Louisiana Medicaid and the Community Spouse's Maintenance Needs Allowance

Any way you look at it, long term care services are expensive. And when you have a married couple with one spouse residing in the nursing home while the other spouse is healthy enough to reside in their residence, it gets tough because on top of the several thousand dollar nursing home bill, the couple is also spending thousands monthly to maintain the residence. In these circumstances, couples spend hundreds of thousands of dollars over several years.

Many couples, particularly those who do not plan ahead, are forced to consume their assets (also called "Countable Resources"). This post is not about spending or protecting the assets, but this post is about how the monthly income of the couple gets handled.

Here's an example. Let's say that each spouse is receiving $2,000 of monthly income (social security and pensions are common forms of monthly income, but there are others).

Louisiana Long Term Care Medicaid rules provide that ownership of income is determined without regard to community property laws. For Medicaid purposes, a spouse has full ownership of income paid in his name.

In determining how much of the income the couple can keep. Medicaid rules provide that the income of the community spouse is never to be considered in determining eligibility for an institutionalized spouse. Keep in mind that the spouse residing in the nursing home institution is called the "institutionalized spouse," while the spouse still living in the community is called the "community spouse." The community spouse always gets to keep all of the community spouse's income.

In order to determine the institutionalized spouse's patient liability, we must start with that spouse's gross monthly income ($2,000 in our example) and subtract their personal needs allowance ($38). Then, we subtract the Community Spouse's Maintenance Needs Allowance.

The Community Spouse's Maintenance Needs Allowance is calculated by subtracting the community spouse's income ($2,000) from the Community Spouse's Maintenance Needs Standard ($3,160.50 for the first half of 2019 - it gets adjusted twice each year). Thus the Community Spouse's Maintenance Needs Allowance totals $1,160.50.

So, $2,000 minus $38 minus $1,160.50 equals $801.50. This is the institutionalized spouse's patient liability. The concept here is that the community spouse always gets to keep all of the community spouse's income. But if the community spouse's income is less than the applicable Maintenance Needs Standard, then the community spouse gets to keep enough of the institutionalized spouse's income to get the community spouse up to a total of monthly income that equals the Maintenance Needs Standard.

Keep in mind here that these are Louisiana rules and your state's rules may differ. Also note that this calculation is not made, nor is it relevant, if the patient is denied Medicaid due to too many countable resources or for some other disqualifying reason.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Analysis of the 2019 Louisiana Long Term Care Medicaid Rules

Every year the State of Louisiana's Department of Health adjusts certain Louisiana Long Term Care Medicaid asset and income limitations for Long Term Care applicants and recipients. The following is a summary of the changes made for 2019.

The Long Term Care Resource Limit for Single Individuals ($2,000) and Married Couples ($3,000) has not changed.

The Spousal Resource Standard has increased from the 2018 amount of $123,600, to the 2019 new limit of $126,420. What this means is that if one spouse is in a nursing home (the "institutionalized spouse") and one spouse still lives in the community (the "community spouse"), the the community spouse can retain up to $126,420 of Countable Resources. The rationale is that the spouse who is not in the nursing home needs assets to live off of.

Note that the Louisiana Home Equity Limit has increased from $572,000 in 2017, to $585,000 for 2019. Most people realize that the home is not a countable resource - it is an exempt asset. But what some don't realize is that when a Medicaid recipient dies, the State of Louisiana has Estate Recovery Rights which allows the State of Louisiana to force the sale of the home to reimburse Medicaid for what Medicaid spent on the deceased Medicaid recipient's care.

However, if the home, at the time of Medicaid application, is worth more than $585,000, then the applicant will not qualify for Medicaid due to Louisiana's Home Equity Limit of $585,000.

Regarding monthly income, the new Spouse's Maintenance Needs is $3,160.50 of monthly income. Generally, the Community Spouse will be permitted to keep the first $3,160.50 of the couple's monthly income. Exceptions to this rule apply, however, so work with the right estate planning attorney to protect as much of your assets and income as possible.

Finally, the Average Monthly Cost for Private Patients of Nursing Facility Services increased on March 1, 2018 from $4,000 to $5,000. This means that if you make an uncompensated transfer within five years prior to applying for Medicaid, you will be assessed a penalty period of the value of the transfer divided by $5,000.

Note that this post does not address any of the planning strategies that are available to help people protect what they own, nor is it an in depth discussion of the Medicaid definitions, such as countable resource or exempt asset, nor do these figures apply to all 50 states - each state is different so if you live outside of Louisiana, make sure you are working with the correct figures.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

How Private-Pay Nursing Home Residents Can Qualify for Medicaid Faster

This post will help people who have a family member or loved one in a nursing home (or their loved one is about to enter a nursing home) and the family member or loved one has more than $70,000 of countable resources.

Most people think that if you enter a nursing home owning more than $2,000 of assets (other than your home and car), then you will be forced to spend all of those assets on your care until you deplete them down to less than $2,000. Nursing homes are expensive so the money gets depleted rapidly, preventing seniors from being able to leave an inheritance to their children or other loved ones.

