Where Good Estate Planning Equals Poor Elder Care Planning
Host: Jonathan I. Shenkman, President & Chief Investment Officer of ParkBridge Wealth Management (Contact: jonathan@parkbridgewealth.com)
Presenter: Elizabeth Forspan, Esq. Partner, Forspan Klear LLP (Contact: eforspan@forspanklear.com)
Jonathan Shenkman: I'm going to let people give another 30 seconds for people to come in, and then we'll get started.
Good morning and welcome to the Park Bridge Wealth Management Winter Webinar Series. This program is entitled, "Where Good Estate Planning Equals Poor Elder Care Planning." As always, my name is Jonathan Shenkman, and I'm the president and chief investment officer of Park Bridge Wealth Management.
In that role I serve in a fiduciary capacity to help my clients achieve their financial objectives. The goal of my programs is to bring professionals together to help them better serve their clients. This is done by educating attendees on the latest topics in wealth planning, and by encouraging collaboration between a client's attorney, CPA, and financial advisor, where appropriate.
My practice focuses on working with high net worth families, businesses, and not-for-profits. I manage individual investment portfolios, trust accounts, corporate retirement plans, and endowments to help my clients achieve their financial goals. In addition to the 20 or so events I run every year, I also do a fair amount of writing on the topics of investing and financial planning, and you can read my work in a variety of periodicals, including Barron's, CNBC, Forbes, Kiplinger, the Wall Street Journal, and Trust and Estates Magazine to name just a few.
You can see all my work on my website at parkbridgewealth.com/articles, or by following me on social media at @JonathanOnMoney. Additionally, you can check out my weekly podcast which is also called Jonathan on Money. And you can listen to that on Apple, Spotify or wherever you get your podcasts. Today, we're privileged to hear from Elizabeth Forspan, managing attorney at Forspan Klear based in Long Island, New York.
Elizabeth practices in the areas of Elder Law Trust and Estates and taxation. She regularly assists clients in achieving their Medicaid planning goals in a tax efficient manner through practical and considerate planning techniques. Elizabeth speaks throughout the United States on various aspects of elder care planning, tax law and estate planning. She has also been featured in New York Magazine, MarketWatch, and has been quoted in the New York Times. Prior to co-founding Forspan Klear, Elizabeth was the managing attorney of a leading elder law and Trust and Estates law firm. She also served as a tax manager with Ernst and Young. Today Elizabeth will be speaking on where good estate planning equals poor elder care planning. And with that introduction, I'll now turn the program over to Elizabeth.
Elizabeth Forspan: Okay, Jonathan, thank you so much. I really appreciate being here. I appreciate you always. And it's wonderful to be here with such an esteemed group of people. I can actually see who's here, some clients, some really good friends. So yeah, it's really wonderful to be here. So today, our presentation is called where good estate planning equals poor elder care planning.
You know, and as I read the title, it actually looks a little negative. So maybe we should just say, where good estate planning equals good eldercare planning. We'll talk about techniques and how to make that all possible.
Just a word about the slides. There are a lot of slides in the slide deck which Jonathan is going to send around. If he has not already. We are not going to get to them. And that is by design. We're really going to just focus on the first 5 or 6 slides. That's where all the material for today is, but there are some really good slides in there. If I do say so myself.
And with some good updated numbers, for on the estate tax side on the gift tax side on the Medicaid side for New York. So if anyone has any questions, my email address is right there. E.forspan@forspanKlear.com. I really try to answer all emails. If you want to call, you could call, too. That's a little bit harder for me. But email is the best method. So let's jump into it now.
So first of all, taking a step back, what are we talking about when we talk about Medicaid planning or elder care planning. We all know what estate planning is. So I'm not going to explain what that is. But Medicaid planning, basically your eldercare planning, what we're talking about is where individuals want to divest themselves of their assets, kind of quote unquote, get rid of their assets, so that at some point in the future they will qualify for Medicaid. Right? Medicaid is a means tested government program with the type of Medicaid we're talking about now. We're not talking about Medicaid for health insurance purposes. We're talking about Medicaid for long term care purposes.
Nursing home care which we call institutional Medicaid, where the Government comes in and pays for some of your monthly expense in a nursing home or home care right? There are certain situations. It's actually quite generous in New York, although less so than it used to be, where the Government will come in and pay for some of your care at home, or your clients care at home.
