Vol. 6, No. 2, Pg. 19. Advising the Elderly on Property Transfers: Medicaid and Tax Considerations.

• Author: By Mary Layton Wells

South Carolina Lawyer

1994.

Vol. 6, No. 2, Pg. 19.

Advising the Elderly on Property Transfers: Medicaid and Tax Considerations

19Advising the Elderly on Property Transfers: Medicaid and Tax ConsiderationsBy Mary Layton Wells A retired couple consults a South lawyer for a "simple will." They also want to deed their house to their children and create a "loving trust" The couple mentions a concern that one or both of them may need to seek nursing home care within the next few years. They want to know how to plan their financial and property transactions to avoid spending their life's savings on a nursing home, potentially leaving the institutionalized spouse unable to provide for his or her own needs and effectively disinheriting their children.

South Carolina lawyers who advise clients such as these should be aware that this area involves an interplay between federal Social Security law (Title XIX of the Social Security Act, codified at Title 42, §§ 1396 et seq. and federal regulations to be enacted) and state regulations promulgated by the South Carolina Department of Social Services (DSS) and overseen by the South Carolina Health and Human Services Finance Commission. Before transferring the home to a child or establishing a revocable or irrevocable trust, the tax and Medicaid consequences must be considered.

The transfer of a home to a child may trigger a "transfer of assets penalty' for Medicaid purposes and may result in the child's paying higher capital gains taxes when he or she sells the home than if the home had been inherited or received as a remainder interest Under federal gift tax law, the transferee of the gift assumes the basis of the transferor rather than the "stepped up" basis available to a child who inherits property at the death of the parent The "stepped up" basis is also available when the parent deeds the property to the child while reserving a life estate to the parent.

"Before transferring the home to a child or establishing a revocable or irrevocable trust, the tax and Medicaid consequences must be considered."

Two major criteria govern eligibility for Medicaid: income and resources. The Omnibus Budget Reconciliation Act of 1993 (OBRA) refers to the latter as assets.

Income Rules

The limit on income an individual may have and still qualify for Medicaid coverage in South Carolina is based on Supplemental Security Income (SSI) guidelines that change annually. The present income limit is $1,338 per month. Countable income is defined at Medicaid Policy and Procedures Manual (MPPM), Chapter 19, § 1902.03 as "the total gross income, less exclusions allowed under SSI criteria of an individual or couple, which is budgeted against the [Net Income Limit] (NIL)." The NIL is the sum of the agency-established rate for services of the nursing home and the Personal Needs Allowance. Id. at § 1902.02. The Personal Needs Allowance is a limited allowance, approximately $30, for clothing and other personal items.

South Carolina is an income cap state. Therefore, as a general rule, if a Medicaid applicant's income is more than the income limit, the individual cannot qualify for Medicaid. Some income...