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Seventy seven million (77,000,000) middle class aging baby boomers are going to rely on Medicare as their default long-term health care policy. The Cato Institute estimates that $60 trillions of Medicare is an unfunded, unaccounted for obligation.*

The Medicare / Medicaid programs are dual eligibilities government programs for the aged, the blind, and disabled, and heavy long term care users for the poor of the poorest. Medicaid is the largest liability in state budgets having topped elementary and secondary education. For 2003, total Medicaid expenditures in most states were $267 billion. Of this, Medicaid financed nursing home care accounted for approximately $51 billion and home care $9.9billion.*

The new Tax Reduction Act of 2005 mandated that seniors spend-down all of their combined assets before the sick spouse can qualify into a nursing home. The act requires a 5-year look back for any transfers by seniors designed to deprive the state of those available resources to pay for the nursing home.

WHAT IS THE NURSING HOME SPEND-DOWN?

The spend-down provision is that “you must self pay” for your nursing home care with the sale of all your personal and real assets to the point of financial devastation of your life’s savings driving you into financial destitution. Nursing home eligibility will be determined by your lack of any available resources designed specifically to punish/impoverish your healthy spouse.

WHY IS MEDICAID ESTATE PLANNING IMPORTANT?

The problem with the 5-year look back provision is that the new Medicare regulations do not consider the healthy spouse. It’s a social punishment of the marriage certificate. It’s a new social discrimination based on health. Eventually seniors will be forced to choose divorce for the sake of retaining their financial dignity.

WHAT’S HAPPENING WITH THE MEDICAID HEALTH CARE SYSTEM?

The gross mismanagement of the social security system is going to force baby boomers into giving serious thought about their long-term health care. There won’t be any money by the time baby boomers reach retirement age. Health care has been escalating at an alarming pace. Government planners have figured out that they can save $10 billion over the next 5 years by increasing the look back provision from 3 years to 5 years.

WHAT’S THE 5-YEAR LOOK BACK FOR THE NURSING HOME PROGRAM?

Before you qualify for the government nursing home assistance program, there is a 60 month look back to see if and when you transferred your assets for less than fair cash value or you transferred your assets into a trust system or any system of transferring your wealth for the purpose of becoming eligible for the nursing home program depriving the state of all your available resources for your long-term health care.**

THE SOCIAL CHANGE AT HAND ON HOME EQUITY

According to the National Council of the Aging, 81% of America’s 13.2 million households aged 62 and over own their own homes. Seventy-four (74%) of those seniors own their homes free and clear. Altogether seniors own nearly $2trillion worth of home equity.* You got to hand it to the government to help you figure out how to spend it.

They want you to use the equity in your home to pay for your own long-term health care! They are going to make it super-easy for you to borrow against it or “reverse mortgage” your way to creating a new government sponsored reverse mortgage industry. Based on this perceived wealth, it will not be long before government will mandate look back provisions of 10 years for most asset transfers to 20 years for real estate property.

WHAT’S A REVERSE MORTGAGE?

A Reverse Mortgage (RM) is a special kind of loan which can be obtained if you are at least 62 years of age (if married, the youngest must be at least 62) and own your own home, condo, or co-op. A Reverse Mortgage (RM ) converts a portion of the value (equity) of a home into instant cash. The main feature of this program is that you need not qualify for credit to obtain this loan.

The money borrowed can be in one lump sum, monthly payment, line of credit, or any combination. The Reverse Mortgage is a non-recourse loan. There’s no personal liability to the borrower, their estate, or their heirs. The house is the only collateral and the borrower does not have to make any monthly payments; it’s the reverse, the bank pays you.

What’s wrong, is that the interest charged on the loan accrues and compounds on itself accelerating the amount of equity being removed from the home, not to mention the extravagant forced fees charged when there’s no other alternative. What’s wrong with Reverse Mortgage’s is that the financial dignity of the senior will quickly evaporate, before their very eyes.

WHAT CAN YOU DO NOW TO AVOID THE GOVERNMENT MANDATED CONFISCATION OF THE MEDICAID NURSING HOME SPEND-DOWN PROGRAM?

Good planning is done when the seas are calm; it’s often too late when the seas are stormy. It has become obvious that government has outspent their income and created more money with printing presses. As a boomer myself, I just don’t like it when big brother has plans for my earnings and accumulated wealth.

The more money you throw at them the more they want, it’s a black hole of the universe. If Government wants us to buy our own long-term health care, then why not make it tax deductible. Why on form 1040 heath care costs have to exceed 7.5% of adjusted gross income. Why not make deductions for long term care insurance 100% tax deductible, or better yet why not make it affordable.

*Source: Stephen A. Moses, Cato Institute, Policy Analysis, No. 549, Aging America’s Achilles’ Heel Medicaid Long-Term Care.

**Transferring assets at less than it’s fair cash value i.e. transferring your home to your child for $100.00 is either considered a taxable gift in excess of the allowed $12,000 annual exclusion or it’s considered a “fraudulent conveyance.” See tax form 709 for gift tax consequences, see your lawyer for how to avoid fraudulent conveyance, or call Rocco Beatrice at 888-93ULTRA (888-938-5872) for a free consultation.

author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
—–
Ultra Trust: Asset Protection Irrevocable Trust
West Palm Beach Florida Accident Attorney
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034

Subsequent to the death of Anna Nicole Smith, it’s been reported that she may not have left a will, giving rise to additional turbulent legal confusion for years to come. Without a will, Anna Nicole potentially may be leaving her baby daughter with nothing. Amongst other celebrities dying without a will, include Abraham Lincoln, Howard Hughes, Martin Luther King, Buddy Holly, Marvin Gaye, Sonny Bono, Tiny Tim, and others.

