Don’t Transfer Ownership of Your House to Your Kids Before You Read This

With the cost of long-term care (LTC) skyrocketing, you may be concerned about your (or your elderly parents’) ability to pay for lengthy stays in assisted living and/or a nursing home. Such care can be massively expensive, with the potential to overwhelm even the well-off.

Because neither traditional health insurance nor Medicare will pay for LTC, some people are looking to Medicaid to help cover this cost. To become eligible for Medicaid, however, you must first exhaust nearly every penny of your savings.

Given this, you may have heard that if you transfer your house to your adult children, you can avoid selling the home if you need to qualify for Medicaid. You may think transferring ownership of the house will help your eligibility for benefits and that this strategy is easier and less expensive than handling your home (and other assets) through estate planning.

However, transferring your home to the kids is a big mistake on several levels.

It can not only delay—or even disqualify—your Medicaid eligibility, it can also lead to numerous other problems.

Medicaid Changes
In February 2006, Congress passed the Deficit Reduction Act (DRA), which included a number of provisions aimed at reducing Medicaid abuse. One of these was a five-year “look-back” period for eligibility.

This means that before you can qualify for Medicaid, your finances will be reviewed for any “uncompensated transfers” of your assets within the five years preceding your application. If such transfers are discovered, it can result in a penalty period that will delay your eligibility.

For every $6,810 worth of uncompensated transfers made within this five-year window (the current North Carolina monthly divisor), your Medicaid benefits will be withheld for one month.  But, any transfers made beyond that five-year period will not be penalized.

So, if you transfer your house to your children and then need LTC within five years, it may significantly delay your qualification for Medicaid benefits—and possibly prevent you from ever qualifying. Rather than taking such a risk, consult with us to discuss safer and more efficient options to help cover the rising cost of LTC such as long-term care insurance.

A potentially huge tax burden

Another drawback to transferring ownership of your home is the potential tax liability for your child. If you’re elderly, you’ve probably owned your house for a long time, and its value has dramatically increased, leading you to believe that by transferring your home to your child, he or she can make a windfall by selling it.   Read more if you want to know about selling the home after qualifying for Medicaid.

Unfortunately, if you do that, she or he will have to pay capital gains tax on the difference between your home’s value when you purchased it and your home’s selling price at the time it’s sold by your child. Depending on the home’s value, these taxes can be astronomical.

In contrast, by transferring your home at the time of your death, your child will receive what’s known as a “step-up in basis.” It’s one of the only benefits of death, and it allows your child to pay capital gains taxes when he or she sells your home, based only on the difference between the value of the home at the time of inheritance and its sales price, rather than paying taxes based on the home’s value at the time you bought it.

We can help you choose the most advantageous estate-planning strategy to minimize your beneficiaries’ tax liability and ensure they get the most out of their inheritance.

Debt, Divorce, Disability, and Death

There are numerous other reasons why transferring ownership of your house to your child is a bad idea. If your child has significant debts, his or her creditors can make claims against the property to recoup what they’re owed, potentially forcing your child to sell the home to pay those debts.

Divorce is another problematic issue. If your child goes through a divorce while the house is in his or her name, the home may be considered marital property. Depending on the outcome of the divorce, this may force your child to sell the home or pay his or her ex a share of its value.

The disability or death of your child can also lead to trouble. If your child becomes disabled and seeks Medicaid or other government benefits, having the home in his or her name could compromise eligibility, just like it would your own. And if your child dies before you and has ownership of the house, the property could be considered part of your child’s estate and be passed on to your child’s heirs, creating a problem for you.

No substitute for proper estate planning
Given these potential problems, transferring ownership of your home to your children as a means of “poor-man’s estate planning” is almost never a good idea. Instead, with us as your Personal Family Lawyer®, we can help you find better ways to qualify for Medicaid and other benefits to offset the hefty price tag of long-term care and also keep your family out of court and out of conflict in the event of your incapacity or when you die.

We offer an array of estate planning strategies to protect all of your assets, while also enabling you to better afford whatever long-term healthcare services you might require.

Contact us today to learn more.

Call 919-883-2800, or schedule an appointment.

Tax benefits of owning a second home?

Buying a second home can provide you with a place to relax, unwind, and escape from it all. It can also provide you with substantial savings if you take advantage of these tax benefits of buying a second home.

Mortgage Interest

Mortgage interest paid on up to $1.1 million in debt on your first and second homes is usually deductible. Typically, this rule only applies if you treat your second home as a home and not a rental property. But some mortgage interest may still be deductible if you occasionally rent out your second home. To benefit from this deduction under current tax law (it changes), you must use the property for 14 days or more than 10% of the number of days you rent it out a year, whichever is longer.

