What Is Medicaid Estate Recovery?

What Is Medicaid Estate Recovery? – SmartAsset

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Medicaid is a government program that can help eligible seniors pay for nursing home care. If you’re helping an aging parent navigate Medicaid because they don’t have long-term care insurance or you think you’ll need it yourself someday, it’s important to understand how the program works. For instance, you should be aware that the Medicaid Estate Recovery Program (MERP) may be used to recoup costs paid toward long-term care. Medicaid estate recovery is intended to help make the program affordable for the government, but it can financially impact the beneficiaries of Medicaid recipients. Make sure you’re handling this kind of situation in the wisest possible way by consulting a financial advisor.

Medicaid Estate Recovery, Explained

Medicare is designed to help pay for healthcare costs for seniors once they turn 65. While it covers a number of healthcare expenses, it doesn’t apply to costs associated with long-term care in a nursing home.

That’s where Medicaid can help fill the gap. Medicaid can help with paying the costs of long-term care for aging seniors. It can be used in situations where someone lacks long-term care insurance coverage or they don’t have sufficient assets to pay for long-term care out of pocket. You may also use Medicaid to pay for nursing home care if you’ve taken steps to protect assets using a trust or other estate planning tools.

But the benefits you or an aging parent receives from Medicaid aren’t necessarily free. The Medicaid Estate Recovery Program allows Medicaid to recoup money spent on behalf of an aging senior to cover long-term care costs. The Omnibus Budget Reconciliation Act of 1993 requires states to attempt to seek reimbursement from a Medicaid beneficiary’s estate when they pass away.

How Medicaid Estate Recovery Works

The Medicaid Estate Recovery Program allows Medicaid to seek recompense for a variety of costs, including:

  • Expenses related to nursing home or other long-term care facility stays
  • Home- and community-based services
  • Medical services received through a hospital (when the recipient is a long-term care patient)
  • Prescription drug services for long-term care recipients

If you or an aging parent passes away after receiving long-term care or other benefits through Medicaid, the recovery program allows Medicaid to pursue any eligible assets held by your estate. What that includes can depend on where you live, but generally, it means any assets that would be subject to the probate process after you pass away.

So that may include:

  • Bank accounts owned by you
  • Your home or other real estate
  • Vehicles or other real property

Some states also allow Medicaid estate recovery to include assets that aren’t subject to probate. That can include jointly owned bank accounts between spouses, Payable on death bank accounts, real estate that’s owned in joint tenancy with right of survivorship, living trusts and any other assets that a Medicaid recipient has a legal interest in. It’s important to understand the laws in your state regarding what can and cannot be used to recover Medicaid benefits when you or an aging parent passes away.

It’s also worth noting that while Medicaid can’t take someone’s home or assets before they pass away, it is possible for a lien to be placed upon the property. For example, if your mother has to move into a nursing home then Medicaid could place a lien on the property. If your mother passes away and you inherit the home, you wouldn’t be able to sell it without first satisfying the lien.

What Medicaid Estate Recovery Means for Heirs

The most significant impact of Medicaid estate recovery for heirs of Medicaid recipients is the possibility of inheriting a reduced estate. Medicaid eligibility assumes that recipients are low-income or have few assets to pay for long-term care. But if your parents are able to leave some assets behind when they pass away, the recovery program could shrink the estate that passes on to you.

It’s also important to note that while Medicaid estate recovery rules disavow you personally from paying for your parents’ long-term care costs, filial responsibility laws do not. These laws, though rarely enforced, allow healthcare providers to sue the children of long-term care recipients to recover nursing care costs.

So even if Medicaid doesn’t take anything away from your parents’ estate after they pass away, a nursing home could still sue you personally to recover money paid toward the cost of their care. The care facility has to be able to prove that you have the means to pay but this could add a wrinkle to your financial picture if you’re responsible for wrapping up a deceased parent’s estate.

How to Avoid Medicaid Estate Recovery

Strategic planning can help you or your loved ones avoid financial impacts from Medicaid estate recovery.

For example, you may consider purchasing long-term care insurance for yourself for encouraging your parents to do so. A long-term care insurance policy can pay for the costs of nursing home care so you can avoid the need for Medicaid altogether.

If you’re interested in long-term care insurance for yourself or an aging parent, compare the cost for premiums against the benefits the policy pays out. If you’re unsure whether you or a parent may need long-term care at all, you might consider a hybrid policy that includes both long-term care coverage and a life insurance death benefit.

