Estate & Medicaid Planning Is Simpler Than You Think

Some people are quick to just put the house into their kids' name. So, we've seen that where they transfer the deed into their kids' name. That's a big mistake because obviously there's your kids could have their own creditors, whether they're going through a divorce, whether they, you know, have their own creditor issues. But more importantly, if you transfer your house into your kids' names during your lifetime, you lose what's called the step up in basis. Okay? So you lose the the the tax advantage of the kids getting it as a inheritance versus giving it to them during their lifetime. So really putting it into this trust maintains a step up in basis, maintains all the tax advantages, but also puts it on the side, earmarks it, doesn't go through probate, earmarks it for the next generation, and gets you into this position where you're eligible for long-term care under Medicaid. Um, welcome to the middle class uh podcast. Um, we're back. I know we have our intervals of lack of consistency. Um, but I think this episode is going to be uh very very important. Um, we're privileged to have as a guest uh Paul Moscowitz Esquire from the Moscowitz Legal Group in Ullet, New York. And we're going to discuss a topic which no one wants to discuss. And I'm going to let that sit for a little bit so people continue to listen. Um so the topic we're going to discuss today um is let's say ed uh estate planning and Medicaid planning. That's the general topic. Now the estate planning piece includes a lot of things like I was saying people don't like to talk about wills, trusts, end of life matters. And I would just say one point and Paul you're going to really lead the conversation. Um, but one point I would make that it when it comes to this kind of planning is that it's not about the person planning per se. It's about the people they for lack of a better way of saying it leave behind. It's for the people that are dependent, the people that they're supporting, family, friends. estate planning, Medicaid planning, end of life planning is about the people that are in your circle, not necessarily about you and it's also good for you as well. But that's very very important I think. Uh so without uh further ado, I want to introduce uh Paul. Uh Paul, why don't you just tell a little uh us a little bit about yourself and your company and we'll get into specific questions after that. >> Sure. Um firstly, thanks for having me. Um and uh thanks for uh inviting us on the on the podcast. We have a law firm that does specifically what my you were you were describing. Um elder law, Medicaid planning, estate planning. Um we do guardianship, we do probate. Um thank God our firm has evolved and grown. Um we our our primary um office right now is in Newlet New York but we service the entire New York area um and New Jersey as well and we um have about five six attorneys about 30 30 staff members all working under this you know this umbrella of elder law Medicaid planning which is I guess a niche within estate planning. Um so um there is the estate planning aspect with you know high netw worth people and tax planning and making sure we primarily focus on the middle middle more middle class individuals although we do have there's an attorney that handles the high net worth but our predominant you know market is the is that elder law Medicaid planning. So to your point where um you know factoring in the people that you leave behind um and the people that are left to deal with the estate after someone's passing with Medicaid planning there's also the aspect of while you're alive making sure that you're preserving your money and it doesn't become a huge um financial strain on the family members um because you've done that pre-planning and you've you've so the advantage is not only postmortem necessarily you know, once you passed away, there's also a significant advantage while you're alive to make sure that you're not running out of money, depleting your savings, not able to afford your lifestyle because the cost of care gets gets um very very significant. Yes. Okay. So, and that was very very good. Um and the great thing about the middle class podcast is that we want to go to the fundamentals um and the I say basic concepts of what you just said. So, you see, as an attorney, you're very familiar with these uh topics and conversations, but there were a lot of things that you mentioned that the average layman should know, but they don't know about. So, I'm going to jump into this because I'm also I'm not a attorney. I'm an accredited estate planner. So, I do work with attorneys and there's a lot of overlap there. So, I want to try to go in an order. So, what you mentioned was one thing you mentioned there um and there's a lot to discuss, but one thing you mentioned was probate. So, from what I know, um and again, you know, you're the attorney, so you're going to go more into the specifics of this. Probate is um really, uh the process of the courts administering an estate, but that only takes place if there's some estate planning. Let's say someone has no will, nothing. They just pass away with assets. What happens? And I'm bringing this out because this will help us understand even more why estate planning is so important. So, >> Sure. Yeah. >> So, that that if someone passes away without a will, let's say they didn't know estate planning at all, they don't have a will. Um that is called passing away in test date. Okay? Passing away without a will. And it obviously depends if they're let's take a a husband and wife and unfortunately this comes up husband and wife one of them passes away um and they don't have a will in place and a will could have said that all my assets would go to my surviving spouse. Okay. Without a will, the laws of intestate, meaning the laws of passing away without a will, um are that the surviving spouse would get $50,000 plus half of the estate and the children would get the other half of the estate. Um where that becomes problematic is number one, if that wasn't your intention, your intention was to leave everything to your surviving spouse. And number two is if you have minor children, they are now the recipient of half of the estate. Um, which becomes problematic if they're minors, they need a guardian. The court gets involved and a lot of hurdles are experienced as a result of not having a will. So some people, you know, have this notion, I'm too young to have a will. I don't have much to have a will or but just the fact that you have children and you have some assets. You could be putting them into a predicament where now they have money that's going to them and it's going to be controlled by a third party where your intention really was that the money should be going to the surviving spouse to be able to afford you know continuing your lifestyle and now half of the estate is tied up in in in children's names. So to answer your question simply, intestate is the process where you don't have a will and the court's default or the state's default of somebody not having a will are that the assets are split between their surviving spouse and the children. Having a will basically is, you know, the way I like thinking about having a will, it's uh it's an instruction guide. It's saying whatever the default is, don't listen to the default. But attorneys came up with like maybe a fancy way of, you know, last will and testament. It sounds very fancy so they can they can make you know money on it. But really it's your instruction. This is what I want to happen to my money upon my passing. I want