Tax-Free Profit

You can take up to $500,000 in profit from the sale of a home tax-free if it is your primary residence and you meet the two-year ownership and use requirement. Typically, you do not get the same tax benefit from the sale of a second home. But people have taken advantage of this rule by converting their second home to their primary residence before the sale, thus reaping the tax-free profit.

But in 2009, Congress added a few more restrictions to limit the amount of tax-free profit you can take from a second home. Now, a portion of the profit from the sale of a second home is taxable. The portion is determined by the ratio of the amount of time after 2008 you treated the residence as a second home or rental property and the amount of time you owned it.

Buying a second home can offer many benefits. But to maximize the value of your investment, work with a lawyer to make sure you are not overlooking any potential legal, insurance, financial, or tax problems or opportunities. You must meet other requirements—such as living in the home for two years before you sell it—to take advantage of some of these tax benefits.

A Personal Family Lawyer® can help you ensure you meet the requirements, so you can reap all the benefits of owning a second home.

Contact us today!

Call at 919-883-2800 or schedule an appointment.

What is PASRR?

I’ve been asked a couple of times this week about admission to adult care facilities and this thing called “PASRR”… what is it?  Well, let’s check it out at the NC Health and Human Services website​.

​As always, if you have questions about VA benefits, Medicaid, or Estate planning, please give us a call!  919-883-2800

North Carolina Pre-Admission Screening and Resident Review (PASRR)
Who is subject to PASRR Screening?
The PASRR is a required screening of any individual who is being considered for admission into a Medicaid Certified Nursing Facility or Adult Care Home regardless of the source of payment. Please see the specific informaition below for each program.

PASRR Level I

Federal law (42 CFR 483.128) mandates that states provide a Level I screen for all applicants to Medicaid-certified nursing facilities to identify residents with serious mental illness (SMI), mental retardation (MR), or a related condition (RC). For residents with no evidence or diagnosis of SMI, MR, or RC, the initial Level I screen remains valid unless there is a significant change in status.
Referred to as the Level I or identification screen, specific diagnostic and functional questions about an individual are raised to identify those persons with mental illness, mental retardation, and conditions related to mental retardation. The Level I and, when required, the Level II screens must be performed prior to nursing facility admission (excluding those situations discussed in Section II.D.ii of this manual).
The Division of Mental Health, Developmental Disabilities, and Substance Abuse Services (DMH/DD/SAS) PASRR Unit is the agency which will make final determinations regarding appropriateness of placement and need for specialized services and, in cases where specialized services are determined as necessary, the DMH/DD/SAS will arrange for provision of those services.

PASRR Level II

The Level II screening is triggered by evidence of a serious mental illness (MI), mental retardation (MR) or condition related to mental retardation (RC) as defined by state and federal guidelines. The purpose of the Level II screening is to determine if the individual has any special needs due to his/her identified condition that need to be addressed in a nursing facility or if those special needs are so significant that they cannot be met in a nursing facility and can only be met in a psychiatric hospital or a specialized facility dedicated to the care of the developmentally disabled. For those suspected of meeting state and federal PASRR criteria for MI or MR/RC, Level II screens must be performed both prior to admission (PAS) to assess for both NF placement appropriateness and specialized service needs.​

Proposed regulations offer guidelines for new state – sponsored ABLE accounts for people with disabilities

Proposed Regulations Offer Guidelines for New State-Sponsored ABLE Accounts for People with Disabilities
IR-2015-91, June 19, 2015

WASHINGTON

— The Internal Revenue Service today released proposed regulations implementing a new federal law authorizing states to offer specially-designed tax-favored ABLE accounts to people with disabilities who became disabled before age 26.
The Achieving a Better Life Experience (ABLE) account provision was signed into law in December 2014. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses.
The new law authorizes any state to offer its residents the option of setting up an ABLE account. Alternatively, a state may contract with another state that offers such accounts. The account owner and designated beneficiary of the account is the disabled individual. In general, a designated beneficiary can have only one ABLE account at a time, and must have been disabled before his or her 26th birthday. The law provides what it means to be disabled for this purpose.
Contributions in a total amount up to the annual gift tax exclusion amount, currently $14,000, can be made to an ABLE account on an annual basis, and distributions are tax-free if used to pay qualified disability expenses.  These are expenses that relate to the designated beneficiary’s blindness or disability and help that person maintain or improve health, independence and quality of life. For example, they can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other expenses.
In general, an ABLE account is not to be counted in determining the designated beneficiary’s eligibility for many federal means-tested programs, or in determining the amount of any benefit or assistance provided under those programs, although special rules and limits apply for Supplemental Security Income (SSI) purposes.
The proposed regulations, available today for public inspection at www.federalregister.gov, provide guidance to state programs, designated beneficiaries and other interested parties on a number of issues. For example, the proposed regulations explain the flexibility the programs have in ensuring an individual’s eligibility for an ABLE account. They also indicate that the IRS will develop two new forms that ABLE account programs will use to report relevant account information annually to designated beneficiaries and the IRS — Form 1099-QA for distributions and Form 5498-QA for contributions.

