exclamation alert Russo Law Group is OPEN and we are doing our part to Keep our Clients Safe and Protected. Click here for more details.

If you inherit a traditional IRA after the enactment of the SECURE Act, or expect to inherit an IRA in the future, you should consider having a plan in place for withdrawals to avoid a big tax bill.

Tax Liability

Since you have 10 years for the inherited IRA to grow tax-deferred, you may want to consider the nature of the assets held in the IRA, other income sources, and tax deductions available to you. You should also consider the timing of your distributions, as you may want to space out the distributions according to your income and available deductions. This will give you flexibility in managing your tax liability each year until the 10 years runs out.

Professional Help

It is important to consult with a professional who can help guide you and provide insight in order to come up with the best strategy that takes into consideration your tax liabilities, retirement goals, and estate and/or long-term care plan.

Next we will look at Charitable Remainder Trusts.

Prior to the SECURE Act, it was always important to ensure that a qualifying beneficiary designation was made to IRAs and other qualified retirement accounts. This could be an individual or a trust with the appropriate provisions that would allow the qualified retirement account to extend the tax-deferred benefits of the retirement account (commonly referred to as the “stretch”).

If there was no qualified beneficiary designation when the owner of the IRA account died, then the inherited IRA would be subject to tax liability within 5 years (actually by December 31 of the year containing the fifth anniversary of the owner’s death). This was common in situations where the owner either had no living beneficiary or named a non-qualifying trust as beneficiary.

Change Under the SECURE Act

Now, as a result of the SECURE Act, all beneficiaries designated (other than “eligible beneficiaries”) are subject to the 10-year payout rule, which dictates that the Inherited IRA must be distributed to the beneficiary within 10 years of the IRA owner’s death. The distributions will be subject to income tax.

An eligible beneficiary can take advantage of the tax-deferred benefit, delay the distributions, and in certain cases avoid the 10-year payout rule.

If there is no living beneficiary designated, then the 5-year rule still applies under the SECURE Act.

Eligible Designated Beneficiaries

The following are eligible designated beneficiaries who are entitled to the stretch:

  • Surviving spouse of the deceased retirement account owner
  • A minor child of the deceased account owner (subject, however, to the 10-year payout rule once the beneficiary reaches the age of majority)
  • A beneficiary who is not more than 10-years younger than the deceased account owner
  • A beneficiary who is disabled or chronically ill

Given the fact that a surviving spouse is an eligible designated beneficiary, it is a good idea to consider naming your spouse as the designated beneficiary on your IRAs.

It is important to consider who should be appointed as your designated beneficiaries when selecting beneficiaries, and in many cases, you should consider changing your beneficiary designations to take advantage of tax planning strategies.

Next, we will look at planning for inherited IRAs

The SECURE Act has received much buzz since it was signed into law on December 20, 2019, as it will likely impact the retirement and estate planning strategies of many Americans.

The far-reaching law includes significant provisions aimed at increasing access to tax-advantaged accounts (e.g. IRAs, 401(k), 403(b), etc.) and preventing older Americans from outliving their savings.

Key Takeaways

Here are some of the key takeaways from an estate planning and retirement planning perspective:

  • The Act mandates that most non-spouses inheriting IRAs take distributions that end up emptying the account in 10 years
  • The Act pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs) from 70½ to 72
  • The Act allows traditional IRA owners to keep making contributions indefinitely
  • The Act allows 401(k) plans to offer annuities
  • The Act allows parents to withdraw up to $10,000 from 529 plans to repay student loans

Given the changes brought about by the SECURE Act, it might be time to consider the following:

Review (and possibly revise) Your Estate Plan

It is important to establish an estate plan that meets your wishes and accomplishes your goals. It is also important for you to review and update your estate plan whenever there is a major change in your life or in the law. In this case, the major changes in the law resulting from the SECURE Act is a good reason to review your estate plan with an estate planning attorney who is experienced in the areas of tax law, long-term care, and retirement planning.

You should consider having a comprehensive retirement meeting with your estate planning attorney, financial advisor, and accountant when contemplating any changes to your estate and retirement plan. This will help ensure that all the relevant professionals are up to speed with your estate and retirement plan and can provide input related to their field of expertise.