Another option for avoiding Medicaid estate recovery is removing as many assets as possible from the probate process. Married couples, for example, can accomplish that by making sure all assets are jointly owned with right of survivorship or using assets to purchase an annuity that transfers benefits to the surviving spouse when the other spouse passes away.

It’s important to understand which assets are and are not subject to probate in your state and whether your state allows for an expanded definition of recoverable assets for Medicaid. Talking to an estate planning attorney or an elder law expert can help you to shape a plan for protecting assets.

The Bottom Line

Medicaid estate recovery may not be something you have to worry about if your aging parents leave little or no assets behind. But it’s something you should still be aware of if you expect to inherit anything from your parents when they pass away. If you’re targeted for estate recovery, you may be able to avoid it if you can prove that it would cause you an undue financial hardship. Again, this is where talking to an estate planning professional can help you avoid any unexpected surprises.

Tips for Estate Planning

  • Consider talking to a financial advisor about Medicaid and how to plan for long-term care costs. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors online. It takes just a few minutes to get personalized recommendations for financial advisors in your local area. If you’re ready, get started now.
  • Consider a living trust. It will let you transfer assets to the control of a trustee, who will manage them according to your wishes on behalf of your beneficiaries. Trust assets aren’t necessarily exempt from Medicaid recovery, but this could still be a useful estate planning tool for minimizing taxes and ensuring a smooth transition of assets to your beneficiaries.

Photo credit: ©iStock.com/FatCamera, ©iStock.com/FatCamera, ©iStock.com/Dennis Gross

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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What Is the Generation-Skipping Transfer Tax?

What Is the Generation-Skipping Transfer Tax? – SmartAsset

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Estate planning can help you pass on assets to your heirs while potentially minimizing taxes. When gifting assets, it’s important to consider when and how the generation-skipping tax transfer (GSTT) may apply. Also called the generation-skipping tax, this federal tax can apply when a grandparent leaves assets to a grandchild while skipping over their parents in the line of inheritance. It can also be triggered when leaving assets to someone who’s at least 37.5 years younger than you. If you’re considering “skipping” any of your heirs when passing on assets, it’s important to understand what that means from a tax perspective and how to fill out the requisite form. A financial advisor can also give you valuable guidance on how best to pass along your estate to your beneficiaries.

Generation-Skipping Tax, Definition

The Internal Revenue Code imposes both gift and estate taxes on transfers of assets above certain limits. For 2020, you can exclude gifts of up to $15,000 per person from the gift tax, with the limit doubling for married couples who file a joint return. Estate tax applies to estates larger than $11,580,000 for 2020, increasing to $11,700,000 in 2021. Again, these exemption limits double for married couples filing a joint return.

The gift tax rate can be as high as 40%, while the estate tax also maxes out at 40%. The IRS uses the generation-skipping transfer tax to collect its share of any wealth that moves across families when assets aren’t passed directly from parent to child. Assets subject to the generation-skipping tax are taxed at a flat 40% rate.

This tax can apply to both direct transfers of assets to your chosen beneficiaries as well as assets passed through a trust. A trust can be subject to the GSTT if all the beneficiaries of the trust are considered to be skip persons who have a direct interest in the trust.

How Generation-Skipping Transfer Tax Works

Generation-skipping tax rules cover the transfer of assets to people who at least one generation apart. A common scenario where the GSTT can apply is the transfer of assets from a grandparent to a grandchild when one or both of the grandchild’s parents are still alive. If you’re transferring assets to a grandchild because your child has predeceased you, then the transfer tax wouldn’t apply.

The generation-skipping tax is a separate tax from the estate tax and it applies alongside it. Similar to estate tax, this tax kicks in when an estate’s value exceeds the annual exemption limits. The 40% GSTT would be applied to any transfers of assets above the exempt amount, in addition to the regular 40% estate tax.

This is how the IRS covers its bases in collecting taxes on wealth as it moves from one person to another. If you were to pass your estate from your child, who then passes it to their child then no GSTT would apply. The IRS could simply collect estate taxes from each successive generation. But if you skip your child and leave assets to your grandchild instead, that removes a link from the taxation chain. The GSTT essentially allows the IRS to replace that link.

You do have the ability to take advantage of lifetime estate and gift tax exemption limits, which can help to offset how much is owed for the generation-skipping tax. But any unused portion of the exemption counted toward the generation-skipping tax is lost when you die.

