Law Offices of Randall K. Craig
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Serving Indiana Since 1975

February 2023 Newsletter

| Feb 18, 2023 | Firm News

FEBRUARY 2023

CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING

The information that follows summarizes some of the current issues in the areas of

estate, tax and personal and business planning which may be of interest to you. Although

this information is accurate and authoritative, it is general in nature and not intended to

constitute specific professional advice. For professional advice or more specific

information, please contact my office.

Common Asset Protection Planning Errors – Continued. As we continue a

discussion of some of the common asset protection planning errors that occur, one is

failing to make a gift-back in order to cure a penalty that would be imposed because a gift

(technically called a “penalizable transfer”) occurred. Let us say that a parent makes a gift

of $7,000 to a child and then within five years applies for Medicaid. At the time that the gift

was made, the parent may have had no thought of Medicaid eligibility. However, when the

Medicaid application is filed and the gift is reported, a penalty of one month would be

incurred, which would mean that the nursing home bill would have to be paid privately for

that month even if Medicaid eligibility was granted. Money may not be available to pay that

month, and the nursing home bill for that month could be $10,000 or more. If the child who

received the gift transfers the money back to the parent, the penalty will be eliminated. This

is called “curing” the Medicaid penalty. It is best to make the gift-back before the medicaid

application has been filed, but it can actually be made at any time.

A “gift-back” strategy can preserve a great deal of money. Let’s suppose that a

transfer of $100,000 was made which would result in approximately a 15-month penalty.

If the $100,000 gift was returned, a different strategy could be implemented using the

so-called “half-a-loaf” strategy. After transferring the $100,000 back, a new $50,000 gift

could be made and the other $50,000 could be set up as a loan to be paid back to the

parent using what is called a non-negotiable promissory note that meets the Medicaid

requirements. The result would be a penalty of only seven months, and the $50,000 loan

could be paid back over the same seven-month period. The loan repayments could be

used to pay the nursing home cost, combined with the parent’s income, thus allowing the

parent to preserve $50,000 of the amount that had been previously transferred. There are

many other opportunities available to utilize gifts, which in most cases would be made to

a particular type of trust in order to preserve the money that is being gifted, as a means of

preserving assets for the eventual Medicaid recipient. The assets will ultimately be

distributed to the desired beneficiaries.

An Update Regarding SWIRCA & More. As many readers of this newsletter may

know, I have served as a member of the SWIRCA & More Board of Directors for over 30

years. I was the president of SWIRCA & More and the Chairman of the Board for several

years as well. I am now the Director Emeritus. SWIRCA stands for Southwestern Indiana

Regional Council on Aging, Inc. The “& More” references the wide variety of outreach

services and resources SWIRCA & More provides to adults 50 and over and to disabled

youths and adults and their caregivers. It is a local, non-profit organization in Indiana and

is Indiana’s third largest Area Agency on Aging. For five decades it has served six counties

in Southwestern Indiana, which include Gibson, Perry, Posey, Spencer, Vanderburgh, and

Warrick Counties. SWIRCA & More achieves its mission through focused efforts to

empower individuals of all ages to remain living safely in their own homes by providing

information and support of client-centered services. Last year alone SWIRCA & More

provided free, unbiased resource counseling to over 11,500 individuals, prepared and

served nearly 160,000 meals through the Meals on Wheels program, delivered care

management services to more than 15,000 individuals, and offered more than 15 weekly

exercise and educational programs to 1,200 seniors through its Activity & Wellness Center.

Eighty cents of every single dollar raised through donor support is immediately put to work

in helping seniors and disabled youths and adults get the resources and services they may

need. Last year it provided direct in-home assistance to 2,236 individuals including

in-home care, delivered meals, attendant care, personal emergency response,

transportation services, and so much MORE. Its ADRC (the Aging and Disability Resource

Center) operates so that when someone calls or visits SWIRCA & More, the Resource

Center is the first point of contact. It helps to advise and connect individuals to appropriate

resources, including SWIRCA & More and unbiased community services. Its searchable,

on-line Senior Resource Guide provides personalized, easy access to available community

resources.

Equitable Treatment Of Trust Beneficiaries. A trustee is obligated to administer

a trust after giving proper regard to the respective interests of both the income beneficiaries

and the ultimate remainder beneficiaries after the death of the income beneficiaries. It is

sometimes difficult to explain to a younger beneficiary why a trustee must take into account

the interest of a beneficiary’s as yet unborn children when deciding whether or not to make

a trust distribution. The creator of the trust may have expressed certain preferences that

should be given to certain beneficiaries, such as the spouse having priority, and then

perhaps children having the next priority, and then grandchildren being considered last.

Obviously the needs of the grandchildren would be taken into account in determining the

needs of the child, but the trust should say that. Even when a trust contains language

authorizing the trustee to consider preferences, the trustee is given discretion and

reference would be made to certain criteria, such as the needs of the beneficiary for

healthcare, education, maintenance and support. It is very important for the trust creator

to give the trustee guidance regarding the preferences that the trustee may consider. If

the trustee can be allowed to deplete the trust assets providing for certain beneficiaries,

the trust should state that very clearly.

Additional Information. Future issues of this Newsletter will address other issues

of current interest. Please contact my office with any questions that you might have.

To download a copy of this newsletter Click Here.

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