Estate Planning Isn’t Just For The Elderly

Happy, smiling couple in their sixties.

Medicaid Planning in an Article 81 Proceeding

By Anthony J. Enea, Esq.*


In 1965 the Medicaid Assistance Program commonly known as “Medicaid” was created as part of the same legislation that created the Medicare program. Medicaid was created as a health insurance program for the poor. It is a “means tested” entitlement program wherein individuals are entitled to benefits if they are financially categorically eligible. It is a jointly financed federal‑state program.

The Medicare Catastrophic Coverage Act of 1988 made significant changes in the structure of the Medicaid program in three main areas effective October 1, 1989: (1) the transfer of assets rules, (2) the rules regarding the treatment of assets owned by the spouse of an institutionalized patient and how the assets of that spouse would effect the eligibility for Medicaid of the institutionalized patient, and (3) the rules regarding the amount of income and resources the spouse living in the community is allowed to keep.

Major changes to the Medicaid program were enacted as part of the 1993 federal budget bill, the Revenue Reconciliation Act of 1993 (often referred to as “OBRA 93” which became effective on August 10, 1993. These changes were adopted by the New York Legislature and signed into law on June 9, 1994.

Categories of Medicaid Coverage

1. Community Medicaid ‑ Physicians, dentists, pharmaceutical, nursery services and other professional services provided to individuals on a clinical or outpatient basis for individuals who are eligible; and
2. Home Care Services ‑ Home health services, such as personal care services, nursing, physical therapy, occupational therapy and home health aid services; and
3. Institutional Services ‑ Hospitals, other medical facilities, nursing homes and services under the Lombardi long‑term home health care program.

III. Major Changes Implemented by the Deficit Reduction Act of 2005 – Effective February 8, 2006

On December 18, 2005, the U.S. Senate in a vote of 51-50 with Vice-President Cheney casting the deciding vote passed the Deficit Reduction Act of 2005 (“DRA”). As a result of some differences in the Senate and House versions, the legislation was sent back to the House of Representatives for a final vote. On February 1, 2006, the House of Representatives by a vote of 216 to 214 approved the DRA. On February 8, 2006, President Bush signed the legislation into law. The States pursuant to the DRA have a specified period of time within which to adopt said changes or enact enabling legislation if determined to be necessary. It is anticipated that New York will adopt said changes effective retroactively to February 8, 2006.

The DRA affects Medicaid eligibility and the transfer of asset rules in three (3) significant ways:

1. Creation of a sixty (60) month look back period for all transfers of assets, irrespective of whether they are outright transfers or transfers to certain trusts. Under the prior law there was a sixty (60) month look back period for transfers to certain trusts (i.e., Irrevocable Income Only Trust) and a thirty-six (36) month look back for all other transfers. Thus, under the DRA, an applicant for Medicaid will be required to inform Medicaid of all transfers made and provide financial documentation to Medicaid for the five (5) years preceding the date Medicaid is requested.

2. The penalty period (period of disqualification for Medicaid) created by a non-exempt transfer of assets will commence on the later of (a) the month following the month in which the transfer is made (as under prior law), or (b) the date on which an individual is both receiving institutional level of care (i.e., is in a nursing home or receiving care at home under the Lombardi program or other waivered program) and whose application for Medicaid would be approved, but for the imposition of a penalty period at that time.

Thus, under the new legislation, the penalty period for a non-exempt transfer of assets made within the sixty (60) month look back period will commence when the applicant has $4,150 or less, is receiving institutional care (in a nursing home or under a waivered long term home health care program), has applied to Medicaid for assistance and the application would be approved but for the penalty period imposed. This is the most onerous measure contained in the new legislation.

It should be noted that, pursuant to the provisions of the new DRA, and as under the prior law no penalty period is imposed for transfers made by an applicant requesting non-waivered community Medicaid (homecare medicaid).

3. An applicant’s Homestead (house, condo, co-op) with equity above $500,000 will render an applicant ineligible for Medicaid. This provision does not apply if a spouse, child under age of 21, or a blind or disabled child resides in the house.

Each state, however, is given the ability to increase the amount of permitted home equity to an amount not in excess of $750,000. Additionally, homeowners will have the ability to reduce their
equity through a reverse mortgage or home equity loan.

