You may equate estate planning to the creation of a will, but there are other options. In many cases, a trust of some kind will be preferable, and we will look at some of these scenarios in this post.
Special Needs Planning
Most people with disabilities rely on Medicaid for their health insurance, and individuals that are in this position typically receive Supplemental Security Income as well. These are need-based programs, so you cannot qualify if you have significant assets in your name.
If you leave someone an inheritance through the terms of a will, they would receive the bequest all at once in a lump sum. As a result, a person with a disability that is a beneficiary of these government programs could lose their eligibility if they receive a sizable inheritance.
Fortunately, there is a solution in the form of a supplemental needs trust. To execute this strategy, you fund the trust, and you name a trustee to act as the administrator.
Under the rules of the programs, the trustee would be able to make purchases that improve the life of the beneficiary.
Benefit eligibility would not be lost, and assets that are left in the trust after the passing of the first beneficiary would be transferred to a successor that you name in the trust declaration.
Nursing Home Asset Protection
While we are on the subject to Medicaid eligibility, we will move on to the matter of long-term care. Seven out of ten seniors will need some type of living assistance, and 35 percent of elders will reside in nursing homes according to the Department of Health and Human Services.
Genworth Financial tells us that the median charge for a private room in a Hartford area nursing home in 2020 was $167,900. Medicare does not cover the custodial care that nursing facilities provide, but Medicaid will pick up the tab if you can gain eligibility.
To develop the right financial profile, you could convey assets into an income only, irrevocable Medicaid trust. You could receive distributions of the trust’s income, but you would not have access to the principal.
The assets in the trust would not count if you apply for Medicaid, but you have to act in advance, because there is a five-year look back period. You must fund the trust at least five years before you submit your application for Medicaid eligibility.
Estate Tax Efficiency
Financial success is a beautiful thing, but high net worth individuals have to be concerned about estate taxes. There is a federal estate tax with a 40 percent top rate, and here in Connecticut, we have a state-level estate tax.
On the federal level, the exclusion is $11.7 million in 2021. This is the amount that you can transfer before the estate tax would become applicable on the remainder. The send us a message to request a consultation, and we can be reached by phone at 860-548-1000.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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What Is the Connecticut Medicaid Asset Limit in 2021?
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