Month: October 2014

Today’s blog post continues the series about giving money away as a method to plan ahead for protection against long term care costs.  My post of September 19, 2014, the first installment of the discussion on gifting, described how the Medicaid “Aged, Blind and Disabled” program and the Department of Veterans Affairs “Pension” (aka VA “Aid and Attendance”) program look at assets given away.  My post of September 25, 2014 discussed transferring assets to a trust for protection against long term care costs.  My post of October 2, 2014 discussed transferring assets to a Limited Liability Company for protection against long term care costs.  My post of October 9, 2014 discussed transferring assets to your children (or other family members) for protection against long term care costs.  My post of October 16 discussed transferring assets to a charity as a way to protect against long term care costs.

The current series on gifting is part of a more comprehensive series on possible ways to plan ahead to protect against long term care costs.  Previously, my blog discussed long term care insurance as an approach to planning ahead for long term care costs.  In the long term care portion of this discussion, my post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance.  My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy.  My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage.  My post of July 25, 2014 advised to make sure that the long term care insurance includes coverage for cognitive impairment.  My post of July 30, 2014 described the differences between tax-qualified and non-qualified policies.  My post of August 5, 2014 discussed the value of long term care insurance policies that qualify for the Partnership program.    My post of August 14, 2014 discussed hybrid policies that combine long term care insurance with life insurance.  My post of August 21, 2014 described how a long term care insurance policy with a return of premium rider can be used to construct a “hybrid” life insurance/long term care insurance policy.  My post of August 28, 2014 described how to use a partnership policy to protect just enough of your life savings while holding down the cost of the insurance.  My post of September 5, 2014 described how to coordinate long term care insurance with potential veterans benefits.  My post of September 12, 2014 discussed how an elder law attorney can help maximize the value of long term care insurance.

The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post, as part of the sub-series on to how to give assets away, discusses gifts to your spouse as a method to protect the gifted assets from the costs of long term care in the future.

This one has a short answer:  Don’t do it.  Don’t give assets to your spouse to protect against long term care costs.  It doesn’t work.  It doesn’t have any effect.

Why try it?

Married people worry that their long term care will impoverish their spouses.  Giving assets to a spouse to put in her or his own name seems like a logical way to protect those assets from one’s own long term care risks and, at the same time, give the spouse additional assets as a shield against going completely broke.  Unfortunately, it doesn’t work that way.

Why doesn’t it work?

Both Medicaid and the VA view a married couple as a single unit when counting assets. The spouses may just as well view their assets (for long term care purposes) as yours, mine, and ours.  Your assets are mine.  My assets are yours.  Our assets are ours.

Medicaid just lumps the couple’s assets together.  It doesn’t matter whose name is on a particular asset.  All of the assets are considered.  (It may not be necessary to spend down all assets.  That’s a question of crisis planning (i.e., not pre-planning) for long term care costs.)

VA’s result is the same, but the method is a little different.  VA considers the “household’s” assets when considering eligibility for VA Pension (aka Aid & Attendance.)  That still puts both spouses’ assets in the mix.  It’s just a different way of looking at it from Medicaid’s way.

So, as a result, giving assets to a spouse doesn’t matter.  Medicaid’s rules consider the assets of both spouses in testing financial eligibility.  VA’s rules consider the assets of the household in testing financial eligibility.  Moving an asset from one spouse to another doesn’t take the asset out of the ownership of the spouses when they are considered as a couple and doesn’t take the asset out of the household.

There are ways to protect a spouse from long term care costs, but gifting before you need care isn’t one of those ways.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.

Today’s blog post continues the series about giving money away as a method to plan ahead for protection against long term care costs.  My post of September 19, 2014, the first installment of the discussion on gifting, described how the Medicaid “Aged, Blind and Disabled” program and the Department of Veterans Affairs “Pension” (aka VA “Aid and Attendance”) program look at assets given away.  My post of September 25, 2014 discussed transferring assets to a trust for protection against long term care costs.  My post of October 2, 2014 discussed transferring assets to a Limited Liability Company for protection against long term care costs.  My post of October 9, 2014 discussed transferring assets to your children (or other family members) for protection against long term care costs.

