Transferring assets to qualify for Medicaid can make you ineligible for benefits for a period of time. Before making any transfers, you need to be aware of the consequences.

Congress has established a period of ineligibility for Medicaid for those who transfer assets. The so-called “look-back” period for all transfers is 60 months, which means state Medicaid officials look at transfers made within the 60 months prior to the Medicaid application.

While the look-back period determines what transfers will be penalized, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if the nursing home resident transferred $100,000 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20). The 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. Therefore, if an individual transfers $100,000 on April 1, 2017, moves to a nursing home on April 1, 2018 and spends down to Medicaid eligibility on April 1, 2019, that is when the 20-month penalty period will begin, and it will not end until December 1, 2020.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look-back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

Be very, very careful before making transfers. Any transfer strategy must take into account the nursing home resident’s income and all of his or her expenses, including the cost of the nursing home. Bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce, or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.

In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren’s eligibility for financial aid in college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it.

As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.

Remember: You do not have to save your estate for your children. The bumper sticker that reads “I’m spending my children’s inheritance” is a perfectly appropriate approach to estate and Medicaid planning.

Even though a nursing home resident may receive Medicaid while owning a home, if the resident is married he or she should transfer the home to the community spouse (assuming the nursing home resident is both willing and competent). This gives the community spouse control over the asset and allows the spouse to sell it after the nursing home spouse becomes eligible for Medicaid. In addition, the community spouse should change his or her will to bypass the nursing home spouse. Otherwise, at the community spouse’s death, the home and other assets of the community spouse will go to the nursing home spouse and have to be spent down.

Permitted transfers

While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

• Your spouse (but this may not help you become eligible since the same limit on both spouse’s assets will apply)
• A trust for the sole benefit of your child who is blind or permanently disabled.
• Into trust for the sole benefit of anyone under age 65 and permanently disabled.

In addition, you may transfer your home to the following individuals (as well as to those listed above):

• A child who is under age 21
• A child who is blind or disabled (the house does not have to be in a trust)
• A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
• A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

Medigap policies that supplement Medicare’s basic coverage can cost vastly different amounts, depending on the company selling the policy, according to a new study. The findings highlight the importance of shopping around before purchasing a policy.

When you first become eligible for Medicare, you may purchase a Medigap policy from a private insurer to supplement Medicare’s coverage and plug some or virtually all of Medicare’s coverage gaps. You can currently choose one of eight Medigap plans that are identified by letters A, B, D, G, K, L, M, and N (If you were eligible for Medicare before January 1, 2020, but not enrolled, you may also be able to purchase Plans C and F, but those plans  are no longer available to people who are newly eligible for Medicare). Each plan package offers a different menu of benefits, allowing purchasers to choose the combination that is right for them.

While federal law requires that insurers must offer the same benefits for each lettered plan–each plan G offered by one insurer must cover the same benefits as plan G offered by another insurer–insurers set their own prices for each plan. This means that the price of each plan varies considerably depending on the insurance company.

The American Association for Medicare Supplement Insurance compared costs of plans in the top 10 metro areas and found huge cost differences. Using the most popular plan–Plan G–for comparison, the association found that in Dallas the lowest price for a 65-year-old woman to purchase a plan was $99 a month while the highest price was $381 a month. This is a yearly difference of more than $3,000 for the exact same plan.

The association also found that no one company consistently offered the lowest or highest price. In their study, investigators discovered that 13 different companies had either the lowest or highest price. This means you can’t rely on just one company to always have the better price.

When looking for a Medigap policy, make sure to get quotes from several insurance companies. In addition, if you are going through a broker, check with two or more brokers because one broker might not represent every insurer. It can be hard work to shop around, but the price savings can be worth it.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

Millions of people are affected by dementia, and unfortunately many of them do not have all their estate planning affairs in order before the symptoms start. If you or a loved one has dementia, it may not be too late to sign a will or other documents, but certain criteria must be met to ensure that the signer is mentally competent.

In order for a will to be valid, the person signing must have “testamentary capacity,” which means he or she must understand the implications of what is being signed. Simply because you have a form of mental illness or disease does not mean that you automatically lack the required mental capacity. As long as you have periods of lucidity, you may still be competent to sign a will.

Generally, you are considered mentally competent to sign a will if the following criteria are met:

• You understand the nature and extent of your property, which means you know what you own and how much of it.
• You remember and understand who your relatives and descendants are and are able to articulate who should inherit your property.
• You understand what a will is and how it disposes of property.
• You understand how all these things relate to each other and come together to form a plan.

