Source: https://klsllp.com/category/articles/
Timestamp: 2020-08-04 07:35:42
Document Index: 52328562

Matched Legal Cases: ['§ 366', '§ 360', '§ 1015', '§ 366', '§ 360', '§ 369', '§ 360', '§369', '§ 360', '§369', '§ 360', '§ 467', '§ 1014', '§ 1022', '§ 369', '§ 1014', '§ 1022', '§ 369', '§ 360', '§ 369', '§ 360', '§ 369', '§360', '§369', '§360', '§ 104']

Cheap Advice on Essential Documents Can Be Costly
Most people realize that every adult should have a Health Care Proxy, Living Will, and Durable Powers of Attorney in order to provide for ongoing decision making without court involvement and to help ensure family harmony. Many people fail to realize, however, that such documents are sophisticated estate planning devices which contain many nuances and address complex and technical points of law. Whether they actually produce the desired results often depends on the source of the document. It has been my experience that individuals who decide not to retain a qualified elder law and estate planning attorney in this regard substantially underestimate the cost of “repairing” a document which does not produce the desired results. The use of pre-printed and inexpensive forms for estate planning documents can lead to an exorbitant cost to overcome their deficiencies and can have a negative effect on the rights of disabled or elderly persons. These deficiencies often are not discovered until a crisis develops.
There are many problem scenarios which can develop following the execution of pre-printed or inexpensive forms. Frequently, the forms are outdated, missing key provisions, and/or not even executed properly. The result is often devastating as such estate planning documents may be useless. Let us examine the case of Mr. Jones as an example. Mr. Jones believes that estate planning documents are commodities which should be obtained at the cheapest possible price. He believes that he may obtain a Durable Power of Attorney from the corner stationery store for a few dollars and that his interests will be fully protected. What Mr. Jones fails to realize is that the form he has obtained may not accomplish its intended purpose. Shortly after executing the form, Mr. Jones suffers a stroke and is incapacitated. He requires long term care. His wife discovers that the cost of his care will be $10,000 a month in a local nursing home. Mrs. Jones cannot afford to pay $10,000 a month for her husband’s care and she determines that she should apply for Medicaid for her husband. In order to qualify for Medicaid, Mr. Jones can only have a few thousand dollars in his name. Accordingly, Mrs. Jones goes to the bank and asks that Mr. Jones’ bank accounts be transferred out of his name. The bank officer asks if Mrs. Jones has been appointed Mr. Jones’ agent and she produces the Durable Power of Attorney form which Mr. Jones purchased at the stationery store. Unfortunately, the bank officer advises Mrs. Jones that the bank will not transfer Mr. Jones account to her because the form was not properly executed and, even if it was properly executed, it does not have appropriate provisions which would allow her to make the contemplated transfer. Mrs. Jones is left with no option but to commence a guardianship proceeding in court. A guardianship proceeding can cost ten to twenty times, or even more, of what the legal fee would have been to have a qualified elder law and estate planning attorney do the proper planning in the first instance.
Some members of the public feel that paying anything more than a nominal fee for estate planning documents is not appropriate as the law firm should be able to simply insert the client’s name and print the document from their computer. The amount of time spent physically preparing the documents, however, is only a small percentage of the time actually spent by a qualified elder law and estate planning attorney on the matter. The bulk of the attorney’s time is spent discussing with the client whether the form is even appropriate given the client’s circumstances, who the agents should be, what powers the agents should be given, the available options with respect to the different kinds of documents and the consequences of signing such documents. Additionally, the attorney’s time is spent reviewing the documents to make sure they accurately express the client’s intentions, supervising the proper execution of the same, and educating the client about how the forms should be safeguarded and how and when they should be used. A qualified elder law and estate planning also spends a considerable amount of time staying attuned to developments in the law to make sure the document being drafted is current, is drafted in the most effective manner possible, and is the document most suited to meet the individual’s needs.
To rely on a pre-printed or inexpensive form for proper elder law and estate planning is a practice fraught with danger. A document is only as good as its source. There are complex issues inherent in estate planning documents which preprinted or inexpensive forms often do not take into account. A qualified elder law and estate planning attorney can explain the nuances of elder law and estate planning documents and make certain that the planning meets your specific needs.