The current series on gifting is part of a more comprehensive series on possible ways to plan ahead to protect against long term care costs.  Previously, my blog discussed long term care insurance as an approach to planning ahead for long term care costs.  In the long term care portion of this discussion, my post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance.  My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy.  My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage.  My post of July 25, 2014 advised to make sure that the long term care insurance includes coverage for cognitive impairment.  My post of July 30, 2014 described the differences between tax-qualified and non-qualified policies.  My post of August 5, 2014 discussed the value of long term care insurance policies that qualify for the Partnership program.    My post of August 14, 2014 discussed hybrid policies that combine long term care insurance with life insurance.  My post of August 21, 2014 described how a long term care insurance policy with a return of premium rider can be used to construct a “hybrid” life insurance/long term care insurance policy.  My post of August 28, 2014 described how to use a partnership policy to protect just enough of your life savings while holding down the cost of the insurance.  My post of September 5, 2014 described how to coordinate long term care insurance with potential veterans benefits.  My post of September 12, 2014 discussed how an elder law attorney can help maximize the value of long term care insurance.

The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post, as part of the sub-series on to how to give assets away, discusses gifts to charity as a method to protect the gifted assets from the costs of long term care in the future.

Donations to charities are improper transfers according to Medicaid and perhaps to the VA.  Gifts to charities are rare for long term care pre-planning.

Why make a gift to charity?

Gifts to charities have income tax consequences completely separate from long term care planning.  Gifts to recognized charities create tax deductions.  Gifts that have appreciated above the original investment create tax deductions higher than the cash cost.  Those tax consequences do not change how Medicaid and the VA view gifts to charities, however.

Perhaps because of the tax consequences (or perhaps regardless of the tax consequences,) gifts to charity may fulfill an individual or family plan for philanthropy.  Gifts to charities can support good works that are important to the donor.

In addition, gifts given while the senior is alive avoid the probate process (perhaps unless the senior dies shortly after the gift.)

Considerations when making a gift to charity

Don’t transfer everything you have.  You still need to live off your life savings.  Keep enough back to support yourself for the foreseeable future.  (Remember, at the time you’d make this gift, you don’t yet need long term care.  It’s a PRE-planning tool.)

Good records of the donation may be necessary, especially if the donation is large.  An acknowledgement from the charity may be required as part of the income tax records.  Depending on the type of gift, an appraisal may be necessary.

Depending on the type of gift and on whether other non-charitable gifts are given in the same year, the charitable donation may need to be reported on a gift tax return.  There should not be an actual tax on the charitable gift, but the gift may require reporting.

Why not make a gift to charity?

First, you must decide if you’re worried about the possibility of long term care costs in your future.  If you’re not worried, then don’t use gifting for the purpose of pre-planning.

A gift does not protect the gifted assets from long-term care costs until the five-year look back period has passed, according to the requirements of Medicaid, even if the gift is to a charity.  (This means, if you feel that you will need long term care within the next five years, you should talk with an elder law attorney before making any gifts at all so you can make a plan that addresses your likely care needs.)

Similarly, with the VA starting to look back at prior income tax records and at least inquiring about now seemingly missing assets, gifts to charity risk the possibility that the VA will deny an application for Pension (aka Aid & Attendance benefits.)

Tithing, even a history of tithing, has not overcome Medicaid’s aversion to gifts.  Recent cases in which seniors seeking Medicaid have given to their churches, even with a long history of making such gifts, have resulted in denials of Medicaid benefits for the applicants.

A gift to charity cannot be reversed (not usually anyway.)  If the donor needs long term care (i.e., needs Medicaid or VA Pension or both) within the look back period, a charitable donation cannot be reversed to allow the senior to switch to a crisis type of plan.

As I’ve mentioned with other gifting strategies, the biggest drawback to a charitable gifting strategy, in my opinion anyway, is that you give up control of the money that you give away.  Imagining myself retired, I’m not sure that I’d be emotionally comfortable giving up control of a big part of my life savings.