Some of the other significant changes contained in the DRA with respect to Medicaid are that: (a) annuities will be required to name the state as a remainder beneficiary, and annuities that have a balloon payment will be considered a countable asset; (b) multiple transfers in more than one month must be aggregated; (c) the “income first” rule will be mandatory in all states (already required in New York); (d) penalty periods will be imposed for partial months (rounding down will no longer be permitted); (e) Partnership long term care insurance policies will be permitted in additional states other than the four presently permitted, including New York.


Even before the enactment of the DRA the decision to transfer the primary residence raised a number of important issues and concerns for both the attorney and client, for example; gift taxes, potential capital gains tax consequences and, of course, the transfers impact on the Medicaid eligibility of the senior. However, once the decision was made to transfer the primary residence to someone other than a spouse, for Medicaid planning purposes, there are generally three primary planning options available:

(a) Outright Transfer of the Residence Without the Reservation of a Life Estate.

Perhaps the least desirable option available, as the transferee of the property will receive the transferor’s original cost basis in the property (original purchase price/value upon receipt plus capital improvements), and the outright transfer is a completed gift subject to gift taxes. For Medicaid eligibility purposes and pursuant to the DRA, the outright transfer of the residence would be subject to a 60 month lookback period, and if the transfer of the residence was made within the lookback period, the ineligibility period created would not commence until the individual was in the nursing home had applied for Medicaid and would otherwise be eligible but for the transfer. Regardless of the value of the real property transferred, the DRA will effectively disqualify the individual from applying for Medicaid for 60 months.

For example, although the formula used to calculate the period of ineligibility created by a non-exempt transfer of assets would be to take the fair market value of the property transferred, and divide said amount by Medicaid Nursing Home Rate for County of Applicant’s Residence ($500,000) $8,724 (Westchester County Rate) equals 60 months of ineligibility), under the DRA if the transfer was made within the 60 month lookback period, the period of ineligibility would not commence until the applicant was receiving institutional care (in a nursing home) or care under a waivered long term home health care program, had applied for Medicaid and would have been approved but for the transfer made.

Additionally, from a tax perspective the use of an outright transfer of the residence results in the transferor losing the Internal Revenue Code (“IRC”) §121(a) principal residence exclusion for capital gains of $250,000 (single person) or $500,000 (married couple) being lost. However, if the transferee owns and resides in the premises for two out of the five preceding years, he or she will be able to use said principal residence exclusion. Any Veteran’s, STAR and Senior Citizen’s Exemptions are also lost. It is necessary to obtain a fair market value appraisal of the premises gifted for purposes of calculating the federal gift tax credit ($1,000,000 per person) utilized by the transfer.

(b) Transfer of the Residence with the Reservation of a Life Estate.

Under prior law and from purely a Medicaid planning perspective relevant to the length of the ineligibility period created by a non-exempt transfer, this option had some important advantages. Because the retained life estate is given a value by Medicaid, which is subtracted from the overall fair market value of the premises at the time of transfer, the period of ineligibility for Medicaid could, depending on the age of the transferor, be significantly reduced. It was possible to create a period of ineligibility for Medicaid that was often less than 36 months. This was a distinct advantage over the use of a deed without the reservation of a life estate and a transfer to an Irrevocable Income Only Trust, wherein no reduction in the value of the fair market value of the assets transferred is permitted for purposes of calculating the period of ineligibility. However, the DRA has significantly reduced the effectiveness of this option. Although the period of ineligibility created by a deed with a reservation of a life estate would not be longer than 36 months, pursuant to the DRA if the transfer was made within the lookback period (60 months), the period of ineligibility would not commence until the applicant was receiving institutional care in a nursing home or under a waivered long term home health care program (Lombardi program) and was otherwise eligible for Medicaid, but for the transfer made (has no more than $4,150). Thus, under the new law a transfer of real property by deed with a retained life estate will also effectively create a five (5) year period of ineligibility.

Pursuant to §2036(a) of the IRC, the transfer of a residence with a retained life estate permits the transferee of the residence to receive a full step up in his or her cost basis in the premises upon the death of the transferor, to its fair market value on the transferor’s date of death. This occurs because the residence is includible in the gross taxable estate of the transferor upon his or her demise. This, of course, presumes the existence of an estate tax upon the death of the transferor. A ” life estate”, pursuant to §2036(a) of the IRC, is the possession or enjoyment of, or a right to the income from the property or the right either alone or in conjunction with another to designate the persons who shall posses or enjoy the property or income thereof.

