59PM HST

                                    Status
                                    Approved
                                    Credits
                                    • 1.0 general
                                    Available until
                                    Status
                                    Unavailable
                                    Credits
                                    • 1.0 general
                                    Available until

                                    August 31, 2024 at 11:59PM HST

                                    Status
                                    Available
                                    Credits
                                      Available until
                                      Status
                                      Not Offered
                                      Credits
                                      • 1.0 general
                                      Available until
                                      Status
                                      Pending
                                      Credits
                                      • 1.0 general
                                      Available until
                                      Status
                                      Unavailable
                                      Credits
                                      • 1.0 general
                                      Available until

                                      August 31, 2024 at 11:59PM HST

                                      Status
                                      Available
                                      Credits
                                      • 1.0 general
                                      Available until

                                      August 31, 2024 at 11:59PM HST

                                      Status
                                      Approved
                                      Credits
                                        Available until
                                        Status
                                        Not Offered
                                        Credits
                                        • 1.0 general
                                        Available until

                                        September 3, 2024 at 11:59PM HST

                                        Status
                                        Approved
                                        Credits
                                          Available until
                                          Status
                                          Not Offered
                                          Credits
                                            Available until
                                            Status
                                            Not Offered
                                            Credits
                                            • 1.0 general
                                            Available until
                                            Status
                                            Pending
                                            Credits
                                            • 1.0 general
                                            Available until
                                            Status
                                            Pending
                                            Credits
                                            • 1.0 general
                                            Available until
                                            Status
                                            Pending
                                            Credits
                                            • 1.0 general
                                            Available until

                                            December 31, 2026 at 11:59PM HST

                                            Status
                                            Self-apply
                                            Credits
                                              Available until
                                              Status
                                              Not Offered
                                              Credits
                                                Available until
                                                Status
                                                Not Offered
                                                Credits
                                                • 1.0 general
                                                Available until

                                                August 31, 2024 at 11:59PM HST

                                                Status
                                                Available
                                                Credits
                                                  Available until
                                                  Status
                                                  Not Offered
                                                  Credits
                                                  • 1.0 general
                                                  Available until

                                                  December 16, 2024 at 11:59PM HST

                                                  Status
                                                  Approved
                                                  Credits
                                                  • 1.0 general
                                                  Available until

                                                  December 31, 2025 at 11:59PM HST

                                                  Status
                                                  Approved
                                                  Credits
                                                  • 1.0 general
                                                  Available until

                                                  August 31, 2024 at 11:59PM HST

                                                  Status
                                                  Available
                                                  Credits
                                                  • 1.2 general
                                                  Available until

                                                  May 2, 2025 at 11:59PM HST

                                                  Status
                                                  Approved
                                                  Credits
                                                    Available until
                                                    Status
                                                    Not Offered
                                                    Credits
                                                    • 1.0 areas of professional practice
                                                    Available until

                                                    August 31, 2024 at 11:59PM HST

                                                    Status
                                                    Available
                                                    Credits
                                                    • 1.0 general
                                                    Available until
                                                    Status
                                                    Unavailable
                                                    Credits
                                                    • 1.0 general
                                                    Available until

                                                    August 31, 2024 at 11:59PM HST

                                                    Status
                                                    Available
                                                    Credits
                                                    • 1.0 general
                                                    Available until
                                                    Status
                                                    Unavailable
                                                    Credits
                                                    • 1.0 general
                                                    Available until
                                                    Status
                                                    Pending
                                                    Credits
                                                    • 1.0 general
                                                    Available until

                                                    August 30, 2025 at 11:59PM HST

                                                    Status
                                                    Approved
                                                    Credits
                                                    • 1.0 general
                                                    Available until
                                                    Status
                                                    Pending
                                                    Credits
                                                      Available until
                                                      Status
                                                      Not Offered
                                                      Credits
                                                        Available until
                                                        Status
                                                        Not Offered
                                                        Credits
                                                          Available until
                                                          Status
                                                          Not Offered
                                                          Credits
                                                          • 1.0 general
                                                          Available until
                                                          Status
                                                          Pending
                                                          Credits
                                                          • 1.0 general
                                                          Available until
                                                          Status
                                                          Pending
                                                          Credits
                                                            Available until
                                                            Status
                                                            Not Offered
                                                            Credits
                                                            • 1.0 general
                                                            Available until

                                                            August 31, 2024 at 11:59PM HST

                                                            Status
                                                            Approved
                                                            Credits
                                                            • 1.0 general
                                                            Available until
                                                            Status
                                                            Pending
                                                            Credits
                                                            • 1.0 general
                                                            Available until

                                                            August 31, 2024 at 11:59PM HST

                                                            Status
                                                            Available
                                                            Credits
                                                            • 1.0 law & legal
                                                            Available until

                                                            August 31, 2027 at 11:59PM HST

                                                            Status
                                                            Approved
                                                            Credits
                                                              Available until
                                                              Status
                                                              Not Offered
                                                              Credits
                                                                Available until
                                                                Status
                                                                Not Offered
                                                                Credits
                                                                  Available until
                                                                  Status
                                                                  Not Offered

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