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Ask Todd: What is the five year look back period? · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
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  Speaker 1: If you have an existing estate plan or in the
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  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: Ask Promised Fight now joined by Todd Lutsky from the
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  Speaker 2: law firm of Cushing and Dolan for Ask Todd. This
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  Speaker 2: ask Todd your estate planning questions live on air right
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  Speaker 2: now again.
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  Speaker 1: Eight eight eight.
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  Speaker 2: Two zero five two two sixty three is the number,
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  Speaker 2: and we've got plenty of room, but make sure that
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  Speaker 2: you get in early because we can usually only get
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  Speaker 2: to two or three calls. That phone number again, is
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  Speaker 2: eight eight eight two zero five two two six three.
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  Speaker 2: Mister Lutsky, how you doing today?
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  Speaker 3: I'm doing great? In you?
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  Speaker 2: Uh doing okay? I went too over the long weekend.
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  Speaker 2: I was trying to buy a new mirror and I
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  Speaker 2: went to the store and the guy tried to sell
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  Speaker 2: me a broken one. Yeah, and I said, man, that
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  Speaker 2: really reflects poorly on you. You know, it just was
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  Speaker 2: not good. Todd, I want to talk to you a
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  Speaker 2: little bit about the five year lookback period that is
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  Speaker 2: often referenced for protecting assets from long term care costs.
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  Speaker 2: Can you give listeners a little bit of detail, maybe
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  Speaker 2: an example or two of just how that five year
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  Speaker 2: look back actually works in practice, Like what does it mean,
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  Speaker 2: Like what actually happens during a medicaid application for that
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  Speaker 2: five year look back?
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  Speaker 4: Yeah.
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  Speaker 3: I think it's important to understand not only the five
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  Speaker 3: year look back, but conversely the penalty period calculation. There's
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  Speaker 3: actually two different calculations that are done. So the most
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  Speaker 3: common one, the one you're referring to, is this five
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  Speaker 3: year waiting period. So if you were to take an
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  Speaker 3: asset and move an asset, the rule generally is that
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  Speaker 3: you take an asset that is otherwise available to the
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  Speaker 3: nursing home and put it somewhere that it's no longer available,
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  Speaker 3: and you don't get back fair market value in exchange
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  Speaker 3: for the transfer. That's a bad thing, that's a disqualifying transfer.
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  Speaker 3: And so from the moment you do that, call it
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  Speaker 3: the date of gift. The moment you do that, that
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  Speaker 3: starts a five year waiting period. So for the next
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  Speaker 3: five years you are not able to apply for Medicaid.
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  Speaker 3: In other words, if you stay out of a nursing
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  Speaker 3: home for five years, then whatever you transferred, probably to
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  Speaker 3: one of these Medicaid irrevocable trusts, would then be protected
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  Speaker 3: from the cost of long term care and no payback
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  Speaker 3: provision needed. Okay, so that's that's pretty clear. So you
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  Speaker 3: don't have to worry about the value how much you transferred,
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  Speaker 3: what it was worth. You just know that it's five years.
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  Speaker 3: It could be a dollar, it's five years, okay, so
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  Speaker 3: we don't have to worry about that calculation. But if
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  Speaker 3: you make a gift, do this transfer, and want to
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  Speaker 3: apply for nursing home care, say after two years, well
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  Speaker 3: then what would happen is they would say, well, not
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  Speaker 3: only did you not make the five years, but maybe
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  Speaker 3: the penalty period is shorter, and the penalty period is
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  Speaker 3: the value of the transfer. Let's say two hundred thousand
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  Speaker 3: divide by the average monthly cost of nursing home care
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  Speaker 3: in the state, which that number fluctuates all the time.
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  Speaker 3: I don't know exactly the number today. I think it's
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  Speaker 3: somewhere around fifteen grand, fourteen or fifteen grand, and then
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  Speaker 3: you divide that out and it gives you a number
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  Speaker 3: of months. Now, that number of months could be far
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  Speaker 3: less than five years. People say, well that's great. Yeah,
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  Speaker 3: well that's great, but that's not how it works. That
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  Speaker 3: smaller penalty period would not begin to run until you
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  Speaker 3: enter a nursing home, apply for Medicaid and get denied
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  Speaker 3: because of that transfer. That's when the start date would run.