It’s your choice.

Perhaps you have no fear of any of the risks I describe.  Perhaps you want to make sure that your favorite charities receive your support.  If so, then give to those charities, but only with a small portion of your assets.  Small gifts may be compensated for with other assets and, therefore, absorbed into a crisis plan for long term care costs.  Large gifts to charities can leave an unlucky donor (who needs long term care surprisingly soon after the charitable donation) without the ability to pay for care or to qualify for government benefits to pay for care.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.

Today’s blog post continues the series about giving money away as a method to plan ahead for protection against long term care costs.  My post of September 19, 2014, the first installment of the discussion on gifting, described how the Medicaid “Aged, Blind and Disabled” program and the Department of Veterans Affairs “Pension” (aka VA “Aid and Attendance”) program look at assets given away.  My post of September 25, 2014 discussed transferring assets to a trust for protection against long term care costs.  My post of October 2, 2014 discussed transferring assets to a Limited Liability Company for protection against long term care costs.

The current series on gifting is part of a more comprehensive series on possible ways to plan ahead to protect against long term care costs.  Previously, my blog discussed long term care insurance as an approach to planning ahead for long term care costs.  In the long term care portion of this discussion, my post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance.  My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy.  My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage.  My post of July 25, 2014 advised to make sure that the long term care insurance includes coverage for cognitive impairment.  My post of July 30, 2014 described the differences between tax-qualified and non-qualified policies.  My post of August 5, 2014 discussed the value of long term care insurance policies that qualify for the Partnership program.    My post of August 14, 2014 discussed hybrid policies that combine long term care insurance with life insurance.  My post of August 21, 2014 described how a long term care insurance policy with a return of premium rider can be used to construct a “hybrid” life insurance/long term care insurance policy.  My post of August 28, 2014 described how to use a partnership policy to protect just enough of your life savings while holding down the cost of the insurance.  My post of September 5, 2014 described how to coordinate long term care insurance with potential veterans benefits.  My post of September 12, 2014 discussed how an elder law attorney can help maximize the value of long term care insurance.

The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post, as part of the sub-series on to how to give assets away, discusses gifts to your children (or other family members) as a method to protect the gifted assets from the costs of long term care in the future.

Transfers to others in this manner are gifts.  For long term care pre-planning, these gifts most often go to the senior’s children.  (At the time that a senior is planning ahead for long term care, the children are usually middle-aged themselves.)  Gifts can also go to grandchildren or any other relative, to a friend, to a charity, or to anyone else to whom one can make a gift.  Gifts to charities or to people outside the family are rare for long term care pre-planning.  (Gifts to charities have income tax consequences completely separate from long term care planning, but income tax issues will not be discussed here.)  Gifts for the purpose of long term care pre-planning are almost always within the family.

Why make a gift to your family?

Simply put, a gift within the family keeps the gifted money in the family.  The gift-giver expects to need long term care in the future or at least fears the costs of long term care enough to plan ahead.  By pushing assets to a younger generation, the assets stay within the family.

In addition, gifts given while the senior is alive avoid the probate process (perhaps unless the senior dies shortly after the gift.)

Considerations when making a gift

Don’t transfer everything you have.  You still need to live off your life savings.  Keep enough back to support yourself for the foreseeable future.  (Remember, at the time you’d make this gift, you don’t yet need long term care.  It’s a PRE-planning tool.)

Depending on the size of the gift, a gift tax return may be necessary.  If the gift is very large, the actual payment of gift tax may be required.

Sizable gifts reduce the unified credit that the senior’s estate will have available before triggering a requirement to pay federal estate tax.  (A similar result may occur in calculating your state’s estate tax as well.)

Why not make a gift to your family?

First, you must decide if you’re worried about the possibility of long term care costs in your future.  If you’re not worried, then don’t use gifting for the purpose of pre-planning.