Until the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regulations.

The IRS welcomes comments. Comments must be received by Sept. 21, 2015, and may be submitted electronically, by mail, or hand delivered to the IRS. A public hearing is scheduled for Oct. 14, 2015, at the IRS Auditorium, 1111 Constitution Ave. NW, in Washington. See the proposed regulations for details on submitting comments or participating in the public hearing. More information can be found at Tax Benefit for Disability: IRC Section 529A.

Asset Protection Trusts

An article recently published by WealthCounsel addresses the use of Asset Protection Trusts.  Technically, they discuss self-settled trusts, in which your assets are used to fund the trust and you retain a beneficial interest.  We can’t do that in North Carolina exactly that way, so we use a version that irrevocably transfers those assets out of your name and interest and the trust makes your family and children the beneficiaries.

Both strategies are important estate planning tools.  In our experience, the irrevocable asset protection trust​ is an essential part of estate planning even if you are not worried about VA benefits or Medicaid… there is still a place for planning wealth transfer to your heirs in a controlled, predictable, and protected manner.

If you’d like more information, check out this article.  And, give us a call to discuss your estate planning needs.  You will find us to be caring compassionate attorneys, passionate about Estate Planning and Elder Law, and focused​ on VA benefits and Special Needs Trusts.

Gray Divorce – a new trend?

An interesting, and some say alarming, trend among the aging population is divorce.​  The term coined for it is “Gray Divorce.”  It describes divorce after many years of marriage, and the statistics are quite surprising.  According to Susan L. Brown and I-Fen Lin, sociologists at Bowling Green State University in an article by the Washington Post, more than half of divorces are to people over age 50 and one in ten are over age 65.

This presents interesting long term implications for health care because people without established social patterns often are less healthy.  And, divorced couples are also often less wealthy.  The article asks, “As they age and experience health declines, who’s going to take care of them? Especially if they’re not able to afford the level of care that others with more economic resources have?”​

The reasons for this trend are not clear and it isn’t ​​limited to the USA.  Whether it is simply a facet of the Baby Boomers​ will remain to be seen over the next generations.​  Brown also posits that it might be longevity related saying “…divorce can be the collateral damage from increased life spans.”

Gerontologist Karl Pillemer, author of “30 Lessons for Loving: Advice From the Wisest Americans on Love, Relationships and Marriage,”  surveyed more than 700 women and men age 65 and older. He finds that a willingness to share new interests in midlife and beyond is critical.  And, he argues in a WSJ article (here)​ that embracing your spouses interests could make a difference.

One thing is for certain … unless there is a change in how we relate to one another as we age, the trend will be with us for a while, and it will cause changes to health care, estate planning, the legal system, taxes, and spirituality.

Home for Thanksiving? Observe your elders for signs of aging

When you are visiting your parents for holidays, the event can be a great time of welcome and reunion.  And, in the midst of the excitement, food, and fellowship, there might be important opportunities to see how well your parents are doing.  And, it could make all the difference in their lives.

We all believe we will live forever, and we wish it even more so for our parents.  When our parents age, we may find it hard to recognize, or we might make excuses for them.  “Stress of the holidays” is not a good enough reason for some behaviors. Forgetting names of loved ones or wandering away during the meal might be extreme examples, but there are subtle ones too.  For example, retelling the same stories over and over, or not being able to follow the well-worn recipe of the family dish might be signs of aging.

You can probe, gently, to see how they are doing, and you can observe their surroundings.  Do you see mail stacking up?  Or, unpaid bills?  Or, twenty un-heard voicemail messages? Is there no milk in the fridge but a dozen pounds of butter in the freezer?  Do you see things out of place, such as odd objects in the closet?  Are some of yesterday’s pills left in the pill box. or did you find some on the floor?

Neighbors and friends might also be helpful to determine if mom or dad is leaving the house, or getting to favorite places, such as church.  When mom says she still gets to church every week, but the ladies at church all say “Elsie!  It’s been ages! How are you?” you might have a clue as to how she is really doing.

There are many resources available to you on the Internet and from trusted professionals.  A good conversation about future plans might include discussions about end-of-life issues.  To complement those discussions, we offer the Five Wishes health care document as part of our service to you and your family. You can find information here at their website or here on our blog.

Observe and think about what you are seeing.  Talk to your other family members if you are concerned.  Now might be the time to begin the hard conversations about what is next, and about life decisions.  It really is never too early, but it can be too late.