So that's what we're talking about when we talk about Medicaid planning. So many individuals and couples, they engage in Medicaid planning in advance because there is a 5 year look back on transfers. So we got to do planning early. That's for purposes of institutional Medicaid. So people create trusts, or they do transfers.
And they do that, so that they can qualify in the future for Medicaid, which has a resource threshold. Medicaid looks at how much you have in assets, you know, multimillionaires are not getting on not getting onto Medicaid, I guess, unless they do their planning early enough. And then another note before we jump into this is that, generally speaking, generally speaking, when we are concerned about someone or a family having a taxable estate. That means they have a lot in assets.
And we are not typically doing Medicaid planning for those people. However, that's a general rule, but that is not the rule across the board. There are certain situations where we might see people who have what you might otherwise think of as a lot in assets who are engaged in Medicaid planning. Think of an example of a relatively young couple in their fifties or sixties, where one of the spouses has a chronic disease that might be expected to last and persist for some time and get worse, and perhaps a degenerative disease. You know we may want to do some planning for that individual.
That individual may not be able to get long-term care insurance, and maybe the other spouse has some assets. Maybe there are a lot in assets or highly valued assets, but those assets might not be throwing off enough income to support the family to support the spouse, and also to pay the cost the very, very high costs of long-term care.
So for every rule there's an exception. And so there are times when we would want to think about Medicaid planning or long-term care planning, even in the context of couples where they might have a taxable estate, particularly in New York. Right? Federal exemption is quite high is over, you know, it's 14 million dollars, basically. And which is in one of the later slides. But the New York exemption is just hovering around 7 million, a little over 7 million dollars. So that's something that you know at times we want to think about.
But also, when we engage in estate planning, we also want to think about our income tax planning and income tax planning and Medicaid planning. They go together all the time, and we do ourselves and our clients a major disservice if we engage in Medicaid planning, but do not consider the income tax considerations and the implications. So those are the types of things we're going to talk about today.
So first of all, gifting. And on this slide, these are really the things that we're going to be talking about today. We're going to be talking about gifting, revocable trust and irrevocable trust, credit shelter trust life estates and different powers that you might see in an estate plan or some estate planning documents that would not be good necessarily for Medicaid planning. So first of all, let's talk about gifting.
Now we know that the annual Federal gift tax exemption is $19,000 per person, so I can give $19,000 to each individual. I do not have to file a 709, a form 709, which is a gift tax return right? So we hear about this all the time. I can gift 19,000 I can give to this person that person. I have 25 grandchildren. I can give 19,000 to each one of them their spouses, my great grandchildren, you know, and we get a lot of money out of our estates.
Now, that is a very good planning technique when it comes to estate tax planning right? Sometimes we see it used in Crummy trusts or an irrevocable life Insurance Trust, where we make use of the annual gift tax exemption. And that's really good. What's the problem?
When I talk about Medicaid planning with my clients? They come in and they say, you know I and I ask them, have you done any gifting within the last 5 years? Right? Because there's a 5 year look back.
And they say, yes, I did gifting, but it's okay, because it was under the exemption. Right? Everyone thinks the exemption is - all the clients always say it's 15,000, or they say it's 10,000. It's actually 19,000. So that's very good. It's good that they've done that. Those the gifting.
However, that gift is a countable gift for Medicaid, because Medicaid. In most counties in New York and elsewhere, they will look at transfers of $2,000 and above, they don't care that you gave 19,000 because it satisfied the annual gift tax exemption, the Medicaid Department of Social Services. They will look at transfers of $2,000 and above, and have the right to look at any transfers. So annual gift tax gifting great for estate tax planning purposes, but not for Medicaid planning purposes. If you are going to engage in Medicaid planning, don't do it through the $19,000 gift.
Do it through a more comprehensive plan that takes the whole picture into view. Okay, because any gift that you make or that your client makes within the 5 years prior to going into a nursing home unless it is an exempt transfer which we're not going to talk about today, it will be a countable transfer, and for every approximately $15,000 that an individual has transferred within the 5 years preceding going into a nursing home. That's 1 month of ineligibility, meaning one month that they will have to pay privately for all right. Now the Medicaid regional rates, where you could see what that number is. I just threw out $15,000, because that's what it is on Long Island and New York City. Approximately.