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  Speaker 3: So we're much happier with just the five years. Get
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  Speaker 3: it in, get it done, move on, and get over it.
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  Speaker 3: So there's a little difference between the two. But yeah,
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  Speaker 3: getting that five year clock started, folks, Planning in advance
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  Speaker 3: is generally better than not planning in advance, and you
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  Speaker 3: have more options when you do it. For example, even
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  Speaker 3: if you had gotten past four years and you got sick,
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  Speaker 3: you might say, oh, you know what, I'll just private
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  Speaker 3: pay for one year and now I'll protect all these
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  Speaker 3: assets that I transferred at the car of maybe one
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  Speaker 3: hundred grand I might do that. You'd have that option available,
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  Speaker 3: So always good to get the clock running.
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  Speaker 2: Folks, talking with Todd Lutsky from the law firm of
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  Speaker 2: Cushing and Dolan. Still room on the phone lines for
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  Speaker 2: All right, let's get right to your calls for Todd.
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  Speaker 2: Let's key first in the queue. Oh I just closed
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  Speaker 2: my screen. Okay, here we go first in the queue
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  Speaker 2: for mister Letsky. We got Chris in Milton Chris, what's
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  Speaker 2: your question for Todd?
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  Speaker 4: Hi, Todd. Okay, I'm helping the family of a deceased
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  Speaker 4: relative to a Massachusetts a state tax return. Okay, you know,
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  Speaker 4: sadly anyway, sadly. The question I have is theres four
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  Speaker 4: lots of land in Florida. You know, land isn't as
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  Speaker 4: expensive as here, but they're worth about one hundred and
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  Speaker 4: fifty thousand in total. Okay, And I've seen three different
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  Speaker 4: approaches to how to handle that on the massive state
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  Speaker 4: tax return.
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  Speaker 3: Okay. I can stop you right here and give you
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  Speaker 3: the answer. Okay, Ready, Ready, Ay, Ready, great question, and
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  Speaker 3: you can read the statute six ways to Sunday. And
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  Speaker 3: I've lectured on this. They get it wrong. Okay. So Massachusetts,
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  Speaker 3: let's just be clear Massachusetts. Well, first of all, the
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  Speaker 3: person that died, I assume is a Massachusetts resident, correct okay,
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  Speaker 3: and owns out of state property in Florida.
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  Speaker 4: Correct, yep, correct, yump, it's worth one hundred and fifty thousand.
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  Speaker 3: Massachusetts cannot tax out of state property. There's a dissori case.
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  Speaker 3: That's the name of the case, the dissory case that
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  Speaker 3: it was done, and it was stated that it is
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  Speaker 3: unconstitutional for Massachusetts to tax out of state property. But
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  Speaker 3: the way they tell you to calculate it on the
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  Speaker 3: seven oh six, even in the instructions to the seven
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  Speaker 3: oh six, is inaccurate. Okay, So the way you report
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  Speaker 3: it is you simply put on the seven oh six
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  Speaker 3: tax return, you know, let's just call it Florida property
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  Speaker 3: located at XYZ Street, and you know, describe it and
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  Speaker 3: put zero next to the value zero. Do not put
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  Speaker 3: a value on it. You can show it, but put zero.
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  Speaker 3: It is not taxed. It's not subject to a calculation,
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  Speaker 3: it's just not taxed. So hopefully that helps you. And
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  Speaker 3: I know the instructions are incorrect in terms of telling
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  Speaker 3: you how to report it, and oftentimes the statute, although
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  Speaker 3: I think they're working on updating and I think they
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  Speaker 3: updated it in August of twenty twenty five finally, and
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  Speaker 3: I think they got it right. I think it's sixty
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  Speaker 3: five C is the statute, and you can find out
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  Speaker 3: how they calculate the tax but not taxable. So great question,
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  Speaker 3: and I think that Chris helps a lot of people
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  Speaker 3: out there. Even practitioners sometimes don't realize that it's that
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  Speaker 3: it's not taxable in mass and they might even now
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  Speaker 3: be saying, I'm going to go back and amend my
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  Speaker 3: seven h six is that I've done for my clients
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  Speaker 3: to get a refund because I actually ended up paying
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  Speaker 3: tax on it when I should not be So great question.
