Medicaid Planning: The Ins & Outs of MMMNA #4 – Income Cap States

April 17, 2014

by David Zumpano with No Comment Estate Planning Drafting Software Legal Technical Medicaid Systems & Processes

Thanks for coming back for more about MMMNA, or the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. We've already covered some of the basics of determining MMMNA for your clients; If you didn't see the previous posts, click on the links to find numbers One, Two and Three.

One question you might have to deal with in MMMNA calculations is the income cap, if you're in a state that has one. Income cap states are a little bit of a different animal, and they raise a question: Does the insurance allowance include the Medigap premium? Yes it does. So Medicaid will allow you to deduct any cost of insurance and Medicare will be a primary insurer, which means they’re going to allow you any insurance costs related to the Medigap because that benefits Medicaid. In other words, Medicare would be the primary payer, and Medicaid would become the secondary.

Another issue along these lines is income limits. The income limit applies to the institutional spouse only in an income cap state.To review, in our previous posts we talked about the MMMNA individual allowance and the personal needs allowance, and we went over the MMMNA for a person who is married. The income cap is a different provision. In income cap states, it doesn’t matter if you’re married or single. It doesn’t matter what your income allowances are. It’s just a simple test: If a Medicaid applicant’s income exceeds $2,130, then the applicant doesn’t qualify for Medicaid. According to income cap states, that person has too much money.

It doesn’t matter how much the spouse’s income is. This is an income limit on the applicant only. So in the case we had before where the husband made $3,000, he would be over the income cap and therefore would not qualify. It might sounds ridiculous and you might feel bad for people who are in an income cap state, but that's the bottom line.

So our usual approach in such states is to do a Miller trust, which is a qualified income trust, or QIT. In a Miller trust, the husband assigns his income to the trust and then the trust pays the cost of care. It’s kind of silly to have to take that step, but those of you who are in income cap states are probably pretty familiar with the Miller trust, so it's not a big issue. If you’re not in an income cap state, you won't have to worry about it.

That's about all we can cover in today's post. Check back back soon for a discussion on MMMNA asset tests.

To learn more about Medicaid join us at our Practice With Purpose event in June. You'll experiece 2.5 days of all that you need training about Asset Protection, Medicaid and VA.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Medicaid Planning: The Ins & Outs of MMMNA – Part 3

April 8, 2014

by David Zumpano with No Comment Asset Protection Legal Technical Medicaid

Income Allowance:

Thanks for coming back for another session of MMMNA school. There's a lot to this issue, and it can get a bit complex, but it's an important component in Medicaid planning.

This post is part three of our series on determining MMMNA, the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. If you didn't see the first post, you can find that here, and part two is here.

Our last post got into a few scenarios involving MMMNA, but there are some additional income allowances that we need to cover. The institutionalized spouse is allowed a personal needs allowance, which as we said, ranges from $30 to $106.50, depending on the state. The applicant is also given allowance to help pay for health insurance. So Medicaid basically says, we don’t want to get stuck being the primary insurance payer, so in addition to your personal needs allowance, we’re going to allow you enough money to pay your health insurance premium so your insurance company can be the insurance of first resort and Medicaid can be your backup.

To be clear, Medicaid only exempts the cost of health insurance for the institutionalized spouse, not the community spouse. So, only the institutionalized spouse gets the personal needs allowance and the health insurance allowance. The community spouse gets the MMMNA, which we’ve already talked about. In addition, about 25% of the states also have a housing and shelter allowance, and another 25% of the states have a heating and utility allowance. These allowances are a state specific issue. The federal law does permit it, but not all the states do it. And again, it's for the community spouses only, with the intent being to make sure that community spouses have sufficient income to stay in their homes.