If Anna Nicole died without a will she also died leaving behind many unsettled legal issues, the paternity issue and final custody of her daughter, the unsettled case against her late husband’s estate J. Howard Marshall II (oil tycoon), and finally the country/state of court jurisdiction, Bahamas, Florida, Texas, or California.

WHAT’S A WILL? WHY IS A WILL IMPORTANT?

Per Consumer Reports magazine, more than 2/3 of Americans die without a will. So what’s a Will? Why is it important? And, how do you get one?

A will is your last written list of wishes effective after your death for the purpose of distributing your wealth and the conditions of which such distribution can occur. The most important part of the will is the designation of custody of minor children; (this issue alone, - the custody of Anna Nicole’s daughter would have greatly simplified at least one important piece of the legal quagmire left behind for lawyers to have a field day and possibly eat/consume a good part of her estate).

Without a will, the courts will have to determine who gets what! And, if you have property in multiple states, each state will determine the results separately through a process knows as probate.

The probate process is when the state courts will inventory the deceased person’s assets (the willed assets must be titled in the maker’s name and belong solely to the maker, or have an interest); it will gather information about claims made against the estate, investigate all claims for their validity, pay off outstanding debts, make decisions as to who gets what based on state laws where the property is located.

WHAT HAPPENS TO ASSETS WITH CO-OWNERSHIPS AND JOINT TENANTS?

Property that’s titled in “co-ownership or as joint tenants with right of survivorship” such as husband and wife, automatically goes to the co-owner’s or spouse. Similarly property that’s titled as “tenants by the entirety” immediately becomes the property of the other tenant. Property that’s owned with someone else as “tenants in common” becomes a probate asset and is distributed according to the terms of the will.

WHO MAY CREATE A WILL?

Any person over the age of 18 may draft his own will with or without an attorney. The creator of the will is required to clearly identify himself/herself as the maker of the will, must revoke all prior wills, must state that he/she is of sound mind, must identify each item of property or personal effects, and must clearly identify each person to receive such property. If there are minor children the creator must clearly identify the person or persons to take custody of the minor children, and the creator must identify who will become the executor of his/her will after the creator’s death.

The will must be signed in front of a notary public, or in front of two “disinterested parties over the age of 18” (not family members). It’s best that the will be notarized, signed in front of a notary public which the notary will append their notary stamp on the original signature.

The most common mistake is that a will is signed by family members, another common mistake is to disinherit a family member or close friend. It’s best to mention the individual by name and to give them a small amount rather than to intentionally leave them out of the will. The excluded member may sue the estate, and therefore cause unpleasant and unwanted delays.

WHAT HAPPENS AFTER THE WILL CREATOR DIES?

After the date of death of the maker of the will, everything in his/her name will have to go to probate. No matter how well drafted, the will becomes the jurisdiction of the local state probate court where it becomes a “public document” whereby the will becomes available to all interested parties and creditors.

A will does not avoid the probate process. The court will determine the validity of the will instrument for such reasons as undue influence, or incapacity of the creator at the time the will was drafted, appoint an executor if one is not named, and the court will determine who is eligible to receive the property according to the state’s intestacy laws in order of blood kinship to the creator of the will.

As mentioned before, no matter how well drafted, a will must go to probate where it becomes a public document for every interested party to view and review. The only method of avoiding the probate process is to have your possessions and valuable assets titled to a Trust.

- All Trusts, revocable or irrevocable, grantor or non grantor -avoid Probate. - A will does NOT avoid Probate. - A will does NOT avoid Estate Taxes. - Only an “Irrevocable Trust” avoids Estate Taxes.

ON THE DATE OF DEATH, TWO THINGS HAPPEN:

1. All assets in the decedent’s name, belonging solely to the decedent, or where the decedent had an interest, go to probate to determine who gets what. This is the Probate Process. 2. Once all assets are probated, all assets in the name of the decedent is appraised for it’s “fair cash value” on the date of death, not when the assets were purchased, to determine if there’s an estate tax up to 55%. The estate must pay the tax. The person receiving the asset receives the asset tax-free.

WHAT’S AN ESTATE TAX?

Generally the estate tax is an advalorem (value) tax based on the “fair cash value” of the assets titled in the decedent’s name or where the decedent had an interest. Property of whatever kind or character, whether real estate, personal property, or bank accounts, cash or near cash investments, interest either as a joint tenant with right to survivorship or a tenant by the entirety is subject to the estate tax.

There are exclusions, such as unlimited spousal deduction that which you leave to the spouse and some other exemptions reportable on form 706 United States (and Generation–Skipping Transfer) Tax Return. The form is extremely complex and is beyond the scope of this article. Please consult with a qualified professional.

author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
—–
Ultra Trust: Irrevocable Trust Asset Protection
Asset Protection Joint Tenancy
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034