Why an “analysis” prior to applying for VA benefits?

Our clients come to us for a variety of services and products.  Not everything we do is as simple as a “document” because every case really is unique.  It takes planning, and listening, and discussion to understand the issues and help plan the best way to address the client’s (or the family’s) needs and wants.  For example, not every client can apply to the VA for disability.

For our Veteran benefit clients, proper planning means that we first review the three “M’s” – Military,Monetary, and Medical.  A good applicant must meet several qualifying criteria.  As for the first point, failure to have served during certain periods of war will invalidate the application.

Then, it isn’t always exactly clear what benefit is needed.  Sometimes, the client’s disability might or might not be service connected.  The “analysis” process includes determining what the disability is, how it came about, how it affects the client’s life, and how she or he should be compensated.  We review medical records as necessary and gather the right documents and doctor reports.  For many, the disability can’t be linked to service, or proof of in-country service in Vietnam is lacking. In most cases, we can help sort that out. We also review the client’s medical needs to see about qualification for a higher level of benefits, such as “Aid & Attendance.”

Finally, while service connected disability has  no monetary qualifier, the VA does have some criteria for making their pension decisions. They look very closely at the finances and they are in contact with the IRS and Social Security.  Obtaining VA Benefits for pension means that the veteran needs help due to low net income.  We analyze the finances and can often make specific suggestions that improve the likelihood of a successful application.

We believe that a careful analysis is great insurance for your future application, if you decide to go ahead and apply.  Some applications have simple mistakes that limit or prevent qualification – these may be avoidable with the help of an experienced attorney.  In addition, some clients need to coordinate Medicaid and VA benefits.  That is an area that needs careful and dedicated attention.

We perform an analysis​ of our client’s situation prior to your deciding whether to file an application.  Whomever you choose to assist you with your VA benefits application should do the same.

Will planning change for Medicaid asset recovery?

When an Elder Law attorney works with  a client to plan how to reduce the frighteningly high costs of long term care, the goal is to help that client develop plans that result in the best care, using the best resources, for as long as possible, using every legal means at our disposal.  Planning tools used by many Elder Care attorneys often includes provisions for careful management of your assets and placement of those assets in different vehicles, including trusts.  We work with other trusted professionals, using several tailored strategies.  Some strategies have the effect of reducing your countable estate which can address both tax issues and qualification for public benefits, such as Medicaid.

In some states, Medicaid​ agencies have expanded powers to reach into your estate after your death to recover the funds they spent on your care.  ​It is an exciting and ever-changing see-saw battle between the legislators and advocates for planning.  As the advocates find a way to plan (which saves our clients some of their assets), the state legislatures find ways to reduce it (which saves Medicaid some of the costs).

Recent significant changes in Wisconsin took effect in August 2014.  These changes include the ability of Wisconsin Medicaid to reach into Family trusts and other non-probate assets to recover their costs.  “Probate assets” means those assets you own which are given to your heirs in your Will, such as the house, personal possessions, and funds or stocks that you own at your death.  “Non-probate” assets transfer directly to your beneficiaries and generally include such things as trusts, “pay on death” (POD) accounts, IRAs with beneficiaries, and life insurance, just to name a few common ones.   Reaching into non-probate assets is a new approach because those had traditionally been assumed safe from recovery.

The Wisconsin rules are interesting because they change the playing field in very important ways.  North Carolina does not have such far-reaching recovery , yet, but that could change over the next few years.  If you have had a plan set up in the past, we advise that you think about seeing your Elder Law attorney to check in.  If you are wondering about when to plan, our best advice is do it sooner rather than later!

Which method will protect your assets most effectively is hard to know without a crystal ball, but an Elder Law attorney can help you make the best plans that meet your needs … now and in the future.

New Advance Directives – Make your wishes known

Advance Directives are useful tools, if not essential ones, for telling your loved ones and doctors how you want to be treated when you are near death.  You can specify when the directives take effect, and what sort of food, nutrition, and other services you want to have. Advance directives are part of every estate plan we put together for our clients, and you should be sure your plan includes them.

But, traditional advance directives are limited and … well, traditional.  We have begun to use the “Five Wishes” forms for our clients.  This form acts as both the Health Care Power of Attorney (which designates your health care Agent) and the Advance directive.  But, what makes the Five Wishes form unique is the last three wishes.  These describe how you want to be treated, cared for, and remembered.  Do you have a favorite saying or scripture verse?Do you want people to hold your hand?  You have a whole new way to communicate this to your family.

Our clients like this new form, and you might too.  Check it out at Five Wishes​ or come in to discuss it with us.

Ratings and Reviews

Top Attorney​, 2015-2016​