So again, institutionalized spouses gets their personal needs allowance of somewhere between $30 and $106.50 and they get to keep the cost of their health insurance so they can continue to pay that. Medicaid will let them do that. And the community spouse gets the MMMNA that we reviewed previously. Also, the community spouse could get a housing and shelter allowance or a heat and utility allowance if the state permits it. That's it, period. If you’ve got that down, that’s all you’ve got to know; it’s never going to change. If you're confused, it's because you’re trying to make it do something else, but it's really that simple. You just have to apply the rule.

So, no matter what fact pattern is that you are looking at, the first thing you need to determine is whether you are looking at a max state or a range state, then follow the methodology we shared in the previous two posts. Next look at the income of the husband, then look at the income of the wife. Figure out which spouse is in the nursing home, and which spouse is in the community. Then you can calculate the MMMNA. And in addition to the MMMNA, you will possibly have the housing and shelter allowance and the heating utility allowance, depending on the state. Of course, if the applicant is not married, you don’t even have to worry about that MMMNA calculation. All of the income that a single applicant gets to keep is the personal needs allowance and the health insurance premium amount.

You are probably thinking, OK, that's not so tough. And you're right, but you're not through it yet. Our next post will cover the income cap rules that factor in, so check back soon for that.

Medicaid Planning: The Ins & Outs of MMMNA – Part Two

April 2, 2014

by David Zumpano with No Comment Asset Protection Legal Technical Medicaid

This post is part two of our series on determining MMMNA in your Medicaid planning. If you didn't see the first post, you can find that here.

Our last post delved into how you determine the minimum monthly maintenance needs allowance, or MMMNA, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. If you read that post, you should be able to figure out the MMMNA for a few basic cases. So let's go through what the minimum and maximum would be, and what the MMMNA would be, in each of four scenarios.

Starting with scenario one and scenario two, the fact pattern is this:

The husband has $3,000 a month of income.
The wife has $1,000 a month of income.
The MMMNA minimum is $1,939; the maximum is $2,931.

In scenario one, the husband is in a nursing home, so we know that the wife is the community spouse, and she has $1,000 in income. Plus, we are in a max state, which means that the community spouse is entitled to the maximum income – $2,931.

What does that mean? That means of the total income of $4,000 between the husband and wife, $1,069 will be contributed toward the cost of care each month. So essentially the husband goes into the nursing home, the wife gets her $1,000 of income– or she gets to keep her $1,000, plus she gets to keep $1,931 of the husband’s monthly income. The balance of $1,069 ($4000 – $1000 – $1931)would go toward the cost of his care. (We are setting aside the discussion of his personal needs allowance, but whatever it is in this state, the amount contributed to the cost of care would be reduced by the personal needs allowance.)

What if the wife went into a nursing home? What’s the MMMNA in that case? It’s still $2,931, but now the husband is the community spouse, so he would be able to keep $2,931 and he would have to contribute 25% of the amount over $2,931. So his $3,000 minus $2,931 comes out to $69, and 25% of that would be $17.25. But remember, New York is the only state that currently requires spousal contribution for incomes above the MMMNA. In all the other states the husband as community spouse would get to keep his total $3,000 in monthly income, and the cost of care would be $1,000, the wife’s income, less whatever the personal needs allowance is for the state.

Why? Because every other state allows the community spouse to keep whichever is greater, the MMMNA or the community spouse’s actual income. As discussed in the previous post, we make that distinction because the federal Medicaid law does not require it; the law does not even allow it. The states allow it. Remember, the federal government sets the laws on Medicaid, and the states can be less restrictive, but they cannot be more restrictive. So in most states if the husband, who is the community spouse in this scenario, has $3,000 a month of income, they will allow him to keep 100% of his income. That’s why we have shown it here as $3,000, and all you would lose is the institutionalized spouse’s income of $1,000.

So how would this be different in a range state? With the husband going into the nursing home, the wife is now the community spouse, so the range state would essentially say, she can keep the bottom of the range. She has $1,000 of income, but the MMMNA says the minimum is $1,939, so she gets to keep her income, plus $939 of his income. So in that scenario she would get $1,939, and the remaining $2,061 of his income would be contributed toward the cost of his care (again less the personal needs allowance amount, which he would get to keep).