The Caretaker Child Exception (PART II: Tax , Lien, and Estate Recovery Issues)
Part I of this article (which appeared in the Summer 2001 issue of the NYSBA Elder Law Attorney) examined the elements of the caretaker child exception and offered an analysis as to how far this exception to the transfer penalty rules extends. Part I focused on the circumstances under which title to a Medicaid applicant’s homestead can be transferred, without the imposition of a penalty period, to a caretaker child and concluded that such an exempt transfer can take place provided a biological or adopted child of the applicant has maintained his or her domicile in the applicant’s primary residence for the entire two year period immediately preceding the institutionalization of the applicant. This part of the article will examine the tax, lien and estate recovery considerations associated with each of the methods commonly used for transferring ownership of a homestead to a caretaker child (i.e., by outright transfer or by transfer subject to a retained life estate) as well as the tax, lien and estate recovery issues associated with the failure of an applicant to transfer the homestead’s title to a caretaker child during the applicant’s lifetime. All references to a “caretaker child” in this part of the article will presume that the child of the applicant has qualified as a “caretaker child” under applicable law.1
Outright Transfer Of A Homestead To A Caretaker Child
A Medicaid applicant may make an outright transfer of his or homestead to a caretaker child without incurring a penalty period. The applicant would transfer his/her entire ownership interest in the homestead to the caretaker child without reserving, in the deed, the right to occupy the premises.
There are two potential problems associated with transferring title to the homestead to the caretaker child in this manner. First, if the applicant receives the benefit of any real property tax exemptions (i.e., Veteran’s, Senior Citizen’s, or STAR), such benefits will be lost as the applicant no longer would have an ownership interest in the property. Second, by transferring the homestead to a caretaker child in this manner, the caretaker child will acquire the applicant’s cost basis in the property (i.e., “carryover basis”)2 which could result in a significant capital gains tax liability of the caretaker child upon the sale of the property by the caretaker child. For example, assume the applicant purchased the property thirty years ago for $30,000 and the property now has a fair market value of $300,000. The caretaker child would acquire a cost basis of $30,000 in the property (assume for the purpose of this example that no improvements were made to the property which would increase the basis) and would have a very significant capital gains tax liability if the caretaker child received proceeds from the sale of the homestead equal to $300,000. This problem may be overcome if the caretaker child maintains his or her primary residence in the homestead for at least the next two years before selling the property. Internal Revenue Code (“IRC”) Section 121 provides an exclusion from gross income for the sale of a principal residence if the property was owned and used by the taxpayer as the taxpayer’s principal residence for two of the five years preceding the date of the sale. The amount of the gain excluded is $250,000 for a taxpayer filing individually and $500,000 for taxpayers filing jointly.
There is an important timing issue to be considered whenever a transfer of a homestead to a caretaker child is being contemplated. Medicaid law does not extend exempt status to a homestead which remains titled in the name of the Medicaid applicant where a caretaker child continues to live in the homestead following the applicant’s institutionalization. If an individual becomes institutionalized, the homestead will only be exempt if it is occupied by the applicant; the applicant’s spouse; or the applicant’s minor, blind or disabled child3; or if the applicant executes a statement of intent to return home4. Thus, if the applicant becomes institutionalized without having a spouse who will continue to live in the homestead and the applicant has not executed a statement of intent to return home, the home will remain exempt only if the caretaker child also qualifies as minor, blind, or disabled child. Furthermore, Medicaid law allows a lien to be placed by the department of social services (“DSS”) on a homestead titled in the name of a Medicaid applicant even if a caretaker child continues to live in the homestead following the applicant’s institutionalization. A lien cannot be placed on a homestead only if the homestead is occupied by the applicant’s spouse; the applicant’s minor, blind or disabled child; or a sibling of the applicant who has resided in the homestead for at least one year immediately before the applicant’s institutionalization and who has an equity interest in the homestead.5 Thus, by not actually transferring title to the homestead to a caretaker child prior to requesting Medicaid eligibility, the homestead may a) become an available resource for eligibility purposes, and b) be subject to a lien (assuming there is no spouse or sibling who meets the statutory requirements) if the caretaker child does not also qualify as a minor, blind, or disabled child. The lien, however, must be removed if the applicant returns to live in the homestead.6 Although DSS has the right to place a lien on a homestead titled in the name of a Medicaid applicant and occupied by a caretaker child, it is prohibited from enforcing the lien as long as the caretaker child lives in the homestead.7
Accordingly, transfer of the title to the homestead from an applicant to a caretaker child should ordinarily be completed prior to attempting to establishing the eligibility of the applicant since the homestead may count as an available resource if not transferred. Once the homestead is transferred from the applicant to the caretaker child, it will not be an available resource for Medicaid eligibility purposes. In addition, the pre-eligibility transfer of the homestead to the caretaker child will foreclose the possibility of DSS imposing a lien on the property as the applicant will no longer be the owner. The caretaker child, as the new owner, is not legally responsible for the cost of the institutionalized parent’s medical expenses. Under this scenario, no estate recovery is possible against the homestead for the same reasons.
