The Connecticut Elder Law Blog

The I.R.S. Clamps Down on Gift Tax Returns

There is a blurb in the latest issue of the Kiplinger Tax Letter reporting that the Internal Revenue Service estimates that 60% to 90% of people who gift real estate fail to file a gift tax return for the transfer.

So the I.R.S. is now going after these people.  They are currently reviewing real estate transfer records in 15 states, and Connecticut is one of them.

Just a refresher: whenever you make a gift in excess of $13,000 in value you have to file a Form 709 gift tax return with the I.R.S., even though a tax payment isn't due for the transfer. 

Please note that you will not get a letter from the I.R.S. informing you of the need to file a return; you have to take the initiative and file it.

So...if you've gifted real estate to anyone for less than fair market value you may want to contact your accountant.

Have Patience...

My staff and I have noticed that Connecticut's Department of Social Services (DSS) is taking much longer to process Medicaid applications than they used to. 

But thanks to an article in today's CT Mirror, we've been treated to a behind-the-scenes, detailed look at the reason behind the delays.  Click here for the article. 

Hopefully the proposal for the additional caseworkers will go through.  And as a lawyer who runs a tech-friendly law practice, I'm relieved to see that upgrading the technology at DSS is a significant part of the discussion.

Little-Known SSI Facts

Supplemental Security Income (SSI), not to be confused with Social Security retirement or disability benefits, is a means-tested federal program which many of my clients benefit from.  The program is run by the Social Security Administration (SSA). 

I just wanted to take this opportunity to share several SSI facts that are not well-known by the general population...

*  In order to be "categorically" eligible for SSI, you must be disabled by a medically-determinable physical of mental impairment, but impairment due to drug and/or alcohol addiction no longer counts as a "mental impairment". 

*  SSI benefits are not subject to garnishment, except for child support wether it is court-ordered or voluntary.

*  The amount of your SSI benefit depends on your living arrangements and family status.

* Generaly speaking, an SSI beneficiary must be a U. S. citizen.  However, there are several exceptions (too lengthy for a mere blog post), so check with your local SSA office for all the details. 

*  There are income limitations in regards to SSI eligibility, but the first $20 of monthly income is ignored by SSA.

*  There is a $2,000 asset limitation for the SSI program, but a car used to transport the disabled person is ignored by SSA.

Medicaid: Retirement Accounts are Fair Game

One source of confusion about Medicaid (and there are many) is how retirement accounts are treated.  When the DSS caseworker assigned to your Medicaid application reviews your financial information, is he/she going to treat your retirement accounts as "avaliable" assets and therefore subject to the spend-down process?

In a word, absolutely.

Yes, retirement accounts are treated as "protected" assets in some legal situations.  Unfortunately, Medicaid law is not one of them. 

And yes, the State fully understands that if you do liquidate qualified retirement accounts you may trigger all kinds of penalties and income tax liability, but the State doesn't care.  Even at a reduced value, it's still a resource to spend on your care, thereby delaying the point where the State has to step in and help out.

Sorry to share such bleak information with you on a Friday, but you need accurate information when you're filing for Medicaid!

Special Needs Trusts and the "Sole Benefit" Rule

As wonderful as special needs trusts are for their disabled beneficiaries, there are a lot of "pitfalls" when it comes to trust management/administration; one wrong step can eliminate the beneficiary's eligibility for government benefits.

One of the biggest pitfalls is a trustee running afoul of the "sole benefit" rule.  The rule simply states that the trust must be for the sole benefit of the disabled person.  Put another way, any and all distributions from the trust must be limited to those that benefit the disabled person. 

If the trustee starts making distributions that benefit other people then the risk is that the government could decide that the trust is no longer a special needs trust, which means that all of the trust assets would be considered "available" to the disabled person and government benefits disappear.

Along these lines, be careful if the disabled person is a minor child with financially viable parents.  If a trustee uses trust funds to cover expenses that the child's parents are legally obligated to cover (i.e. basic living expenses), then the government could consider those distributions as benefiting the parents and not the child!  The argument in that scenario is that the trust is relieving the parents of a financial burden.

Again, special needs trust rules are confusing and missteps can trigger severe problems for the disabled beneficiary.  So, if you're a trustee and you're not 100% sure about the propriety of a proposed distribution, then play it safe (in fact, "play it safe" is a decent mantra for all trustees of a special needs trust!) and consult a professional adviser.

 

Different Gifting Rules for Medicaid and SSI

At this point, many people are aware that the Federal law for Medicaid was overhauled in 2006, and the changes were not favorable for Medicaid applicants; a longer look-back period of five years, and now the period of ineligibility triggered by the gifting starts when the applicant has just about run out of money.