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  Speaker 3: Thanks for that. And folks, that's somebody who passed away.
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  Speaker 3: But people who are living and are faced with nursing
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  Speaker 3: home care last minute, we have a guide long term
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  Speaker 3: care planning for the procrastinator right. It helps us understand
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  Speaker 3: not to write the check last minute. People who have
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  Speaker 3: done planning are going to have some assets outside the trust,
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  Speaker 3: that's okay. People who have not done planning are going
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  Speaker 3: to have more assets at risk. So there's something for
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  Speaker 3: everyone in this guide. If you're faced with going into
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  Speaker 3: a nursing home, this guide will help you understand how
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  Speaker 3: annuities work to protect excess dollars excess resources, and it
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  Speaker 3: will also explain pool trusts. It also explains how assets
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  Speaker 3: are accountable and not countable depending on you know what
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  Speaker 3: they are, from houses to rental properties, to vacation homes
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  Speaker 3: to iras, yes life insurance. They're all treated differently for
• 9:56
  Speaker 3: married couples and for single people, so you need to
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  Speaker 3: understand and the difference. Folks, get the guide, don't write
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  Speaker 3: to check eight six six eight four eight five six
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  Speaker 3: nine nine or Legal Exchange show dot com. You can
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  Speaker 3: download it there again eight six six eight four eight
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  Speaker 3: five six nine nine or Legal Exchange show dot com.
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  Speaker 2: Todd got another one for you. Let's go to Steve
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  Speaker 2: in Plymouth. Steve, what's your question for Todd?
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  Speaker 5: Yeah, I think thank you for having me. I think
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  Speaker 5: you partially answered my question with this last answer. I
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  Speaker 5: was initially calling to find out what type of vehicles
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  Speaker 5: could this five year look back utilize? And it sounds
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  Speaker 5: like there's different types of trust that you mentioned. And
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  Speaker 5: my second question was what happens if I move during
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  Speaker 5: the five year period and go to a different state.
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  Speaker 5: Is the five year clock reset or how does that work?
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  Speaker 3: So great question and for everybody, folks. When I mentioned trust,
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  Speaker 3: there there's really only one kind that I'm aware of.
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  Speaker 3: So if I'm going to be doing this, is makes
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  Speaker 3: it so much easier for everybody. Right, If I'm going
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  Speaker 3: to be trying to protect assets from the cost of
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  Speaker 3: long term care, I'm going to use a Medicaid grant
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  Speaker 3: or irrevocable income only trust. I would make the title
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  Speaker 3: longer if I could, But that's basically the description of
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  Speaker 3: the kind of trust that you need. There's really no
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  Speaker 3: other kind that I'm aware of that will give you
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  Speaker 3: that protection. And yes, to your point, Steve, the moment
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  Speaker 3: you put the assets into that trust, whether it's a
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  Speaker 3: home of vacation, home, money, a brokerage account, doesn't matter.
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  Speaker 3: Not your IRA, but these other assets, that starts the
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  Speaker 3: five year clock running. And if you stay out of
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  Speaker 3: a nursing home for five years and then get sick,
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  Speaker 3: those assets are protected and not subject to a state
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  Speaker 3: recovery or payback to the state after you pass. So
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  Speaker 3: that takes care of that piece. Then of course you
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  Speaker 3: ask what happens if I move? If you move, not
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  Speaker 3: a problem. I've been at this for over thirty years
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  Speaker 3: and i can't tell you how many people I've kicked
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  Speaker 3: out of the state. I shouldn't say it that way,
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  Speaker 3: but you know that they want to protect assets, they
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  Speaker 3: want to not pay a state taxes, they want to
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  Speaker 3: move to a state that doesn't have a state taxes.