Now, that is a very good planning technique when it comes to estate tax planning right? Sometimes we see it used in Crummy trusts or an irrevocable life Insurance Trust, where we make use of the annual gift tax exemption. And that's really good. What's the problem?
When I talk about Medicaid planning with my clients? They come in and they say, you know I and I ask them, have you done any gifting within the last 5 years? Right? Because there's a 5 year look back.
And they say, yes, I did gifting, but it's okay, because it was under the exemption. Right? Everyone thinks the exemption is - all the clients always say it's 15,000, or they say it's 10,000. It's actually 19,000. So that's very good. It's good that they've done that. Those the gifting.
However, that gift is a countable gift for Medicaid, because Medicaid. In most counties in New York and elsewhere, they will look at transfers of $2,000 and above, they don't care that you gave 19,000 because it satisfied the annual gift tax exemption, the Medicaid Department of Social Services. They will look at transfers of $2,000 and above, and have the right to look at any transfers. So annual gift tax gifting great for estate tax planning purposes, but not for Medicaid planning purposes. If you are going to engage in Medicaid planning, don't do it through the $19,000 gift.
Do it through a more comprehensive plan that takes the whole picture into view. Okay, because any gift that you make or that your client makes within the 5 years prior to going into a nursing home unless it is an exempt transfer which we're not going to talk about today, it will be a countable transfer, and for every approximately $15,000 that an individual has transferred within the 5 years preceding going into a nursing home. That's 1 month of ineligibility, meaning one month that they will have to pay privately for all right. Now the Medicaid regional rates, where you could see what that number is. I just threw out $15,000, because that's what it is on Long Island and New York City. Approximately.
Now, if you create a continuing trust in your will, that's great. But what that means is that when you die your executor is going to have to get, or your trustee is going to have to get what's called letters of trusteeship, and those letters of trusteeship are only good for 6 months.
So every 6 months, while that continuing trust is in existence which might be forever, they might have to go back to the Surrogate's Court and get updated letters of trusteeship. So that's a pain, a big pain. I know that personally, I actually on my desk here have letters of trusteeship in my grandmother's estate. My grandmother died in 2009, and I have had to go back to the Surrogate's Court many, many times to go back and get updated letters of trusteeship. But if you do a revocable trust, you don't have to do any of that.
So revocable trusts are wonderful. But it is not a Medicaid planning technique. Right? A revocable trust by definition is one that you can revoke, amend, change. It gives the grantor way too much control over the asset, and Medicaid is going to say, hang on a second.
You want us to believe that you gave away your assets. You waited the 5 years, but you have complete control over it. You could revoke that trust you can. You could change it. You could get those assets back. No dice. So a revocable trust does not help us for Medicaid planning purposes. There is one small area, and it remains to be seen where a revocable trust might help us, but it is so rare that I'm not even going to talk about it. So I'm going to skip that for today.
But a revocable trust, general rule, not good for Medicaid planning purposes for Medicaid planning purposes. We want an irrevocable trust. Now, I want to just say something about an irrevocable trust, because people get very nervous. They get very nervous when they hear the word irrevocable in New York. Okay, this is a big disclaimer. And other states also have some similar revocation statutes.
In New York, can you revoke an irrevocable trust? The answer is, maybe, or it depends. Like all lawyers say, it depends.
In New York, and I bring this up because clients get scared when they hear irrevocable trust. But what I tell clients and what I tell my colleagues are, if the Trust, if the irrevocable trust for Medicaid planning purposes is drafted properly, there is a way to revoke even an irrevocable trust. It's okay by Medicaid that these provisions are in there.
In New York we have a revocation statute 7-EPTL 7-1.9, and that statute says that if the grantor and all the beneficiaries agree, you can revoke an irrevocable trust. Sounds great, right? Sounds easy, not at all, because in order to have all the beneficiaries agree, you would also have to get the consent of minor beneficiaries or minor contingent beneficiaries. Now, you can never get the consent of a minor because they are a minor and a minor cannot consent.
So what do you do? Well, if you have something called a lifetime limited power of appointment in your trust, then you may have the ability to revoke that trust. What is a lifetime limited power of appointment? That is where the grantor, the settler of the trust, meaning the person that's doing this Medicaid planning, they have the ability to change the beneficiaries of the trust during their life.