it to go like this. I want this person to manage it and therefore it goes according to your wishes versus according to the default of the state. Okay. So beautiful. I love and I love how we go in order from bottom. I don't know if every everyone or anyone listened to our tax podcast where we started from the bottom literally. So we just started from someone who doesn't have any estate planning. They die like you said intestate and I'm assuming that depends on the state right the rules of intestasy um >> are state specific >> state specific whatever it is it doesn't sound good um like you said. All right so now let's talk about a will. What are the bas what's the basic skeleton of a will? And I want people to know this and understand this so they understand if it's complex or not complex, how easy it is, how hard it is, how they should go about doing it. But what would be the the basic uh structure of a will, right? So like I mentioned, a will is instructions. You're basically saying if I if I pass away, this is how I want my money to to be, you know, to go on to go on to the beneficiaries, to go on to my spouse, to go on wherever, to go to charity. But you're basically delineating where you want your monies to go. Um, and that's what a will dictates. It says, "This is where I want my money to go." It's called the beneficiaries. And the executive, you're naming somebody that's going to be responsible to carry out the directions listed in the will. That's as simple as, you know, a will is. And obviously, it can get more complicated if you want the will, you know, your assets to go to a trust, if you want them to be locked up. But from a simple standpoint, it's directing where your money should go upon somebody's passing. >> Yeah. Right. So that's uh important that people understand the fundamentals behind the will. Um so a couple things I wanted to zero in on there. So so you have the will guiding the assets that you have, where they should go, where they shouldn't go, and then you have the um executive, the person who's administering uh administering the will. Um, so what would you say is an important piece of choosing an executive? Should it be someone's mother-in-law? Should it be their brother? What would you say? Again, for basic, someone who wants to write a will, who should they pick and choose as someone to administer that? Yeah. So, it's a good question. Obviously, that's very specific, family specific. Um, so generally, you want to pick um one of your children. I would say depending on your age. Obviously, if you have young children, then you pick maybe a sibling, maybe even a parent and then change it over time. Um, but if you are, you know, you have older children that you trust and they're established and maybe, you know, you pick one of them, you could pick two of them. Um, and make them both co-executives. Um, but it would be generally you should leave it within the family. Um, and name that person to be the, you know, the person carrying out your wishes under the will. So theoretically, if I would say this, and tell me if I'm wrong, let's say you have, you know, um, Jack and Jill, or from the Jewish way of saying it, uh, Schllayy and Rifky, okay? Um, and they have three kids, whatever their names are. Um technically for Schlamy to create a will from himself his basic structure would be if I pass away my assets go to my wife let's say >> and >> Rifky >> Rifky right sorry rabbits and Rifky >> forgot Rifky and um the uh she she'll receive the assets and she can become the executive on the assets that Schlamy has. Is that correct? >> Yes, she can be the executive. The executive happens before she receives the assets, right? So she'll be the executive. So that's generally the way it is. They would be it's almost mirrored wills. So husband would basically choose wife, wife would choose husband to be the executive and the beneficiary and the primary beneficiary. And then they would pick somebody that would be the backup should god forbid they, you know, both deceased um in that scenario. So yes, she would be the executive. So, I think that's important to emphasize because that means for someone to write a will and that again, we're not getting into family dynamics or complications. We'll maybe talk about that later, but you know, regular run-of-the-mill family for them to create a will as far as what they need to put in there, it's pretty straightforward. >> Absolutely. So, let's talk about that. So, for again, for Slamyia and Rifky and their three children, they come into your office, they want to write a will. Tell us a little bit about your process of taking them from start to finish and assuming again reg run-of-the-mill family. No necessarily they're not necessarily paying estate tax or charitable requests or anything. Just basic >> basic structure is they they would have a will. They would name each other as the primary beneficiary, primary executive. We'd ask them for a backup just so that there is a backup listed and they can each have their own different backups. So um meaning um Rifky can have her you know backup being somebody that maybe Schlami doesn't want to be the backup of that of um his backup in in that example if they have minor children there are you have to name a guardian um also so meaning if god forbid both parents were to decease who would be the guardian of of the of the minor children generally the structure is all the assets are left to the surviving spouse and after you know that surviving spouse or If that swerving spouse predesceased, then it would go to the children equally and hopefully at that point they're, you know, not no longer minors at that point. >> Okay. So again, so we have a basic and and again to get that will in effect, I think all you need to do is have it signed, notorized. Witnesses witnesses and who could be sorry I want to get specific on that cuz I know this witnesses can be it's not like you know you can't have cousins, can't have gamblers. They shouldn't be they shouldn't be a party to the will. >> Shouldn't be a party to the will. So you could literally have people you're >> anybody. Yeah. We don't have to know about their Yeah. They're you know they could be >> okay. Okay. Maybe we'll talk about a will also um in a second, but I wanted to branch off. So we got the basics of a will, why it's necessary to have one. I think that's pretty important. Um now I know with a will comes a couple of other documents. We have a health proxy and uh financial power of attorney. >> Correct. >> Right. So could you explain what those two things are? And am I correct that those really accompany everyone? >> Generally, generally when you're doing a will, you do those documents at the same time. A healthcare proxy is these are both called advanced directives. So unlike a will, which only comes into play upon somebody's passing, it's your last will in testament. Meaning your will is a piece of paper until someone passes away. It's really not an effect. it doesn't really matter. Um, healthcare proxy and power of attorney are two documents that are specific during somebody's lifetime. Obviously, a healthcare proxy, you can only have healthcare decisions to make if you're alive, right? So, that's pretty um straightforward. Um, it names the person that will be your health care representative if you can't make your own decision. So, for example, if you're going for a root canal, your healthcare proxy can't come and say, you know, you're going for the root canal. Um, they can't force you into that situation. And it's in a situation where you are, you know, you're not mentally competent