So that's the difference between a range state versus a max state. Now again, this is because the husband went in the nursing home and he is the higher income earner. In the range state, because the wife is the lower income earner, it would be the same scenario. The husband would be the community spouse. In the range state, again the top of the range is $2,931. But again, most states don’t have any chargeback. So the answer for a range state in this particular fact pattern would be the same as for a max state.

Don't feel alone if you find this confusing. Our intent was not to confuse you, but to show you that there is a science to Medicaid and how this works. Stick with us in our upcoming MMMNA posts and we'll continue to bring clarity to this fairly complex issue.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Medicaid Planning: The Ins & Outs of MMMNA – Part One

March 26, 2014

by David Zumpano with 2 Comments Asset Protection Medicaid

Part of planning for a married Medicaid applicant is figuring the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse. Medicaid law says that the income of the Medicaid applicant in excess of the limits must be used toward the cost of care. But if the applicant has a spouse, Medicaid, through the concept of the minimum monthly maintenance needs allowance (“MMMNA”), allows the community spouse to keep some or all of their income.

Medicaid considers the gross income of the community spouse. If the community spouse’s income is in excess of the MMMNA, then under the federal rules, 25% of the community spouse’s income must be used for cost of care. While New York is currently the only state that enforces that provision, we must be aware of the federal rules because it is probably only a matter of time before other states are assessing the 25%.

Now if the community spouse’s income is less than the MMMNA, then income from the applicant will be diverted to the community spouse to try to get the community spouse’s income up to the MMMNA. If the community spouse’s income is still below the MMMNA, then assets needed to generate sufficient interest to fill the income up to the MMMNA are exempt. This is what we call the assets to income rule.

But there's a little more to it than that. The federal law says there’s a minimum and there’s a maximum MMMNA. The states are allowed to set the MMMNA for the community spouse. But the federal government says the states can’t set a MMMNA below $1938.75 (we will call it $1,939 to keep the math easy) or above $2,931. So your state’s MMMNA will be somewhere between those two numbers.

States vary in how they set the MMMNA. About half of the states are what we call “max states.” They set the MMMNA at the maximum end of the range and say that the community spouse can keep up to $2,931 in gross monthly income. Other states are “range states.” That is the MMMNA can fall somewhere between both the maximum and minimum range the feds allow for the MMMNA. In a range state, if the community spouse's income is less than $1,939, then the community spouse can take the institutionalized spouse’s income up to that minimum. And what happens if the community spouse’s income was more than the minimum but less than the maximum? Then the income of the community spouse would be the MMMNA.

Let’s consider the following examples to show you what I mean.

I had a community spouse who had $1,000 of income. The applicant, the husband, was the predominant income earner, and the community spouse had $1,000 of income. In a max state, the law says the community spouse could keep the first $2,931, regardless of whom it came from. So if the wife had $1,000 of income, she would be able to keep the first $1,931 of the income of the husband, who’s in the nursing home. And if the husband didn’t have $1,931, then the assets to income rule would come into play. That means the law would say that, if the total income between the institutionalized spouse and the community spouse does not equal the MMMNA, then the community spouse can exempt additional assets needed to generate the income to get the community spouse up to the MMMNA. So again, if this is a max state, the threshold is $2,931. If the community spouse had $1,000 and the husband had $3,000 of income, the community spouse would be able to keep $1,931 of the applicant’s income.

In a range state, the community spouse is allowed to keep the minimum, but if the income is below $1,939, then the community spouse gets to take income from the institutionalized spouse to get to the $1,939 limit. For instance, if a community spouse’s income was $1,000, she could take $939 from the husband’s income. If she had income of $2,500, then her MMMNA would be $2,500 because her income is below the maximum and above the minimum MMMNA. And if a community spouse earns more than the maximum MMMNA, then 25% of that amount in excess would have to be contributed toward the cost of care. Those are the federal rules. But remember, as of now only New York applies the 25% rule. Most states allow the community spouse to keep any income in excess of the MMMNA.

