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By John M. Bigler Within the last year, there have been several important developments in regard to Medicaid and gift tax. One deals with real property and the other deals with the calculation of a period in ineligibility when transferring assets to become eligible for nursing home Medicaid. The impact of those changes will be discussed in this article.
The IRS and Medicaid have actuarial tables indicating the value of the life estate retained based on the age of the grantor. Obviously, the older the grantor, the less the value of the life estate. For example, a person 76 years old is considered a 50 percent owner of property, a person at 93 is a 25 percent owner and an individual at 109 is a 5 percent owner. The interest retained by the grantor is beneficial for Medicaid purposes because it allows a devaluing of the home in determining the period of ineligibility for Medicaid. For example, a 76 year old individual transferring a $200,000.00 home to children would be ineligible for Medicaid for 27.68 months on Long Island if they retained no interest in the property. However, if that same person should retain a life estate, then they will only be transferring 50 percent of the value of the home, or $100,000.00 and would be ineligible for Medicaid purposes for 13.84 months.
This change in policy is important because in some cases it may be beneficial to wait to make the transfer. If there is no immediate concern regarding a nursing home admission, it would preferable to wait at least until January, 1999 when the New York State gift tax exemption will increase from $115,000.00 to $300,000.00, thereby eliminating the need to pay a gift tax for a significant number of homeowners on Long Island. Also, in the year 2000, the New York State gift tax will be virtually abolished and transfers of under $675,000.00 will not result in any gift tax, either state or federal. The second important occurrence is a recent increase in the average monthly cost of a nursing home number. As you may recall from previous articles, in order to determine a period of ineligibility for Medicaid nursing home care a formula is used. An amount of a gift made either to another individual or into a trust is divided by the average monthly cost of a nursing home in a local region as set by the state. That formula results in a number representing the number of months of ineligibility for nursing home care starting the month after the transfer takes place. For the last three years, the state has been tardy in updating the average monthly cost numbers. On Long Island, the number was stuck at $6,790.00 even though the actual cost of nursing homes has increased steadily. The New York State Bar Association elder law committee has been pushing the State Department of Social Services to update the number. The elder law bar did an extensive survey of actual nursing home costs to show the increases that have taken place, but the State had not increased the number. Finally, last month, the number was increased on Long Island to $7,225.00 per month up from $6,790.00. This number will be used for all determinations made in 1998. The increased number will result in shorter periods of ineligibility. For example, a transfer of $100,000.00 which previously resulted in a period of ineligibility of 14.72 months will now result in a period of ineligibility of 13.84 months. In New York City, the number has increased from $6,521.00 to $7077.00. For those clients who made a transfer and are awaiting out a period of ineligibility, they should be aware that the new numbers will shorten that period. Reprinted with permission of the Suffolk Times © 1999 [ Contact Us ] [ Guestbook ] [ Email ]  The Law Offices of John M. Bigler, Attorney At Law 1421 Wantagh Avenue, Wantagh, New York 11793-2206 1-888-ELDER-LAW · 516-409-6565 · Fax: 516-409-6522 E-Mail: info@biglerlaw.com · Web Site: www.biglerlaw.com |
A typical planning strategy in the realm of elder law is to transfer a home. Typically a parent is making the transfer to children and retaining a life estate in the premises. The life estate gives the person making the transfer (grantor) exclusive possession of the property during their lifetime. On their death, the property will automatically pass to the children who legally hold the remainder interest (remaindermen).
Another advantage of the devalued interest has always been that in filing the gift tax return with the State of New York, it was only necessary to list the remainder interest as the value transferred, rather than the full value of the house. However, as of October 1, 1997, the State of New York has issued a policy statement advising that the full value of the home must be listed as a gift even though the grantor is retaining a life estate. This interpretation is in keeping with the federal law which also views the full value of the home as a transfer.