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ADDITIONAL SUCCESS STORY OF THE MONTH – THE USE OF UTMAs IN MEDICAID PLANNING

The Use of UTMAs in Medicaid Planning

Long-term care Medicaid helps pay for long-term care costs if certain eligibility requirements such as medical necessity, Medicaid bed availability, “countable” resources being below a $2,000 limit, restrictions on most uncompensated transfers if made within five years of application, etc., are met.

In this case the 100 year old client, who had privately paid for his skilled care for many years, wanted to leave or protect some of his limited remaining assets to his family by shifting the burden of his cost of care. His only countable resources were a 1/3 ownership in real estate (non-homestead) and about $80,000. Other than the excess countable resources, all other Medicaid eligibility requirements should be met. If Medicaid eligibility is obtained, he would save $6,500 a month (approximately the difference between his income and the cost of care).

Normally non-homestead real estate is a countable resource. However, under the Medicaid rules, real estate placed for sale is not a countable resource unless the property is sold (since cash is a countable resource as it can be used to help pay for care). Efforts should be made to sell the real estate for fair market value (otherwise the resource could count). If it sold, other planning opportunities should be discussed provided they are within the state’s rules. Normally, listing the property with a real estate agent is sufficient to show the property is up for sale, but other options are possible. In this case, an ad was placed with a local newspaper along with a photo showing the address of the property and the date the photo was taken to show the date when it became “non-countable” since the real estate then became non-countable. Some of the $80,000 could be “spent down” towards the $2,000 resource limit by simply making repairs to the now non-countable resource – the only issue with that being the time to make repairs since the $2,000 countable resource limit is determined as of the first day of the month at 12:01 a.m.

As a result, the question became what should be done with the remainder of the $80,000 besides the repairs and paying existing bills. While going over the various options, it was discovered that the client would be really thrilled if somehow he could give something to his grandchildren or great-grandchildren. Normally, any gifts made within five years of an application are considered a disqualifying event resulting in a transfer penalty. However, there are exceptions to the transfer penalty. One of the exceptions is to make direct transfers to an irrevocable 529 (college education fund – some 529s are not irrevocable) if the child or grandchild of the Medicaid applicant is under 21 years of age. However, in this case, all children and grandchildren were over 21 years of age. 

The client’s goal was to somehow benefit his grandchildren or great-grandchildren. Although the rules regarding transfers are limited to two generations down for gifts to a 529, the language regarding transfers to an UTMA (Uniform Transfers to Minors Act) account are different. Transfers to UTMA accounts are also an exception to the transfer penalty rules. Notwithstanding our interpretation of the rules, we sought clearance of a “higher” level prior to the client making any transfers to an UTMA for a great-grandchild under 21. Initially, the state said “no” by saying transfers to a 529 account should be no different than a transfer to an UTMA account. However, this interpretation was unacceptable to us as the actual rule indicates “a person may establish a qualifying UTMA in the name of a minor child.” There is no language of limitation of any familial relationship as there is under the rule for transfers to an irrevocable 529. Thus, we went to a higher level at the state to confirm our interpretation was correct – which it was. Relatively simple planning was to achieve the client’s goals. It just took knowing the rules and being persistent.

If interested in learning more, consider attending our next free “Estate Planning Essentials” workshop by calling us at (214) 720-0102 or sign up by clicking here.

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