For those of you not familiar with the 2005 Tax Reduction Act, some of the provisions address specific transfers by seniors under the new Medicaid nursing home provisions. Under the new provisions, before seniors qualify for Medicare assistance into a nursing home, they must spend down their assets. These new restriction have a 5-year look-back. The look-back used to be 3 years.
By a vote of 216-214, the U.S. House of Representatives passed budget legislation that will impose punitive new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. You can link to the new law Deficit Reduction Act of 2005 in PDF format, click on: http://www.rules.house.gov/109/text/s1932cr/109s1932_text.pdf. The section on the transfer provisions begins on page 222ndWHAT?S MEDICAID
What?s Medicaid? Medicaid is a government assistance program for people over the age of 65 or who are disabled. Medicaid assistance was designed for those who could not afford medical expenses (for the poor) but Medicaid has become the default for the middle class. The middle class has become the new poor.
Medicaid planning and Medicaid rules are complicated. The government is mandating a 5-year look-back on any transfers you may have made to disqualify you from entering the nursing home. Before the 2005 Tax Reduction Act it was 3 years. The transfer of any assets by the elderly has taken a notation of a ?fraudulent conveyance? or in government parlance ?deprivation of resources.? These new rules are spousal impoverishment programs designed to punish the healthy spouse. If one of the spouses gets sick, all resources have to be spent before you can qualify for government assistance. These new restrictive rules punish the healthy spouse leaving the healthy spouse at the mercy of welfare or her children. It?s very humiliating when seniors have planned their retirement based on their ability to keep their home. ASSETS YOU MUST SPEND DOWNAssets that you must spend down before you can qualify for nursing home assistance. Anything you own in your name or together with your spouse. Cash, savings, checking, certificate of deposits, U.S. Savings bonds credit, union shares, Individual Retirement Accounts (IRA), nursing home trust funds, annuities, revocable living trust assets, any revocable Medicaid estate planning, trust, real property occupied as a home , other real estate you hold as investment property or income producing property, cash surrender value of your life insurance policy, face value of your life insurance policy, household goods and effects, artwork, burial spaces, burial funds, prepaid burial if they can be canceled, motor vehicles, land contracts, life estate in real property, trailer, mobile home, business and business property, and anything else in your name or your possession.
WHAT DO YOU MEAN ?fraudulent conveyance??
What do you mean by ?fraudulent conveyance? or ?deprivation of resources.? If you give away your assets and you do not receive equal amount of (value) in return, the transfer is a deprivation of resources and you have committed a fraudulent transfer, (you give your house to your children for $ 100.00 when the fair cash value of your home is $ 150,000 he). If you gave your house to your children for $ 100 sixty months (5 years) before you entered the nursing home, you ?deprived your resources? from the nursing home expenses. Unwittingly, you also incurred a gift tax on the difference between the $ 100.00 and the $ 150,000 and in addition you may have cheated the government out of Estate Taxes.
HOW FEDERAL GIFT TAX APPLIESThe gift tax rules apply
to the transfer by gift of any property. Return you make a gift if you give property (including money), or give the use of property, or income from property without the give expecting to receive something of at least equal in value. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a poison.
The general tax rules are that any toxic poison is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts:? Gifts that are not more than the annual $ 12,000 exclusion for the calendar year beginning in 2006 (This is called the Annual exclusion for any 12 month period, see below)
-. Tuition or medical expenses you pay directly to a medical or educational institution for someone,
? Gifts to your spouse,
? Gifts to a political organization for its use, and
-. Gifts to charities
? Annual poison tax exclusion. A separate annual tax exclusion toxic Applies to each person to whom you make a gift. For 2007, the annual tax exclusion poison is $ 12,000. Therefore, you can give up to rally generated $ 12,000 each to any number of people in 2007 and none of the gifts will be taxable. However, gifts of future interests can not be excluded under the annual exclusion provisions. A gift of a future interest is a gift that is limited Sun that its use, possession, or enjoyment will begin at some point in the future. A federal Gift Tax return is filed on form 709 for taxable gifts in excess of the annual exclusion.