How to Avoid Generation-Skipping Transfer Tax

If you’d like to minimize estate and gift taxes as much as possible, talking to a financial advisor can be a good place to start. An advisor who’s well-versed in gift and estate taxes can help you create a plan for transferring assets. For example, that plan might include gifting assets to your grandchildren or another generation-skipping person annually, rather than at the end of your life. Remember, you can gift up to $15,000 per person each year without incurring gift tax, or up to $30,000 per person if you’re married and file a joint return. You’d just need to keep the lifetime exemption limits in mind when scheduling gifts.

You could also make payments on behalf of a beneficiary to avoid tax. Say you want to help your granddaughter with college costs, for example. Any direct payments you make to the school to cover tuition would generally be tax-free. The same is true for direct payments made to healthcare providers if you’re paying medical expenses on behalf of someone else.

Setting up a trust may be another option worth exploring to minimize generation-skipping taxes. A generation-skipping trust allows you to transfer assets to the trust and pay estate taxes at the time of the transfer. The assets you put into the trust have to remain there during the skipped generation’s lifetime. Once they pass away, the assets in the trust could be passed on tax-free to the next generation.

This strategy requires some planning and some patience on the part of the generation that stands to inherit. But the upside is that members of the skipped generation and the generation that follows can benefit from any income the assets in the trust generates in the meantime. Trusts can also yield another benefit, in that they can offer asset protection against creditors who may file legal claims against you or your estate.

Another type of trust you might consider is a dynasty trust. This type of trust can allow you to pass assets on to future generations without triggering estate, gift or generation-skipping taxes. The caveat is that these are designed to be long-term trusts.

You can name your children, grandchildren, great-grandchildren and subsequent generations as beneficiaries and the transfer of assets to the trust is irrevocable. That means once you place the assets in the trust, you won’t be able to take them back out again so it’s important to understand the implications before creating this type of trust.

The Bottom Line

The generation-skipping tax could take a significant bite out of the assets you’re able to leave behind to grandchildren or another eligible person. If you’re considering using this type of trust to pass on assets or you’re interested in exploring other ways to transfer assets while minimizing taxes, it’s wise to consult an estate planning lawyer or tax attorney first.

Tips for Estate Planning

  • Consider talking to your financial advisor about how to best shape your estate plan to minimize taxation. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. It takes just a few minutes to get your personalized recommendations for advisors online. If you’re ready, get started now.
  • Creating a trust can yield some advantages in your estate plan. In addition to helping you minimize tax liability, the assets in a trust are not subject to probate. That’s different from assets you leave behind in a will.

Photo credit: ©iStock.com/ljubaphoto, ©iStock.com/baona, ©iStock.com/svetikd

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Source: smartasset.com

How to Get Squirrels Out of Your Yard

Squirrels are adorable, but they can wreak havoc on your yard—digging up plants; eating leaves, bulbs, and bark; and ruining bird feeders. If you have a squirrel problem, here are six easy, all-natural ways you can fix it. 

By

Bruce and Jeanne Lubin
July 16, 2020

How to Keep Birds Away From Your Patio, Pool, and Garden

Protect Your Grill

Make sure squirrels and other rodents don’t chew through the rubber pipeline that connects your propane tank with your grill—reinforce the entire thing with duct tape by applying duct tape in rings around it. This is a good idea for anything else in your yard made out of rubber, as this is a favorite chew toy of rodents!

Keep Squirrels Out of Your Garden

Squirrels can be one of the trickiest garden pests to deal with. They chomp on flower bulbs and other leaves, dig up your favorite plants, and otherwise love to wreck your garden. Protect it by grating some Irish Spring soap around your plants. Squirrels can’t stand the smell of it and will stay away.

See also: How to Keep Snakes Out of Your Yard 

Plant Mint to Repel Squirrels

Squirrels hate the aroma of mint, so plant mint (which grows easily) around gardens and trees that squirrels like to frequent. It smells great (at least, to you) and you can even pick it and use it in drinks like iced tea and mojitos.

Another Great Squirrel Repellent

If you’ve ever bitten into a shred of foil that had gotten stuck to a piece of candy, you know how unpleasant the sensation is. Rodents hate the feeling of foil between their teeth, too, so placing strips of foil in your garden mulch will help deter squirrels and some bugs. If squirrels are eating the bark of your tree, you can also wrap the trunk in foil.

For more ways to get rid of pests from all around the internet, check out our Bug and Pest Natural Remedies board on Pinterest. And don’t forget to sign up for our newsletter and follow us on Facebook for our Tip of the Day!