Family members may contest the will if they are unhappy with the distributions and believe you lacked mental capacity to sign it. If a will is found to be invalid, a prior will may be reinstated or the estate may pass through the state’s intestacy laws (as if no will existed). To prevent a will contest, your attorney should help make it as clear as possible that the person signing the will is competent. The attorney may have a series of questions to ask you to assess your competency. In addition, the attorney can have the will signing video recorded or arrange for witnesses to speak to your competency.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

Many types of property and investments pass outside of probate and allow you to designate who will receive them after your death. It is important that these designations are kept up to date and are consistent with the rest of your estate plan.

When you open up an investment account or retirement plan or buy life insurance, the company encourages you to name beneficiaries who will inherit the property on your death. The choice you made at the time may not have taken your estate plan into consideration. To review your beneficiaries, get a copy of all of your beneficiary designation forms. Check to make sure that your beneficiaries are consistent with the rest of your estate plan or, if they are different, that the difference is intentional. If you made these designations online, print a copy of the page so that you also have a paper record. Once you have collected all of these forms, put them in a folder with your other estate-planning documents so that you and your heirs can quickly and easily find them in the future.

In determining how to make your beneficiary designations, the following are the considerations for each type of account:

• Bank and investment accounts. If you have a revocable trust as part of your estate plan, you can make the trust the owner of all of your bank and investment accounts. This way you avoid the need to name anyone as beneficiary and you still avoid probate. Then, all of the protections provided in the trust–for instance, that children do not receive their inheritance until a certain age or provisions for who receives the funds if a beneficiary predeceases you–will apply to the accounts. If you’re not using a revocable trust, simply name those who will receive your estate under the terms of your will. Or you have the option to name no one. If you do not designate a beneficiary, the account will pass according to the terms of your will and, while you won’t avoid probate, you’ll make sure that the people you want will receive the assets, that your personal representative will be in charge, and that any changes you make in the future–such as disinheriting your wayward nephew– will apply to the accounts.
• Life insurance. Unlike bank and investment accounts, the ownership of many life insurance policies–especially those that come as an employment benefit–cannot be transferred to your revocable trust. And there is really no benefit to doing so in any case (although there might be some tax and long-term care planning reasons to transfer property to irrevocable trusts). Instead, the beneficiary designation is the most important decision. If you have a revocable trust, you may name it as the beneficiary for the reasons mentioned above. Or you can name particular individuals. The beneficiary designation form will permit you to name alternates in the event that the first person or people you name predecease you.
• Retirement plans. First, don’t transfer your retirement plans to your revocable trust. The only way to do so is to liquidate the plan first, which would be a taxable event. Second, don’t name your revocable trust as a beneficiary of your retirement funds without consulting your lawyer. In most instances, if your spouse is not the beneficiary, the retirement plan will have to be liquidated and the taxes paid within 10 years of your death. On the other hand, if you have a relatively small amount of funds in retirement accounts, this might not be a big problem. It is much more important with retirement plans than with life insurance or other investments that you designate a beneficiary, because there are different rules for different beneficiaries. If your spouse inherits your IRA, your spouse can treat the IRA as his or her own. Your spouse can either put the IRA in his or her name or roll it over into a new IRA. The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. The beneficiary must withdraw all of the assets in the inherited account within 10 years. There are no required distributions during those 10 years, but it must all be distributed by the 10th year.

To make sure that your beneficiary designations align with your estate plan and are as beneficial to your intended heirs as possible, contact Amy Stratton or Kristen Prull Moonan.

Is having an out-of-date will better than having no will at all? While wills do not have expiration dates, certain changes can render them useless. When this happens, having an out-of-date will can be the same as having no will at all. It is important to review your will periodically to ensure it still does what you want. The following are five ways your will can become out-of-date:

1. Your beneficiaries have died. What happens if your will leaves your estate to your two siblings, but both siblings die before you? If your beneficiaries predecease you, your will is still technically valid, but it will have no effect on who will inherit from your estate. Instead, your estate will be distributed according to the law in your state, just as if you had died with no will at all.
2. You have potential new beneficiaries. A will that was written before you got married or had children will be of little assistance in distributing your estate. States have provisions that protect spouses and children that come after a will is written. In most states, spouses are entitled to a certain percentage of an estate. In addition, many states have laws that protect children born after a will was written, allowing them to inherit from the estate. It’s possible that under the laws of your state, a spouse and children not named in your will may not receive as much as you would have wanted them to. In both of these circumstances, state law is dictating where your estate is going, not you.
3. Your executor is dead or unable to serve. The executor (also called a personal representative) is the person named in your will who oversees the distribution of your property. If the person you named as executor is unable to serve, the court will have to appoint someone else. Beneficiaries may have a say in who is chosen, but it may not be someone you would have wanted in the position.
4. You no longer own property named in the will. Suppose your will attempts to divide up your estate equally by giving cash to your daughter and property of equal value to your son. If the property is sold before you die, your son will receive nothing. In this case, your will is no longer ensuring your estate is divided equally.
5. The law changes. If your estate plan was designed specifically to avoid estate taxes and the estate tax law changes, your will may no longer serve its purpose.