We will continue to delve into MMMNA in future posts on this blog, to help you understand the nuances and work through the complexities of this issue.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

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Medicaid Planning: Who Should Consider It, Part 2

February 18, 2014

by David Zumpano with No Comment Medicaid

As you saw in my prior post titled “Medicaid Planning: Who Should Consider It,” it can be a shock to clients when they realize how much it can cost to provide for their care. So what did this piece inspire you to think?

The purpose of the analysis in the previous post was to identify whether people have properly planned for the long-term care they may incur. Our job as counselors is to advise people on the impact of their decisions. Fact by fact case analysis.

The conclusion was that, if you have anything short of $3.5 million, you aren't going to be able to pay for that care; the payment is going to come out of your assets. Most people want to protect their assets, and they hire us to help them with that. So the question is, are you having this conversation with people? Finding our what they want? If not, you need to.

Medicaid has a set of rules that determines whether someone qualifies. It’s the client's choice, not ours to decide for them. Our job to advise them and let them decide. We help them identify the long-term impact their decisions would have, and whether they will be able to protect their legacy.

Long-term care insurance is another option, and it can be a great solution. But it doesn't mean you have to give up on qualifying for Medicaid – find the “and” by figuring out how the client can qualify for both. If you've helped your client meet the legal guidelines for that, you've done something that will make a lasting impact.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center

Medicaid Planning: Who Should Consider It.

February 11, 2014

by David Zumpano with One Comment Medicaid

The first question you'll run into in Medicaid planning is, who needs it? Attorneys will bump up against a variety of scenarios, from those clearly in need to others who are convinced they're "all set." So which ones truly need your help?

The safe answer is, more people need this than you might think. Let's run through a typical case, and you'll see what we mean.

Most of our Medicaid clients here have income of around $2,500 and live on $2,000, so we'll use those numbers for our typical case. The difference between those two means there's $500 in disposable income every month.

Now let's see how far that gets us. In this area, typical long-term care costs are about $6,000. Subtract the $500 in disposable income from that and you've got a shortfall of $5,500 per month in paying for the client's care. That's $66,000 per year, and that will have to come from the client's principal.

So the next question is, how much investment do we need to cover that shortfall? To figure that out, choose an expected rate of return. Let's say 5%; if we went any lower, you might freak out. You'll see why in a minute.

The $66,000 divided by your .05 rate of return tells you how much money you would need in investable assets to generate the funds to cover the shortfall. In this case, that amount would be $1.32 million. If you can only manage a 3% return instead of 5%, which is more likely, then you would need $2.2 million in investable assets. So, as you can see, someone who thinks he is set because he has $1 million is in for a shock, because he's not even close to covering his costs of care.

For the attorney, this is a powerful way to explain who should be scheduling a Medicaid conversation with you. Because a client who does not have the total net worth to pay his own way has to understand that it’s going to be eating up his principal, and it becomes a planning issue for you as the attorney to be able to solve. And that’s really a powerful tool to help you identify whom in your community this would apply to.

A word of warning: You're probably better off presenting the above math to a referral source, not directly to a client. If you drop this on your clients, our experience is that it can seem too technical, and you really want to keep it simple for them. Do the math for your client, then just ask the big question: "Did you know that you don't have sufficient assets to pay your way if needed?"

Factoring in the numbers that are relevant to your region and your practice. If in you area, for instance, the cost of nursing homes is more like $9,000 per month, the client would need $3.4 million sitting in a brokerage account generating 3% to cover that. So being a multimillionaire might be just enough.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center.

