Annual Gift Tax Exclusion:
Technique to allow gifts without the imposition of estate or gift taxes and without using lifetime exclusion.
Children’s or Grandchildren’s Irrevocable Education Trust:
A Trust used by parents and grandparents for a child’s or grandchild’s education.
Charitable Remainder Interest Trust:
A trust whereby donors transfer property to a charitable Trust and retain an income stream from the property transferred. The donor receives a charitable contribution income tax deduction, and avoids a capital gains tax on transferred property.
Family Limited Partnership:
An entity used to:
- Provide asset protection for partnership property from the creditors of a partner
- Provide protection for limited partners from creditors
- Enable gifts to children and parents maintaining management control
- Reduce transfer tax value of property
Federal Estate Tax:
A tax levied by the federal government upon the estate of a deceased person. The federal government gives certain exclusions and deductions and then taxes everything above a set level.
Fractional Interest Gift:
Allows a donor to transfer partial interests in real property to donees and obtain fractional interest discounts for estate and gift tax purposes.
Funding:
Is the process that entails transferring assets you own as an individual into the name of your Trust.
Generation Skipping Tax:
This is a tax levied on assets that are given to individuals who are more than one generation away from the donor. An example would be a grandparent giving an asset to a grandchild either during the grandparent’s life or at death. Effective use of generation-skipping exemption allows the assets to avoid estate tax inclusion in the child’s taxable estate.
Guardianship/Conservatorship:
Is a court-supervised proceeding which names an individual or entity to manage the affairs of an incapacitated person. A guardianship may also include the duty to care for the incapacitated person.
Health Care Power of Attorney:
Instrument used to allow a person you name to make health care decisions for you should you become incapacitated.
Irrevocable Life Insurance Trust:
A Trust used to prevent estate taxes on insurance proceeds received at the death of an insured.
Joint Tenancy:
When property is held in joint tenancy with rights of survivorship by two or more people, upon the death of one of the owners, all of his or her interest in the property is transferred immediately to the surviving owners.
Living Will:
Sometimes called a physician’s directive, is a document in which you give directions for life sustaining treatment should you become unable to communicate your wishes. Some states have combined this into the advanced health care directive.
Pour Over Will:
Is used first to name a guardian for minor children. Second, it protects against intestacy in the event any assets have not been transferred into the Trust at the death of the Trustor/Owner. Its function is to “pour” any assets left out of the Trust into it so they are ultimately distributed according to the terms of the Trust.
Private Foundation:
An entity used by higher-wealth families to receive charitable income, gift, or estate tax deduction while allowing the family to retain some control over the assets in the foundation.
Probate:
Is the court procedure used to change title to assets from the name of an individual who has passed away into the name of the beneficiaries. It is also where all creditors of a decedent file claims to collect their debts and where interested parties can “contest” the Will. An individual who passes away with a Will or no estate plan will go through this process.
Property Power of Attorney:
Instrument used to allow an agent you name to manage your property.
Revocable Living Trust:
A device used to avoid probate and provide management of your property, both during life and after death.
State Estate or Inheritance Tax
A state estate tax is a tax levied by a state government upon the estate of a deceased person. It is levied in much the same way as the federal estate tax. A state inheritance tax is a tax levied by a state government that varies depending upon the relationship of the inheritor to the deceased person. Nearly half the states have a separate state estate or inheritance tax which kicks in at a lower level than that of the federal government.
Step-up in Basis:
A step-up — or step-down — in basis is an adjustment for income tax purposes to an asset’s fair market value at the date of the death of the owner of the asset. For example, if you bought a share of stock for $100 that increased in value to $500 at the time of your death, your tax basis was $100 but increases to $500 at the time of death.
Trustee:
The person or entity in charge of the assets in a Trust. While you are alive, you may act as Trustee. For married couples, either one or both spouses may act as Trustee or co-Trustees. The successor Trustee is an individual or corporation fiduciary whom you designate to be in charge of your Trust in the event of disability or upon death.
Will:
A legally enforceable declaration of how a person wishes his or her property to be distributed after death. In a Will, a person can also recommend a guardian for his or her children.
Elder Law & Nursing Home Protection Definitions
Community Spouse:
The spouse who does not need long-term or nursing home care. This spouse continues to live in the community.
Countable Assets:
Assets that are not exempt are countable. This includes, but is not limited to, checking and savings accounts, CDs, money markets, stocks, mutual funds, and second cars.
Deficit Reduction Act of 2005:
A federal law passed by Congress in 2006 makes pre-planning for Medi-Cal eligibility more important than it was previously. This is because the penalties for transfers will not begin until a person enters the nursing home and is otherwise eligible for Medi-Cal coverage. Use of an Irrevocable Living Trust as a part of this pre-planning is becoming more popular.
Division of Assets:
This is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. It applies only to couples. Their countable assets are divided in two, with the community spouse allowed to keep one-half of the total, up to a certain amount. The other half of the assets must be spent down.
Estate Recovery:
When the Medi-Cal recipient dies, the state may (and often does) seize remaining assets to reimburse the state for the Medi-Cal benefits paid during their lifetime. In many cases, this includes the recipient’s primary residence if they don’t have a surviving spouse. This provides a cost effective way to offset state and Federal costs. You should consult with a qualified professional to analyze your particular situation and protect your home.
Exempt Assets:
Exempt assets are assets which do not count against your monthly resource limit. The list of “exempt assets” may differ slightly from state to state.
Look-Back Period:
If you transfer assets to another individual (spouses excluded) within a certain period of time before you apply for benefits, that gift may disqualify you from receiving Medi-Cal benefits. This period of time is called a look-back period. It is based on a formula that takes the amount of assets transferred and divides that number by the average cost of nursing home care in your state. The resulting number equals the amount of months that the applicant will have to wait until benefits may be received. Under the Deficit Reduction Act, this rule applies to any gifts you make within 5 years of the application. In the state of California things are different at the present time. There is a 30 month look-back period in California.
Medicaid/Medi-Cal:
Medi-Cal is a joint federal and state program that provides medical assistance to low-income persons who are elderly, blind or disabled. Our firm practices in the state of California. Here in California, the program is called Medi-Cal. Unless you are among the minority who has long-term care insurance, most individuals contemplating paying thousands of dollars out-of-pocket every month for long-term nursing home care face the possibility of exhausting all available assets and using up their lifetime savings before being able to qualify for Medi-Cal. A qualified Elder Law Attorney can help your family by using a variety of strategies to help you qualify for Medi-Cal while preserving assets and savings for heirs.
Medicaid/Medi-Cal Triggers:
The special language in a Living Trust that gives the trustee the authority to do certain types of planning, even though the person applying for Medi-Cal is not capable of signing the documents or personally doing the planning.
Medicare:
A federally funded health insurance program designed for Americans 65 years of age and older. It provides a limited long-term care component. Based on certain criteria, Medicare may pay for nursing home expenses, but with a high deductible, for up to a maximum of 100 days
