There are numerous life insurance ownership strategies that avoid this outcome. One of the most commonly used strategies involves the affluent individual establishing an irrevocable life insurance trust (“ILIT”) to be the owner and beneficiary of the policy. Upon the insured’s death, the life insurance death benefit paid to the ILIT may be used to provide the estate with liquidity through the trustee either 1) lending money to the insured’s estate; or 2) purchasing assets from the insured’s estate. With proper drafting and execution, such transactions between the ILIT and the insured’s estate should not cause the death benefit to be added to the insured’s estate for the purposes of calculating the estate tax
Of Significance
The 2017 Tax Cuts and Jobs Act doubled the gift and estate tax exemption amount starting in 2018, which has been adjusted for inflation in the subsequent years. This higher exemption amount is set to sunset on December 31, 2025. On January 1, 2026, the exemption amount will revert to the pre-2018 amount of $5 million base per person ($10 million base for married filing jointly), as adjusted for inflation.
If you have a child with a disability, providing for them into the future will likely stand among your top priorities. However, if you also wish to apply for Medicaid to cover your own long-term care expenses, first consider establishing a special needs trust (SNT) for your child. This will allow you to transfer assets to support them while remaining eligible for Medicaid yourself.
The rules for participating in Medicaid, a federally funded program managed by the individual states, are stringent and complex. Applicants must demonstrate that their income and assets are below the limits set by their state before Medicaid will fund their long-term care. Anyone with more than $2,000 (in most states) in “countable assets” (generally, anything beyond their home, one automobile, and personal belongings) will not qualify. At the same time, applicants can’t just give their money away and expect immediate support from the program.
Congress does not want people to move into a nursing home on Monday, give all their money to their beneficiaries on Tuesday, and be eligible for Medicaid on Wednesday. To avoid this situation, any Medicaid applicant who has transferred their assets recently — in most states, “recently” means the past 60 months — will be ineligible for funding for a certain period of time. The duration of these penalty periods is determined by dividing the amount transferred by what Medicaid determines to be the average private-pay cost of a nursing home in that state.
Special Needs Trusts to the Rescue
The good news: Certain asset transfers are exempt from such penalties. Even after entering a nursing home, Medicaid applicants may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
- their spouse
- a trust for the sole benefit of a child (of any age) who is blind or permanently disabled as defined by the IRS
- a trust for the sole benefit of anyone under age 65 who is permanently disabled
In other words, there is a way to set money aside for someone with permanent disabilities and still qualify for Medicaid for your own long-term care. This is possible through an SNT, which is specifically geared to support the beneficiary with disabilities, under the management of a trustee, throughout their lifetime. (In this case, the SNT would be a “ third-party SNT ” because the funds come from someone other than the person with disabilities.)
An SNT also can ensure that the individual with disabilities continues to receive any public benefits already available to them through government programs such as Medicaid and Supplemental Security Income (SSI). That is, if you were to transfer your assets directly to the person with disabilities and their resulting “countable assets” then exceeded a program’s threshold (which is $2,000 for SSI), you may inadvertently have made them ineligible for those government programs.
As parent of special needs children, and with our team at BlueGenie Solutions we stand ready to help you navigate this journey! Reach me @ 210-264-7715 for any questions
Trust will take effect while you're alive, skips probate court for assets held in Trust, Assets stays private.
Ready to create your estate planning docs ? Reach me @ 210-264-7715
2) Decide which broker you want to open the account in - If you already have a brokerage account, its quicker as you wont have to give all details. Login to them and open both a Traditional IRA and Roth IRA Accounts with the same broker. If you want to register new, use the link below to start a brokerage account
https://bit.ly/startwithschwab
https://bit.ly/startwithIB
3) Fund Traditional A/C - Fund it to the allowed limit for the year
4) Rollover the amount from Traditional to Roth
5) Remember to file 8606 to avoid any penalties during tax filing
Note :
- If you already have a traditional account there are some additional steps and checks to go through
- Backdoor Roth has to be done before end of year
Reach me @ 210-264-7715 if you have any specific questions
