REAL ESTATE IN LONG TERM CARE PLANNING Patricia J Shevy The Shevy Law Firm LLC

BASIC MEDICAID RULES Look Back Rule: 60 months from date of application Penalty Period: Number of months ineligible due to transfers made during look back period. Does not commence until otherwise eligible for Medicaid (applicant meets financial requirements, and would be eligible but for the fact that transfers were made). Equals Value of Transfers / Average Regional Rate

APPLICANT ALLOWED Essential Personal Property Homestead- valued at up to $828,000 (changes annually) Automobile $14,850 in bank accounts/investments Monthly Income of $50 Pre-Need Funeral Arrangements Pre-paid irrevocable burial $1,500burial allowance

COMMUNITY SPOUSE ALLOWED Homestead Essential Personal Property One Automobile $74,820 or spousal share (up to ½ couple s assets as of institutionalization up to $119,200) Pre-paid irrevocable burial arrangements Monthly income of $2,980.50

WHAT IS A HOMESTEAD? All real property owned by an applicant is evaluated when determining Medicaid eligibility. A homestead is exempt (not applied toward resource value). A homestead is the primary residence of the applicant and the applicant s family (spouse, minor children, certified blind/disabled children). Second/vacation home is NOT exempt.

WHAT IS A HOMESTEAD? One, two or three family home, condo, coop, mobile home. Includes home, land and integral parts including outbuildings and garage. Includes contiguous property. May contain a business and 2 apartments. May be income producing, BUT income is NOT exempt.

HOMESTEAD EQUITY $828,000 in 2015, changes annually. Equity = Fair Market Value Encumbrances What is homestead is valued at greater than $828,000? NOT ELIGIBLE UNTIL equity is valued at $828,000 or less (medical/nursing home expenses greater than exempt amount)

HOMESTEAD EXEMPT UNTIL? Exempt as long as applicant/recipient (A/R) s primary residence. Exempt only during A/R s period of temporary absence. Exempt as long as A/R intends to return home. BUT Lien imposed once A/R is in permanent absent status (nursing home/hospital admission for more than 6 months).

INTENT TO RETURN HOME RESOURCE STATUS PLACE LIEN Yes, Intends to Return Home. Occupied by Spouse, Minor or Certified Blind/Disabled Adult Child Exempt No Occupied by a sibling with equity interest who lived in the home for at least 1 year prior to the A/R s admission to a medical facility. Exempt No Occupied by a dependent relative other than one described above. Exempt Yes

INTENT TO RETURN HOME RESOURCE STATUS PLACE LIEN No, Does Not Intend to Return Home Occupied by Spouse, Minor or Certified Blind/Disabled Adult Child Exempt No Occupied by a sibling with equity interest who lived in the home for at least 1 year prior to the A/R s admission to a medical facility. Countable** No Occupied by a dependent relative other than one described above. Not occupied by a relative described above. Exempt Countable Yes No

EXEMPT TRANSFERS Homestead may be transferred (and remain exempt) if transferred to: Spouse Minor Child Disabled or Blind Child of Any Age Adult Child Who Lived in Home for 2+ Years Prior to A/R s Institutionalization and Who Provided Care to A/R (Does Not Apply to Grandchildren or other Relatives) Sibling of A/R Who Lived in Home for 1+ Years Prior to A/R s Institutionalization and Who has an Equity Interest (on the deed, pays mortgage/taxes)

LIFE ESTATE DEEDS Life estate is NOT countable resource, and no lien can be placed on a life estate.... HOWEVER Transfer retaining life estate is a transfer and is subject to penalty.

LIFE ESTATE DEEDS PROS: A/R has right to reside for lifetime. Title passes automatically on A/R s death. Step-up in basis preserved. Enhanced Star/Veteran exemption maintained. No gift tax due on transfer. CONS: Subject to Penalty Period during Look Back. Sale during A/R s life means A/R entitled to portion of proceeds (countable resource). Remainder beneficiary s sale proceeds subject to capital gains tax. Taxes, maintenance during A/R s nursing home stay.