And if they have the ability to change the beneficiaries of the trust, then they could change it. They can exercise the power of appointment to make it just one adult beneficiary, and then they can revoke the trust. Now, most times we do not ever want to revoke a Medicaid Trust. But there are times where you may have to, and one of the classic examples is when you set up the trust you transfer assets into the trust, and then you have to go into a nursing home within 5 years. Well, now, you've made a transfer to a trust, a non-exempt transfer within the 5 years. You need to get the assets back and do last minute planning. In that case you might need to revoke the trust.
So revocable trust, no good, irrevocable trusts, Medicaid irrevocable trusts, wonderful if they're drafted properly, meaning no principle goes to the grantor. Any income that goes to the grantor is going to be countable. If you do it properly, you don't allow you put in provisions where a court cannot invade, etc. If you draft it properly, you execute it properly, you administer it properly. You don't give any money back to Mom or back to Dad, that is a great irrevocable trust.
Okay, but what is not good with irrevocable trust when it comes to Medicaid planning. And this is something we see all the time. Let's say there is an irrevocable life insurance trust. Right? Mom and Dad - Dad creates an irrevocable trust with life insurance. It's funded with life insurance. Dad dies. Now, Life Insurance Company pays the proceeds to that trust. Well, what does the trust often say? Mom is entitled to the income. Mom is the trustee, Mom is entitled to the principal for her health, education, maintenance, and support. Right? That's an ascertainable standard that for estate tax planning purposes and estate tax purposes will not bring it back into Mom's estate. But that is no good for Medicaid.
And this folks is a big big problem. If Mom is entitled to principal from that trust for her health, education, maintenance, and support, all of that is deemed by Medicaid to be available. So if Mom wants to go on to Medicaid, or Mom wants to apply for Medicaid that the entire value of that trust is going to be viewed as available to her.
Let's say, Dad sets up a trust for Mom, whether in his will or during his life, an inter vivos trust, and he gives Mom a 5 by 5 power. What is a 5 by 5 power? That's where, for estate tax purposes it's wonderful, because it means that it will not be brought back into Mom's estate for purposes of calculating her taxable estate when she dies. What does it mean? Mom has the ability to take out the greater of 5% or $5,000 from the Trust.
No good. The principle of the trust will be deemed available by Mom for Mom. What about trustee discretion? What if I create a trust for myself or for my spouse inter vivos, and I appoint the trustee. So I'm not the trustee. I'm not in charge, but the trustee has discretion to reach in there and give me whatever I want - no good if I create it for myself. Now, if it's a 3rd party trust, and someone created this trust for me, not a spouse. But if it's a 3rd party trust, and someone created this irrevocable trust for my benefit, and gave the trustee the discretion, then it would work, but not in the case where you create an irrevocable trust for yourself or for your spouse. So we have to be very, very careful with these things.
Okay, there are other provisions that you might see, like the ability to swap assets which would make something a grantor trust. Nowadays, Medicaid really does not have that much of a problem, and I'm talking in downstate New York. I cannot promise for all other counties. I really in the realm of Medicaid planning and Medicaid applications that I do. It's really in downstate New York, really, up until I would say Rockland Orange County. Really, I don't go far above that or further west.
So what I would say in downstate New York, if you have the ability in your trust to swap assets of equal values, to make it a Grantor trust which you don't even need, because, frankly, having a limited power of appointment, in my opinion, makes it a grantor trust. But if you have that ability, just be careful with that. If the grantor has the ability to change the trustees. Be careful with that. See what your county has done previously. So irrevocable trusts could be a problem.
But this is the biggest problem. And this is where we really need to pay attention and understand what we can do, because there are good things that we can do. If we just think about this in a different kind of way. Okay, a credit shelter trust.
Very bad, right? Very good, very bad. Right? It's great for estate tax planning purposes, because what does it do?
One spouse dies in his will he had, or his revocable trust. He creates a credit shelter trust for his wife. Okay, whatever is in that trust is not taxable when he dies from an estate tax perspective, and then subsequently, when she dies, when the surviving spouse dies, it's also not subject to an estate tax, and not only that, but all the appreciation between the time of the 1st spouse's death and the second spouse's death. That is all not subject to an estate tax.
