Illinois Estate Planning & Elder Law Blog

You do not have to sell your home in order to qualify for Medicaid coverage of nursing home care in Illinois; however the state can file a claim against your house after you die.

You can freely transfer your home to the following individuals without incurring a transfer penalty which will make you ineligible for Medicaid for a period of time. Those individuals are:
• Your spouse
• A child who is under age 21 or who is blind or disabled
• Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
• A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
• A “caretaker child”, who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during the period provided care that allowed the applicant to avoid a nursing home stay.

Medicaid can put a lien on your house for the amount of money spent on your care. If the property is sold while you are still living, you would have to satisfy the lien by paying back the state. The exception to this rule is the case where a spouse, a disabled or blind child, a child under age 21 or a sibling with an equity interest in the house is living there.

Continue reading "Illinois Nursing Home Moves & Home Protection" »

One simple way you can reduce estate taxes or shelter assets in order to achieve Medicaid eligibility is to give some or all of your estate to your children (or anyone else) during their lives in the form of gifts. Certain rules apply. There is no limit on how much you may give during your lifetime, but if you give any individual more than $13,000 (in 2011), you must file a gift tax return reporting the give to the IRS. Also, the amount above $13,000 will be counted against a $5 million lifetime tax exclusion for gifts.

The $13,000 figure is an exclusion from the gift tax reporting requirement. You may give $13,000 to each of your children, their spouses and your grandchildren (or to anyone else you choose) each year without reporting these gifts to the IRS. In addition, if you are married, your spouse can duplicate these gifts. For example, a married couple with four children can give away up to $104,000 in 2011 with no gift tax implications. In addition, the gifts will not count as taxable income to your children (although the earnings on the gifts if they are invested will be taxed).

Continue reading "Illinois Estate Planning and the $13,000 Rule" »

Asset protection planning is about protecting your assets from creditors – and it is not just for the super-wealthy.

Anyone can get sued. Lawsuits can stem from car accidents, credit card debt, bank foreclosures or unhappy customers. If someone wins a monetary judgment against you, your family could become bankrupt trying to pay it off. To keep your assets away from creditors, you need to move them somewhere creditors cannot reach them. Asset protection techniques include maximizing contributions to IRAs, moving funds to an irrevocable trust, retitling various assets or using limited liability companies or family limited partnerships.

It is important to note that asset protection planning only works if you act before you are sued. Under the law, you may not defraud current creditors. If you are already being sued or if you know you are going to be sued and you transfer assets so that creditors cannot reach them, the court will reverse the transfer. That is why it is a good idea to put a plan into place now.

Continue reading "Illinois Asset Protection Planning" »

In Illinois, assisted living facility residents covered by Medicaid are not at risk of being evicted if they leave the facility for a temporary hospitalization.

The Illinois Medicaid program pays for services not just in nursing homes but in assisted living facilities which are meant to provide a home-like alternative to nursing homes. The Nursing Home Reform Law authorizes Medicaid to pay a nursing home to hold a room for a Medicaid recipient who is temporarily absent due to hospitalization and entitles the resident to return to the first available room.

Medicaid does not make similar payments on behalf of residents of assisted living facilities and the facilities are not required to give admission priority to returning residents. Illinois is one of only a handful of states which makes retainer payments to assisted living facilities on behalf of residents who are temporarily absent. Because of this law, Illinois assisted living facility residents covered by Medicaid are not at risk of being evicted if they leave the facility for a temporary hospitalization.

Continue reading "Illinois Law Concerning Medicaid and Assisted Living Residents" »

The basic concept of a reverse mortgage is that the bank will make payments to the homeowner, rather than the other way around. The payments can be a single lump sum, a line or credit or a stream of monthly payments. The bank does not have to be paid back until the homeowner moves out or passes away.

But the bank must be paid back at that time. For a senior who moves to a nursing home, this means liquidating an asset that is non-countable for Medicaid purposes and turning it into a countable asset that must be spend down before the former homeowner can qualify for Medicaid coverage.

In addition, because the bank is advancing money without knowing for sure when it will be paid back, there are high upfront costs to reverse mortgages. These mortgages are limited to about half of the equity in the home, which may not meet the homeowner’s needs.

There is an alternative that in many instances better meets the needs and goals of older homeowners – the private reverse mortgage. This is a private loan, usually from a family member, to the homeowner secured by a mortgage on the senior’s home.