Contact your attorney to ensure your will is still up to date. Reach out here to Amy Stratton or Kristen Prull Moonan.

Our partners, Kristen Moonan and Amy Stratton, are honored to be recognized by Rhode Island Monthly’s Excellence in the Law listing for the second year in a row! They were each noted for excellence in the category of “Wills, Trusts and Estates.”

Rhode Island’s top attorneys are chosen to receive the Rhode Island Monthly honor based upon attorney peer reviews, professional standing, feedback from related professionals, and other data collected by a third party survey and data company.

“We are thrilled to be included among the esteemed professionals honored by Rhode Island Monthly.”

Being a trustee is a big responsibility and if you don’t perform your duties properly, you could be personally liable. That’s why it’s important to hire the right people to guide you in this important role.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment.

A trustee’s duties include locating and protecting trust assets, investing assets prudently, distributing assets to beneficiaries, keeping track of income and expenditures, and filing taxes. As a trustee, you have a fiduciary duty to the beneficiaries of the trust, meaning that you have an obligation to act in the best interest of the beneficiaries at all times. It also means you will be held to a higher standard than if you were just dealing with your own finances.

A trustee is usually entitled to hire an attorney (and other professionals like an accountant) to assist in trust administration. The attorney’s fees will be paid from the trust funds. While hiring an attorney will cost money, not having an attorney at all could cost a trustee much more if errors are made.

A trust can be administered without court involvement, but that doesn’t mean that the administration is simple. There are many areas where problems can arise — for example, if assets aren’t invested properly, taxes are late, or if proper records aren’t kept. If something goes wrong during the administration of the trust, the trustee can be removed and held personally liable for any costs incurred or losses suffered. Even if a spouse is the trustee, he or she should still consult with an attorney. Many couples have so-called “AB” trusts to take advantage of the maximum estate tax exemption; these trusts require special knowledge to determine whether the trusts are properly funded and the taxes filed.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

As more and more people marry more than once, prenuptial agreements have become an important estate planning tool. Without a prenuptial agreement, your new spouse may be able to invalidate your existing estate plan. Such agreements are especially helpful if you have children from a previous marriage or important heirlooms that you want to keep on your side of the family.

A prenuptial agreement can be used in a second marriage when both parties have children. For example, suppose you get remarried and both you and your spouse have children from a prior marriage. You want your house to pass to your children, but without proper planning and an agreement in place, your spouse could inherit the house and then pass the house to her children when she dies.

It is important to make sure your prenuptial agreement is valid. Following are the major factors needed to ensure this:

• In writing. To be valid, a prenuptial agreement must be in writing and signed by both spouses. A court will not enforce a verbal agreement.
• No pressure. A prenuptial agreement will be invalid if one spouse is pressured into signing it by the other spouse.
• Reading. Both spouses must read and understand the agreement. If a stack of papers is put in front of one spouse and he or she is asked to sign quickly without reading, the agreement can be invalidated. The spouse must be given time to read the document and consider it before signing it.
• Truthful. Both spouses must fully disclose assets and liabilities. If either spouse lies or omits information about his or her finances, the agreement can be invalidated.
• No invalid provisions. While the spouses can agree to most financial arrangements, a prenuptial agreement that modifies child support obligations is illegal. If an agreement contains an invalid provision, the court can either throw out the entire agreement or strike the invalid provision. Similarly, if the terms of the agreement are grossly unfair to one spouse, the agreement may be invalid.
• Independent counsel. Some states require spouses to seek advice from separate attorneys before signing a prenuptial agreement. Regardless of whether it is required by state law, it is the best way to make sure each spouse’s interest is protected.

Though a prenuptial agreement is an agreement that is signed before marriage, sometimes similar agreements can be made after the wedding (called a post-nuptial agreement). To find out if a pre- or post-nuptial agreement is right for you, contact Amy Stratton or Kristen Prull Moonan.