Next week we’ll discuss beneficiary designations.

Before giving a gift to someone, think about what your intention is for the gift because there may be a better way to ensure your intentions while minimizing or eliminating any gift tax implications.

Some transfers are not subject to the gift tax and therefore can be made for any amount.

Here are some examples of transfers (gifts) that are not subject to the gift tax:

  • Gifts between spouses (there’s no tax reason to go cheap for your anniversary!)
  • Payments that qualify for the educational exclusion (e.g. payment of college tuition for a child/grandchild)
    • The payment must be made directly to the qualifying educational organization – NOT to the child/grandchild for them to make the payment
  • Payments that qualify for the medical exclusion (e.g. payment for surgery or medical insurance for a loved one)
    • The payment must be made directly to the person or institution that provided the medical care for the individual (e.g. to the hospital or to the health insurance company)
  • Gifts to political organizations
  • Gifts to certain exempt organizations (e.g. 501(c)(3) charities)

We typically advise clients to think of the value of the gift before making gifts. Let’s take a look at why.

Value of the Gift

Although the annual exclusion from Federal gift taxes is $15,000, this doesn’t mean that you will be taxed on any gift greater than $15,000 in value. If you make a gift of more than $15,000 to one donee, then you will need to file a Federal Gift Tax return (IRS Form 709) to report the gift. The amount of the gift over the $15,000 will reduce your unified estate and gift tax exemption ($11,580,000 in 2020) and will only be subject to gift tax if you have already gifted up to the unified exemption. Any reduction in the unified estate and gift tax exemption could be relevant to your taxable estate when you die.

If you do not have, or expect not to have, $11,580,000 in your taxable estate then the gift reported on the IRS 709 will not result in a gift tax liability in the year you make the gift or result in an estate tax liability.

An Example

Gertrude made gifts of $20,000 to each of her five daughters and made gifts of $10,000 to each of her 13 grandchildren in 2020. She will need to file a Federal Gift Tax return (IRS Form 709) by April 15, 2021, and report the amount of the gifts to each donee that exceeded the annual exclusion amount (i.e., each gift in excess of $15,000) In Gertrude’s case, she would report the five gifts of $20,000, less a credit of $15,000 for the annual exclusion amount, for a net taxable gift of $5,000 to each of her children. The total taxable gift would be $25,000 ($5,000 x 5). This will reduce her unified estate and gift tax exemption by $25,000. If she has never given a gift to any donee greater than the annual gift tax exclusion, then her remaining unified exemption in 2020 $11,555,000 ($11,580,000 – $25,000).

The gifts to the grandchildren will not be reported on the gift tax return and will not reduce her unified exemption since they were less than the annual exclusion.

As always, please reach out to an experienced estate planning attorney to help you navigate these types of scenarios.

One of the most common questions we hear as estate planners is, “How much can I give in gifts without owing any taxes?”

The quick answer is as follows:

The annual exclusion from federal gift taxes in 2020 is $15,000 per donee, and there is no New York State gift tax.

This means that if you are a New York resident and give $15,000 or less to one or more people or entities, then those gifts will not be subject to any gift tax (federal or state).

Although this answer is short and to the point, it does not provide the full picture and there are many broader things to consider when gifting assets.

One such thing that we typically advise clients to think about before making gifts is Medicaid eligibility.

Medicaid Eligibility

A common misconception is that if you give gifts equal to or less than the annual exclusion for federal gift tax then this gift will be exempt from Medicaid’s five-year-look-back period. This is WRONG.

The annual exclusion for gift tax is a tax rule and does not apply to the Medicaid rules in this context.

Even if you gifted money to a loved one for $15,000 or less in value, Medicaid will still count it as a transfer that could make you subject to a transfer penalty period for Chronic Care Medicaid (nursing home) should you apply for it within 5 years from the date the gift is made. This is why it is extremely important to speak with an experienced Elder Law attorney before making gifts when Medicaid benefits may be necessary for the future.

We Can Help

An experienced Elder Law attorney will be able to help you traverse through the complex Medicaid and tax rules and regulations in order to strategically accomplish your goals while mitigating the impact on your tax liability and long-term care planning.