TAX RETURN FILING A GIFTGenerally, you must file a gift tax return on Form 709 if any of the following apply:
? You gave gifts to at least one person (other than your spouse) did have a fair ?cash? value of more than the annual exclusion of $ 12,000 for the tax year 2007
-.. You and your spouse are toxic splitting a
? You gave someone (other than your spouse) a gift of a future interest that he or she can not actually possess , enjoy, or receive income from until some time in the future
-. You gave your spouse in interest in property that will be ended by some future event
-. Your entire interest in property, if no other interest has been less than adequate consideration for Transferred (less than its fair ?cash? value) or for other than a charitable use, or
? A qualified conservation contribution that is a restriction (granted forever) on the use of real property
HOW ESTATE TAX APPLIES
Estate tax may apply to your taxable estate at your death. Your taxable estate is your gross estate less allowable deductions. On the date of your death, everything in your name is taxable. Take inventory of what you own: Cash, Savings and checking accounts, CDs, stocks, mutual funds, bonds, treasuries, exempts, jewelry, cars, stamps, boats, paintings, and other collectibles, real estate ? main home, vacation spot, investment realty, your business, Interests in other businesses, Limited Partnerships, Partnerships, Mortgages and notes receivable you hold, Retirement plan benefits, IRAs, or any amounts that you expect to inherit from others.
Many people prefer not to think about what will happen on their death, but none of us are immortal and failure to make proper plans can mean that we leave behind is a mess to be sorted out Which has by our nearest and dearest, at great expense and inconvenience, at a time when they are emotionally bankrupt. tax
Your federal death (estate), up to 55%, is based on the ?fair cash value? of your property on the date of your death, not what you originally paid. State probate and death taxes are based on the ?location? of your property. Thus, if you own property in different states, each state has to be probated and each will want their share fair. The only real alternative to a will arrangement is to set up a trust structure during lifetime Which, with careful planning, can operate to eradicate probate delays, administration costs, and taxes as well as giving a large number of additional benefits. For these reasons the use of trusts has Increased dramatically.
WHAT IS YOUR LARGE ESTATEYour gross estate includes the value of all property # in which you had an interest at the time of Death. So your gross estate will include the following:
? Life insurance proceeds payable to your estate or, if you owned the policy, to your heirs;
? The value of annuities payable Certain to your estate or your heirs,.? and
? The Value of Certain Property Transferred within 3 years before you your death
WHAT IS YOUR TAXABLE ESTATE
The allowable deductions used in your taxable estate deterministic mining include:
? Funeral expenses paid out of your estate,
? Debts owed you at the time of death,
? The marital deduction (generally, the value of the property that passes from your estate to your surviving spouse), and
? The charitable deduction (generally, the value of the property that passes from your estate to the United States, any state, a political subdivision of a state, or to a qualifying charity for charitable purposes Exclusively)
HOW TAXES GIFT TAXES APPLY TO MY ESTATE & ESTATE.
If you die in the tax year of 2007, your ?taxable estate exemption? is $ 2,000,000, your ?gift tax exemption? is $ 1,000,000 and you have a maximum estate tax of 45%.
If you in the tax year of 2008, your ?taxable estate exemption? is $ 2,000,000, your ?gift tax exemption? is $ 1,000,000 and you have a maximum estate tax of 45%.
If you die in the tax year of 2009, your ?taxable estate exemption? is $ 3,500,000, your ?gift tax exemption? is $ 1,000,000 and you have a maximum estate tax of 45%.
If you die in the tax year of 2010, your ?taxable estate exemption? is $ 0.00 (ie it?s repealed), your ?gift tax exemption? is $ 0.00 (ie it?s repealed as well) and you have a maximum estate tax of 55%.
13 times in 32 years, Congress has changed the rules. Congress is always tinkering with the ?Death Transfer Tax.? For more information on what is included in your gross estate and the allowable deductions, see Form 706th
HOW TO AVOID THESE RESULTS UNPLEASANT?
You can avoid all of the above unpleasant results filing requirements and with irrevocable trust implemented in 60 months before you plan to qualify for the nursing home.By repositioning your assets (your assets transfer ring) on ??irrevocable trust from you to, you will NO longer own the assets :
? you do not qualify for the probate process, and
? you do not have to file an estate tax return,
? because on the date you qualify for the nursing home you do NOT own any assets,
? at the time of your death you do NOT own any assets for the probate process,
? and at the date of your death you do NOT own any assets to report on your estate tax return.
id=?article-resource?> author bio ? Rocco Beatrice, CPA, MST, MBA award-winningestate planning & trust expert MS
? Taxation, Master of Science Taxation MBA
? Management / Taxation
BSBA ? Management / Accounting CPA
? Certified Public Accountant ??
http://www.ultratrust.com href=?http://www.ultratrust.com/nursing-home-spend-down.html?> Nursing Home Spend Down
71 Commercial Street # 150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034
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