So it's a wonderful estate tax planning technique, although I will say that I am not a huge fan of mandatory credit Shelter Trust. I'm more in favor of a disclaimer credit Shelter Trust, where the surviving spouse can decide within 9 months of the date of the death of the 1st spouse, what she or he wants to do, how much they want to disclaim. So I'm more in favor of that, or what we sometimes call a Clayton Q-tip, where the executor may make that determination. But in any event we see this all the time.
The 1st spouse dies. They leave a trust, a credit Shelter trust for the surviving spouse. But what are those trusts often say, what do they say? My spouse is trustee. Okay. My spouse gets income. Okay, we can work around that. My spouse gets principal for her health, education, maintenance, and support. Not good. My spouse has a 5 by 5 power. No good, and my trustee can go above and beyond all of that. My trustee who's not my spouse, and give her everything - not good from a Medicaid perspective.
Medicaid, if that wife, or if that surviving spouse (sorry to always put this wife as the surviving spouse) wants to apply for Medicaid, and she has this credit Shelter trust that she's the beneficiary of, she is not going to be eligible for Medicaid. Those are going to be countable assets. So what do we do? What do we do? Are we in big trouble?
Well, sometimes. Yes, okay. But let me tell you what I see and what I have done a number of times already. Give you an example. Had a client who created a mandatory credit shelter trust in his will for his wife. Now he did a mandatory credit Shelter Trust, and he did his will way back when the exemptions were very low, I think, when he did it they were even under a million dollars.
So at that point every Tom, Dick, and Harry was doing a credit Shelter trust right. The exemptions were low. We wanted to make use of the Credit Shelter Trust. So what happens? He created this trust, and he died in 2006 mandatorily. About a million or so dollars, including half of the house, went into the Credit Shelter Trust.
Okay for the spouse - spouse many, many years later comes in to me to the office, and she wants to do Medicaid planning. So I say, Okay, we could do planning with this of your this asset of yours, that asset of yours, etc. But wait! I look at her accounts, and she's got a credit Shelter Trust. I said, Oh, boy, we got a big problem over here. What are we going to do? So I look at the will right, and I see that that credit Shelter Trust allows for principle for health, education, maintenance, and support, bad income, etc. 5 by 5, but it also gives as many credit Shelter trusts do, it gives the trustee the ability to kill the trust, to take all of the money out and give it to Mom.
Now, what are we doing? If we do that we are taking these assets out, and we're putting them back into Mom's name. So what does that mean that when she dies it's going to be subject to an estate tax. Is that a problem? Not in this kind of situation? These people did this credit Shelter Trust when the exemptions were so low. Now we have 7 million dollars exemption in New York, or 14 million dollars Federal exemption.
So by putting this couple 1 million dollars back into Mom's name, we're not causing a problem at all. And then Mom takes it and puts it into an irrevocable trust. But what do we do here? A. We get the 5 year look back started for Medicaid, whereas it would have never gotten started with the money in the Credit Shelter Trust, because Medicaid would have always said, that's available to her. But, B. What else did we do from an income tax perspective?
Those assets were in the brokerage account and the half and half the house. Of course the last step up was when Dad died in 2006, right. The last basis step up was in 2006 with the credit Shelter Trust. You do not get a second step up when the second spouse dies. But what we did here was we got the second step up because we took it out of the Credit Shelter Trust. Put it back into Mom's name, then put it into an irrevocable trust, where we will get the basis step up because of the various provisions in the irrevocable Medicaid trust. And so not only did we start the 5 year look back for Mom.
We will also get a basis step up to the fair market value on the date of her death on all of those assets where the old step up was 2006. This we see all the time we just have to know, to see it, and to think of the whole picture and say, what could we do here when the client walks in with a problem like this. Don't just say no right. Look at it and say, Wait a minute. What can I do here? What can I do here to help her with her Medicaid planning. What can I do here to help her with her estate tax planning? And what can I do here to help her with her income tax planning and her capital gains tax planning in a way that will help her. And of course, the next generation okay.
Life estates. We see this all the time. That's where you have a home and you want to do Medicaid planning. So you do what's called a life estate deed where you say I am giving my house to my children. They are my remainder men. However, I am reserving a life estate which is the ability to live there for the remainder of my life. Do I like these? I like them almost never. Okay. Why. Yes, you will get the basis step up, and that is very good.
