Building on Part I of this article we continue here beginning with transferring assets.
Transfer of Property to Children or Family
Transfer of property can and likely will have a tax load that effects your family/children. If you gift assets to your family such as real property (home, real estate) that have appreciated in value since you acquired it your family member receiving the gift will accept it at the value as it was when YOU acquired it. If those same assets were transferred to your family/kids after your death the ‘stepped up basis’ would apply thereby saving your children a potentially large tax bill. The gift tax basis is much higher than what they would pay on the same property if it is inherited, not gifted. Gift taxes are reported to the Internal Revenue Service on IRS Form 709. Stepped up basis allows the person (your family) to inherit property at the value upon your death not the value when you acquired the property.
Transfer of Assets to a Spouse and Spousal Refusal
Generally you will find that transfers between spouses are considered exempt (from tax) no matter the timing of the asset transferring. A Medicaid applicant can transfer, usually, an unlimited quantity of assets to his/her spouse prior to or within five (5) years of the transferring spouse’s eligibility period (this is also known as the look back period or 5 year look back).
Potential consequences DO exist when spousal transfers are used. If assets are transferred and the receiving spouse then also applies to Medicaid the transferred assets may cause the second spouse to be unqualified for Medicaid. Also, Federal rules for Medicaid limit the quantity of assets for the second spouse (also called the Community Spouse) and those rules are called the Community Spouse Resource Allowance. This amount is different in each state but in Florida it is about $120,000. So a transfer is allowed between spouses (and by Medicaid) but the Resource Allowance rules may show that the second spouse / transferee spouse / community spouse cannot retain that amount of assets.
You may find a small option in Florida for the community spouse to retain the assets he/she possesses (including any amount transferred to him/her) by refusing to provide support to the spouse seeking Medicaid coverage. This is called a spousal refusal to provide care. To use this option the community spouse will refuse to provide monetary care or any resources to the Medicaid applicant. Then Medicaid will be forced to make the determination of coverage based on the applicant’s own income and resources with NO consideration of the community spouse’s assets. There is a specific form required to use the spousal refusal and it needs to be filed with the Medicaid application.
Note that by using the Spousal Refusal you are assigning to the State of Florida the right for them to recover from the community spouse any benefits paid by the State. But practically the State does not normally proceed to recover collections from the community spouse. If the State does proceed against the community spouse the cases usually settle at a much lower amount. You need a competent elder law attorney to guide you before you or your spouse applies for Medicaid.
Using Caregiver Agreements
You have probably heard about Caregiver Agreements – there is a lot of information disseminated but you should consult your estate planning attorney for help before you enter into or draft a Caregiver Agreement.
In Florida a person can utilize the services of a care provider to provide necessary services for the applicant’s activities of daily living in a skilled nursing facility (SNF). The payment for these services can be a lump sum payment to an adult family member. These tasks can be driving to medical appointments, attending care plan meetings, handling the legal needs for the applicant and financial management of the applicant’s affairs. The family member is not required to reside nearby as many of the services can be provided from another location. The lump sum option allows services to be paid in advance based on a simple formula.
The family caregiver may be paid after entering a contract but the amounts are controlled and are not unlimited. The amount agreed upon must be reasonable and based on the applicant’s life expectancy, what services, the caregiver’s skills, and customary fees for the geographical area where the applicant lives. We cannot provide lump sum payments for activities in the past. Those tasks are typically determined by Medicaid to have been donated for the purpose love.
These types of contracts are best entered as far in advance of the applicant needing long-term care. An early contract allows the parties to use the longest possible life expectancy rate, which translates to the highest possible lump sum transfer. The caregiver agreement should be drafted to allow services to be provided when services are needed and upon the applicant’s demand – this makes it possible for the lump sum transfer to happen just before the applicant applies for Medicaid. The contract can be drafted so that services will be provided if and when needed.
These contracts MUST be in writing and MUST meet certain legal requirements in order to be used validly and to make the contract enforceable. No services in the contract may be provided by the care facility and there must be a term making the caregiver lump sum payment irrevocable. These agreements can be and are challenged by Medicaid here in Florida if they do not have reasonable terms and a valid contract.
There are some other legal bumps along the road to using a caregiver or personal services contract agreement. Such as the applicant’s lump sum payment will almost assuredly be a taxable event for the caregiver. As well you should consider how that lump sum payment may create a lack of equality in your estate plan.
Protecting Assets in Florida Under Medicaid
Florida statutes and federal law says the funds paid by Medicaid for your care is a LOAN neither a gift nor an entitlement benefit. The laws require Florida to pursue recovery of the funds from the applicant/recipient’ estate after death. The monies that are pursued by the State are the amounts paid for long term care over the age of 55 years. Medicaid, however, does not proceed to collect if the recipient leaves behind a disabled child or spouse or one that is blind.
Such a recovery by the State is only against a Medicaid recipient’s “probate” estate or those assets that must be probated in order to pass to the heir. Living trusts are an exception. A living trust is available under Florida’s statutes to creditors to satisfy valid claims against the deceased that means Medicaid can also be satisfied by a living trust. If a trust is IRREVOCABLE the assets can be protected from Medicaid after your death.
Certain assets are not available for Medicaid recovery: funeral expenses and cost of estate administration (legal and CPA fees) are a priority claim and those are paid before Medicaid or other creditors. Medicaid is next in line after the priority claims and before any other creditors can be paid. The homestead property or residence of regular abode is an important asset here in Florida as it is considered “exempt”. Typically a person with a homestead property who is also on Medicaid will find the house to be the most valuable asset in his/her estate. Florida’s constitution protects your homestead property from ALL creditor claims allowing it to pass to your lineal descendants outside of the formal estate in probate. Medicaid cannot force the sale of the home to recover long-term care payments. It is always best for a family to try to avoid selling the Medicaid recipient’s homestead unless the recipient has already liquidated all the non-exempt assets to pay for his/her cost sharing responsibility. Non-homestead property is non-exempt and could be liquidated during the probate process to pay Medicaid and other creditors.
Probate in Florida has specific processes to follow and these rules ensure Medicaid is notified of the death of the recipient. In addition the personal representative of a probate estate and the decedent is 55 years or older the attorney for the probate estate must (and always will) notify the Florida Agency for Health Care Administration. At that time the Agency will do a review and determine if there are any monies to claim and if so the Agency representative will file a claim in the probate case.
As the PR of a probate estate for a past Medicaid recipient an waiver can be requested based on hardship to the decedent’s survivors. This hardship waiver can be done through the Florida Medicaid Estate Recovery office. To qualify the PR must be able to provide proof that action by the State would deprive the deceased’s family of food, clothing, medical care or shelter reasonably necessary to sustain the family’s life. When determining hardship waiver eligibility the agency will also consider if the heirs requesting the hardship waiver provided “full-time care” to the deceased which may have therefore delayed the date the deceased (Medicaid recipient) needed to enter SNF thereby reducing the amount of money paid by Medicaid during the lifetime of the deceased.
Call Mario, Gunde, Peters, Rhoden & Kelley, LLC for a consultation about your estate planning and incapacity planning. 321-631-0506, Cocoa Village and Melbourne. Proudly serving Brevard County since 1976.