or you're, you know, you're not in a situ in a state of mind where you can make those own decisions. You're basically just naming somebody to be your voice. And and power of attorney is a very important document. It has everything to do with all financial anything not healthcare related is where the financial um power of attorney comes in. And that power of attorney allows for somebody to be what's called your agent um to act on your behalf in any capacity. That is a very very important document because if somebody is deemed to be mentally incapacitated and you don't have a power of attorney in place that's when the court gets involved and you have to go for guardianship and that could have been avoided if a power of attorney was put in place and the cost of going for guardianship the emotional the emotional cost the financial cost are exorbitant and could have been avoided with a with a power attorney. Um you are not a default power attorney of anybody. So just because you're married to somebody or you're their parent or they're you're their child or whatever that case might be, you are not their power of attorney. So for example, you walk into a bank and say, "But that person's my husband, you know, or my wife or whoever that might be." Um that will not play in. They will ask for a power of attorney to show that you have the right to access their accounts, pay their bills, call on their behalf, whatever that might be. And unless you have that financial power of attorney, that power of attorney, um the account could be locked. you won't have access, you can't pay their bills, you can't act on their behalf, and you would have to go to court to get guardianship, which like I said could have been avoided. >> Mhm. Okay. So, and again, a financial power of attorney and a health proxy are aren't difficult to just have to know who they are, >> right? >> Yeah. So, um let me ask you, have you ever do you have any stories uh to tell us of people that didn't do this properly? And uh it could be you don't. We have stories all the time. Unfortunately, we have stories where um young people, unfortunately, whether they're in this neighborhood, outside of this neighborhood, where they um we're in a we're in a situation they got, you know, mental capacity was questionable and they could no longer sign a power of attorney. And um they needed to go for guardianship, but guardianship had to happen in emergency situation. Um that happens unfortunately. Um, we've been in situations where people didn't have a will and unfortunately the kids are now the inherited money. Um, and the courts involved in making sure that there's a guardian adum it's called where the guardian is basically in control of that money. um and the family needs the money to you know pay bills and that's that's um so many many situations where you know it's the it's a common saying you know you don't you only need a plan you know but people don't plan they wait to plan and um and they say you know I I just don't need this right now and then unfortunately they're in that situation and that that that becomes a too late situation um so yeah the question you know this happens frequently >> you've seen it so I would say and we're going to shift more I think into more details now once we um you know finish the the will discussion the basics of it I would say you know a couple things conclusions from that firstly tell me if you agree having a will health proxy and financial power of attorney is absolutely necessary >> absolutely >> okay >> no matter the age >> no matter the age young old wealthy not wealthy I mean to me it's self-evident based on what you just So, but it's important to say it, emphasize it. And number two, the process of getting these documents isn't too complicated. How many meetings does it take? Two, three, how many meetings? >> Generally, we meet the person once and just to take an intake and to gather information around their family, their dynamics, what they're looking to accomplish, and then have a second meeting to sign the documents. >> Two meetings, create the will and sign the will. And you do everything in your office. You notoriize it and everything. >> Sure. So I mean again at this point um I know a lot I don't want to put generalizations but the Jewish attitude sometimes is to be hish with things and not to plan >> um and therefore maybe take a little bit of time one or two meetings and set this up and I and like you said also things can be changed nothing is final but at least you have something >> for today for today you could always change Right. Hopefully everyone will get very wealthy and then they have different things. But >> yeah, and hopefully, you know, hopefully nobody dies. Hopefully nobody gets injured, nobody gets hurt, and you know, that's that's what we hope for. But >> at least have these documents in place and know that they're set up, >> right? Okay. So, now let's move on to I think something a little bit more advanced, but I think also very relevant. Um, so I know with a will, and again, you're the attorney, so you're the more more expert in this. Um, there's a process called probate. >> Mhm. >> Right. And again, that's when the courts are still involved in administering the estate estate except that they have this will, which is a directive, right? But then there's also putting trusts in place and other types of vehicles where you could avoid probate. So that's my that's how how much I know. Could you explain a little bit in more detail what the process of probate is? One and number two, what are the other vehicles that can be used to avoid that? Because I'm assuming, you know, having the court involved in your administering of your estate is not desirable. >> Yeah. So the the primary driver to not have the court involved in your estate is people have you know there are every state is different. Some states take a percentage of the estate as a kind of, you know, while you're going through probate. Um, New York doesn't have that. I think the the predominant motivating factor not to go through probate is really timing. You know, you want the assets to go to um the kids right away. Probate could take, you know, 2 months, 3 months depending on the backlog in the courts. And that also does open up for whether there be could be a dispute. it could open up for a dispute if you know somebody felt that they deserve more and they want to whatever that dispute might look like. Um and and by putting it into a trust, you're basically moving the assets out of your estate, putting it into this vehicle, this trust, let's call it like this uh company. Um and that company would basically control it during your lifetime and also dictate who will go to upon your passing which would avoid the entire topic of probate um entirely. That's one way of accomplishing it. That's called do putting it into a revocable trust. Okay, revocable just basically means that you're the manager over your own trust. You could change it at any point. You could you could do whatever you want to this trust. There are other ways to avoid assets going through probate. One of those ways is by just adding a beneficiary to the account and if that there's a beneficiary listed the on the account that that account and that asset will not go through probate. So there are other mechanisms of avoiding probate. Um now I could segue into irrevocable trusts if you if you like. So yeah so very we're going to get I want to get there um actually. Um but this is the concept that I wanted to bring out is the trust concept because everyone hears about trusts. I don't think many people know what