Advantages for the senior homeowner:

• It’s cheaper. The upfront costs of paying an attorney to set up a private reverse mortgage may be a small fraction of the cost of a commercial reverse mortgage.
• Interest rates are lower. The interest rate on a private reverse mortgage is set by the IRS each month and is less than the interest rate on a commercial reverse mortgage.
• There’s no limit on what percentage of the home equity may be borrowed. The ability to tap into more equity in the home can delay the day of reckoning when the senior must move to a nursing home just because there is not enough money to pay for caregivers.
• The loan need not be paid back until the house is sold, so if a senior moves to a nursing home, he can keep his house.
• Once in a nursing home or other facility, the senior can continue to receive payments on the private reverse mortgage if needed to maintain the house or pay for extra care in the nursing home.

Advantages for family members:

• What is good for a parent or grandparent is good for the entire family. To the extent the senior can save money in mortgage costs, the bigger the ultimate estate that will pass to the family.
• The ability to tap into equity in the home can mean that family members who are providing assistance can either alleviate the burden by hiring more paid caregivers or be paid themselves for providing care.
• While current interest rates are very low, the rates set by the IRS are higher than money markets and certificates of deposit are paying these days. This means that the family member or members advancing the funds will earn a little more than they would if the money were sitting in the bank.
• A private reverse mortgage can help protect the equity in the home because it takes precedence over any claim by Medicaid.

The family of any senior who owns a home but who has little in savings should consider the private reverse mortgage as a way to help parents and grandparents.

Continue reading "Illinois Medicaid Planning and Private Reverse Mortgages" »

The basic premium for Medicare Part B will be $115.40 a month in 2011, up from $110.50 in 2010 (a 4.4 % increase). But because there will be no cost of living benefit increase for Social Security recipients for 2011, most beneficiaries will be exempted from paying this increase and will instead pay the same $96.40 premium amount they have paid since 2008.

A “hold-harmless” provision in the Medicare law prohibits Part B premiums from rising more than that year’s cost of living increase in Social Security benefits. Since there is no Social Security increase, most beneficiaries – about 73 percent – will not have to pay any increased Part B premiums because of the hold-harmless provision. Those covered by the provision will continue to pay Part B premiums of $96.40 per month in 2011.

But this hold-harmless protection does not apply to the other 27 percent of beneficiaries – about 12 million in all – who either: do not have their Part B premiums withheld from their Social Security checks; or pay a higher Part B premium surcharge based on high income; or are newly enrolled in Part B.

The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary’s premiums. So the income reported on a beneficiary’s 2009 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2011. Income is calculated by taking a beneficiary’s adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary’s MAGI decreases significantly in the past two years, he may request that information from more recent years be used to calculate the premium.

Continue reading "Illinois Estate Planning and 2011 Medicare Premium, Deductible and Co-Pay Charges" »

The White House is proposing to limit the ability of families to use partnership structures to minimize the valuation of assets for estate tax purposes.

A family might set up a partnership to introduce younger family members to investing while the parents maintain control over the assets, or a family might set up a partnership to account for the possibility of divorce.

Restrictions often accompany these partnership setups, including a partner’s ability to take a distribution or to transfer an asset without the consent of a general partner. Accordingly, families discount the value of these partnership interests when valuing them for estate tax purposes.

The White House is seeking to curtail these adjusted valuations.

Continue reading "Illinois Asset Protection Using Partnership Structure" »

Here's another reason to convert your traditional IRA to a Roth IRA:

When you convert to a Roth IRA, you can pay the conversion fee out of other assets. That is, you can pay the conversion fee from funds not in the traditional IRA. This will maximize the amount that you are converting to a Roth.

Because portfilios have been beaten down and values are currently likely to be far below their amounts in the past, you will have assets with depressed values in an account likely to increase significantly in value. All of this increase will be tax free when withdrawals are made from the Roth account.

Continue reading "Illinois Estate Asset Protection Planning" »

When most of us talk about asset protection, we usually think of protecting assets from the claims of creditors. But what about protecting assets from failure of the institution in which the assets are placed?

For example, what happens if a mutual fund fails? The answer is two-fold. First, no mutual fund company has failed. Second, even if a mutual fund family were to go bankrupt, the money in the funds would be safe. That is to say, an IRA, a 401(k) or any other account would be safe.

As Walter Updegrave points out in his piece in the February issue of Money magazine, unlike when you buy a CD at a bank, the money you invest in a mutual fund remains separate from the assets of the parent firm. It goes to the particular mutual fund you buy. Each mutual fund is a separate entity. The fund company doesn’t own the funds under the firm’s name. It only has an agreement to manage the assets and sell the shares. If the parent company went bankrupt, the assets of the individual funds would not be available to the firm’s creditors. In addition, federal law requires funds to have insurance that covers embezzlement, fraud and other similar matters.