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  Speaker 3: But yes, that happens. And if they move, whether it's
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  Speaker 3: during the five year waiting period or after, it doesn't matter. Yes,
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  Speaker 3: you need to update. Say you move to Florida, you
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  Speaker 3: need to update all of your estate planning documents, the will,
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  Speaker 3: the healthcare, the power of attorney to reflect Florida. But
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  Speaker 3: you don't have to change the trust and you will
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  Speaker 3: not reset the five year waiting period. So I think
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  Speaker 3: we've addressed your questions. Hope that helps. So that, Folks,
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  Speaker 3: is basically the plan for for Steve, and I hope
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  Speaker 3: I addressed that for Kirk, for Chris as well.
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  Speaker 2: Todd. We were talking earlier in the segment just about
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  Speaker 2: you know that five year look back period. Someone isn't
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  Speaker 2: through that five year period. What options are available for
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  Speaker 2: last minute planning, just in terms of you know, quick
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  Speaker 2: general summary.
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  Speaker 3: So I think let's just put some numbers to it
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  Speaker 3: so we can make sense. Let's say we've put in
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  Speaker 3: an irrevocable trust, like I was just talking about with Steve.
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  Speaker 3: Let's say we put in an irrevocable trust, a million
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  Speaker 3: dollar home and five hundred thousand dollars investment portfolio, and
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  Speaker 3: we're four years into our waiting period. Okay, put outside
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  Speaker 3: the trust. There's always something right like what will the
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  Speaker 3: IRA that never went in the trust? We couldn't put
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  Speaker 3: that in the trust, because if we moved it to
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  Speaker 3: a trust, we would have, you know, a huge income
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  Speaker 3: tax hit. So let's say there's a half a million
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  Speaker 3: dollars sitting in an IRA and fifty thousand sitting in there,
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  Speaker 3: you know, their their personal bank account. Okay, folks, this
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  Speaker 3: is typical. This is exactly what you might run into
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  Speaker 3: even after you've done the planning, which is why the
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  Speaker 3: guide is really for everyone, because there's always going to
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  Speaker 3: be these assets outside the trust. But because they got
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  Speaker 3: this clock started. One of the options I would give
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  Speaker 3: them when they would come in the door would be, well,
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  Speaker 3: you're four years in. You could just private pay for
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  Speaker 3: one year and that'll get you to the five years.
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  Speaker 3: And if I private pay for one year, I will
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  Speaker 3: protect one point five million dollars of assets that I
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  Speaker 3: tucked away in the trust years ago. Correct, correct? I
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  Speaker 3: tell them, great idea, Well how much is that going
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  Speaker 3: to cost me? Well? I don't know, probably about one
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  Speaker 3: hundred and forty grand, but you know what you might
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  Speaker 3: be getting thirty grand or so in social security, so
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  Speaker 3: it's really only going to cost you about one hundred
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  Speaker 3: and ten grand. Oh look, I got five hundred thousand
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  Speaker 3: of my IRA I'll just use that and then after
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  Speaker 3: that we've protected a million five, then we will then
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  Speaker 3: apply all the things that are listed in this guide
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  Speaker 3: as to how to protect the balance of these assets
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  Speaker 3: that are outside the trust so that you could still
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  Speaker 3: become eligible for medicaid. So hopefully that's helpful.
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  Speaker 2: Fantastic, mister Watski. Thank you so much for the time.
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  Speaker 2: We appreciate it.
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  Speaker 3: Always a pleasure. Thank you.
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  Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
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  Speaker 1: Askedd with Todd Lutsky has been presented by Cushing and Dolan,
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  Speaker 1: serving Massachusetts and New England for more than thirty years,
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  Speaker 1: helping families with the state and tax planning, Medicaid planning,
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  Speaker 1: and probate law. Call eight hundred three nine three four
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  Speaker 1: thousand and one or visit Cushingdolan dot com. The views
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  Speaker 1: expressed in this segment are solely those of Cushing and Dolan.
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  Speaker 1: Armstrong Advisory does not provide any legal or tax advice.
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  Speaker 1: Please consult with your legal or tax advisor on such matters.
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