I’m not a big fan of gifting as a pre-planning strategy simply because I don’t trust your children.  (When I’m giving a speech, I describe my fears as “I don’t trust Junior.”)

I’m sure you have great children – responsible and trustworthy.  But, a big influx of money can affect even the most responsible person.  That responsible child may suddenly decide to build a pool or buy an expensive car or take a high-roller’s trip to Las Vegas.  The child will almost always promise himself or herself that the money will be repaid to build it back up, but all too often, that repayment never happens.

Even if your child remains trustworthy and responsible, not touching the big pile of money that came in, there are too many risks in life to make me comfortable.  The child can have a business downturn causing creditors to go after personal assets.  (After a gift, the gifted money is among the child’s personal assets.)  Alternatively, the child or your grandchild can have a car accident, and the other person in the accident could go after everything in the child’s name.  Or, your child can get a divorce, putting all assets at risk for being divided up.

A gift does not protect the gifted assets from long-term care costs until the five-year look back period has passed, according to the requirements of Medicaid.  (This means, if you feel that you will need long term care within the next five years, you should talk with an elder law attorney before making any gifts so you can make a plan that addresses your likely care needs.)

Similarly, with the VA starting to look back at prior income tax records and at least inquiring about now seemingly missing assets, gifting to children risks the possibility that the VA will deny an application for Pension (aka Aid & Attendance benefits.)

Perhaps the biggest drawback to a gifting strategy, in my opinion anyway, is that you give up control of the money that you give away.  Imagining myself retired, I’m not sure that I’d be emotionally comfortable giving up control of a big part of my life savings.

It’s your choice.

Perhaps you have no fear of any of the risks I describe.  Perhaps you trust your children with all of your life savings.  Then use gifting as your pre-planning strategy.  I don’t think I’d use gifting for my pre-planning, but it may be the perfect approach for you.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.

Today’s blog post continues the series about giving money away as a method to plan ahead for protection against long term care costs.  My post of September 19, 2014, the first installment of the discussion on gifting, described how the Medicaid “Aged, Blind and Disabled” program and the Department of Veterans Affairs “Pension” (aka VA “Aid and Attendance”) program look at assets given away.  My post of September 25, 2014 discussed transferring assets to a trust for protection against long term care costs.

The current series on gifting is part of a more comprehensive series on possible ways to plan ahead to protect against long term care costs.  Previously, my blog discussed long term care insurance as an approach to planning ahead for long term care costs.  In the long term care portion of this discussion, my post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance.  My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy.  My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage.  My post of July 25, 2014 advised to make sure that the long term care insurance includes coverage for cognitive impairment.  My post of July 30, 2014 described the differences between tax-qualified and non-qualified policies.  My post of August 5, 2014 discussed the value of long term care insurance policies that qualify for the Partnership program.    My post of August 14, 2014 discussed hybrid policies that combine long term care insurance with life insurance.  My post of August 21, 2014 described how a long term care insurance policy with a return of premium rider can be used to construct a “hybrid” life insurance/long term care insurance policy.  My post of August 28, 2014 described how to use a partnership policy to protect just enough of your life savings while holding down the cost of the insurance.  My post of September 5, 2014 described how to coordinate long term care insurance with potential veterans benefits.  My post of September 12, 2014 discussed how an elder law attorney can help maximize the value of long term care insurance.

The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post, as part of the sub-series on to how to give assets away, discusses gifts to Limited Liability Companies (LLCs) as a method to protect the gifted assets from the costs of long term care in the future.

Why transfer money to a Limited Liability Company?

Transferring money (or any asset, but we’ll call everything “money” most of the time) to an LLC lets you decide how that money will be managed and eventually where that money will go.  You, with help from an attorney, can set up the LLC and create its Operating Agreement.  The Operating Agreement is, effectively, the LLC’s constitution and by-laws, containing all of the important decision-making criteria for the LLC.