In those situations where the homestead is highly appreciated and the caretaker child has no intention of living in the homestead for at least the next two years, an outright transfer of the homestead may not be desirable due to the capital gains tax exposure to the caretaker child. Instead, the applicant’s transfer of the homestead’s title to the caretaker child with the applicant retaining a life estate may be more prudent.
Transfer Of A Homestead To A Caretaker Child Subject To A Retained Life Estate
A Medicaid applicant may convey a homestead to a caretaker child and retain a life estate for himself/herself without incurring a penalty period. By retaining a life estate in the homestead, the Medicaid applicant retains the right to remain in the homestead for life.
The retention of a life estate by the applicant may be more desirable than making an outright transfer of the homestead to a caretaker child for several reasons. First, significant tax advantages may exist by transferring a homestead to a caretaker child subject to the retention of an unrestricted life estate (i.e., the life tenant maintains the right to receive rental income). An applicant’s property tax exemptions (STAR, Senior Citizen’s or Veteran’s) will be preserved when a life estate is retained by the applicant provided the deed is properly drafted.8 A restricted life estate (i.e., the life tenant gives up the right to receive rental income) may, however, adversely affect the tenant’s continuing eligibility for property tax exemptions. Additionally, significant capital gains tax advantages may be present as the holder of the remainder interest will receive a 100% step-up in the basis of the homestead upon the death of the life tenant.9 The step-up in basis is an income tax concept, whereby the basis of the property acquired from a decedent is its fair market value at the time of the decedent’s death. Any capital gains taxes due following the subsequent sale of the homestead will be minimized.
A lien cannot be placed on the life estate interest of a Medicaid applicant.10 Thus, if the homestead is transferred to a caretaker child and the applicant retains a life estate in the homestead, DSS cannot, under any circumstances, place a lien on the life estate interest of the Medicaid applicant. The institutionalization of the life tenant would not subject the homestead to the risk of the imposition of a lien. Moreover, a lien could not be imposed against the caretaker child’s remainder interest in the homestead since a child is not legally responsible for the cost of a parent’s medical expenses.
No estate recovery is possible against the applicant’s life estate interest in the homestead as it is extinguished upon the death of the life tenant and the homestead passes as a non-probate asset (i.e., by operation of law) to the remaindermen. Under New York law, estate recovery is presently only possible against a Medicaid recipient’s probate estate.11 Similarly, no estate recovery is possible against the caretaker child’s remainder interest in the homestead since a child is not legally responsible for the cost of a parent’s medical expenses.
Transfer of title to the homestead from an applicant to a caretaker child subject to the retention of a life estate in favor of the applicant ordinarily should be completed prior to attempting to establishing the eligibility of the applicant since the homestead may count as an available resource if not transferred. A life estate interest of an applicant, however, is not considered a countable resource.12 The pre-eligibility transfer of the homestead, subject to the applicant’s life estate, to the caretaker child will also foreclose the possibility of DSS imposing a lien on the homestead as the applicant’s life estate interest, as discussed above, cannot be liened and the caretaker child’s remainder interest in the homestead cannot be liened since a child is not deemed to be legally responsible for the cost of an institutionalized parent’s medical expenses.