The Setting Every Community Up for Retirement Enhancement Act (more commonly referred to as the SECURE Act) has received a lot of buzz in the estate and retirement planning communities lately thanks to the significant changes it has made to laws related to retirement.

How will the SECURE Act impact my life?

Although the buzz is justified given the many changes to the law related to retirement, the SECURE Act has impacted the law in areas other than retirement.

Here are a few areas that have little to do with retirement, but have been impacted significantly by the SECURE Act:

Qualified Birth or Adoption Distributions–

If you receive an early distribution (before age 59 ½) from an IRA, 401(k), 403(b), or eligible 457(b) deferred compensation plan, then not only will the distribution be subject to an income tax liability, but also a 10% early distribution penalty tax. There are some exceptions to the 10% penalty tax.

The SECURE Act now provides for an additional exception by allowing penalty-free treatment for a qualified birth or adoption distribution of an amount not to exceed $5,000 per parent. This means that parents could take distributions up to $10,000 if both parents qualify and have available assets in their qualified retirement accounts without a penalty. The distributions will still be subject to income tax.

The early distribution must be made within one year from either the birth of the eligible child or the date the adoption of the eligible adoptee is finalized. Under the SECURE Act, an eligible adoptee is any individual, except the child of the account owner’s spouse, who is under 18 years old or is physically or mentally incapable of self-support.

Although it is not specifically referenced in the section of the statute (IRC 72(t)(2)) revised by the SECURE Act, new law indicates that the qualified birth or adoption distribution can be taken with each new birth or adoption.

The rules also allow for the repayment of the qualified birth or adoption distribution at a later time regardless of the plan/IRA contribution limit. This repayment can be made incrementally or at once from either the plan the distribution was made or an IRA. Since the law is silent on the repayment deadline, the IRS may issue regulations clarifying the timing of the repayment.

This could be a very helpful option for parents who have incurred significant costs related to the birth or adoption of a child.

Section 529 Plan distribution–

A Section 529 plan is a college savings plan that offers tax (federal and state) and financial aid benefits. If the 529 plan satisfies the basic requirements, the federal and state tax law provides tax benefits. These tax benefits may include tax-free qualified distributions and state income tax deductions or credits, depending on the state. New York is one of 33 states and the District of Columbia that offer residents a tax deduction or tax credit for 529 plan contributions.

The SECURE Act now allows federal-income-tax-free 529 distributions to cover apprenticeship costs, some homeschooling expenses, and up to $10,000 of qualified student loan principal and/or interest payments.

The distribution of $10,000 for payment of qualified student loan principal and/or interest payments is a lifetime limit that applies to the 529 plan beneficiary and each of their siblings. For example, a parent who has 2 children may take a $10,000 distribution to pay student loans for each child for a total of $20,000.

Although these changes will likely provide more options for families and students, it is important to note that this is a federal law that may not apply to your state law, and you may suffer a tax detriment if you make a non-qualified withdrawal.

This means that if you are a New York resident and you use funds from the NY 529 Plan to pay for your child/grandchild’s student loans (or any other non-qualified distribution), you may be subject to recapture of the state income tax deduction for the 529 contribution.

The last time the federal law changed to expand the qualifying education expenses to include K-12 tuition under the TCJA, New York and some other states did not comply with the federal law. So, it is very possible that New Yorkers may not get the benefit of the 529 plan changes brought on by the SECURE Act.

It is important to confirm your state’s 529 Plan rules with a qualified professional to ensure that you will receive the maximum tax benefits offered and not inadvertently cause any tax detriments.

The increased minimum penalty for failure to file federal returns–

If you file a federal income tax return more than 60 days late (absent reasonable cause), you will be subject to a failure-to-file penalty. The failure-to-file penalty is normally 5% of the unpaid taxes for each month or part of a month that a tax return is late. However, a minimum penalty is assessed in certain cases.

The SECURE Act increases the minimum penalty for failure-to-file federal tax returns to the lesser of $400 or 100% of the amount of tax due. This change applies to returns that are due in 2020 and beyond, including any extensions.