But there is a particular legal strategy that can enable you to protect at least half of your countable resources, even if you don't take advantage of the strategy until you (or your loved one) are already in the nursing home as a private pay patient.

Let's use an example to describe how the Return of Transferred Resources provisions of the Louisiana Medicaid Eligibility Manual ("Medicaid Manual") can help one family save $100,000. Let's say Mom (who is not married) is entering the nursing home with a bank account balance of $200,000.

Now we must look at a couple of provisions of the Medicaid Manual. The first provision says, "Do not continue to count the uncompensated value of a transferred resource if the original resource is returned."

Another important provision states, "If only a part of the asset or its equivalent is returned, the penalty period is modified, but not eliminated."

In our example, let's say Mom donated $200,000 to Daughter just prior to Mom entering the nursing home. Mom then applies for Medicaid and gets denied due to the transfer of countable resources. Medicaid will assess a penalty period equal to 40 months ($200,000 transferred divided by $5,000 LA monthly private pay rate). The penalty period begins the month Mom is determined eligible for Medicaid except for the transfer of resources.

Next, Daughter returns to Mom $100,000 of the original $200,000 transferred. As a result, Medicaid will modify the penalty period from 40 months to 20 months. Now, Mom has $100,000 in Mom's account. Daughter has $100,000 in Daughter's account. And Mom's modified 20 month penalty period is underway. Mom uses the $100,000 in Mom's account to pay for her care during the 20 month penalty period.

At the end of the 20 month penalty period, Mom has less than $2,000 of countable resources, the penalty period expires, Medicaid starts covering Mom's nursing home expenses, and Daughter still has $100,000 in Daughter's account.

A few things to keep in mind. We are basing this on the Louisiana Medicaid Eligibility rules. If you live in another state, find out what your state's rules are on the return of transferred resources. Second, DON'T TRY THIS AT HOME. Complications result through the Medicaid Application process, the many transactions that take place, and the providing of appropriate financial institution documentation to Medicaid and other third parties. Get good help. One false move and you could do more harm than good.

Also, the family members that play a role in this must be 100% cooperative and supportive. It does not good if they turn around and spend all of the money on themselves.

So, what should you do? Call our office and say you'd like to find out of t he "Transfer and Return" strategy can help your family protect assets. We'll look at your situation and determine whether this would be worthwhile to take advantage of.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

An Analysis of the 2019 Estate and Gift Tax Rules

Let’s look at and analyze the 2019 gift and estate tax rules. First, the basics: the gifting annual exclusion amount remained at $15,000 for 2019, and the gift and estate tax exclusion amount increased from $11.18 million in 2018 to $11.4 million in 2019.

Now let’s take a closer look at these. Regarding the $15,000 annual exclusion amount, it’s worth noting in any discussion regarding gifting, that if a person (donor) makes a gift in excess of $15,000 in a calendar year, the tax consequence is that the donor must file a gift tax return (IRS Form 709) showing that part of the gift and estate tax exclusion amount was used. In almost every “taxable gift,” no tax is due. The gift merely needs to be reported. And it’s worth noting that married couples can each give $15,000 without any gift tax reporting requirement, which further means that married couples can donate $30,000 to as many individuals as they want, each year, without being required to report the gift on a gift tax return.

Regarding the gift and estate tax exclusion amount, note similarly that each spouse has an exclusion amount of $11.4 million for 2019. In theory, the married couple can exclude assets valued at $22.8 million from the 40% estate tax.

It’s worth noting that the estate tax law, in its current form, is scheduled to “sunset” after 2025. Absent Congressional action, the exclusion amount reverts back to $5 million, adjusted for inflation, in 2026.

There is concern from some about the potential for clawback of lifetime gifts. Specifically, the sunset of the higher exclusion amount could deny estates of individuals who die after 2025 the full benefit of the higher exclusion amount applied to previous large gifts.

Recently, the IRS proposed regulations to resolve this issue. The example they gave was of a taxpayer who made gifts taxable gifts of $9 million prior to 2026, and then died during or after 2026, when the gift and estate tax exclusion amount was less than $9 million. The proposed regulations of the IRS state that the credit amount against estate tax will be based on the higher $9 million amount rather than the lesser amount that may be in effect after 2025.

Note that we still have portability (which makes it easier for married couples to get the full utilization of two estate tax exemptions), step-up in basis for capital gains tax purposes, and gifts in excess of $15,000 still must be reported even though typically no gift tax is due.

Happy New Year!

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Should You Name a Trust as Beneficiary of IRA

A common estate planning principle communicated by spouses who have children from prior marriages and relationships is, “If I predecease my spouse, I want my assets to be available for my surviving spouse’s needs, but when my surviving spouse dies, I want my assets to revert back to MY children.”

This can get complicated when the estate consists of Traditional IRAs, as many estates do. Let’s take the example of a Husband and Wife who each have two children. When H dies, his IRA is worth $1,000,000. In the year after Husband dies, Wife is 80 years old.