The practitioner should be cautious, however, in transferring the homestead of a Medicaid applicant subject to a retained life estate since there are potential disadvantages. If the homestead is sold for any reason during the lifetime of the Medicaid applicant, a portion of the proceeds equal to the value of the life estate will belong to the life tenant. If the life tenant is receiving Medicaid benefits, the funds received by the life tenant will adversely affect the life tenant’s continuing Medicaid eligibility. Additionally, the life tenant would need the consent of the remaindermen to sell the property (and vice versa). Lastly, the transfer of the homestead subject to a retained life estate may adversely affect the ability of the life tenant to maximize the $250,000 ($500,000 for married couples) exclusion on the gain from the sale of the homestead. For these reasons, where there is a distinct possibility that the homestead may be sold during the life tenant’s lifetime, it may be advisable to make an outright transfer of title to the caretaker child.
Failure To Transfer Title During Applicant’s Lifetime
What if a Medicaid applicant retains the entire ownership interest in the homestead and does not transfer title to the caretaker child by either of the above-discussed methods during his/her lifetime (i.e., by outright transfer or by deed subject to a retained life estate) but instead the homestead only passes to the caretaker child through the applicant’s Will or through intestacy?
As already discussed, a homestead will no longer be exempt if is not occupied by the applicant; the applicant’s spouse, minor, blind or disabled child; or if the applicant does not execute a statement of intent to return. Even if the applicant executes a statement of intent to return home making the home an exempt asset, DSS can place a lien on a homestead occupied by a caretaker child to recover the Medicaid benefits paid to the individual for nursing home care or its equivalent. Accordingly, as discussed above, transferring the homestead out of the institutionalized person’s name to a caretaker child should be completed prior to attempting to establish the applicant’s eligibility. But what if title to the homestead is kept in the applicant’s name because the applicant (i) resides in a nursing home becoming eligible for Medicaid institutional benefits by executing a statement of intent to return home (making the homestead an exempt resource), or (ii) continues to reside at home (making the homestead an exempt resource) and receives Medicaid home care benefits?
If title to the homestead remains in the name of the applicant and only passes to the caretaker child through the applicant’s Will, or through intestacy, the applicant will continue to benefit from any STAR, Veteran’s or Senior Citizen’s tax exemptions because the applicant is still the owner of the property. Additionally, the caretaker child would receive a 100% step-up in basis in the homestead upon the death of the applicant if the homestead passes by Will or through intestacy to the caretaker child.13
However, DSS may place a lien against the homestead (even where the applicant executes a writing declaring his or her intent to return home) if it determines the individual to be permanently absent from the homestead even if a caretaker child lives in the homestead. The lien must, however, be removed if the individual returns home.14 Thus, by maintaining title to the homestead in the applicant’s name, the risk of the imposition of a lien on the homestead exists which would enable DSS to recover for Medicaid benefits paid to the individual for nursing home care or its equivalent. Although, DSS has the right to place a lien on the homestead under these circumstances, it is prohibited from enforcing the lien as long as a caretaker child lives in the homestead.15 If the applicant is living in the homestead and receiving Medicaid home care benefits, no lien can be imposed on the homestead.