Kiddie tax rates retroactively repealed–

The SECURE Act retroactively repeals the portion of the Tax Cuts and Jobs Act of 2017 (TCJA) that imposed a higher tax rate on certain children and/or young adults who received unearned income, such as interest, dividends, and long-term and short-term capital gains. These taxes are commonly referred to as the Kiddie Tax. Generally speaking, the TCJA effectively changed the Kiddie Tax rates from the parent’s marginal federal income tax rate to the same rates paid by trusts and estates, which typically results in much higher tax liability for the child.

The new law reinstates the Kiddie Tax rates to the tax rates in effect prior to the TCJA, which means the calculation to determine the Kiddie Tax is once again based on the parent’s marginal tax rate. This is a huge benefit to children and young adults with substantial investment income.

Every April 15 millions of taxpayers throughout the United States file their income tax returns. Prior to filing their returns many taxpayers will go through their records to organize their income, deductions, and credits, and meet with their tax advisors/preparers to review and finalize their income tax returns.

You can take this opportunity to speak with your tax advisor/preparer about income tax strategies for 2020. Here are some “need to know” tax facts for 2020 that will help you with that conversation:

Federal Marginal Income Tax rates for 2020


Tax RateSingleMarried filing jointly
37%, for incomes over$518,400$622,050


35%, for incomes over






32% for incomes over






24% for incomes over






22% for incomes over






12% for incomes over






Federal standard deductions for 2020


Filing StatusStandard Deduction
Head of Household$18,650
Married Filing Separately$12,400
Married Filing Jointly$24,800
Qualifying Widow(er)$24,800


An additional standard deduction amount for individuals who are blind and/or age 65 or older is $1,300 per spouse for married couples and $1,650 for single filers.


Net Investment Income Tax (NIIT)

This is a 3.8% surtax on net investment income affecting single taxpayers with more than $200,000 in modified adjusted gross income (AGI), and married couples filing jointly of more than $250,000 of modified AGI. Examples of investment income include interest, capital gains, dividends, rental income, royalties, income from non-qualified annuities, etc.

Child Tax Credit

$2,000 per “qualifying child” under 17 years old at the end of the year. There is an additional $500 tax credit that applies to other qualified dependents who are not qualifying children, such as a dependent child age 17 or older. The tax credit phased out as income exceeds $200,000 for single taxpayers and $400,000 for married couples filing jointly.

State and local taxes (SALT) deduction

The SALT deductions are still capped at $10,000 in aggregate per return, per year.

Mortgage Interest Deduction

Deductions of interest up to $750,000 (or $375,000 for married taxpayers filing separately) of aggregate mortgage debt used to build, acquire, or improve a property. This includes interest on a Home Equity Line of Credit (HELOC). Debt acquired prior to 12/15/2017 are grandfathered into the prior rules, which allow deductions for interest on mortgage up to $1 million.

Medical Expense Deduction

Thanks to a recent change in the law, medical expenses are deductible by all taxpayers who itemize their deductions, where non-reimbursed medical expenses exceed 7.5% of AGI for tax years beginning before January 1, 2021. Thereafter, the threshold is set to increase to 10% of AGI.

Estate/gift tax

The Federal unified estate and gift tax exemption in 2020 is $11,580,000 per estate ($23,160,000 for married couples who die in 2020). The New York State estate tax exemption is $5,850,000. Although there is no gift tax in New York State, certain taxable gifts made by New York residents within 3 years of death will be includible in their NYS taxable estate.

The federal annual gift tax exclusion amount remains at $15,000 in 2020.

You can give to a charity whenever you are able and willing to make a donation. However, for tax purposes, if you want the contribution to be tax-deductible in a given year you must make the donation by the end of the tax year.

A contribution is deductible in the year in which it is paid or submitted for delivery. Dating a check for the last day of the year and then sending the check the beginning of the following year does not constitute payment in the intended tax year. However, putting the check in the mail to the charity by the end of the tax year constitutes payment even if the charity does not cash the check or even receive the check until the next tax year.

Likewise, a contribution made on a credit card is deductible in the year it is charged to your credit card, even if payment to the credit card company is made in a later year.

