Further Reading

Medicaid Estate Death Tax

While many fixate on the Federal Estate Tax, another pernicious death tax goes unmentioned by lawmakers. The federally mandated “Medicaid Estate Recovery” program requires states recover long-term care costs paid by Medicaid. Put frankly, if you require assistance in meeting your care needs, the Government will demand your home or farm when you die.

Tactics for Avoiding Medicaid Clawbacks

Some transfers do not create a period of ineligibility for Medicaid. There are general exemptions that apply to any transfer, and other exemptions that apply only to the transfer of a residence. Covered will be personal care contracts, deeding a home, life estate deeds and more.

Irrevocable Interest Only Trust ("IOTT") Tax Aspects

Here we cover capital gains exclusion of principal residence, interest mortgage deduction, gift tax, medicaid transfer, and a step-up in basis. We also cover why you should structure the IIOT as a grantor trust to avoid the detrimental tax aspects of trust tax. Consider a Special Needs Trust or look into the differences between ILIT vs FLP for life insurance. We also have some small pages on probate, revocable living trusts, medicaid qualification strategies and living wills.

Conclusion and Warnings

There are additional techniques that may be appropriate depending on your circumstances. You should not attempt this by yourself. There is a good chance you will make one small error, atleast, and the courts will not care it was an error. Hiring professional help for your Irrevocable Medicaid Trust is a small price to pay. We have some literature and examples of Medicaid Spend Down here and a little bit more about Medicare Trust fund and Medicaid Estate Planning.

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