LIFE ESTATE: TAX CONSEQUENCES Selling Deed with Life Estate: A/R s portion of proceeds valued at IRS tables (NOT 96 ADM-8). How to calculate: Determine IRS 7520 rate for month of closing. Find Table S on IRS website. On Table S, locate Life Estate Factor to match the 7520 rate. On Table S, locate Remainder Factor to match 7520 rate. Example: Closing Proceeds of $200,000 in September 2015 (7520 rate is 2.2%, Seller is 78 years old). Seller gets $35,800. Age Annuity Life Estate Remainder 78 8.1364 0.17900 0.82100

LIFE ESTATE: TAX CONSEQUENCES IRC Code 121: first $250,000 of gain excluded; gross income does NOT include gain on sale/exchange IF during the 5 years prior, property was owned and used as taxpayer s primary residence for periods aggregating 2 or more years. Back to example: Seller s $35,800 is NOT subject to capital gains tax if Code 121 is met. Remainder beneficiary pays capital gains tax on $164,200 (no or nominal basis).

PURCHASE OF A LIFE ESTATE A/R or the A/R s spouse transfers assets to purchase a life estate interest in property owned by another individual, purchase is to be treated as a transfer of assets for less than fair market value, unless the purchaser resides in the home for at least a continuous period of one year after the date of purchase. Purchase price must be actuarially based.

TRANSFER TO MEDICAID TRUST Medicaid Trust Typical Terms: Income to Grantor at least annually. No principal distributions to Grantor (perhaps principal distributions to Grantor s children subject to ascertainable standard). Lifetime and testamentary powers of appointment. Right to use real estate held in trust for lifetime; Grantor responsible for taxes, maintenance expenses during use.

TRANSFER TO MEDICAID TRUST PROS: A/R has right to reside for lifetime. Title passes automatically on A/R s death. Step-up in basis preserved. Enhanced Star/Veteran exemption maintained. No gift tax due on transfer. Sale proceeds remain in trust and subject to Code 121 capital gains exemption. CONS: Subject to Penalty Period during Look Back. No re-financing or new financing. Trustee signs the deed at sale.

LIENS AND MORTGAGES US Code Title 12 Chapter 12 Section 1701j-2(d)(8): With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a dueon-sale clause upon a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.

INCOME PROPERTIES Part of A/R s Homestead? Exempt resource, but countable income. Not Part of A/R s Homestead? Exempt if used in A/R s trade or business. Not used in A/R s trade or business, then $12,000 / 6% test as follows: Net return of 6% or more, then first $12,000 or equity is not counted. Remaining equity is countable resource. Net return less than 6%, entire equity is countable resource. Net income = gross income less IRS expenses (not including depreciation and personal expense deductions).

LEGAL IMPEDIMENT Exists when A/R is legally prohibited from, or lacks the authority to, liquidate the asset. When A/R needs the consent of a co-owner of a jointly owned asset in order to sell the asset, and the co-owner REFUSES to give consent. If consent is given, the asset is available resource beginning with the month following the month of consent. If co-owner agrees to purchase the A/R s share of the property, the asset is considered an available resource.

REVERSE MORTGAGES Non-recourse loan for senior homeowners that uses the home s equity as collateral. All homeowners must be at leat 62 years old. HECM (Home Equity Conversion Mortgage) limit is $625,000 in 2015, even if the home appraises higher. Principal amount loaned limited to 80% of the home s appraised value. No requirement that the loan be repaid until the last surviving homeowner permanently moves out of the property or dies. Borrower still responsible for taxes and insurance premiums.

REVERSE MORTGAGES PAYMENT OPTIONS: Lump sum a lump sum of cash at closing. Tenure equal monthly payments as long as the homeowner lives in the home. Term equal monthly payments for a fixed number of years. Line of Credit draw any amount at any time until the line of credit is exhausted. Any combination of the above.

TRANSFER FOR OTHER PURPOSE NO PENALTY IF a satisfactory showing is made that the assets were transferred exclusively for a purpose other than to qualify for Medicaid. Burden of proof is on A/R. Determining Factors: an applicant/recipient s health history, patterns of gift giving, plans for self support and whether an applicant/recipient had an expectation of nursing home care. FH 7023497P (Schenectady 05/04/2015): Transfer of $497,000 Camp within look back to niece/nephew exempt. FH 6251424K (Steuben County 05/03/2013): Transfer of $25,000 parcel to step-daughter exempt.

THE END. THANK YOU. Patricia J. Shevy The Shevy Law Firm LLC