they are exactly, but I think you just explained it. A trust is an entity, company entity of its own. You put the assets in there and the trust directs where the assets go and you could avoid. So let's say let's say someone has a trust document saying that if you know again our case Schlamy passes away his uh his uh wedding ring they were moving his wedding ring goes to um his his son uh Yitsy. That's what it says in the trust. >> Well really yeah tangible items are a little bit funny. You can't really put tangible items into trust, but but conceptually, yes, that's >> Give me another item that would go >> house. A house. Okay, great. Oh, beautiful. So, Schlimy's house, the trust says it doesn't go to Riffy. Uh, it goes to uh Yity. Okay, that's what the trust says. So, in order for him to, let's say, be put on the deed of the house or gain ownership, he just has to show the trust to the parties. >> Correct. >> And I guess the death certificate. >> Yeah. Yeah. >> And it becomes theirs. >> Yeah. As long as the title of the house was in the trust, then the trust controls the, you know, dictates and controls what's going to happen upon Schlimey's passing. Look at that. So, you have a trust. Hopefully, you trust the trust and you put the assets in this trust. You avoid the whole court situation completely. >> So, and and like you said, re revocable trusts are revocable. So, you can change it and switch and take money out and put it in. always the owner and the granter etc. Um so I would say having a revocable trust is easy easy and can be implemented also for people that aren't necessarily high net worth. >> Sure. Sure. >> Right. So all right so let's let's just focus on that a little bit. Can you just give us the skeleton of a trust again? A trust like like we said is a is a entity you know like a company and you're basically taking this entity um if people are familiar with LLC's as an example very similar in nature um it's an entity a standalone entity and you're basically titling assets into the name of the trust so it could be the Albert family trust and that Alpert family trust will now hold the assets okay revocable trusts though not to get you know overly complicated here are not creditor protected meaning whenever you're in control over your own trust. Revocable trusts are also for anonymity. So basically, you could make it, you know, put into a trust with a name that's not yours and and basically have this idea of it being, you know, away and and people can't look you up. So there's a little bit element to that, but again, all it does is avoid probate. That's really the the the most um significant pro of having a revocable trust is if you're concerned about probate that there is a vehicle to avoid probate. Um the other vehicle like we described is have beneficiaries listed, but in a house it's impossible to have beneficiaries listed on your deed. You could do something like a life estate deed, but the cleanest way to put, you know, to have that would be in a revocable trust. So that that that's the value in a revocable trust. >> Okay. So, um, let me just explain a little bit cuz I know a little bit about the beneficiary piece and we're not going to I don't want to go too much into it, but again, it's an easy thing to do. So, beneficiaries mean, for example, um, your life insurance contracts, they have a beneficiary. You don't need to go through courts, right? Um, if you have a retirement plan from your company such as a 401k or you own an IRA, individual retirement account, you could put a beneficiary on that. Um, and correct me if I'm wrong. Uh, joint bank accounts, for example, automatically go to the joint owner. Correct. >> Uh, house as well, if it's jointly owned, automatically goes to the joint partner. So, I'm not saying these are things that are, uh, you know, unimportant, but they're easy to do. Um, these are different examples of avoiding this probate process in a very easy way. And I've seen this when we set up, let's say, you know, 401k contracts for our clients. they neglect to put the beneficiary in there and then you know well let me ask you what happens oh I guess when there's no beneficiary it goes through the will and then there's the probate correct process >> okay so the trust avoids that and let's just go through again two more maybe two or three more details with the trust the trust has um a trustee as a trustee generally in a revocable trust you are your own trustee >> okay >> um but yes it has a trustee and then it has beneficiaries of the trust so you're a lifetime. In a revocable trust, generally you're the lifetime, meaning the person creating the trust is a lifetime beneficiary of the trust. So, they're not giving away their assets, you know, at this time. And then it lists beneficiaries subsequent to them passing who the beneficiaries would be of the assets that are held by that trust. >> Okay. Okay. Great. So, let's just recap a little bit. So, we started from the from Schlamian Rifky when they didn't have any will and it was a disaster. Um, then they had a will and it was better, but they had to wait four months for things to be uh split up and it was public and everyone knew about it and one of the kids was upset. So, it was a little bit everything ended up okay, but it wasn't as smooth. And then we created a trust where everything was done in a couple of days and the family's happy and Shami is smiling down from Ganeden uh with all of his uh his big mitzvah that he did for his family. Okay. So, now I think we want to move into a little bit of the more uh advanced estate planning. Um, so let's talk a little bit about this. I I know I'm familiar with this also. Um, we know that Uncle Sam loves taking part in all of our assets and everything we have. And there's something called an estate tax. >> Yeah. >> Okay. Estate taxes are exactly what they are. when you pass down an estate there's a tax Paul if you can just go through the basics of estate taxes and what planning would be needed potentially or that piece. >> Sure. So estate taxes obviously you know every everybody's situation is different what they're looking to accomplish what they're you know so when you're they're in a situation where people have um assets are leaving over assets um over let's call it $7.5 million for New York state federal it's $30 million so $7.5 million give or take um on the on the New York state estate tax you basically hit a cliff okay where where if you go over that over over that amount, they give you a little bit of a cushion, but if you go over that amount, you then have to pay um estate tax on the assets that are left over to the next generation. Okay? The the predominant way to plan towards that is basically to give away those assets during your lifetime. Start giving away some of those assets during your lifetime. By giving them away, obviously there is the there is a gift tax. So, you have to be considerate about the gift tax. There's also this idea if you if you give it away, you lose what's called the step up in basis. You lose some tax advantages by giving assets away during your lifetime and also you lose control. And if you're relying on the dividends and the income for your lifetime, you may also be in a situation where you're losing some of that. Estate tax is a factor and a consideration as you start planning. Um when when you're planning, one of the things to think about is start moving some of those assets towards closer towards the next generation, moving it out of your estate to avoid being in a situation where you would be paying an estate tax. And that's really where gifting comes