In general, your total charitable deductions are limited to no more than 60% of your adjusted gross income (AGI). However, only donations to certain organizations as defined by the IRS qualify for the highest limit. These organizations include, but are not limited to, churches, educational institutions, and hospitals. Only certain qualified conservation contributions are eligible for a higher limit.

AGI Limitation

The amount you can deduct for charitable contributions generally is limited to no more than 60% of your adjusted gross income (AGI). However, your deduction may be further limited to 50%, 30%, or 20% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to.

Among the categories to which this lower amount applies (50%, 30%, or 20%) are veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private foundations (as opposed to public charities).

Only Partial Credit

For certain donations, you must determine the deduction you are entitled to claim. These include donations for which you receive at least a partial benefit.

For example, if you buy an umbrella “for a cause,” the entire price of the umbrella is not deductible—only whatever you contributed in excess of the value of the umbrella. If you donated $50 for the umbrella, and the stated value of the umbrella is $20, the deductible amount of the gift is only $30 ($50 gift – the umbrella’s $20 value = $30 charitable contribution).

This is also true for events like charity dinners and golf outings, where the fair market value of the meal and the round of golf must be subtracted from the cost of the event to determine the amount of your donation.

Market Value for Donated Goods

A common form of a charitable donation for many people is to donate clothes, household items, and furniture to charitable organizations, such as Goodwill, and the Salvation Army. Although this is a great way to get rid of clutter in your home while helping others, you must pay attention to the rules for these types of noncash donations.

According to the Internal Revenue Service (IRS), a taxpayer can deduct the fair market value of clothing, household goods, used furniture, shoes, books, etc. Fair market value is the price a willing buyer would pay for them. Value usually depends on the condition of the item, and used clothing and household items must be in usable good condition. Additional regulations apply to vehicle donations. You cannot claim the new value for a noncash donation but must use the item’s fair market value.

Additional Documentation

Although you should keep track of your tax-deductible donations, you will need additional documentation in these circumstances:

Cash or property donations worth more than $250: The IRS requires you to get a written letter of acknowledgment from the charity. The letter must include the amount of cash you donated, whether you received anything from the charity in exchange for your donation, and an estimate of the value of those goods and services.

If you deduct at least $500 worth of noncash donations: Fill out Form 8283 if you’ll deduct at least $500 in donated items. Additionally, you must attach an appraisal of your items to the form if they’re worth more than $5,000 in total.

Not all donations are eligible tax deductions. In order to be eligible for a charitable contribution tax deduction, the recipient charity must be duly qualified by the Internal Revenue Service (IRS). This means that gifts to needy relatives, friends, neighbors, and any other person or group who lacks tax-exempt status as determined by the U.S. Treasury, are not tax-deductible as a charitable contribution.

Qualified Charitable Organizations

Qualified charitable organizations include those operated exclusively for religious, charitable, scientific, literary or educational purposes, or the prevention of cruelty to animals or children, or the development of amateur sports.

Nonprofit veterans’ organizations, cemetery and burial companies, fraternal lodge groups, and certain legal corporations can also qualify. Even federal, state and local governments can be considered qualified charitable organizations if the money donated to them is earmarked for charitable causes.

To receive the status from the IRS, qualified charitable organizations must meet requirements under section 501(c)(3) of the Internal Revenue Code (IRC). None of the earnings of the organization can go toward any private shareholder or individuals, and it may not seek to influence legislation as a substantial part of its actions.

Charitable Organization versus Tax-Exempt Organization

It is important to note that qualified charitable organizations differ from strictly tax-exempt organizations, which do not have to be for a charitable purpose yet are not required to pay taxes. All duly qualified charitable organizations are tax-exempt, but not all tax-exempt organizations are duly qualified charitable organizations.

For example, a trade association or business league are both tax-exempt organizations, but contributions to those organizations are not eligible for a charitable contribution.

Case Study

David makes the following donations in 2019:

  • $2,500 to a friend’s GoFundMe Personal Campaign
  • $5,000 to the National Rifle Association (NRA)
  • $7,500 to a local church
  • $1,000 to a local animal shelter

Assuming David itemizes his deductions on “Schedule A”, he can deduct the donations to the local church and animal shelter as charitable contributions, but not $2,500 to the GoFundMe Personal Campaign and the $5,000 to the NRA.