The most significant problem in utilizing a deed with the reservation of a life estate results if the premises are sold during the lifetime of the transferor. A sale during the transferor’s lifetime will result in (a) a loss of the step up in cost basis, thus, subjecting the transferee to a capital gains tax on the sale with respect to the value of the remainder interest being sold (difference between transferor’s original cost basis, including capital improvements, and the sale price), and (b) the life tenant pursuant to Medicaid rules is entitled to a portion of the proceeds of sale based on the value of his or her life estate. This portion of the proceeds could be significant and will be considered an available resource for Medicaid eligibility purposes, thus, impacting the transferor’s eligibility for Medicaid or being an asset against which Medicaid may have a lien. The existence of the possibility that the premises may be sold prior to the death of the transferor(s) poses a significant detrimental risk that needs to be explored in great detail with the client.

If for tax planning purposes it is prudent to make the gift an “incomplete gift” for gift tax purposes, the reservation of a limited testamentary power of appointment to the Grantor should be considered.

It should be remembered that §2702 of the IRC values the transfer of the remainder interest to a family member at its full value without any discount for the life estate retained.

Retention of a life estate falls within one of the exceptions of §2702.

If the transfer does not fall within §2702 of the IRC, or if one of the available exceptions applies (e.g. treated as a transfer in trust to or for the benefit of), calculation of the life estate is performed pursuant to IRC §7520, and the tables for the month in issue need to be consulted to determine the correct tax value of the remainder interest.

Pursuant to IRC §2702 if the homestead is transferred to a non-family member, the use of a traditional life estate will result in a completed gift of the remainder interest. It should also be remembered that the gift of a future interest (remainder or reversionary interest) is not subject to the annual exclusion of $12,000 per donee for the year 2006.

(c) Transfer to an Irrevocable Income Only Trust a/k/a (“Medicaid Qualifying Trust”).

As a result of the enactment of the DRA and from a purely Medicaid Planning perspective, the use of the Irrevocable Income Only Trust may be the most logical option. As previously explained, irrespective of the fair market value of the residence transferred to the Trust, the period of ineligibility will effectively be five years (60 months), in order to avoid the harsh penalties contained in the DRA for transfers made within the look back period. However, the properly drafted Irrevocable Income Only Trust will allow the residence to be sold during the lifetime of the transferor with little or no capital gains tax consequences, as it is possible to utilize the transferor’s personal residence exclusion of up to $500,000 if married, and $250,000 if single, by reserving in the trust instrument the power to the Grantor(s) in a non-fiduciary capacity and without the approval and consent of a fiduciary to reacquire all or any part of the trust corpus by substituting property in the trust with property of equivalent value. The Grantor(s) will be considered the owner for income tax purposes. See IRC §675(4). Additionally, the transfer to the Trust can be structured to allow the transferee to receive the premises with a stepped up cost basis upon the death of the transferor, through the reservation of a life income interest (life estate) to the Grantor. §2036(a) of the IRC.

While the lengthy Medicaid ineligibility period must be appropriately considered, however, the tax advantages and the continued flexibility of being able to sell the premises during the transferor’s lifetime without income tax consequences, in my opinion, makes the Irrevocable Income Only Trust an ideal option in most circumstances.

The transfer of the residence to the Irrevocable Income Only Trust is a taxable gift of a future interest, no annual exclusion available. Full value of premises reported on gift tax return. If value over $1,000,000 gift taxes are due.

If a limited power of appointment is retained, the gift to the trust is incomplete. Treasury Reg. 25.2511-2(b). No gift tax return is required.

On the death of the Grantor of the Trust, the date of death value of all assets in the trust will be included in the Grantor’s taxable estate pursuant to §2036(a) of the IRC, as a result of the life income interest retained by the Grantor.

Inclusion in Grantor’s estate will result in a full step up in basis for all trust assets pursuant to §1014(e) of IRC, assuming an estate tax is still in existence at the time of the Grantor’s demise.