in. Trust planning comes in. A revocable trust would not necessarily work in that situation. There are more complicated trusts that work in that situation. So, if you're in that category where you believe you're going to be leaving over um a significant amount of assets to the next generation, you definitely want to um start thinking about how you're going to plan to ensure that the next generation will get that money, get those finances, get the get their inheritance without paying a significant amount of that money to Uncle Sam. Obviously, the pros and cons there are always the more you give away, the less control you have during your lifetime for that money. Life insurance policies are um they do they are part of the estate tax. They're part of your estate. >> That is that is an easy one to possibly just put into a trust. There's an irrevocable life insurance trust. You can just move that entirely out of your estate. So if you do have, you know, an estate with $5 million and $2 million is and $2 million on top of that with life insurance. easy thing to just put your life insurance into a life insurance trust and therefore kind of put it on the on the aside on the side um and um therefore wouldn't be counted as part of your entire estate. Okay. So again, this is a middle class podcast, so I do understand that we're moving more towards the higher net worth space, but to be honest, you did mention things that are very relevant to middle class. So, someone who owns a house in our community, has a $5 million life insurance policy, has some bank accounts, has a retirement account, you know, things like that, they can get up to that threshold where, you know, they're above that $7 million net worth. Doesn't mean you have to have $7 million in the bank. It means $7 million of assets that you own and potentially pay estate taxes. And I want to mention one thing. Tell me if I'm wrong, cuz I've seen this come up. There are people that do give significant gifts even if they're not high net worth. I believe there's the, you know, something called the gift tax exclusion, which is roughly $19,000 a year >> per per person, per person you're giving it to. >> If they give more than that, they have to file a gift tax uh return. So, I I want to just bring out this point that you need to do some planning around gifting also. Let's let's leave it at that. >> Okay. something more relevant also more to the middle class but I think also higher class and you touched on this let's move more into Medicaid planning. >> Sure. >> So what is the need for Medicaid and why should someone plan? Let's start from the beginning. Yeah. >> Sure. So so the need really is the cost of care is very expensive. The cost of being in a nursing home um basically hit it junction where as people age they might need care. Um whether that be care at home or god forbid they end up in a nursing home. The cost of that care is significant. Home care could be private privately could be anywhere from $10,000 a month, $15,000 a month, $20,000 a month be a4 million a year caring for somebody at home. And again, if that's that's one person, that might be not be 24/7. 24/7 care could be even significantly more than that. And obviously if you if you know two parents or two individuals that need that that care the numbers go up significantly. Cost of a nursing home could be $500 $550 a day. At in a nursing home you could be looking at $300 $350,000 a year um to be in a nursing home if you're paying privately. Um most people in nursing homes today in New York are um the first 100 days are covered by Medicare. Okay. Um and that's what nursing home owners want. They want to make sure that they get Medicare beds and that's where they make, you know, their their money in Medicare. >> I want to cut you off, Paul, quickly because there's a difference between Medicare Medicaid >> and Medicaid. They're not I hear this all the time from clients like someone once told me, you know, my Medicaid my Medicaid health insurance, >> but what is the difference? >> Everybody when they turn 65 is on Medicare. Okay, it's not an eligibility thing. It's an age. You turn 65, you're on Medicare. And that's not has nothing to do with whether you're wealthy or you're not wealthy. Is it's it's the government's way of giving you insurance as you age. There are ways to get on to Medicare earlier than 65 and that's with a disability. But generally at 65, everybody is eligible and everybody goes on to onto Medicare and you have to go on to Medicare >> and that's health insurance. That's health insurance. And that's where you get into the conversation about supplemental and other other conversations around Medicare and getting making sure that you're covered for health insurance. Health insurance though does not cover long-term care. Okay? Does not cover long-term care. No health insurance covers long-term care. The only options when you get to long-term care are either you bought a long-term care policy specifically generally when you were younger. much harder to buy when you're when you're older and you um either just because of age or because of health reasons. Um and or because it's very very expensive. Um so there is no insurance that covers long-term care. Medicare does not cover long-term care. Um so Medicare does cover short-term care. Okay? And that could be if you left the hospital and you need some care at home for a couple of days, for a couple of weeks, Medicare can send the nurse. you know that's called Medicare is called actually CHA services where Medicare is sending over home care for a couple of weeks for a couple of days per you know during those weeks and um in a in a facility Medicare is covering up to it's not necessarily full 100 days up to 100 days and then Medicare stops. So, when you hit that junction when you need care and Medicare is no longer covering that because they don't cover long-term care, you're basically hit this roadblock where either you're going to be qualifying yourself for Medicaid or you're going to pay privately. Okay? So, those are your options at that point. Now, in order to now, in order to qualify yourself for Medicaid, there are what's called look back periods. Okay? Because Medicaid doesn't want everybody just showing up to a nursing home and saying after that 100 days ran out saying I have no money voila now qualify for Medicaid. Okay? They don't want everybody in that situation. So they impose a look back period. So you you are not able to gift your money immediately at that spot to your kids to your whoever it might be and say I'm financially not in a position to pay privately cuz I don't have any more money. So Medicaid imposes what's called the five-year look back period. Five-year look back period is specifically for nursing home Medicaid. Okay? It's called institutional Medicaid. Um so basically you would have had to plan in advance to put your assets out of your name um in order to then qualify for Medicaid. Okay? And that's where Medicaid planning comes in. Okay? So the look back period for nursing home Medicaid is 5 years. The look back period for what's called community Medicaid where you can get AIDS at home and uh get cared for at home today is between 1 to 3 months. Okay, that means that you could do planning and 3 months later you can qualify yourself for community Medicaid and get home care at home covered by Medicaid. Okay, which is important for people to know that really anybody and everybody could be eligible for community Medicaid and nursing home Medicaid as long as they wait that time period of 5 years. Now, what do you need to do to get yourself