Continue reading "Asset Protection and Mutual Funds" »

Asset protection for a business can be straight forward and a relatively simple matter to implement. At the same time, it can protect a large chunk of the assets of a business.

For example, in the case of a company that runs a manufacturing business, the usual business structure is for the manufacturing company to be organized as a corporation. That is fine as far as it goes.

But if a second corporation were to be formed as a trucking corporation, all of the assets the manufacturing corporation has in the fleet of fifty trucks could be transferred to the trucking corporation. As long as this trucking corporation is fully capitalized and fully insured, the effect of creating the trucking corporation would be to remove all of the other assets of the manufacturing corporation from exposure to a judgment regarding an accident involving one of the fifty trucks in the shipping fleet.

This protection could be taken a step further by creating a third corporation which leases the trucks. With a fully capitalized and fully insured leasing corporation in existence, the capital tied up in the fifty trucks owned by the trucking corporation could be protected from judgment in the event that a truck driver employed by the leasing corporation were involved in an accident.

Thus, layers upon layers of protection can be added to accommodate whatever the needs of the business are. The only limitation is the bookkeeping involved with keeping the corporations' assets separate and keeping the corporations fully insured. As long as the owner of the business is able to keep up with the bookkeeping aspects of the arrangements, the protection afforded by this type of asset protection planning is substantial and completely within what the law allows.

Continue reading "Illinois Asset Protection Planning" »

Daniel Henninger's recent article in The Wall Street Journal titled "U.S. Says It Will Bail Out Christmas" is too entertaining not to be included in this Christmas blog:

With the government on the brink of rescuing the U.S. auto industry, we have learned that the Treasury Department is drawing up plans to bail out Christmas. "We have reason to believe," said a person close to the matter, "that without an immediate capital injection, Santa Claus will fail before December 24." Mr. Claus could not be reached for comment.

Government officials are said to be concerned at the risk that the collapse of Santa Claus could pose to the nation's intricately related system of holiday happiness. Though a failure by Santa Claus poses the largest systemic risk, the government is also prepared to step in to bail out Christmas trees, caroling parties and mistletoe producers.

President-elect Barack Obama has been briefed on the initiative, and through a spokesman was quoted as saying, "I'm OK with bailing out Christmas."

Inside Treasury, some officials privately worry that such a precedent could result in the nationalization of Santa Claus, leading to similar calls for help next year from the Easter Bunny and even Valentine's Day. Treasury Secretary Henry Paulson personally concluded, however, that "Santa Claus is too big to fail."

Indeed, the situation was considered sufficiently dire that Mr. Paulson agreed to travel to the North Pole to speak to Mr. Claus. A Treasury official with knowledge of the situation agreed to provide this reporter with an account of the meeting. "Secretary Paulson," this person said, "has had a lifetime belief in Santa Claus and firmly supports what he represents."

Last Saturday morning, Mr. Paulson flew by government plane to meet with Santa, though a spokesman would not disclose the exact location of the famed toymaker's North Pole workshop. Mr. Paulson's plane landed on the polar ice cap, and then the Secretary was taken the final 300 miles in a sleigh pulled by Santa's fleet of reindeer. In deference to Mr. Paulson's unfamiliarity with sleigh-riding at altitude, Mr. Claus ordered his assistants to bring the Treasury department party overland.

The picture of Christmas painted for Mr. Paulson by his rosy-cheeked host was bleak.

Apparently Santa's difficulties in "producing product," as Mr. Paulson described it, originated in a poorly understood aspect of the jolly elf's current operations known as "Christmas list swaps," or CLIPS.

Mr. Claus said that going back as far as anyone can remember, Christmas lists had been handled in the traditional manner. Children would draw up lists, which were left out in the evening with a glass of milk for collection by Santa's elves; other lists would be exchanged with siblings, cousins and loved ones.

Several years ago, according to a participant who requested anonymity, some of Santa's elves were contacted by representatives from Bear Stearns and Lehman Brothers, who persuaded the elves of the benefits of an elaborate scheme of Christmas-list securitization.

As outlined to the elves, the idea worked like this. Brokers would break each item on the Christmas lists into separate pieces and repackage the requests as securities, using a formula known as a "benevolence diffusion algorithm." This would guarantee happiness for everybody in the world on Christmas morning. No one would lose.