The new law more than anything else severely punishes those who procrastinate in planning for their long term care. Whether it be the transfer of assets to an Irrevocable Income Only Trust, use of a deed with a life estate or the purchase of long term care insurance, it is clear that through advance planning one can limit the extent of his or her exposure to the costs long term care.

IV. Eligibility for Medicaid

To be eligible for Medicaid, the applicant must be:

(a) Must be U.S. resident or permanent lawful resident; and
(b) Age 65 or older or disabled as defined by the State’s Medicaid provisions; and
(c) Resident of the state and county where the application is made. Residency requires a physical presence within the state and the intent to remain.

Additionally, Medicaid is a “means tested” program, thus, there are both resource and income eligibility requirements.

For a Single Individual

Income: $692.00 per month (plus a $20.00 “disregard”) for senior citizen residing in the community;
a nursing home resident is only allowed a $50.00 per month “personal incidental allowance”, not the $692.00.
Resources: $4,150.00 Assets – “Luxury Fund” plus “Irrevocable Burial Trust Account”

For a Couple in the Community

Income: $ 900.00 Per Month per couple plus one $20.00 “disregard”
Resources: $5,400.00 Assets per couple

For the Community Spouse of an Institutionalized Patient

Income: $2,489.00 Per Month
Resources: $74,820 to $99,540.00 on a sliding scale depending on total size of marital assets.

Resources are any assets of the individual and/or couple, other than exempt resources, including jointly held assets. Exempt resources are defined for example to be burial space, the home in which the applicant/recipient resides or if away to which he or she intends to return, household and personal effects automobile, jewelry (wedding and engagement rings), furniture, paintings, silverware and china.

Regional Rates for 2006

Region Monthly Regional Rates
Long Island $9,842
New York City $9,132
Northern Metropolitan $8,724
Northeastern $6,872
Rochester $7,375
Western $6,540
Central $6,232

V. Transfer of Asset Rules

Because Medicaid is a “means tested” program, if assets are “transferred” e.g., given away without receipt of something of equivalent value in return (“uncompensated transfer”), this will usually trigger a period of ineligibility for Medicaid.

Assets that are transferred by gift within 60 months (“look back period”) of the date of the application for Medicaid is made will cause the transferor to be ineligible for Medicaid for a period of time (“penalty period”). Unless the transfer was made within the 60 month look back period, the penalty period commences on the first of the month following the month of the gift and is a number of months determined by taking the value of the gift and dividing it by the average cost of a nursing home per month in the county where the Medicaid applicant resides as determined by the Dept. of Social Services (Average monthly rate for nursing home care for Westchester County is $8,724.00 as established by Department of Social Services for 2006). Thus, if a gift valued at $100,000 was made outside the 60 month lookback, application for Medicaid, the transferor residing in Westchester County would be ineligible for Medicaid for approximately 12 months commencing the first of the month following the month of the transfer. However, if a non-exempt transfer of assets is made within the 60 month lookback period, the provisions of the DRA as discussed above would be controlling.

Transfers of assets by the spouse of a Medicaid applicant made within 60 months of the Medicaid application will also disqualify the applicant for the appropriate penalty period. Furthermore, the spouse of a Medicaid applicant who sets up a trust may well be making a transfer which could result in a period of ineligibility for the applicant. If a spouse makes a non‑exempt transfer after the applicant has been approved for Medicaid and has been in a nursing home for 30 days, the transfer would not trigger a period of ineligibility for the spouse that has been approved. However, the spouse making the transfer has created a period of ineligibility for him or herself.

VI. Exempt Assets and Transfers

There are gifts and transfers which can be made by the Medicaid applicant which will not trigger a period of ineligibility. For example, gifts regardless of amount, to or for the exclusive benefit of a spouse or a blind or disabled child will not result in the denial of Medicaid.

Under current law, a person’s primary home (the “homestead”) remains exempt and is not counted in determining eligibility, as long as the applicant, his or her spouse or a blind or disabled child resides there.

However, the rules relevant to transfer of the assets apply to the homestead, except for transfers to:

(a) the spouse;
(b) a child under 21 years of age, or a blind or disabled child;
(c) a sibling with an equity interest in the home who has resided in the home for at least one year prior to applicant’s admission to a long‑term care facility; or
(d) the child of the applicant who has lived in the home for at least two years prior to institutionalization and has cared for the parent (“caretaker exemption”).