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Obama Care & Estate Recovery – The Impact on Medicaid – Lawyers With Purpose

February 3, 2014

by David Zumpano with 2 Comments Asset Protection Medicaid

The Omnibus Budget Reconciliation Act of 1993 required all states to implement an "estate recovery program" to recover assets from the estates of any individuals who received Medicaid benefits during life. The default language of the federal statute provides the state can recover from the "probate estate" of the Medicaid recipient, but allows the states to expand the definition to include all assets owned by the recipient including joint accounts, lifetime interests, beneficiary designated accounts, and even trusts.

So what does this have to do with the Affordable Care Act, commonly known as, “Obama Care”? There is a new twist coming to light regarding States’ rights to recovery for Medicaid benefits paid. What does the Affordable Care Act have to do with Medicaid benefits? While it does not, in any way, provide care for nursing homes, it does provide that Medicaid can be a provider of health insurance and can be available on the exchange for affordable healthcare. It seems pretty ordinary, except the Affordable Care Act has a provision that ensures estate recovery from the estates of those receiving Medicaid benefits for healthcare.

What does this all mean? Well, for the first time, estate recovery will apply to those individuals who receive Medicaid as a health insurance benefit rather than just as a nursing home benefit. This could impact many seniors who currently rely on Medicaid (in addition to Medicare) to help pay for their medical expenses and healthcare costs. It is unclear whether the enforcement procedures or the state's ability to recover on healthcare-related Medicaid costs will be enforced and, if so, how it will be managed.

It is essential we understand the estate recovery laws and how they impact Medicaid recipients. More importantly, it’s imperative to ensure your healthcare needs will be met now and in the future. The best way to ensure the total protection of your assets and your values now and after you pass, is to plan ahead. Those that have failed to plan are typically the most adversely affected by the rules. I encourage you to make sure you address these new rules when doing your planning.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center.

Medicaid Terms of Art Glossary

January 22, 2014

by David Zumpano with No Comment Asset Protection Medicaid

Dave Zumpano used the below Terms of Art Glossary for the Your Legal Hour series on Medicaid Planning: Who Should Consider It. We've put them in a user friendly format for you to print and use as needed!

CS: Community Spouse: The Spouse of an institutionalized individual and does not reside in an institution.

IS: Institutionalized Spouse: The spouse that resides in an institution and is receiving chronic care (not custodial).

MA: Medicaid Applicant: Individual applying for Medicaid.

MR: Medicaid Recipient: Individual qualified for and who is receiving Medicaid benefits.

INDIVIDUAL RESOURCE ALLOWANCE: The amount of resources (assets) the Medicaid Applicant can retain and still be eligible for Medicaid benefits.

CSRA: Community Spouse Resource Allowance: Minimum and Maximum amount of resources (assets) the community spouse is entitled to retain and have the institutionalized spouse be eligible for Medicaid benefits.

MMMNA: Minimum Monthly Maintenance Needs Allowance: (“Triple M N A”): The minimum amount of income per month a “community spouse” is entitled to retain prior to being required to contribute toward the “institutional spouse’s” cost of care.

SNAP SHOT DATE: The date used to calculate the CSRA. The first day the Medicaid applicant is admitted to a health care facility for at least 30 continuous days and then applies for Medicaid benefits.

LOOK-BACK DATE: The first day of the month in which a MA resides in a health-care facility and applies for Medicaid benefits. (Can apply for benefits retroactively 3 months.)

LOOK-BACK PERIOD: The period of time Medicaid will look at all financial records of a MA. The Look Back Period begins on the Look Back Date.

SPEND DOWN: The method or process of transferring (or spending) MA’s income or assets to get applicant and/or community spouse to Medicaid qualifying levels.

COMPENSATED TRANSFER: A transfer or spending of MA or CS’s income or assets and MA or CS receives something of equal value in return.

UNCOMPENSATED TRANSFER: A transfer or spending of MA or CS income or assets and MA receives no value, or less than the value transferred in return.

MONTHLY DIVISOR: The average cost of one month of private pay nursing home costs in your region. (Must be revised annually by the state)

PENALTY PERIOD: The number of months an MA is ineligible for Medicaid Benefits because of an uncompensated transfer.

