ESTATE PLANNING: Recent Developments

Long Term Care and Medicaid Planning With the average monthly cost of nursing home care in Massachusetts approaching $10,000, an increasing number of elders and their families are forced to turn to Medicaid (known as MassHealth in Massachusetts) to pay for long term care. However, the recent changes in the Medicaid laws have restricted the eligibility requirements to qualify for Medicaid and impose severe disqualification penalties.  Under the prior rules, a three year penalty or disqualification period began when a gift or transfer of assets was made, rendering an applicant ineligible for Medicaid for a period of three years after a disqualifying gift or transfer. The new rules not only increase the “look back” period from three to five years, but also defer the state date of period of disqualification until the time when the elder actually enters the nursing home and otherwise qualifies for Medicaid. These changes have and will continue to create dire circumstances for elders in need of nursing home care who have unknowingly disqualified themselves from Medicaid eligibility for making certain gifts or transfers of assets. The best way to protect and preserve one’s assets is to plan in advance. Please contact us if you, or a family member, would like more information about long term care and Medicaid planning. Reverse Mortgages The number of reverse mortgage borrowers in Massachusetts and across the country has surged in the last several years.  While not for everyone, reverse mortgages enable eligible homeowners age 62 or older to obtain loans against their principal residence by converting equity into liquid cash.  Massachusetts residents have access to four nationwide reverse mortgage programs but the most prevalent reverse mortgage program is the Home Equity Conversion Mortgage (HECM) program insured by the U.S. Department of Housing and Urban Development (HUD). Under the HECM program, HUD approved mortgage lending companies lend money to eligible homeowners. Income and savings are not factors in a reverse mortgage transaction because the borrower has no repayment obligation while he or she occupies the property. A borrower’s maximum loan amount is equal to the lesser of the fair market value of the principal residence or the HUD lending limit for the county in which the principal residence is located.  For example, homes in the counties of Dukes, Essex, Middlesex, Nantucket, Norfolk, Plymouth and Suffolk have a lending limit of $362,790. A borrower under the HECM program can receive disbursements of the loan in a lump sum, fixed monthly payment, as a credit line or a combination.  The loan becomes due and payable when one of the following occurs: All of the borrowers have died; All of the borrowers have sold or conveyed their interest in the property; None of the borrowers has occupied the property as principal residence for 12 consecutive months; The property has fallen into disrepair and the borrower refuses to repair it; The borrower otherwise violates a mortgage covenant such as failure to pay real estate taxes or hazard insurance. The costs associated with a HECM mortgage involve upfront charges such as mortgage insurance, origination fees and closing costs, ongoing interest and mortgage insurance and a monthly service fee.  All prospective reverse mortgage borrowers are required to receive counseling from a HUD approved HECM counselor to review the reverse mortgage guidelines and costs. For many, a reverse mortgage is a viable option to preserve the principal residence while freeing up cash to pay off debts, pay for home repairs or simply increase everyday cash flow.  If you or a family member would like more information about reverse mortgages, please contact us. 529 College Plans Section 529 college plans were created to assist families in saving for tuition and other college related expenses.  A parent or grandparent can contribute a lump sum of $60,000 or up to $12,000 per year without incurring gift taxes. Growth in these 529 accounts is not taxable and withdrawals are not taxed as long as funds are used for education related expenses. Recently, Congress made 529 plan withdrawals free from federal tax permanently, as the tax free status was set to expire in 2010.   Unlike the Uniform Gift to Minors Act (UGMA) accounts, the owner retains control over the assets in the 529 plan. If the child does not need the funds for college or decides not to attend college, the owner can transfer the assets to another family member. Assets held in a 529 account for the benefit of a child will not necessarily disqualify a child from financial aid. A 529 account held in the parents’ name on behalf of the child, will be assessed at the 5.6% rate of the parent. (Colleges usually consider 5.6% of parents’ assets available for college expenses.)  On the other hand, UGMA accounts or Uniform Transfers to Minors (UTMA) accounts are assessed at a significantly higher rate of 35%.  If you have any questions or would like more information about incorporating a 529 account into your estate plan, please contact us. Declaration of Homestead The Massachusetts homestead protection is a statutory grant of creditor protection on a homeowner’s principal residence. With a simple filing in the appropriate Registry of Deeds, we urge all individual homeowners to have homestead protection.  Homestead protection recently increased from $300,000 to $500,000 on the equity in one’s home, however it does not protect against the sale of a home for unpaid taxes, debt incurred prior to bankruptcy or debt secured by the home. The law in Massachusetts is unclear as to whether a new declaration of homestead filing is required each time a home is refinanced. Until the law is clarified, we recommend a new homestead protection each time you refinance your home. Please feel free to contact us to check the status of your homestead protection. Updating Your Estate Plan We recommend an estate plan review every few years. Changes in your family status, assets, inheritance and health, and those of your named guardians, executors and trustees can impact an estate plan dramatically. If you have not had an opportunity to review your estate plan recently, we invite you to come to the office for a 30 minute consultation at no charge. Kindly contact Attorney Arlene Kasarjian, at 781-237-0033 extension 228 to make the arrangements. We hope you have found this newsletter helpful and informative. We look forward to hearing from you to answer any questions you may have or to assist you in updating your, or a family member’s estate plan.