Under New York’s Medicaid home care program, a person residing at home could transfer his or her assets and apply for home care Medicaid benefits immediately without any penalty period subject only to the income and resource allowances for eligibility. Fortunately, to date New York has not extended the transfer of asset rules to an applicant for Medicaid homecare.

VII. Use of an Irrevocable Trust in Medicaid Planning

Federal law provides that “an individual shall be considered to have established a trust if assets of the individual fund the trust and if any of the following individuals established such trust other than by Will: (i) the individual, (ii) the individual’s spouse, (iii) a person including a court or administrative body, with legal authority to act in place of or on behalf of the individual or individual’s spouse, and (iv) a person including any court or administrative body, acting upon the direction or on request of the individual or individual’s spouse.

Once it is established that the trust meets the aforestated test, the impact on Medicaid eligibility will differ depending on whether the trust is revocable or irrevocable.

The corpus (principal) of a revocable trust continues to be considered a resource “available” to the individual for purposes of the resource test for eligibility and payments to or for the benefit of the individual will be treated as income and thus, be subject to income restrictions for eligibility.

However, the assets transferred to an irrevocable trust will not be considered an available resource for Medicaid eligibility once the period of ineligibility for Medicaid created by the transfer has expired. However, income generated by the trust will be deemed available to the individual for purposes of Medicaid eligibility.

The law creates a 60 month look back period in the case where the trust meets the aforestated test. However, the ineligibility period could be less than 60 months depending on the amount transferred to the trust. Under the DRA of 2005, the period of ineligibility created will be effectively 60 months to avoid the onerous provisions contained therein if a transfer is made within the look back period.

VIII. Spousal Refusal in New York

As can be imagined the prospect of one spouse being admitted into a nursing home can have both devastating emotional and financial consequences upon the spouse remaining at home. With the average daily cost of a nursing home in Westchester County ranging anywhere from approximately $335.00 per day to $350.00 per day ($122,275 to $127,750 per year), it should come as no surprise that many spouses often have no alternative but to elect what is commonly known as “spousal refusal.” In years past a discussion of “spousal refusal,” with a client would often elicit looks of horror from the client, which were rivaled only if I mentioned the possibility of a divorce. In recent years it has been my experience that my clients have been significantly more receptive and willing to elect “spousal refusal” as an option. Financial ruin is consistently a significantly less attractive option.

As part of the Medicare Catastrophic Act of 1988, Congress passed the “spousal impoverishment” rules. This allowed the spouse who remained at home (“community spouse”) to retain resources and income above the levels ordinarily permitted to unmarried individuals without impacting the eligibility of the spouse applying for Medicaid. The statute created a Minimum Monthly Maintenance Needs Allowance (MMMNA), which for the year 2006 in New York is $2,489.00 per month and a maximum Community Spouse Resource Allowance (CSRA) which for 2006 is $99,540. More importantly, Congress permitted the community spouse to refuse to contribute his or her assets above the CSRA without jeopardizing the eligibility for the nursing home spouse, provided that the State was assigned the nursing home spouse’s (“institutionalized spouse”) right of support.

The State of New York codified these “spousal refusal” rules in Social Services Law §366(3)(a). Section 366(3)(a) permits the community spouse to keep resources in excess of the CSRA once two documents are executed:
(a) A “spousal refusal” letter, signed by the community spouse, stating that he or she refuses to make available his or her resources to the institutionalized spouse; and
(b) An “assignment of support” which is signed by the institutionalized spouse, or if the spouse is unable to sign, a statement explaining the medical reason is to be provided.

The signing of the “assignment of support” authorizes the Department of Social Services (“DSS”) to commence an action for support against the refusing spouse. DSS will be able to assert its claim against the refusing spouse once the application has been approved and Medicaid services provided.

From a practical perspective, the decision of whether or not to file the “spousal refusal” is more often than not a purely financial decision. Obviously, if the surviving spouse has income and resources only slightly above the MMMNA and CSRA, the community spouse may consider alternatives other than utilizing the “spousal refusal”, e.g., funding an irrevocable burial trust, creating a “luxury fund” or making improvements to the homestead. However, when the resources and income are significantly in excess of the permitted amounts and the prospect of spending in excess of $120,000 per year for the nursing home looms in the background, “spousal refusal” may be the only viable alternative. Additionally, the election of “spousal refusal” will allow the nursing home spouse to be eligible for Medicaid immediately without necessitating a spend-down of the community spouse’s resources. This is especially important when the community spouse is younger than the institutionalized spouse, and necessitates significant resources to be able to continue to reside in the community in the future.