When it comes to income tax planning and IRAs, most recommend to keep the IRA balance as large as possible, allowing an IRA owner to earn investment income on deferred income taxes.

In this post we will discuss two strategies: (1) Naming the surviving spouse as the designated beneficiary of Husband’s IRA; and (2) Naming a trust (for the benefit of the spouse) as the beneficiary of Husband’s IRA.

When a surviving spouse is the designated beneficiary of an IRA, the surviving spouse’s ability to roll over inherited benefits to her own IRA gives her a powerful tax-deferring option, not available to any other IRA beneficiaries. If the surviving spouse holds the IRA as an owner, her Required Minimum Distributions (RMDs) are determined using the Uniform Lifetime Table under which her Applicable Distribution Period (ADP) is the joint life expectancy of the surviving spouse and a hypothetical 10-years-younger beneficiary. If she withdraws only the RMDs under the Uniform Lifetime Table, the IRA is guaranteed to outlive the surviving spouse. And it’s likely that the IRA will be worth more in the surviving spouse’s late 80’s than it was when she inherited it at age 80.

Let’s look at some numbers. Since Wife can use the Uniform Lifetime Table, her first required distribution the year after Husband dies (assuming a $1,000,000 IRA value) is $53,500 (5.35% of the IRA value). The next year her RMD is 5.59%. And the next year, 5.85%. If the investment performance of the IRA exceeds these distribution percentages, and she only takes the RMDs, the IRA will grow.

The downside, however, is that since Wife is treated as the owner of the IRA, Wife can name whoever she wants as the beneficiary of beneficiaries of her IRA. She could exclude Husband’s children by naming Wife’s children, or perhaps even Wife’s new spouse that she married after Husband died!

So instead of naming Wife as the designated beneficiary of Husband’s IRA, Husband considers naming a trust for Wife as beneficiary. The trust instrument might provide that RMDs go to Wife for her lifetime, but when Wife subsequently dies, trust assets revert back to Husband’s children. But since a trust was named as the beneficiary of Husband’s IRA, even if the trust qualifies as a “see-through” trust, RMDs after Husband dies will be based on the single life expectancy of the surviving spouse (Wife) which results in substantially less income tax deferral than would be available if the surviving spouse were named as the outright beneficiary and rolled over the benefits into her own IRA.

Let’s look back at the numbers. If a trust for Wife is named as beneficiary of Husband’s IRA, the first RMD when Wife is 80 (based on the same $1,000,000 IRA) will be $98,000 (9.8% of the IRA value). At age 81, the RMD will exceed 10% of the account value. And each year, the percentage will increase. If Wife lives long enough after Husband dies, the RMDs based on the required single life expectancy table will cause most of the benefits to be distributed to Wife outright which will defeat the purpose of trying to protect those IRA assets for Husband’s children.

So keep in mind that there are tradeoffs when it comes to naming beneficiaries of IRAs.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

2 Reasons People Transfer Their Out-Of-State Real Estate to Their Limited Liability Company

Some people own real estate in their own state, and they also own real estate in another state. There is often a right way and a wrong way to structure ownership of these properties.

The following are two reasons people transfer their out-of-state real estate to a limited liability company (LLC).

The most often cited reason to transfer real estate to an LLC is to protect yourself from potential lawsuits or other liabilities. Here's the deal: if you own real estate in your name in another state, and someone gets injured on the property, the injured party will sue the owner of the property (you). And if they are successful in their lawsuit against you, you will have to satisfy a judgment from your personal assets. So, your personal assets are at risk if you own real estate in your name.

However, if you transfer your property to your LLC, and someone gets injured, that injured party will sue the owner of the property (the LLC), and your personal assets are protected.

A second reason people transfer their out of state property to an LLC is to avoid the ancillary probate. When you die with assets in your name, your survivors will be required to go through a court proceeding ("Probate" or "Succession" - same thing really) and have the government's court system oversee the administration and disbursement of your things - some people consider this to be tedious, time-consuming, and expensive. And if you own real estate in your name in another state (outside of your home state), your survivors must hire a law firm in that other state to transfer your out of state property to your heirs. The "home-state" probate does not transfer out of state real estate that is titled in your name when you die. So, some people transfer their out of state real estate to an LLC to (1) gain limited liability; and (2) avoid the ancillary probate. The ownership of your LLC that owns out-of-state real estate can be transferred through your home-state probate.

Another alternate is to transfer your out-of-state real estate to an LLC (get limited liability and avoid ancillary probate), and then transfer your LLC to a revocable living trust so that an in-state probate is not even necessary to transfer your ownership interest in the LLC when you pass away. Don't try this at home! This is not a do-it-yourself task. If you live in Louisiana and want to get these benefits, contact my office.

There are many things to consider when taking these actions. Prior to transferring your property to an LLC, check with your lender (if you have a mortgage on the property), and check with your liability insurer (to make sure your insurance won't have to shift to a commercial policy). Make sure you get good legal help to cover all your bases and get the peace of mind you deserve.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450