Although donations that are made to a GoFundMe Certified Charity campaign are guaranteed by the company to be tax-deductible, a GoFundMe Personal Campaign is generally considered to be a personal gift that does not qualify as tax-deductible charitable contribution.

The donation made to the NRA is not tax-deductible as a charitable contribution because the NRA is a civic association organized under IRC 501(c)(4). Like section 501(c)(3) organizations (duly qualified charities), section 501(c)(4) organizations are tax-exempt for federal income tax purpose, however, Section 501(c)(4) organizations may engage in lobbying so long as it pertains to the organization’s mission. This means that the donation is not tax-deductible to the donor.

Tax-Exempt Organizations

Another common type of organizations that may be tax-exempt, but are not necessarily qualified charitable organizations are business leagues or Chambers of Commerce, which are organized under section 501(c)(6).

The IRS website offers a Tax-Exempt Organization Search that allows you to confirm the tax-exempt status as well as review the deductibility code and annual 990 tax filings. This can help confirm that donation you are considering making to the charity will be eligible for a charitable contribution tax deduction.

In order to get the potential tax benefits of a charitable contribution of money or property, you must file an IRS Form 1040 and itemize your deductions on “Schedule A.”

If you do not file an IRS Form 1040 then there is no reason to take a charitable contribution as a deduction since you likely do not earn enough taxable income to require filing a return.

Itemize Your Deductions

Since it is required that you itemize your deductions in order to take advantage of the charitable contribution tax deduction, you should consider weighing the costs and benefits of itemizing your deductions vs. taking the standard deduction before making charitable contributions. If your standard deduction is more than the total of your itemized deductions than it might be worth taking the standard deduction instead of itemizing your deductions.

Common Tax Deductions

The most common tax deductions that must be itemized on “Schedule A” in order to be taken are as follows:

  • Mortgage interest deduction
  • Deduction for state and local taxes paid (SALT capped at $10,000)
  • Medical expense deduction
  • Charitable contributions

Case Study

Tom and Christine are a married couple who file joint income tax returns and typically donate $3,500 each year to their church (a qualified charity). They are eligible for a $24,400 standard deduction in 2019.

Their itemized deductions are as follows:

  • Mortgage interest deduction – $10,000
  • State income tax deduction – $6,000*
  • Local property tax deduction – $11,000*
  • Charitable contribution – $3,500

Total itemized deductions $23,500

*SALT capped at $10,000

In this case, it makes more sense for them to take the standard deduction of $24,400 instead of taking $23,500 in itemized deductions.

Assuming they want to continue making annual charitable contributions of $3,500 for reasons other than the tax benefits, Tom and Christine could always skip a year and make double the charitable contributions the next year, or consider making one charitable contribution of $3,500 in early January and make another charitable contribution of $3,500 at the end of December. The idea is to increase the charitable contribution in a given year to $7,000 so that they can realize the benefit of itemizing their deductions (27,000 instead of $23,500).

For most people deciding whether to donate to a charity isn’t usually motivated by the potential tax deduction. But, knowing the rules and limitations could help make the most of your charitable giving.

A Medicaid plan can be presented to the guardianship court either before a guardian has been appointed or after, depending on when the need for a Medicaid plan arises.

Medicaid Planning at the Onset of the Guardianship Proceeding

If the need for a Medicaid plan is apparent at the onset of the guardianship proceeding, then the petitioner can request authority to do Medicaid planning and asset protection and include the Medicaid eligibility plan in the petition. The petition should not only include the proposed plan, but the reasons why it is necessary to help the incapacitated person and is consistent with his or her known wishes.

The petition for guardian of the personal needs and property management should also clearly establish the validity of the plan and explain that at no time will the alleged incapacitated person be left without assets or Medicaid to meet his/her medical needs. The petition should also specifically request the authorities that will be necessary to implement the Medicaid plan and allow the guardian to gather the information and documentation necessary to apply for Medicaid.