However, what about the section 121, a exemption. Let's say the house is sold. Is Mom going to get the benefit, the full benefit of the $250,000 exemption? No, because she will only get the 121 a exemption right. The exemption from capital gains when you sell your principal residence she will only get that as to her life estate value, which is gonna be far less. And the kids who are owners are not going to get it because they don't meet the requirements of residing in the property for 2 out of the last 5 years. So we're giving up 121 a exemption.
The other problem is that, yes, we'll get the basic stuff up. But what if the house is sold again? What if it's sold and Mom's in the nursing home? Whatever the value of the life estate is which could be quite high, that will be considered Mom's asset when the house is sold, and therefore, let's say it's 60, 70, $80,000 - the value of the life estate which you would calculate by looking at the IRS tables.
If the value exists, the life estate value exists and the house is sold, it will create a period of ineligibility for Mom, because it will be viewed as her assets. So life estates in general I do not like. There are a few exceptions to that. If you're in a nursing home, and you didn't do the planning, and you have a child who's been living with you for the last 2 years, transfer the house to that child, retain a life estate. It's a caretaker child exemption that's an exempt transfer in New York a caretaker child exemption.
Retain a life estate, so that when Mom dies we get the basis step up. Okay? And then if we sell it shortly thereafter, we're not going to have any capital gains taxes. Sometimes in the Medicaid planning world we do transfers between spouses. Also, if we do that, think about retaining a life estate, so that when the 1st spouse dies, who's typically the sick spouse, the one that needs to get onto Medicaid, we will at least get a half step up on that. Okay.
So that's basically what I wanted to talk about where good estate planning equals bad Medicaid planning. I want to just briefly give an update, and we have 30 seconds left, so I won't be able to. But take a look here. The Medicaid asset and income rules have not changed for 2025, they were lifted up significantly for 2024, so they have not changed for 2025. The numbers are here. New York remains the most generous Medicaid State in the entire Union.
Whereas other States there's a $2,000 resource threshold, you can't have more than $2,000 in New York you can have 31,000. Your IRA is exempt in New York as long as it's in payout status. It's not in New Jersey and other States. So that's very, very important. And these are the regional rates I talked about earlier. And yeah, I love these slides so please absolutely feel free to look through them. We have some tax rates, etc. If anybody has any questions, please always feel free to reach out to me. My email address is here, Jonathan. I appreciate it, and I also appreciate everybody that got up so early as a non-morning person. I appreciate that so much, and particularly those on the West Coast. I hope everyone's doing well in light of the fires. And I really appreciate you guys joining me today. Thank you so much.
Jonathan Shenkman: Great. Thank you so much, Elizabeth, for that informative discussion. If anyone has any specific questions, new business opportunities, or any other issues they'd like to discuss. Please feel free to reach out directly to Elizabeth or myself where appropriate, and I'll be sure to include her contact information in the follow up email to this program. As I mentioned at the onset, the goal of these programs is to stay up to date on timely wealth management related topics and to collaborate where appropriate. I think we can all agree that the clients who are best prepared are the ones who are served by team of knowledgeable advisors.
Three more quick items before I let you go. First, my next webinar is on Thursday, February 6th featuring Avi Sinensky and Lewis Valos, both partners at Rifkin Radler, based in Uniondale, New York, and they're going to be speaking on the topic of tax implications of mergers and acquisition transactions. And I'll be sure to send out the invitation to this program in the coming days. In the meantime, I'd love to continue to grow this webinar community. So if you have a friend, colleague, or client who would like to be notified of my upcoming live webinars, they can email me with the word webinar in the subject line. I'll add them to my webinar distribution list.
My email is Jonathan at parkbridgewealth.com. Second, you could follow all my work on X and Instagram at @JonathanOnMoney, and by connecting with me on LinkedIn. You could also listen to my weekly podcast called Jonathan money, which is available on Apple, Spotify, or wherever you get your podcast and you can watch my practical planning videos, which I post several times a week by following me on YouTube at Jonathan Money as well. And third, please take 30 seconds to fill out my survey at the end of this program. It helps me improve my webinars and provide timely and interesting content to attendees.
And with that this concludes today's session, please stay safe and healthy and have a wonderful day, everybody.