Posts Tagged ‘Medicaid benefits’

State May Not Recover From Surviving Spouse’s Estate If Medicaid Recipient Had No Legal Interest at Death

Friday, July 11th, 2008

The Supreme Court of Minnesota rules that Medicaid may not recover from the estate of a Medicaid recipient’s surviving spouse if, at the time of her death, the recipient did not possess a legal interest in the property being claimed. However, the court also finds that federal Medicaid law does not totally preclude recovery from the estate of a surviving spouse of a Medicaid recipient.

Dolores and Francis Barg had been married for 53 years when Mrs. Barg entered a nursing home in 2001. Once she entered the home and began receiving Medicaid benefits, Mrs. Barg’s guardian transferred her joint tenancy interest in the couple’s home to Mr. Barg, individually. Mrs. Barg died in January 2004 without leaving a probate estate and Mr. Barg passed away five months later. The county Medicaid agency then filed a claim against Mr. Barg’s estate for the cost of Medicaid services paid on Mrs. Barg’s behalf. Mr. Barg’s estate contested a portion of the county’s claim and an appellate court decided that, under principals of real property law, Mrs. Barg possessed a one-half share of the property at the time of her death which could be recovered from Mr. Barg’s estate.

Mr. Barg’s estate appealed, arguing that federal Medicaid law preempts any recovery from the estate of a surviving spouse, and, even if recovery was allowed in some cases, the state could not recover from Mr. Barg’s estate because Mrs. Barg had transferred her property interest to Mr. Barg during her life, not through a transfer at her death. The county argued that Minnesota law allows recovery from the estate of a surviving spouse for any assets jointly owned by the couple at any point during their marriage.

The Supreme Court of Minnesota rules that federal Medicaid law does not preempt a state from pursuing all estate recovery against the estate of a surviving spouse because there is “sufficient ambiguity” in the federal statute authorizing estate recovery. However, the court also finds that the allowable scope of estate recovery is limited to assets that the Medicaid recipient had a legal interest in at the time of her death and voids a portion of the Minnesota estate recovery statute permitting recovery of assets in which the recipient did not have a legal interest. Since “Dolores had no interest in assets at the time of her death that were part of a probate estate or an expanded estate definition permissible under federal law … there is no basis for the County’s claim against the estate,” the court writes.

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College 529 plan could make a great gift for children and grandchildren

Friday, February 29th, 2008

Looking for something you can give your children and grandchildren that can’t be swallowed, won’t be recalled and doesn’t contain excessive amounts of lead? Consider contributing to your children’s and grandchildren’s 529 college savings plan.

The gift of a 529 plan probably won’t make your children and grandchildren squeal with joy but years from now, when they graduate from college debt-free, they’ll thank you.

Every state offers at least one 529 college savings plan, and you don’t have to invest in your own state’s plan. Your contributions aren’t deductible on your federal tax return, but more than 30 states allow residents who contribute to their own state’s plan to deduct some or all of their contributions from their state taxes. Your investments grow tax-deferred, and withdrawals are tax-free, as long as the money is used for college expenses.

Parents and grandparents can set up their own 529 plan, naming the child or grandchild as a beneficiary, or contribute to an existing plan set up by the child’s parents.

Even if the account isn’t in your name, you might be eligible for a state tax break. Most states that provide tax deductions permit non-account owners who contribute to an existing account to deduct their contributions, says Chris Hunter, program manager for the National Association of State Treasurers.

Make sure you keep a copy of your canceled check for your state tax records. You can find the rules for your own state at www.collegesavings.org.

The biggest drawback to contributing to an existing account is that you relinquish control of the money. The plan’s account owners can do anything they want with money in the account, says Bill Raynor, vice president of 529 plan sales for OppenheimerFunds. Raynor says he generally advises grandparents who want to contribute to a 529 to set up a separate account and name themselves as owner, so they can retain control of the money. That’s particularly important if you plan to make a large contribution to a 529 plan, he says.

Otherwise, he says, your contribution “could become a red Porsche convertible instead of the kid’s college fund.”

In addition, keeping the account in your name means you’ll be able to withdraw the money for emergencies, such as catastrophic medical expenses. You can withdraw money in your 529 account at any time, for any reason, says Jeff Coghan, Director of College Savings Programs for Hartford Financial Services. If the money isn’t used for higher-education expenses, however, you’ll owe income taxes and a 10% penalty on the earnings.

Contributions to a 529 savings plan are removed from your taxable estate, even if the account is in your name. That feature makes 529 savings plans a powerful estate-planning tool for wealthy parents and grandparents who are concerned about inheritance taxes, Raynor says.

You can contribute up to $12,000 a year, per beneficiary, to 529 plans without filing a gift-tax return with the IRS. Better yet, you can “frontload” your 529 plans by contributing five years’ worth of annual contributions in one year.

That means you can contribute up to $60,000 to a grandchild’s 529 plan — or $120,000 if you’re married — without filing a gift-tax return. If you have several children or grandchildren, you can set up multiple accounts and shelter hundreds of thousands of dollars from estate taxes, Raynor says. And if a couple of your children or grandchildren eventually don’t go to college, you can always change beneficiaries — as long as the accounts are in your name.

There’s one major drawback to setting up a 529 plan — or several plans — in your name. If you need nursing home care in the future, your 529 plan could hurt your eligibility for Medicaid, a joint federal/state health insurance program for low-income people. Because you control the account, the government considers your 529 plan a “countable asset.” That means you’ll be required to use that money to pay for your long-term care expenses before you qualify for Medicaid. (Except if you live in Arkansas, which enacted a law this year exempting 529 plans from Medicaid eligibility.)

If you think you might need to apply for Medicaid in the future, consider contributing to an account in someone else’s name, says Joe Hurley, founder of Savingforcollege.com. That way, the plan won’t be considered a countable asset for purposes of Medicaid.

Yet even this strategy won’t get you off the hook entirely. When you apply for Medicaid, the state will review your finances during the previous 60 months. Financial gifts made during this period, including contributions to a 529 savings plan, could hurt your eligibility for Medicaid benefits.

For more information, call or e-mail me or a financial adviser who specializes in long-term care.

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