Elder Money Transfer Shelter Laws
Most elders want to use the assets they have accumulated over the course of their lives for a happy retirement, then leave an inheritance to their family. Long-term health-care costs can swiftly eat up the assets they have earmarked for the satisfaction of these goals, and qualifying for Medicaid is often the only way to pay for nursing-home care. But asset transfers can trigger a period of ineligibility for Medicaid, and risk generating gift taxes or negative capital-gains tax consequences. Elders who, at death, have very large assets remaining may invoke estate taxes.
Reasons for Elder Financial Planning
The laws that control elders' asset transfers change regularly. Transferring money without being aware of the current tax laws can result in significant penalties--or significant missed opportunities. Financial planning with an elder-law attorney or qualified tax practitioner can help elders craft a money transfer plan that best meets their goals with the assets available.
Money Transfers for Medicaid Qualification
Nursing-home care costs many tens of thousands of dollars per year, so unless a person's assets are quite substantial, qualifying for Medicaid is often the only way to cover long-term nursing-home coverage. Medicaid is only available to persons who are effectively indigent. Elders must spend down or transfer their money to a minimum before they can qualify for Medicaid.
Medicaid Qualification Considerations
The amount of money an elder may retain and still qualify for Medicaid, and which assets count in that calculation, change regularly as Congress amends the law. In general, an elder must divest herself of all but a few thousand dollars in cash assets, plus one car and (under certain circumstances) her house, if a remaining spouse is going to continue to live in it. Transferring away all of the assets results in a period of ineligibility for Medicaid, which varies depending on the state and the amount of assets, but can be as long as five years.
Warning
Transferring all of an elder's assets may leave him unable to pay for private medical care while not yet qualifying for Medicaid. For a while, criminal penalties were imposed on anyone who helped an elder transfer his assets in a way that left him destitute and without medical care. While that criminal law was rescinded, Congress regularly turns its attention to this issue, and there are likely to be new restrictions in the future.
Gift and Capital Gains Tax Concerns
Gift tax laws place an annual limit on the amount of money a person can give to others tax-free. Over that gift tax amount, which changes yearly, the giver will have to pay a tax. If an elder gives real estate or other appreciated assets to his adult children as gifts during their lifetime, the recipients take those assets on the same basis as the elder obtained them, meaning that they pay significant capital-gains taxes when they later sell that appreciated asset. Elder-law attorneys and tax professionals can work within the tax laws to create family partnerships and trusts to transfer an elder's assets while minimizing negative tax consequences.
Estate Tax Law Considerations
When an elder with a sizable estate does not transfer assets during her lifetime, but leaves them to pass to her heirs after her death, the heirs are likely to have to pay significant estate taxes on those assets. However, when the assets are real estate or other appreciated property like artwork, the heirs receive that property with a basis calculated at the time ownership passes to them. This means that when they sell that property, the capital-gains tax will be less. Careful consideration with a financial professional can determine which is the more beneficial option under present laws.
Consult an Elder Law Attorney or Qualified Tax Specialist
Laws pertaining to Medicaid qualifications vary from state to state, and Medicaid laws as well as tax laws are frequently changed and amended. Always consult an elder-law attorney or qualified tax specialist before transferring any major asset, to be sure you have correct and up-to-date information. Knowledge is the best shelter for all assets.
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