qualified for Medicaid? You need to make yourself poor on paper. Okay? >> Poverty. >> Poverty. It is an asset test. Okay? It has nothing to do with income. Has everything to do with assets. If an individual has under $30,000 give or take in their name, they qualify for Medicaid. Okay, that requires them to in advance start putting some of their assets into a trust. The trusts generally are what's called Medicaid asset protection trust. They are irrevocable trust. They are also grtor trust and I'll explain what that means in a moment, but basically they are going into trusts unlike the trust we described up until now, the revocable trust. These have to be irrevocable trust. Irrevocability means um in simple in simple terms that they are not the manager over their own trust. Okay? So they own so going back to our trust entity this trust the Albert family trust they put their house and their savings into this trust and they are and and in our example Schllayy you know so not Albert but Schllayy Mr. play me. Um he puts his assets into the trust. He then um qualifies himself 3 months later for community Medicaid and he starts the clock towards nursing home Medicaid. So he leaves in his own name in his own bank account. He leaves his income plus $30,000. On the side of him he has a trust. That trust is managed by his child, you know, but that that trust is now on the side of him. It's available to him. There's assets in there. It's not going to the kids yet. There is a way to get, you know, access to that money in that trust. It's not locked up, but he is not the manager over his own trust. Okay? As long as it goes into a trust, the irrevocable trust, a Medicaid asset protection trust, then he will qualifi qualify himself for Medicaid. Now, assets that don't need to go into a trust are 401ks, IAS, anything that was pre-taxed are not counted towards the $30,000. and they're not counted towards your eligibility towards Medicaid. So those can stay in your name and you will still qualify for Medicaid. >> Okay. So let's uh review that quickly. >> Break it down. >> No, no, that was very good. I I think that was uh again we see from here that it's not not it's a process, but it's not so hard to understand, right? So um the key is again Medicaid is the government sponsored long-term care insurance. longterm care for someone who needs, you know, they're bedridden, they need a nursing home or >> aid, home health aid. Um, and they basically have to be poor. So, that's something very for very hard for Jews to do. It's very hard to get poor. Um, so that's when you need to do some Medicaid planning to make yourself quote poor and get the assets out of your it's having the it's, you know, it's it's what what's the saying? Having the cake and eat it, too. So, it's, you know, you're you're saving your money and getting on to long-term care insurance, getting Medicaid to cover the long-term care, but also maintaining and making sure that you don't spend down your money to to be left at 350 a year. You know, you even for somebody that's wealthy, it could be depleting a significant amount of assets in, you know, a short amount of time. >> Yeah. I mean, even I see this story cuz we do when it's not possible, let's say, to do Medicaid planning, we do long-term care insurance, which, like you said, could be expensive. Um, and but you know, someone who has too many assets, but it could still be exorbitant to pay long-term care. And who why would they want to they want to pass on their assets? They don't want necessarily to spend it all. And a lot of families have these stories of just depleting everything they have if they didn't do the proper planning. I had one specific question with the Medicaid. Medicaid has their own um like caretakers or you can get whoever you want and Medicaid will reimburse them. Do you >> question? So there are two there's a there's a program called child caregiver CDPAP or now it's taken over by a company called PPL that that's where you can get a child caretaker to care for you and get paid for that under Medicaid >> or you can any home care agency that you see you know that advertises um is Medicaid has a what's called Elix Medicaid license and they get reimbursed from Medicaid um so you're not paying anything out of pocket they're sending the aids covered by Medicaid You can obviously choose the aid. If you don't like the aid, you can go with another agency. It's about you getting coverage more than it is about anything else. You get the coverage and then you can work, you know, from a care standpoint to see what care fits um and what care would work for you. >> Right. So, so Medicaid is Yeah. It's just about getting the coverage, but you you're you are covering your need, you're saying, by >> by uh becoming eligible for Medicaid. And I'm assuming what who would be a good candidate for long-term care insurance? Do you think everyone should do Medicaid planning or there are people that just like what I'm thinking is someone who doesn't want to necessarily take their assets out of their name? >> Right. >> I think long-term care insurance requires somebody, you know, at a at the at the prime age in their life and that they could afford it. Um, and if they, you know, whether they're 40, 50, once you age into, you know, 55 plus, 60, I think at that point, but you, you're the expert here, is I don't know what the costs are, but the the premiums are very, very expensive. They >> get expensive. And again, it really depends on somebody's financial on financial um ability, if they could afford it, if they, you know, see themselves um in a situation where they will never, you know, qualify for Medicaid, whether their assets are, you know, they have a significant amount of assets and they don't want to put it into these type of trusts. And, you know, in that situation, definitely definitely, you know, consider long-term care insurance, >> right? So, not right. So, in a Medicaid asset protection trust, what nec like what happens to the assets, right? They're not it's irrevocable. It's not in your name, but what can you Let's say someone puts their assets in there. What benefit do they still have from their assets? Can they use it? Can what do they >> That's a good question. Let's let's talk about a house. House is the easiest thing to go into a trust. So, they put their house into a trust. Okay. Um and the house nothing changes for them. Meaning the keys don't change. uh they they'll still continue paying their bills. If there's a mortgage, they'll pay their mortgage. But now what they did is, you know, they took $2 million, let's say they're at an age where they've paid off their mortgage, $2 million of equity, they put it into a trust. They and and let's say they had, you know, let's take an example. Somebody has a million dollars in the bank in a brokerage account plus a house. Okay? Um which is, you know, a normal situation. They have a million dollars in the bank. They have they're in a brokerage account plus a house and they have a checking and savings account. Um they're at an age they're 75 plus 80 85 plus whatever the age might be. They need they're going to need care. They take their house they put it into a trust. They take their million dollars in the brokerage account. They put it into a trust and they now qualify themselves for Medicaid. Now the house life goes on the way exa exactly the way they you know it was going on till now. So nothing really changes. the brokerage account. If their intention was that that brokerage account is really earmarked for the next generation, they're not planning on taking it, then all