In setting up the LLC, you should describe its primary purpose as investment management for the benefit of the LLC’s members.  Even though your purpose in making the gift to the LLC is protecting the assets from long term care costs, that should not be the stated purpose of the LLC itself.  After the assets are given to the LLC (if done properly,) the protection from long term care costs has been accomplished. Then, the LLC’s purpose is to manage the money it contains.

Like with a trust (described in the previous installment,) you, as the person who sets up the LLC, can have the Operating Agreement written in a way that reflects your wishes regarding the distribution of the LLC’s profit and eventually its principal.  You can also name a Managing Member, whose job is quite similar to the trustee described in the trust discussion.  That Managing Member is in charge of day to day “operations” and decisions for the LLC, within the limits, if any, set in the Operating Agreement.

The people you would normally name in your will as your beneficiaries you would name as the members of the LLC.  They are the people who receive the profits and, when the LLC is dissolved, the principal.  (The principal is the money that you put into the LLC originally to shelter that money from long term care costs.)

Considerations when making a gift to an LLC

Don’t transfer everything you have (just like I suggested in the trust discussion last time.)  You still need to live off your life savings.  Keep enough back to support yourself for the foreseeable future.  (Remember, at the time you’d put assets into the LLC, you don’t yet need long term care.  It’s a PRE-planning tool.)

Depending on the size of the transfer, a gift tax return may be necessary.  If the transfer is very large, the actual payment of gift tax may be required.

Sizable transfers reduce the unified credit that your estate will have available before triggering a requirement to pay federal estate tax.  (A similar result may occur in calculating your state’s estate tax as well.)

A transfer to an LLC does not protect the transferred assets from long-term care costs until the five-year look back period has passed, according to the requirements of Medicaid.  (This means, if you feel that you will need long term care within the next five years, you should talk with an elder law attorney before making any transfers (to an LLC, to a trust, to a person, or to anywhere else) so you can make a plan that addresses your likely care needs.)

Why not transfer assets to an LLC?

First, you must decide if you’re worried about the possibility of long term care costs in your future.  If you’re not worried, then don’t use an LLC for the purpose of pre-planning.  (If you aren’t worried about long term care costs in your future, you probably wouldn’t do any pre-planning at all.)

While LLCs are easier to manage than are trusts, an LLC still needs some level of management above just handling one’s own personal affairs.

LLCs are given a great deal of flexibility on taxes, and, in LLCs for this purpose, taxation as a partnership is probably best.  That way, every member will pay his or her own taxes on the income at his or her own tax rate.  (The LLC isn’t locked into the highest tax bracket like a trust.)  Still, the income must be reported to the IRS and to the LLC members via a form K-1 (even for profits that aren’t distributed out to the members.)  To accomplish these tasks, the LLC will probably need to have an accountant, resulting in some costs for accounting services.

You need to have a Managing Member that you trust.  You can’t be your own Managing Member, and your spouse can’t be the Managing Member either.  The LLC will own, under the supervision of the Managing Member, much or most of your life savings.  Do you have someone that you trust that much?  Banks or trust companies don’t offer “Managing Member services” like they offer trust services.  You can’t hire a professional Managing Member because that hired professional would become part owner of the LLC.

The gift to the LLC is irrevocable. You give your money away, and you can’t take it back.

You can’t be a member of the LLC.  If you were a member, you’re membership interest would be counted by Medicaid and by the VA as an asset available to pay for your long term care.

Despite what you might wish (as the person who funded the LLC in the first place,) the members can change the Operating Agreement (if they can all agree.)  Your initial plan may be changed by the people whom you intended to benefit.

Medicaid will look very hard at the LLC to look for any way that the money can come back (or be forced to come back) to a Medicaid applicant.  If Medicaid finds any opening, the LLC will lose its protection against long term care costs.

Perhaps the biggest drawback to using an LLC (in my opinion anyway) is the same drawback as in a trust or in any gifting strategy.  You give up control of the money that you put into the LLC.  Imagining myself retired, I’m not sure that I’d be emotionally comfortable giving up control of a big part of my life savings while I was still healthy enough to use it.

It’s your choice.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

© 2014 The Koewler Law Firm.  All rights reserved.