If possible and when appropriate, the petitioner’s attorney should discuss any issues with the Medicaid plan that might impact the alleged incapacitated person’s testamentary scheme with the interested parties to attain consent before submitting the petition.

Medicaid Planning After the Guardian is Appointed

If the need for a Medicaid plan does not arise until after the guardian is appointed, then the guardian for the property management will need to petition the court to expand the guardian’s powers to include the additional powers needed to implement the Medicaid plan.

In some cases, it may be necessary for the guardian to first get the court’s approval to retain an experienced elder law attorney to establish a Medicaid plan. The elder law attorney could prepare a memorandum to the court explaining the Medicaid plan, which would be included as an exhibit to the petition to approve the plan. Likewise, the elder law attorney should be available to appear before the court to testify or explain the benefits of the Medicaid plan and provide a recommendation to the court.

Regardless of the substance of the Medicaid plan or the manner in which it is presented to the court, it is clear that Medicaid planning has become more innovative than simple asset transfers and requires the guidance of an experienced Elder Law attorney who can help avoid pitfalls and mistakes along the way. It will be the responsibility of the guardian, with help from the elder law attorney, to present a sound basis for the Medicaid plan and to educate the court on the necessity and validity of the plan.

For many individuals who have capacity or who have executed a durable power of attorney with sufficient authorities granted to their agents, the ability to engage in a well-thought-out Medicaid plan is a given.

Beginning with a Court Proceeding

However, in situations where an individual has lost capacity and does not have a sufficient durable power of attorney in place, then the process of becoming Medicaid eligible and obtaining Medicaid coverage for his or her long-term care needs begins with a court proceeding.

If someone you love needs long-term care but no longer has the capacity to engage in Medicaid planning and does not have a sufficient durable power of attorney, then there is both a need for a guardianship and Medicaid planning.

There may also be a situation where a guardianship has already been established and a guardian of the personal needs and property management has been appointed, but the need for long-term care planning is now relevant, then the guardian may need to petition the court to expand his or her powers to engage in Medicaid planning and apply for Medicaid.

What to Do First

Someone who is either petitioning the court for a guardianship or an existing guardian who is now considering helping his or her ward become Medicaid eligible should seek the guidance of an Elder Law attorney who has experience in both Medicaid planning and guardianship.

Medicaid Planning

Medicaid planning can include transferring assets to appropriate persons so that the incapacitated person’s assets are not unnecessarily expended on long-term care. Examples of Medicaid planning authorized by the Court include spousal transfers of all assets; transfers to a child with disabilities; exempt transfers of residences to a live-in caregiver-child; non-exempt transfers to family; and signing renunciations and disclaimers of inheritances that can affect an incapacitated person’s ongoing Medicaid eligibility.

As a fiduciary, the guardian must act in the best interest of the incapacitated person. The guardian is also held to a standard of care and has a duty of loyalty that prohibits self-dealing and requires prudent judgment in the management of the guardianship estate. The very notion of a Medicaid plan that intentionally divests a significant portion of the incapacitated person’s assets may appear to be a violation of these fiduciary responsibilities. This is especially true when the guardian seeks to make gifts of the incapacitated person’s assets to a third party or to the guardian himself.

How to Obtain the Court’s Approval

To obtain the court’s approval of the Medicaid plan, the guardian (or the person who is petitioning for guardianship) must show, among other things, that the proposed gifts will not adversely affect the living conditions of the incapacitated person and would be consistent with past preferences of the incapacitated person. If there is no evidence of past preferences, then the guardian must show that a competent reasonable individual in the position of the incapacitated person would be likely to perform similar acts under the circumstances.

The guardian and/or petitioner should be aware that courts often approach Medicaid planning involving non-exempt transfers with caution. Similarly suspect may be cases in which the donees are charities or individuals who do not qualify as natural objects of the bounty. In the case of a Medicaid plan involving charitable gifting, courts have approved such a plan when the guardian has been able to successfully show evidence of a pattern of gifting or the incapacitated person consented to the charitable gifting.

Even in situations where the Medicaid plan calls for a transfer of assets that are exempt from transfer penalties, the guardian may need to show that the transfer does not contradict the incapacitated person’s previous testamentary plan, intestate inheritance, or an established trust arrangement.