Know The Five Key Trusts

October 14, 2013

by Lawyers With Purpose with No Comment Asset Protection Medicaid

We’ve seen a lot of changes in trusts for estate planning solutions over the last 20 years. Prior to 1993 there were basically two types of trusts; revocable living trusts to avoid probate and provide for asset management in the event of disability, and irrevocable trusts to prevent any unnecessary estate tax. Over the last 20 years a lot has changed, and a new genre of trusts known as iPug™ now serves 99.8 percent of Americans. iPug™ stands for Irrevocable Pure Grantor Trust. “Pure” means it is a grantor trust for income tax purposes and included in the grantor’s taxable estate. The popularity of these trusts has grown significantly since 2001, with the enactment of EGTRRA raising the federal estate tax limits to over $5 million. As a result, the number of Americans affected by estate tax is now less than one fifth of one percent.

There are three variations of the iPug™ trust: the income-only version, which we at Lawyers with Purpose call the MIT™; the control-only version, which we call the FIT®; and the third-party version, which we call the KIT®. Each of these trusts allows the grantor to be the trustee of the trust AND retain the full power of appointment to change everything and anything in the trust except that which the grantor wishes to protect. For example, in the income-only version the grantor irrevocably gives up the right to principal but retains the right to income and the ability to change all provisions of the trust, including the beneficiaries and the timing, manner and method of distribution. While this has many traditional planners on edge, my law review article “Irrevocable Pure Grantor Trust, the Estate Planning Landscape has Changed,” should calm the typical concerns. It should provide comfort that I have been using these for over 20 years and have thousands of them in the marketplace, and they have been utilized throughout the country by over 500 law firms over 13 years.

Simply, iPug™ planning does not relate to tax planning, but rather to asset protection planning.

The Uniform Trust Code, the Restatement Second and Third of Trusts and every treatise on trusts is in agreement, asset protection rules are very simple: whenever the grantor retains a right directly or indirectly (through any power of the trustee) to benefit from a self-settled trust, is also available to the creditors of the grantor. This is where iPug™ trusts are uniquely different. In the MIT™, the grantor irrevocably gives up the right to principal from the trust and cannot ever have access to the principal. Thus, because it is forbidden to be distributed to the grantor, it is blocked from access by any of the grantor’s creditors, predators or long-term care costs. Similarly, the control-only version of the iPug™ (FIT®) works exactly the same way, except that in this version the grantor retains no right to income or principal. This trust is typically used for people who do not need the assets or the income from the assets placed in it, but seeks to protect it from their creditors, predators and long-term care costs. The significance of the FIT® is that the grantor still retains full control of all assets and maintains privacy, not having to share any financial information with family or anyone else. The grantor also retains the freedom to make distributions of principal anytime during life, to any child or other beneficiary, for any purpose. The only restriction is that the grantor is prohibited in any way from transferring the income or principal to him or herself, thereby protecting it from any third-party creditors, predators or long-term care costs. Basic Asset Protection Law.

Finally, the third-party version (KIT®) is a slight variation in this trust is typically used when a client has already transferred assets to third parties (i.e. children). For example, dad and mom transferred the family farm to the kids hoping to "protect it," but not realizing that by doing so, it became subject to the kids’ creditors, predators, long-term costs and divorce. In order to protect transferred assets from the creditors, predators, divorce and long-term care costs of the transferees (children), the transferees act as co-grantors to create an irrevocable trust and fund it with the assets that had been previously conveyed. The parents can be the beneficiaries during their lifetime and upon the death of the parents, it can revert back to the children individually or in an asset protection trust designed similar to a MIT™ or FIT® to the children (now as grantors) and therefore self-settled. This provides asset protection to the parents during life but also could provide lifetime asset protection to the children as if they had done a MIT™ or FIT® themselves (after death of parents). Since a KIT® is a third-party trust, it is not within reach of the parents' predators, creditors or long-term care costs.

