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More Options For Medicaid Planning

nursing-home-elderly-medicaid-planningOn Tuesday, this blog featured an article about what seniors can do to qualify for Medicaid if they forsee the need for nursing home services in the future, but do not yet need to go that route. But what if you or a loved one has already had to enter a nursing home? Now, you are faced with a situation where the senior’s life savings will soon be depleted by nursing home bills that can run as much as $10,000 to $12,000 per month. Is there any way to preserve the person’s assets, or at least a portion thereof?

Attorneys have used various strategies to allow seniors to preserve their savings for their children while still “spending down” their estate legally for the purpose of qualifying for Medicaid. One of those, which is not playing out as the most effective method, is the use of “personal service contracts” in conjunction with a lump-sum up-front payments to caregivers.

A better method is emerging for those who need “crisis planning,” i.e., trying to preserve assets after a senior has already entered a nursing home. This is the use of gifts along with promissory notes.

This method consists of retaining an attorney’s assistance to gift half of his or her assets to another while simultaneously loaning the other half of the assets (minus the $13,900 [in 2009]) to another with a promissory note for repayment. The promissory note must not last longer than the life expectancy of the lender, it must require that equal payments are made during the loan period without deferred or balloon payments, the note is not terminated by the death of the lender, and the note must be non-negotiable.

The attorney will assist the client in then applying for Medicaid, receiving a denial indicating that the person is “otherwise eligible” but for the uncompensated transfer of the gift. The applicant can then use the payments on the promissory note to pay the nursing home bills till the Medicaid “penalty amount” is paid, and then reapplying for Medicaid at which time the application should be accepted.

At that time, the person will have at least preserved half of her assets from the “spend down” requirement.

Maximum protection can be afforded to seniors’ assets by starting the Medicaid planning process several years before the expected need for nursing home services, as discussed earlier. But the promissory note/gift method, among others, is still available to seniors even if the time has already come to enter a nursing home.

For help with short term or long term Medicaid planning, e-mail or call us at 800-344-6431.

Picture courtesy of the Ombudsman Program.

Oprah’s Car Giveaway & Awarding Additional Taxes in ADA Suit

[youtube=https://www.youtube.com/watch?v=jzLry3ABpV0]

Paul L. Caron at the TaxProf Blog  reported on an interesting 3rd Circuit case, Eshelman v. Agere Systems, Inc. Basicially, an employer fired an employee in violation of the Americans With Disabilities Act (the “ADA”). The District Court, the trial court, held that the employer had to pay not only the back pay it owed to the employee, but also had to pay an additional amount to cover her additional taxes. Since the lump-sum back-pay payment would put the employee into a higher tax bracket than she would have otherwise been in had she been continuously employed the whole time, the District Court ruled that the employer had to pay the additional amount the employee would have to pay in taxes.

The 3rd Circuit affirmed this ruling, holding that the only way the employee could be “made whole” for the pay she should have received but didn’t because she was fired illegally, was to have her additional taxes paid by the employer as well. Otherwise, because of the higher tax rate that she would have paid at the time of the back-pay payment, she would end up with less than she would have, if she’d been paid smaller amounts over a longer period of time.

Giving an employee back pay, but forcing her to pay extra taxes because of it, reminds me of the time Oprah Winfrey gave everyone in her audience both a new car, and an obligation to pay income taxes on the receipt of that car. They had to either come up with up to $7,000 of their own money to pay for the income taxes on the car, forfeit the right to get the car, or sell the car (at a used car price) to pay the taxes, and keep the difference.

Thanks but no thanks. I can definitely see the logic behind awarding an employee an additional amount to pay the higher-bracket taxes on the back pay. If you’re going to give someone money or something of monetary value, whether as a gift or because you have to, it’s only fair that you also pay the additional tax liability you’re causing the person by giving the gift/money!

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