Legal Question in Wills and Trusts in Michigan

I can only imagine how overwhelmed you are right now. It has taken me years to master my expertise and for one to get it in an hour is not possible. I understand the goal is to ensure that your father receives the greatest quality of car at the least cost to him and his family. Unfortunately, we need to plan for the worst and hope for the best. The worst is a nursing home and the best is him remaining at home. The following explanation is a cut and paste of a recent letter that applies to a client's father. This strategy will work with any amount of assets, large and small. As for the strategies we would use here is a brief explanation. The planning method we use is commonly referred to as �half a loaf�. The explanation is a cut and paste of a recent letter that applies to a client�s father. This strategy will work with any amount of assets, large and small. This strategy is commonly known as half-a-loaf planning. I encourage you to share this with your brother. The money that is saved is meant for your father�s needs during his lifetime, such as bed holds should he return to a hospital and need to hold the bed, extra care or even supporting the home.

Protecting the home. Pursuant to new Michigan Medicaid regulations, a home/residence is an exempt asset provided the equity value does not exceed $500,000.00 and it is not titled in a trust. In order to protect the home as an exempt asset and avoid estate recovery I would suggest the home be removed from your father�s trust and placed in her name only and utilize a lady bird deed to return it to the trust.

A "life estate" is an ownership interest in real property designed to accomplish two things: (1) to allow a homeowner to retain the use of the home during his or her lifetime; and (2) to transfer title to the home at the time of the owner�s death outside of the probate court. In a regular life estate deed, the owner keeps the "life estate" and conveys a "remainder interest" to someone who will inherit the property. The current owner continues to occupy and use the property until the time of his or her death. However, the owner cannot sell the property without agreement of and participation by the holder of the remainder interest. Further, the IRS puts a value on the creation of the remainder interest and if the value is large enough, there may be gift tax consequences. In an enhanced life estate deed adds one feature to the regular life estate deed: The owner retains the right to sell or convey the real property without the remainder interest holder�s consent. Essentially, the owner has the unilateral right to cancel the remainder interest. As a result, a gift is not completed or recognized by creating a remainder interest, pursuant to both the Internal Revenue Code (IRS law) and Medicaid regulation. If the homeowner�s interest remains as an enhanced life estate deed, upon the death of the homeowner, the life estate expires automatically. The remainder interest then vests, creating a full unrestricted ownership interest in the real property, by operation of law, free of probate. See attached article.

The Medicaid rules also allow your Father to keep a monthly income of approximately $60.00 as a personal needs allowance and any amount necessary to pay for supplemental health insurance, if applicable.

You may protect a portion of your Father�s assets from having to be spent down to pay the costs of long term care by transferring them out of the your Father�s name as an outright gift. This type of transfer will cause your Father to be ineligible for Medicaid for one month for every $7,613.00 (new 2014 numbers are $7,687) transferred.

The concept is simple, if gifts are made then it is assumed had the gifts not been made, one could have paid privately for the cost of care for as long as the gifted money would last. For example, if your Father transferred assets totaling about $76,130.00, your Father would be ineligible for Medicaid for about 10 months ($76,130.00 / $7,613.00 = 10 months) beginning on the date that your Father becomes eligible for Medicaid, but for the transfer of assets.

To clarify, the law penalizes a person from qualifying for Medicaid when they become eligible, but for the transfer of assets. This does not mean one cannot make gifts. We can still utilize a lump sum gift (usually not all of the assets) and convert the amount not gifted into an exempt stream of income by using a very special irrevocable promissory note or a special short term immediate annuity.

The strategy would cause a penalty period as a result of the amount gifted away and the amount not gifted would then be used to pay for care during the penalty period caused by the lump sum gift. This strategy is commonly called �half-a-loaf� - gift about half of the assets or more and the amount not gifted is then converted into an income stream to pay for the cost of care, together with any current income. When the non-gifted assets are spent, Medicaid begins to pay for the cost of care and the gifted funds are protected.

For example, let�s assume in your father�s case the at risk assets are $140,000.00, and his income is $2,000.00 and the average cost of care is $7000.00 a month. If $80,000 was given away this would cause about a 11.3 month penalty. The amount of assets in addition to the $2,000.00 a month income required to pay for the care during the 11 month penalty is the other $60,000 at $7,000 a month. The non-gifted funds of $60,000 is then placed in a short term Medicaid annuity or an irrevocable promissory The short term Medicaid annuity term of the annuity is would be 11 months at approximately $6,000 a month. This strategy is commonly called �half or 2/3rds a loaf�.

In all of these new strategies, we would apply for Medicaid knowing we are not eligible and be denied long term care Medicaid based on the gifts. However, medical and medications would be covered immediately under Medicaid, but not the room and board.

Finally, all gifts completed that are older than 5 years are not reportable. Also, a person can spend their money as they see fit as long as it is for fair value.

The advantage of making gifts is that the transfer is simple to accomplish. The disadvantage is that one will lose control of her assets. A gift to one's loved ones means that the funds transferred belong to them, no matter what promises anyone may make to hold the funds. The funds are vulnerable in the event of a divorce, lawsuit, bankruptcy or the decision to simply use the funds for themselves. This is why if the gifted funds are large enough we strongly recommend they are placed into an Irrevocable Trust to ensure the funds are protected and can be indirectly used for your father�s benefit.

Last it is important to understand that this process takes some time and therefore the sooner we get started the more advantageous it will.

I look forward to assisting you so that you can ensure your father receives the greatest quality of care in the least restrictive setting without going broke. Of course should you have any questions, please do not hesitate to ask