transfers & other considerations
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transfers & other considerations |
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The home of a Medi-Cal beneficiary continues to be exempt from consideration as a resource. The home CAN be transferred prior to or after the Medi-Cal Long Term Care (LTC) application process. Transfers of property are not prohibited by the 30-month look-back period. However, transfers of property that are made within 30 months of the Medi-Cal LTC application have to be disclosed to Medi-Cal at the time of application.
A. Intent to Return. The home is considered an exempt asset (not counted) in California as long as the Medi-Cal applicant maintains a “subjective intent to return home,” even though he or she may never have the ability to return to that residence.
1. The Application.
Always mark “yes” to the question of whether the patient intends to return home. If an applicant is unable to complete the application, his or her representative may indicate the intent. If an applicant or representative incorrectly states that there is no intent to return home, but later makes a correction, Medi-Cal must accept that correction.
2. Married Couples.
“Intending to return home,” will keep the home safe if the at-home spouse dies first, but only for the life of the institutionalized spouse. It is often best to transfer the home entirely to the at-home spouse in order to avoid an estate claim. (Note: This often affects living trusts and raises various tax, community property and inheritance concerns.)
B. Declaration. While the home is an exempt asset, the transfer of the home to the intended heirs of the applicant is an allowable transfer.
It will not trigger a period of ineligibility. The recipients of the transfer must sign a declaration promising to keep the property available for the applicant to return if and when it becomes medically possible to do so. This is important because it substantiates the subjective intent to return home. This is not necessary for transfers between spouses.
C. Taxes. Transfers of the home always trigger tax concerns, including capital gains taxes, real property taxes and estate and gift taxes. Proper long term care planning involves consideration of these issues and elimination of unnecessary tax payments and/or reassessments.
See Section III below for more information.
D. Recovery.
In order to avoid an estate claim, property must be removed from the applicant’s name prior to death, thereby eliminating the creation of an estate.Recovery by the Department of Health Services only happens at death. Recovery is limited to “estate claims.” Estate means all property in which the decedent had any legal title or interest at the time of death. This includes property held in joint tenancy, tenancy in common and living trusts.
Other real property (other than the home) can be transferred as well, however unlike with the transfer of the home, a period of ineligibility may apply to such a transfer.
A. Assessed Value. When determining the countable value of property other than the home, Medi-Cal looks at either assessed value determined under the most recent property tax assessment or the appraised value by a qualified real estate appraiser, whichever is less.
Actual current market value is not considered. Also, any mortgages or loans against the property will reduce its countable value as well.
B. Married Couples.
The assessed value is usually MUCH LOWER than the actual market value. The at-home spouse of a married applicant can usually include other real property within his or her Community Spousal Resource Allowance (CSRA) of $90,660.00. A married couple can not only keep their home, but often can keep additional real estate, such as rental property. It is often best to transfer the property entirely to the at-home spouse in order to avoid an estate claim.
C. Transfers to Non-Spouses. Transfers of property other than the home, to people other than the transferor’s spouse, will result in a period of ineligibility. It is treated the same way as a cash gift.
To determine the period of ineligibility, divide the amount of the transfer (assessed value of property) by $4,415 to determine the months of ineligibility. The period of ineligibility may be reduced if there are multiple recipients of the property.
All transfers of property, whether or not they are made for estate planning purposes, long term care planning purposes or any other reasons, give rise to tax consequences. A few to consider:
A. Property Taxes. Whenever property changes title, it usually causes the property taxes to be reassessed at the current market value. Certain types of title transfers are excluded from such reassessments.
Some examples are transfers between spouses, transfers to a living trust, transfers between parents & children, transfers between grandparents & grandchildren (if child in between is deceased).
B. Gift Taxes. Transfers of property, unless they are sales, are gifts.
Each person is allowed to gift $11,000.00 per person per year without paying gift taxes or having to file a gift tax return. Gifts in excess of $11,000.00 must be reported to the IRS on a gift tax return. Only the giver of the gift may have to pay gift taxes. Gift recipients never pay gift tax on what they have received. Federal Estate Tax Exemption of $1 million is also considered the Gift Tax Exemption. Gifts made in excess of $11,000 can be counted against this exemption, avoiding payment of gift taxes.
C. Capital Gains Taxes. Capital gains taxes are considered when an asset that has appreciated over time is sold. If the sale of that asset resulted in a “gain” or profit to the seller, then the taxes must be paid on that gain.
1. Lifetime Transfers of Property.
Transfer of property results in transfer of original cost basis. No step-up in basis to current market value. When property is sold, gain is calculated based on the difference between the original cost basis and the selling price (current market value). This can be avoided with special language and lifetime occupancy agreements.
2. Transfers at Death.
Transfer of property at death does not transfer over original cost basis. Property goes to death beneficiaries with a “stepped-up” cost basis, the value at the date of death. When property is sold at that same market value, there is no difference between cost basis and sale price, there is no gain. Consequently, there is no capital gains taxes owed on property inherited at death.