At first Santa was doubtful of the plan. Mrs. Claus was especially skeptical, pointing out that in her experience with baking Christmas cookies, a seemingly foolproof enterprise, a failure rate of 5% was not uncommon. "There is simply no historical data to suggest the whole world can be long Christmas," Mrs. Claus said. "No scheme will ever rid the world of bad little girls and boys."

According to a person with knowledge of the North Pole couple's affairs, Santa received a call from a Franklin Raines, who identified himself as the president of a "government sponsored enterprise" known as Happie Mac. Santa apparently became convinced that Happie Mac sounded similar to his own business of free giving, and so agreed to the proposed system of Christmas list swaps.

Difficulties emerged when a CLIPS salesman from AIG called a senior elf to say that a large number of the Christmas list swaps had ended up in the hands of Russian billionaires with links to former Russian president Vladimir Putin. "These plutocrats don't even believe in me," Santa was heard to say as Mr. Paulson's sleigh rode out of sight.

On returning to Washington, Mr. Paulson's plan to bail out Christmas immediately ran into problems. Fed Chairman Ben Bernanke, whose great-great uncle is rumored to have been an elf, pointed out that Santa Claus might not qualify for a TARP loan. According the Fed's analysis: "Santa Claus belongs to the people. Any bailout must pass through the appropriate committees of the House."

House Speaker Nancy Pelosi, notwithstanding that she is the mother of five children, has reportedly told Mr. Paulson that Congress will bail out Christmas only in return for a promise from Santa Claus to "go green." Speaker Pelosi said the Environmental Defense Fund has long complained about Santa's eight tiny reindeer and that Mr. Claus would be asked to appear this Tuesday before Rep. Barney Frank's committee with a plan to reduce the sleigh's carbon footprint.

With only 13 days remaining for a Santa rescue, Mr. Paulson and Speaker Pelosi are said to be discussing the appointment of a Christmas czar. The leading candidate is Oprah Winfrey.

Two Illinois laws provide protection from creditors for homes and for life insurance policies.

The protection provided to homes, whether it is a house, a condominium or other form of residence, is $15,000 per individual.

The protection provided for life insurance policies equals the value of the policy as long as the proceeds payable because of death go to the wife or husband of the insured, a child, parent or other person dependent upon the insured.

These laws apply to everyone and no action is needed to take advantage of their protection.

Additional steps can be taken to protect other assets from the claims of creditors. These steps include establishing trusts and other entities which hold title to the assets. When properly created, the owner of the property can enjoy the benefits of the property without the worry that the property may be attached by a creditor.

Another step to protect assets from creditors is to retitle the asset. James A. Barry, Jr., a Certifies Financial Planner, makes reference to the advantages of transferring property to family members as a way to protect assets. By doing this, the retitled asset is now in the name of a different individual and a creditor cannot reach the asset. Often an individual who uses this method already had the intent to pass the property to the other party, usually a family member, at some time in the future.

For more information regarding keeping your assets safe, contact
a law firm that practices in the area of asset protection.

In his article, When is it Too Late for Asset Protection?, Attorney Robert Mintz discusses the pitfalls of asset protection planning.

He points out that states, including Illinois, have fraudulent transfer laws. These laws prohibit an individual from transferring property to another entity to “hinder, delay or defraud” someone owed a debt in order to avoid paying that debt. As a result of these laws, there is little one can do to protect assets against a claim that has already been made, sometimes referred to as an “existing claim”.

Where asset protection planning is allowable and is effective is in the situation where an individual seeks to protect himself from unseen future risks. Mr. Mintz gives the following example in his article: “ . . . say you set up an asset protection plan and a negligent act involving a patient occurs several months later. Fraudulent transfer is not an issue in this case because the property transfer was unrelated to the claim subsequently developed by this patient. Presumably, at the time you implemented your asset protection plan, you did not know or intend that the patient would be injured. Similarly, loans and contracts entered into after establishing a plan, as long as the creditor is not misled, are also outside the scope of the fraudulent transfer rules.”.

Illinois law is clear that the fraudulent transfer laws can overturn an asset protection plan where the intent of the plan was to avoid paying an existing claim. It is also clear that in Illinois asset protection planning to protect against unforeseen future risks is allowed and is effective. The tricky part comes in when one is confronted with the situation where one must prove to a court that the transfers involved fall into this second, acceptable area of planning.

It is always best to consult with an attorney at a law firm that practices in the area of asset protection about the propriety of any asset protection planning and the selection of the appropriate steps to take.