An additional exposure in connection with the homestead whose title is not transferred out of the applicant’s name is the risk of recovery against that individual’s estate. DSS may assert a claim against the estate of a deceased Medicaid recipient who is not survived by a spouse or a minor, disabled, or blind child.16 Accordingly, unless the applicant’s spouse is alive or the caretaker child also qualifies as a minor, blind, or disabled child, Medicaid may assert a claim against a homestead that passes by Will (or through intestacy) to the extent of Medicaid benefits paid when the decedent was age fifty five or older.17 This right of recovery is further limited, however, as DSS can only recover from the estate of an applicant for benefits paid within ten years of the individual’s death.18
By understanding the tax, lien and estate recovery ramifications of the different methods commonly used to transfer a Medicaid applicant’s ownership interest in a homestead to a caretaker child, the practitioner can best serve the client. In order to qualify for Medicaid nursing home benefits and avoid the imposition of a lien on the homestead, a Medicaid applicant ordinarily should transfer title to the homestead to a caretaker child prior to seeking to establish eligibility. The practitioner should analyze and weigh the following factors to determine the more appropriate method of transferring title to the homestead to the caretaker child (i.e. by outright transfer or by deed subject to a retained life estate): the likelihood that the homestead will be sold during the applicant’s lifetime; the possible loss of property tax exemptions; and, if there is a low cost basis in the property, the likelihood that the caretaker child will continue to use the homestead as his or her primary residence for at least the next two years. An outright transfer of the homestead to the caretaker child is generally advisable where there is a distinct possibility that the homestead may be sold during the applicant’s lifetime and, if there is a low cost basis in the property, the caretaker child is likely to continue residing in the homestead for at least the next two years. Transferring the homestead subject to a retained life estate is generally advisable where the homestead is unlikely to be sold during the applicant’s lifetime, and, if there is a low cost basis in the property, the caretaker child is unlikely to live in the homestead for at least the next two years. The loss of property tax exemptions is usually not a dispositive factor in determining which method of transferring title is preferred since its economic value is usually minimal when compared to the economic consequences associated with the other factors. Nonetheless, a case-by- case analysis of each factor should be completed.
The practitioner should also understand and educate the client about the consequences of not making a lifetime transfer of the homestead’s title to a caretaker child. The consequences include difficulty in establishing Medicaid eligibility, the risk of a lien being placed on the homestead, and the risk that Medicaid may assert a claim for recovery of benefits paid against the homestead as part of estate of the Medicaid recipient.
1 Social Services Law § 366 (5)(d)(3)(i)(D); 18 NYCRR § 360-4.4 (c) (2) (iii) (b) (4).
2 IRC § 1015.
3 Social Services Law § 366 (2)(a)(1); 18 NYCRR § 360-4.7(a)(1).
4 Anna W. v. Bane, 863 F. Supp. 125 (W.D.N.Y. 1993).
5 Social Services Law § 369 (2)(a)(ii); 18 NYCRR § 360–7.11(a)(3)(ii).
6 Social Services Law §369 (2)(a)(ii); 18 NYCRR § 360–7.11 (a)(3)(i).
7 Social Services Law §369 (2)(b)(iii)(B); 18 NYCRR § 360-7.11 (b)(3)(ii).
8 Real Property Tax Law § 467 (10); 3 Opinion NYS Attorney General 45 (1973).
9 IRC § 1014 (b). Note, however, that under the Economic Growth and Tax Relief Reconciliation Act of 2001, modified carryover basis rules apply with respect to property acquired from an individual who dies between January 1, 2010 and December 31, 2010. The new rules do provide certain exceptions which allow the executor of a decedent’s estate to “step-up” the basis of assets owned by the decedent and acquired by the beneficiaries at death, up to an aggregate of $1.3 million. In addition, the basis of property transferred by a decedent to a surviving spouse can be increased by an additional $3 million (see IRC § 1022).
10 96 ADM-8 at page 21.
11 Social Services Law § 369 (6).
12 96 ADM-8 at page 21.
13 IRC § 1014 (b). Note, however, that under the Economic Growth and Tax Relief Reconciliation Act of 2001, modified carryover basis rules apply with respect to property acquired from an individual who dies between January 1, 2010 and December 31, 2010. The new rules do provide certain exceptions which allow the executor of a decedent’s estate to “step-up” the basis of assets owned by the decedent and acquired by the beneficiaries at death, up to an aggregate of $1.3 million. In addition, the basis of property transferred by a decedent to a surviving spouse can be increased by an additional $3 million (see IRC § 1022).
