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University of Massachusetts Amherst

Family Business Center

Keeping What's Yours Till the Bitter End

by Shel Horowitz

Few things are as un-straightforward as the tax laws involving death, long-term care, and inheritance. If you want to maintain and pass on as large a portion of your estate as possible, you'd better do some serious planning.

Estate planning attorney Bill Bloom, of Westborough-based Bloom & Rosenfield&emdash;who happens to be FBC director Ira Bryck's brother-in-law&emdash;discussed these issues at the May 21 gathering at the Delaney House in Holyoke.

Because every state is different, much of his talk applied only to Massachusetts residents&emdash;specifically, how to plan to deal with MassHealth, the state agency that administers medical care for those with few assets. While many advisors recommend strategies that transfer assets away before you need long term care, Bloom emphasized that sometimes those plans can both cause ethical dilemmas and also have unintended consequences. For instance, if parents turn over their high-value house to their children while reserving a life estate (the right to live in the house), and then one parent dies, the surviving spouse has lost the transfer exemption, while the child faces capital gains on the appreciation of the home's value.

The good news: if you plan early and use competent help, you can set up systems that will actually work. "Start making decisions about asset disposal before you lose the opportunities. Plan early; you can't do it at the last minute, when a parent is about to enter a nursing home." For instance, you have the right to make outright gifts of up to $11,000 a year per beneficiary, which can lower your assets substantially over time, and thus enhance your eligibility for MassHealth. Other strategies include unified credit for tax-free growth, and various trust vehicles including Charitable Remainder Trusts, Grantor Retained Annuity Trusts, and Grantor Retained Unitrusts.

BUT when you apply for MassHealth, you have to report all gifts within the past three years, and all trust transfers for the last five years. Each of these transfers pushes back the effective date of coverage. Right now, MassHealth allows a couple to retain assets of up to $90,660 and still be eligible for long term care assistance. When one spouse is receiving that assistance, the other spouse can keep all income. But all but $60 per month of the applicant's income (plus any insurance premium for long term care) goes to the nursing home.

Therefore, spending down your assets can help you become eligible: make any house repairs and improvements, pay down your mortgage or other debts, pay funeral expenses in advance, and convert assets into income through such tools as income-only annuities.

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