Perhaps the greatest untapped use of iPug™ trusts by most practitioners is for business owners. I have been successfully using these trusts with business owners for many years, and they love them when they understand how it protects them. If a business owner has a corporation or LLC, all of their personal assets are protected from the liability of that LLC or corporation, but the LLC or corporation is not protected from their personal liabilities. The corporation or LLC is an asset subject to the reach of the creditors if the liability is personal. As a result, I have many clients who opt to put their business interests into a MIT™ or FIT®. Using the MIT™ protects the business from being taken by personal creditors, predators or long-term care costs but does allow all the income from the business (which pours into the MIT™) to be distributed to the grantor. Another strategy is to use the FIT® for the business trust. This provides no income or principal to the grantor through the trust (and therefore protects it from the grantor's predators, creditors or long-term care costs) but the grantor could receive any amount of income deemed reasonable by business standards directly from the LLC or corporation.

For example, as an officer or employee of the corporation the grantor can receive a salary like any other employee. This income, however, will not be subject to his creditors and predators but could be “shut off” at any time by his resigning from the company. This provides both the benefits of retaining the right to income as well as retaining the ability to protect the income should the grantor decide differently at some point in the future. Trust planning is exciting in this new millennium, and utilizing all of the various trusts will help make us better counselors in serving our clients. I encourage you to stay abreast of all the issues related to iPug™ trusts and how they work for Medicaid eligibility, veteran’s benefits, and business protection planning.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center.

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Living In A Bubble

September 20, 2013

by Lawyers With Purpose with No Comment Medicaid

I was surprised recently to see an email from the owner of the financial services firm with whom I have been trying to work for years. When I opened it, I discovered he was inquiring about a client we shared. He was questioning the irrevocable trust I had done for the client that allowed the client to serve as trustee. He was further confused by my instruction to the client that the irrevocable trust I entered for him did not need a tax identification number. He asked me if the client understood me properly or whether I had made an error.

My immediate reaction was, wow! Is this guy living in a bubble? To think, someone who owns and manages one of the largest privately owned regional brokerage houses was asking these questions. After regaining my composure, I sent him a reply that not only confirmed our intentions but also outlined the many other advantages of Irrevocable Pure Grantor Trusts. I further indicated that I would be happy to sit down with him and go through the mechanics of how they work and how we use them to not only protect the assets of clients like the one we shared (a 62 year old with $1.5 million in assets), but also for many clients who own businesses and all clients concerned with the cost of long-term care. I also provided my law review article published in 2011, “Irrevocable Pure Grantor Trusts: The Estate Planning Landscape Has Changed.”

It is essential today that, if you are helping individuals concerned about protecting their business or personal assets from general liability or from long-term care costs, you must be intimately familiar with how the iPug™ genre of trusts meets many if not all clients’ needs. In my experience, most clients who come to me for planning have three requests: 1) I want to stay in control of my assets; 2) I want to protect my assets from the government and the cost of long-term care; and 3) I don't want to become a burden to my children. All three goals can easily be met when doing proper planning using an Irrevocable Pure Grantor Trust. Another blind spot for business owners and their financial professionals is the belief that creating an LLC or a corporation protects their assets. While the business owner's personal assets will be protected from the liabilities of the LLC or corporation, the ownership of the LLC or corporation will be at risk to the personal liabilities of the owner (including lawsuits or long-term care costs).

An Irrevocable Pure Grantor Trust is a mechanism that allows business owners to maintain control of their assets and the freedom to continue to develop their business while protecting it not only from the creditors of the business but also the personal liabilities of the business owner. Obviously the best defense is a good offense. Making sure you don’t live in a bubble and are fully aware of how Irrevocable Pure Grantor Trusts are becoming the trust of choice for the 99.8% of Americans who are no longer concerned about Estate Taxes will ensure you a prosperous practice and identify you as a counselor to guide your clients to the solutions that best fit their needs.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center