Dear Len & Rosie
My dad is 90 years old and in excellent health except for losing his eyesight to macular degeneration. He can no longer live alone. He has approximately $300,000 in the bank. He has three children, and I understand that he can give us each $14,000 per year. Are there any circumstances that he can give us more? The reason for this question is the rule about not giving gifts over $14,000 for a three-year period before you enter a nursing home.
You have mixed up the gifting rules for Medi-Cal eligibility with the gifting rules for Federal Gift and Estate Tax. Under gift and estate tax law, your father may give up to $14,000 each year to as many people as he wishes, without having to report his gifts to the IRS on a gift tax return (IRS Form 709). But federal gift tax law has absolutely nothing to do with Medi-Cal. Any gifts that your father may make will be subject to both the $14,000 gift tax exclusion and Medi-Calís transfer penalty rules.
If your father ever needs nursing home care and applies for Medi-Cal, he will have to disclose every gift he made in the 30 months (not three years) prior to applying for benefits. Each gift triggers a transfer penalty period during which your father cannot receive Medi-Cal. This does not mean that your father cannot get Medi-Cal benefits for 30 months after he makes a gift. The transfer penalties are applied retroactively to when the gifts were made. If your father makes gifts and waits out the transfer penalty periods before applying for Medi-Cal, heíll be eligible.
If all of this sounds complicated, itís because it is. Part of Medi-Cal planning is devising a gifting strategy to minimize the transfer penalties, and it is appropriate to start Medi-Cal planning when a person such as your father is in a nursing home, or suffers from an ailment that is likely to put him in a nursing home someday.
To make it even more complicated, federal law has changed. Once California implements the new rules, youíll have to disclose gifts made in the five years prior to filing the Medi-Cal application, and Medi-Cal transfer penalties will no longer be applied retroactively. The bottom line: Donít do this at home. Itís also vitally important to remember that while your father can give his money away, you canít, at least without his permission. If you are going to transfer money out of your fatherís name on his behalf, you had better have a durable general power of attorney that specifically authorizes you to do this gifting. Otherwise youíre stealing your fatherís money.
You should also consider whether or not your father will ever need nursing home care. Itís certainly a possibility, but absent some other disability, a nursing home is not usually an appropriate care environment for the elderly blind person. However, if your father considers the risk of spending his money on nursing home care unacceptable, he should consult with an elder law attorney and start Medi-Cal planning now, so heíll be eligible for Medi-Cal, or at least be closer to being eligible, if he needs nursing home care in the future.
Len & Rosie
Dear Len & Rosie,
My sister and I inherited a two million dollar apartment building. My wife of 31 years and I have a trust. I have no problem adding her name to the deed as a trustee, but could I stipulate in an agreement with my wife that if she asked me for a divorce down the road she would give the property back to me?
Everything you and your wife acquire during your marriage as a result of your labor is community property. But you did not earn your inheritance. Everything you inherit is your separate property, and will remain separate property unless you do something to transmute it into community property. California law requires an express transmutation in a writing that clearly states you are converting your separate property to the community property of you and your wife.
The trust documents we draft for married couples include a provision that says putting property into the trust, or taking it out of the trust, will not change its characterization as either separate or community property. Because of this provision, your inheritance should not be transmuted into community property if you put it into your revocable trust, even if your wife is a trustee. Our trust documents also allow either spouse to hold his or her separate property in his or her name as sole trustee, even though both spouses are trustees of the overall trust.
But thatís not playing it safe. We did not draft your trust document, so your trust could say otherwise. If you sign a deed putting your half of the apartment building into your joint trust and you get divorced later, your wife can make things very difficult for you. Remember the old saying that possession is nine-tenths of the law? If the two of you get divorced, she may refuse to sign a deed putting the property back into your name, even though it belongs to you alone. It would make your divorce more expensive than it would be otherwise if you have to fight her over this.
Itís a silly rule, but the best way to keep your separate property separate is to keep it separate. The cautious thing for you to do would be to keep the property out of your wifeís name, even as a trustee. Create a new revocable trust just for your separate property. Keep it separate by never, ever transferring anything into your separate property trust that can be traced to any community property source. Name the children as your successor trustees instead of your wife. Or, consult with your estate planning attorney and review your trust to verify what would happen to your apartment building if you were to get divorced.
On the other hand, you and your wife have been married for over three decades, and you can be fairly sure that she hasnít stuck with you this long just to cash in on your inheritance.
Len & Rosie