it is, it's now sitting under this umbrella called a trust versus in their own name and it's growing. It's in a brokerage account and they're benefiting by the fact that it's there. It's not going to the beneficiaries yet, but it's sitting there and it's growing in their in their trust. Um, how are they living? They're getting their income. They have their pension and their social security and their IRA or 401k RMDs, their required minimum distributions all coming to them. That's providing for their income on a day-to-day basis. And their life is, you know, and now they're eligible for Medicaid because again, from an asset standpoint, their big assets are now in a trust. Their income is not, it's not an income test, it's an asset test. So now they qualify themselves for Medicaid. It's a perfect example of somebody who's they have the money, their money is safe, their money is protected, their money continues to earn money in a brokerage account, life's not changing for them, and they also are eligible for Medicaid. >> Mhm. And and theoretically, I was going to ask, but if their their house is in this Medicaid trust, could they be thrown out of their house? >> No. Never. Never. the trust the trust basically has you know stipulations that they are in control of the house >> stipulations okay >> around you know they're in control of the house also something to mention is that is that some people are quick to just put the house into their kids' name so we've seen that where they transfer the deed into their kids' name >> that's a big mistake because obviously there's your kids could have their own creditors whether they're going through a divorce whether they you know have their own creditor issues but more importantly if you transfer your house into your kids' names during your lifetime, you lose what's called a step up in basis. >> Okay? So, you lose the the the tax advantage of the kids getting it as a inheritance versus giving it to them during their lifetime. So, really putting it into this trust maintains a step up in basis, maintains all the tax advantages, but also puts it on the side, earmarks it, doesn't go through probate, earmarks it for the next generation, and gets you into this position where you're eligible for long-term care under Medicaid. Mhm. Yeah. I would just elaborate personally for a second on the step up in basis rule because I just had this with someone someone who had a million dollars in an IRA um individual retirement account, a pre-tax account that they put money away in, they passed away, it went to their beneficiary. Um but on an IRA, for example, and they had put in $250,000 and it grew to a million dollars. So it had $750,000 of growth. and the child who received that IRA wants to take money out of it, they're going to have to pay taxes on anything that they do more than this 250,000. Even though it was worth a million dollars, upon the death of the parent who passed it down, it doesn't get what we call that step up in basis, meaning anything above what was put in, which is called the basis, you pay taxes on. So that's just a I don't know if that lost everyone or maybe smarter or not. Um >> I'll give you the example in a house just just to relate it back to a house. Um people paid let's say $100,000 for their house. The house is now worth $2 million. There is a >> 1.9 what do we say? We started $100,000 1.9 gain in that house. Okay. Um if they sell it during their lifetime they get a $250,000 credit. each each husband each spouse gets $250,000 and then they pay capital gains capital gains >> on everything over that you know that $600,000 basis in the house. Um it's actually it's actually a credit but in any event they'll pay capital gains tax. Now >> when you sell an asset again sorry to make it so simple but when you sell an asset that has gained you paid for it and it has gained government takes a piece of that. >> Correct. >> Right. However, if the family now if they leave it over in the family and and it goes down as an inheritance at that point there is something called a step up in basis where the the kids now step into the shoes of whatever the basis is at the date of death. So they get it at the $2 million at the $2 million mark and if they sell it the day later they pay zero in tax. It's it's a significant, you know, gain, especially when you're talking about real estate or any appreciated asset that went up over the course of, you know, parents lifetime. >> Mhm. So, anything in let's say a regular irrevocable trust, does that get a step up in basis or >> Yes. So, it's a good question. >> If it gets too complicated, we can >> No, it's a good question. There are different types of trust. Okay. So in order for it to be to to retain this aspect of it whereby it's going as an inheritance, it has to be what's called a defective grantor trust where for to back to your question, they have the right to live in it. That makes it in a sense defective because they're giving it to the trust, but it's not entirely owned by the trust. They still retain an interest in that property and therefore you can get a step up in basis. um where you put it into a trust that's completely out of your your world entirely and those are they're you know complex trusts and things like that and that's really where people do that for tax planning there you're moving it entirely out of your estate and there you do lose the step up in basis right so you see right away the tax tax environment of the US is you want to avoid estate taxes by taking it out of your property but you lose the step up in Right. Right. >> So, >> so it's always dealing with that, you know, the conundrum there, >> the balance and the conundrum. Um, okay. Okay. So, yeah, and that's again where it gets a little bit more. Um, so let's just review what we just discussed in Medicaid. We'll we'll discuss a couple more topics and we'll wrap it up. Um, again, with the Medicaid, the goal is to make it out of your take it out of your property, make yourself po in the poverty world. Um, and then you can be eligible for, you know, Medicaid, which is the government sponsored long-term care insurance, uh, which is a sizable amount of money that they, uh, could provide for you. And it's, to be honest, how many meetings does it take to create a Medicaid plan? It's >> generally two meetings. >> Two meetings. >> So, the first meeting we meet and then we sign. >> Two meetings. I mean, can you imagine two meetings? If someone doesn't do those two meetings, they could be losing millions of dollars. Um, it's it's incred. I find this in any financial planning space how such small decisions can make such a huge financial difference. You agree? >> Absolutely. >> We're on the same page. Um I would ask one more maybe a couple more questions, but one thing that I think is important to stress, not just because I uh sell it, um but how important would you say having life insurance is in an estate plan? >> I think it's critical having life insurance today. I know there's a big push for, you know, especially younger, especially Rabam, um especially reviewing it during your, you know, as your financial situation changes throughout your lifetime, making sure that there's money and there's money available to um there's money available for the family to continue living. I think it's uh it's in a way sinful not to think about life insurance um to make sure that there's money available for the family if god forbid there's a tragic event. Now, some people use life insurance. Not that we're, you know, we're trying to maybe, you know, put the tax planning um a little bit on the side of