14 Social Services Law § 369 (2)(a)(ii); 18 NYCRR § 360-7.11 (a)(3)(i).
15 Social Services Law § 369 (2)(b)(iii)(B); 18 NYCRR § 360-7.11 (b)(3)(ii).
16 Social Services Law § 369 (2)(b)(ii); 18 NYCRR §360-7.11 (b)(2).
17 Social Services Law §369 (2)(b)(i)(B); 18 NYCRR §360-7.11 (b)(1)(i). Note, however, that the New York State regulation has not yet been updated to reflect the reduction in age from 65 to 55 as the age after which benefits are subject to recovery.
18 Social Services Law § 104 (1).
There are many reasons to engage in estate planning which have absolutely nothing to do with estate tax planning. Estate tax planning is just one of many important considerations in estate planning. Here are some examples of non-tax reasons why estate planning is necessary:
If you do not want your family to have to file a court proceeding to become your guardian
As you can see, there are many aspects of estate planning which have nothing to do with taxes. The above are examples, not an exhaustive list, of some of the very important, non-tax reasons why estate planning is necessary. The estate tax law has not affected the need for these issues to be addressed in a proper estate plan.
An estate plan is dynamic in nature. A plan that was proper a few years ago (or maybe even yesterday) may no longer be appropriate. Many people assume that once they complete an estate plan, they need not do more. Unfortunately, I have seen many individuals who have outdated estate plans suffer significant financial loss. I recommend that an estate plan be revisited at least once every three years; however, an estate plan should be reviewed more frequently when changes in the law or your life circumstances dictate such a review.
Please keep in mind that no one will take a greater interest in updating your estate plan and protecting your estate from court costs, taxes and long-term care expenses than you will. For this reason, a prudent individual should be proactive in updating his or her estate plan. Let us examine some circumstances that may necessitate addressing your estate plan.
Life circumstances often dictate that an estate plan be revisited. For example, if a new marriage (or divorce) is contemplated, action is necessary to ensure that the marital partner is being treated as desired. In addition to addressing a pre-nuptial agreement (or separation agreement) and updating your Will, beneficiary designation forms for retirement accounts and life insurance policies as well as agent designations under a Health Care Proxy and Durable Power of Attorney should be re-examined. Similarly, if a child or grandchild is born, appropriate provisions should be made to ensure the child’s future by nominating a guardian as well as providing for the management of any funds which may be inherited by the minor. Additionally, if a beneficiary becomes disabled, is diagnosed with a serious illness or is suffering from deteriorating health, an estate plan should be updated to protect the disabled beneficiary’s eligibility for government benefits and make certain that ongoing decision making is in place without court involvement.
Many people are unaware of an extremely important provision which should be added to every Will – a “trigger trust”. A “trigger trust” provision in a Will can potentially protect a family’s life savings. It provides that in the event a beneficiary becomes disabled, the funds earmarked for that beneficiary will be put into a supplemental needs trust for the benefit of the disabled beneficiary. Our office drafts every Will with a “trigger trust” provision. Unfortunately, most people (and many attorneys) are not familiar with this protective measure and do not have it included as part of their estate plan. The result can be devastating as the funds inherited by the disabled beneficiary can be lost to the exorbitant costs of care for a disabled beneficiary. With the “trigger trust”, eligibility for government benefits can be maintained and the trust funds used to supplement government benefits and enhance the quality of life of the disabled beneficiary.
Changes in the law can also necessitate changes to an estate plan. For example, in June 2001, President Bush signed a new law which dramatically changed the estate tax law. As a result, the Federal and New York State estate tax thresholds are no longer at the same level. Married couples who executed their Wills prior to this change in the law may be in for a rude awakening in that New York State may be due estate taxes of tens of thousands of dollars upon the death of the first spouse due to the outdated estate tax planning provisions in their Wills. This problem can be remedied by updated Wills containing appropriate provisions.
I have given just a few examples of changes in life circumstances and the law which can lead to the necessity of updating an estate plan. To not remain diligent in updating your estate plan is to risk adverse financial consequences. A qualified elder law and estate planning attorney can analyze whether your elder law and estate planning documents currently meet the challenge of protecting your assets to the maximum extent allowed by law.