However, just when you thought this stuff couldn't get any more complicated, keep in mind that these 2006 gifting rules do not apply to Supplemental Security Income, better known as "SSI".

Medicaid is a benefit program that helps you pay for your long term care costs in the nursing home, and in the community under certain circumstances.

SSI is a monthly cash payment that provides minimal income to those over age 65, blind or disabled.

Both programs have very strict financial guidelines before eligibility is established (unlike Medicare and SSDI).

As far as the gifting rules for SSI go, that program uses the "old", more-favorable Medicaid rules.  The look-back period under SSI is three years, not five.  And the period of ineligibility for SSI begins when the gift is made, not when the applicant has otherwise spent his/her assets down below the asset limit ($2,000 for SSI). 

Here's the standard disclaimer (you knew it was coming!): Do not attempt to incorporate planned gifting in regards to government benefits on your own.  Seek help from an experienced professional.

 

File that Will!

Here's a little-known Connecticut probate law: CT General Statutes Section 451-282 requires an individual who has possession of a will or codicil (an amendment to a will) to deliver the document to the local Probate Court with in 30 days of learning of the death of the person who signed the will or codocil.   Failure to do so could result in a fine of up to $1,000 or imprisonment of up to one year, or both!

Sounds a bit harsh, but sometimes the person who has custody of a last will and testament has an incentive to keep the document hidden.  So it appears that the Connecticut legislature wanted such people to think twice before doing so.

For what it's worth, in 13 1/2 years of probate practice I've never heard of anyone being prosecuted under this law.  But why take the chance?  Generally, the best policy is to simply get the will in to the Probate Court as quick as you can.  Even if you don't have enough information to file any other probate documents yet (like the PC-200 Application to Probate a Will), just file the will and let the Court know that the rest of the required documents will be along shortly!

Upcoming Events

I'm very excited to be part of a panel presentation on Special Needs Planning scheduled for Wednesday, March 16th at 6:30 pm right here at my office, located at 500 Winding Brook Drive, 2nd Floor, Glastonbury, CT. 

While I will be discussing special needs trusts, I will be joined by Attorney Courtney Spencer who will explain special education advocacy, and Beth London, a certified financial planner who will examine the best ways to fund the needs of a loved one with special needs.  So it will be a nice summary of a few different areas of concern for a family with a special needs member.

Well, if special needs planning is not a concern, then you have an excellent alternative that same evening...

The Alzheimer's Association has organized an educational event for March 16th at 7pm regarding.  The topic is "Keeping Connected with Good Communication with an Individual with Memory Loss" at Suffield by the River Assisted Living.  The address is 7 Canal Road in Suffield, CT. 

I highly recommend attending this event; the Connecticut Chapter of the Alzheimer's Association has a long history of putting on high-quality educational presentations for families coping with Alzheimer's Disease, and I'm sure this will be no exception.  Please RSVP with Liz at 860-668-6672 or lsansom@suffieldbytheriver.com.

 

Medicare's Biggest Myth...

It's a little disturbing how often Medicare benefits are terminated for chronically ill beneficiaries because the patient has "plateaued" and is no longer improving.  I say "distrubing" because this no-improvement standard is essentially a myth with no basis in federal law.

This issue is wonderfully explained and chronicled in an article written by the Center for Medicare Advocacy, Inc. (CMA).  It's well worth the read if you have a loved one who is chronically ill and on Medicare.

Click here for the article.

Clicke here for the Center for Medicare Advocacy. 

By the way, we should be proud that CMA is Connecticut-based; it is an infinitely helpful resource for those facing issues with Medicare benefits.

 

Beware Trustees of Special Needs Trusts...

If someone with special needs is a beneficiary of a special needs trust and is also receiving SSI (Supplemental Security Income) benefits then the Trustee of the trust must be very careful to not make any distributions that would jeopardize SSI eligibility.

One of the no-no's for the trustee is paying for "food" or "shelter".  If a special needs trust picks up the tab at the restaurant or covers the grocery bill then it may reduce or eliminate the SSI benefits.  Although food is allowed under certain circumstances, such as food provided during a "medical confinement".

There could also be SSI eligibility problems if the trustee uses trust funds to pay for shelter costs such as rent, heating fuel, gas, electricity, water, sewerage and garbage collection services.  Again, the "medical confinement" exception applies.

But don't confuse "shelter costs" with "home ownership".  It's OK for a special needs trust to owna house in which the SSI beneficiary lives.

By the way, the words "food" and "shelter" are usually accompanied by the word, "clothing".  But not in the world of SSI eligibility, as of 2005.  In other words, gifts of clothing to SSI beneficiaries are no longer a problem because it's not counted as income or in-kind support and maintenance.