this conversation because it requires, you know, a lot more um heav heavier lifting on a conversation. Many people use tax um life insurance as a way to pay taxes when the taxes are due because if they have real estate, they have a large portfolio of real estate and those are not liquid and they leave it over to the next generation and there is an estate tax to be paid. Where does the money come from? They could be in a situation which I've seen where they are forced to sell assets to pay the taxes. But if they would have considered doing life, you know, buying life insurance policies specifically for the purpose of having liquidity to pay off those taxes, they're in a much better situation. So again, >> the life insurance is critical for the person that, you know, just needs it for financial stability as they're raising kids, as they're, you know, in a situation between, let's say, 2021, the time they get married, they have a kid, um to, you know, 55, 60, they're married off, god willing, their kids. But that that is really just to make sure that they can continue and they're not relying on um you know, handouts. Nobody wants to be in that situation, god forbid. Um, so that's really just um ensuring that they have this, you know, in place and like any other insurance, you wouldn't drive your car without without car insurance. You shouldn't be walking around with life without life insurance. Um, and then there's a component of, you know, getting life insurance to handle some aspects of your, you know, within your financial and your planning and your financial planning, your tax planning, your legal planning. there is an there is a there is a place for it that holds significant value around making sure that there's liquidity for the next generation. >> I think that's an important point to emphasize because that doesn't make a difference whether you're high net worth or not. If someone has $20 million of assets and they have a will and they did all their estate planning, they have a will, they have trust, etc. Um but if they didn't do proper planning around having life insurance, they need liquidity to cover cash flow. Right. Right. after they pass away, there's no income. So, life insurance is a it's a it's literally a paycheck that comes in after someone passes away. And that could be if you're worth $20 million, but your money's in real estate. It's not you're not, you know, you're not buying groceries with uh your building, right? And anyone even someone all the more so someone who's in in, you know, middle class that needs that as an income replacement, um having life insurance is an essential piece of of really uh planning an estate. And it's not expensive. Someone's doing an estate plan, like we've said before, they can put it into a special trust that puts it out of their estate. Um, but it it's something that's not expensive and could do so much for a family in this type of planning. I mean, you're saying you've seen things like this, right? >> Sure. Sure. >> Yeah. I >> feel it feels almost like it's your responsibility more than, you know, and I, you know, for the younger age, for sure. And then for the people who are have the financial wherewithal as they age and they have the significant assets then you know also feels like you know you just don't want to leave people without without liquidity >> right okay so I think that was an amazing overview of basic estate planning um before we re recap it is there anything we missed do you think that we should mention >> I think we spoke about one thing that we didn't mention was the hahik aspect um wills planning Um >> what's the basics of that? Yeah, >> basics obviously there's there's two components of um planning in general. This is there's a concept of if there are boys, girls should not inherit. That's the the conversation around and then there's a conversation of uh a bakar, right? into having a um a bar and giving that bakar pim. Um obviously everybody has to speak to their their rav and understand what that what that looks like for them specifically and understand their wishes specifically if that's how they want it and and and how to work around it. So generally what people do if they don't want to or if they do want to they put in provisions into their will. Um and again this is just my simple understanding of what that looks like. Basically the way that looks like is maybe like uh you know selling yours in a sense or however you want to look at it but it it it it basically operates that the will has language that this becomes a gift prior to prior to passing. So instead of it being a yusha where then you run into the if you give it as a matana during your lifetime you're entitled to give a matana throughout your lifetime and end up with nothing and give as much as you want or as little as you want to whomever you want. And this is a way for people to give all their kids equally. um make sure that you know and and and make sure that they give the the the the the woman and you know the the the girls >> um >> and make sure they're it's accounted for in a in a in a equal fashion and also considering halak obviously. So so so that's the when you do trust planning the way I I understand trust planning is that that is a gift during your lifetime. So it doesn't really need a hikic um provisions because you're essentially giving that away into this vehicle, this entity that's giving it away during during your lifetime whereby it doesn't it's no longer classified as yusha. It's now a matana during your lifetime. >> Mhm. Okay. I think that pretty much covers what we needed to cover. Um, of course there's a lot more details and sophistication when you move into the more advanced planning, estate planning, estate taxes, but I mean after hearing a podcast like this, um, I I can't imagine, again, I'm not trying to toot my horn, but I can't imagine someone could listen to this and not get a will done and basic trust, I mean, and basic life insurance. I mean, >> there's no excuse for it. Um, >> yeah. and and I could I couldn't I can tell you you know it is a notion out there that I'll never qualify for Medicaid. >> Okay, >> 99% of the people we speak to qualify for Medicaid. There is ways there is so any any aspect of this conversation it's really about getting educated, getting knowledgeable, meeting the right person, getting the right information and seeing how it applies to your situation. I've met with people years after they've spent significant amounts of money on their care and they then were like, "Oh, I wish I would have done this earlier. I could have saved all this money." Obviously, you know, it's important to get, you know, to to get educated and to and to understand that there are always options. It's just about speaking to the right people, understanding your options, seeing if they apply to you, seeing, you know, what you might have to give up in order for them to apply to you. and uh and um and uh assessing it for yourself. >> Yeah. Yeah. That's what I see from this Medicaid also. And and yeah, if things are a little complicated or you know, you have your attorney, a financial planner could be part of the team to help you coordinate, negotiate, understand. I mean, between there's plenty of resources to get it done. >> Um so I wanted to thank you Paul for all that great information. you'll send me the bill after the podcast for an hourly rate. Um, but the truth is it really was informative and very very easy to understand. I look forward to, you know, continuing making sure people plan properly. Um, and uh, thank you again. Thanks so much. >> Pleasure. Thank you.