Year-End Gift and Estate Planning Tips

From 2011:

By Arthur C. Weinshank, Esq. and Dolores R. Schiesel, Esq.

The roller coaster ride of state and federal gift and estate taxes continues as 2011 comes to a close.  Even with uncertainty into 2013 on those tax consequences, certain actions now will help as you consider your estate plan.

You should first review your estate planning documents to determine if any should be updated.  A Durable Power of Attorney is a necessary document for any estate plan.  When you execute a Power of Attorney, you are appointing someone to handle your finances for you.  After it is signed, this document is effective upon delivery, which means that it can be used by the power holder as soon as it is in his/her hands.  For this reason, it is important to think carefully about who you wish to appoint.  Once a Power of Attorney has been signed, it can be revoked; however, this becomes increasingly difficult if the signed document has been distributed to the power holder.  Because this document is so powerful, it is important to update it every 2-3 years.  Banks and other financial institutions become reluctant to honor a Power of Attorney that has become “stale.”

A Health Care Instructions and Appointment of a Health Care Representative is another necessary document for smooth transition in the event of sudden illness.  Connecticut statute allows for the appointment of a Health Care Representative, providing a broad scope of decision-making for the designated individual.  Such decisions can range from routine examinations and tests, to making end of life decisions.  It allows the Health Care Representative more authority when dealing with doctors, hospitals and other medical providers.  This document, sometimes referred to as a living will, is important to keep updated naming a person with which you have discussed with health care instructions and appointments of agent.  The document may also allow you to nominate a trusted person in the event you were determined by a court to be incapable of caring for yourself.

Also, if you require medical treatment due to an accident or illness, make sure your loved ones can find out about your condition.  Sign a HIPAA Waiver, allowing as many or as few people as you wish, to speak to doctors, nurses or hospital staff regarding your health condition.  According to HIPAA, everyone over the age of 18 is entitled to a right to privacy; therefore, medical providers cannot speak to anyone about a patient’s condition unless they have been given authority to do so.  To avoid unnecessary confusion, consider signing a HIPAA Waiver to allow your family to talk to your physicians and to inquire as to your health.

Many people have heard of the five-year look back period for Medicaid with changes to the law in 2006.  It is true that before you are determined eligible Medicaid assistance for long term care, all gifts in the previous five years will be reviewed. Many people believe it is now impossible to make any gifts in order to protect their assets for future generations.  The good news is that, with the use of careful planning techniques, you can still make gifts of your assets while maintaining your future eligibility for Medicaid.

One way to accomplish this at least some gifting is partial gifting.  In this case, a potential Medicaid applicant would give away all of their assets to a loved one, retaining only what is needed for living expenses for the next 5 years.  If the person remains healthy and does not require nursing home care for 5 years, the gift will be protected because it will be beyond the 60 month look back period at the time of application.  If the person does require nursing home care within those 5 years after making the gift, the recipients of the gift must return it. In using the above method for Medicaid planning, it is important that the recipient of the gift is instructed not to spend the money.  Likewise, protection from that person’s creditors is important.

In order to make it more difficult for family members to expend the funds during the five year look-back period and make it difficult for creditors to have access to the funds, you may wish to establish a carefully drafted Irrevocable Family Trust.  This first requires the potential Medicaid applicant gifting the bulk of his assets to his children equally, who will then establish a Family Trust for their own benefit.  The gifts to the children will be considered “completed gifts” for both gift tax and Medicaid purposes.  The children will then establish a Family Trust and make a gift of the same amount to the Family Trust.

As mentioned above, the trust is for the benefit of the children.  During the parents’ lifetime, the income and principal will be available for the descendants, at the discretion of the Trustees.  Upon the death of the parents, the remaining principal will be distributed equally among the children.

Finally, Federal law allowing gifts in the amount of $13,000 per person to any number of individuals is still in effect. This can be used both to provide for loved ones, lower the balance of estate assets without any gift or estate tax reporting requirements. A married couple may give $13,000 each or a total of $26,000 to a child.  For Medicaid purposes these gifts, if made in the five years preceding application for Medicaid for either spouse will be counted toward a penalty period.

It is crucial for anyone who wishes to preserve their assets for their family or anticipates applying for Medicaid in the near future to consult with an attorney immediately to learn how to protect their assets in light of these recent changes to the Medicaid laws.

As the end of the year approaches, remember to review your estate plan before making any large gifts to family and friends, and check your existing documents to see if any need to be updated.

Arthur C. Weinshank and Dolores R. Schiesel are members of the Trusts and Estates and Elder Law Department of Cramer & Anderson LLP, a full service law firm with offices in New Milford, Litchfield, Washington, Kent and Danbury.  Both are members of the National Academy of Elder Law Attorneys.