Transfer of Assets Example

An example of such transfer could be a case where the guardian is seeking to transfer the incapacitated person’s home to only one sibling who has lived with the incapacitated person for many years and has an equity interest in the home. If the incapacitated person bequeaths his or her interest in the home to two siblings in his Last Will and Testament, or absent a testamentary instrument, the laws of intestacy dictate that both siblings inherit equally, then the Medicaid plan could disrupt the estate plan or interfere with an intestate inheritance.

In a case such as this, the guardian and/or petitioner should argue that utilizing the exemption is the only way to preserve the entire value of the house if the incapacitated person will need to apply for Medicaid. Furthermore, the guardian and/or petitioner should explain to the court that there will be transfer penalties if the title is given to the other sibling.

The main idea is that the Medicaid eligibility plan must be well-thought-out, in the best interest of the incapacitated person, and be consistent with the known wishes or testamentary scheme of the incapacitated person.

There is a significant amount of mystery and misunderstanding about the differences between Original Medicare and Medicare Advantage that can be harmful when seniors and individuals who are eligible for Medicare consider what plan is best for them.


What is Medicare?

Medicare is a federal government health insurance program that gives you health care if you are 65 years old or older, are under 65 years old and receive Social Security Disability Insurance (SSDI) for 24 months due to a severe disability, begin receiving SSDI due to ALS/Lou Gehrigs’s Disease, or have End-Stage Renal Disease (ESRD), no matter your income.

You can receive health coverage directly through the federal government (Original Medicare) or administered through a private company (Medicare Advantage).

Original Medicare

If you have Original Medicare, which consists of Part A and Part B, the government pays directly for the health care services you receive.

If you enroll in Original Medicare, then:

  • You will receive a red, white, and blue Medicare card to show to your providers.
  • Most doctors in the country take your insurance.
  • You can see a specialist without prior authorization.
  • Medicare limits how much you can be charged if you visit participating and non-participating providers. However, it does not limit how much you can be charged if you visit providers who opt-out of Medicare.
  • You are responsible for Original Medicare cost-sharing, which may include premiums, deductibles, and coinsurances.
  • You are eligible to enroll in a Medigap policy, which can help reduce your out-of-pocket cost.

Original Medicare does not include prescription drug benefit (Part D), which is only offered through private companies. You should consider signing up for a separate Part D plan for coverage for your prescription drug needs.

Medicare Advantage

Medicare Advantage is also known as Medicare private health plan or Part C. Medicare Advantage plans contract with the federal government and are paid a fixed amount per person to provide Medicare benefits.

The common types of Medicare Advantage Plans:

  • Health Maintenance Organizations (HMOs)
  • Preferred Provider Organizations (PPOs)
  • Private Fee-For-Service (PFFS)
  • Special Needs Plans (SNPs)
  • Provider Sponsored Organizations (PSOs)
  • Medical Savings Accounts (MSAs)

If you are enrolled in a Medicare Advantage Plan, you will receive the same benefits offered by Original Medicare. You should note that your Medicare Advantage Plan may apply different rules, costs, and restrictions, which can affect how and when you receive care. They may also offer certain benefits that Medicare does not cover, such as dental and vision care, caregiver counseling and training, and certain in-home support like housekeeping. It is important that you check with a plan directly to learn what benefits it covers since not all Medicare Advantage Plans cover additional benefits.

All Medicare Advantage Plans must include a limit on your out-of-pocket expenses for Part A and B services. Also, although plans cannot charge higher copayments or coinsurances than Original Medicare for certain services, like chemotherapy and dialysis, they can charge higher cost-sharing for other services.

Medicare Advantage Plans may have different:

  • Networks of providers
  • Coverage rules
  • Premiums (in addition to the Part B premium)
  • Cost-sharing for covered services

Like Original Medicare, Medicare Advantage does not include the prescription drug benefit (Part D). However, many Medicare Advantage Plans include prescription drug coverage (Part D). If you join an MSA plan or a PFFS plan without drug coverage, you can enroll in a stand-alone Part D plan.