Historically, the Westchester County DSS has not with any regularity commenced support actions against refusing spouses; however, in recent years the rumblings of a change in attitude at DSS have appeared. The first indication of the change is the greater frequency in which DSS has issued demand letters to the refusing spouse. The demand letter delineates the specific amount Medicaid has paid to the nursing home on behalf of the institutionalized spouse. It is the fact that Medicaid can only seek to recover the amount of Medicaid properly paid which continues to make “spousal refusal” a viable and attractive option. As long as Medicaid continues to reimburse the nursing home in an amount equal to fifty (50%) percent of the nursing home’s private pay rate, it will continue to make absolute sense for the community spouse to execute a “spousal refusal.” The community spouse would not want to deplete his or her resources at the approximate rate of $11,000 to $12,000 or more per month, when in the worst case scenario, if DSS were to commence and successfully prosecute a support action, they would only recover 40% to 50% of the private pay rate. It should be noted that DSS has generally been willing to compromise its claim both at the time of the service of a demand letter and even once a support action has been commenced.

It is important to note that Governor Pataki’s proposed Budget Bill for 2006 has provisions calling for the elimination of spousal refusal.

IX. Estates Recovery Program

Federal statute requires every state to have an estate recovery program which will allow the individual states to seek reimbursement of Medicaid payments made on behalf of the recipient from all assets in which the Medicaid recipient had any interest, not just assets in the recipient’s individual name (assets that pass to heirs under that person’s Will). For example, the federal law refers to jointly owned assets and trusts where the Medicaid recipient is the life income beneficiary of the trust or real estate where the recipient had a life estate. However, the New York Legislature has defined “estate” as the “probate” estate only, or those assets passing by Will or intestacy. Thus, jointly owned assets and other non-probate assets, for example, trusts, life estates and annuities are not part of the recoverable estate.

It is important to note that Governor Pataki’s proposed Budget Bill for 2006 contains provisions seeking the expansion of the definition of “state” for recovery purposes.

X. Long‑Term Care Insurance

In 1988, New York was one of several states (CT, WI, IN, CA, NJ and MA) given planning grants by the Robert Wood Johnson Foundation. The purpose of the grants was to encourage states to design new alternatives for financing long‑term care. In 1988, New York was given an additional grant to implement the model design. Finally, in 1992, a long‑term care insurance project was set in place which would allow New York’s citizens to purchase certified long‑term care insurance policies which are certified by the New York State Insurance Department.

Under the DRA of 2005, the states are now again permitted to implement Partnership Long Term Care insurance policies.

The individual holding a certified long‑term care insurance policy can qualify for New York’s Medicaid program without any regard to his or her assets when all of the benefits under the policy have been exhausted by the policyholder. However, income must be applied towards the cost of care as it is under the regular Medicaid program, once the benefits under the policy have been exhausted.

As part of the new federal law, the states have been prohibited from enacting any insurance program after 5/14/93, which would allow protection of assets of a long term care insurance program. New York’s program is not affected by the new federal law.

Each certified policy has minimum standards which must be adhered to:

1. Certified policies may be sold only to residents of New York.

2. Benefits under the private insurance portion of the coverage may be used outside the state, however, the extended coverage will only apply where services are approved under New York’s Medicaid program.

3. Nursing home care must be provided for not less than a lifetime maximum of 36 months at a minimum per diem benefit of $180.00 per day, approximately, for each covered person and for a period not less than 72 months at a minimum per diem benefit of $90.00 for home care coverage.

Both the minimum nursing home and home care per diem will be increased each year commencing on January 1, 1994; e.g., present minimum is $180.00 for nursing home per diem and $90.00 for home care. Home care benefits can be substituted for nursing home benefits on a two for one basis. Complete substitution would result in a lifetime maximum of 72 months of home care benefits.

  • Premiums for the certified policies must be level for the duration of the policy except where a rate increase is granted by the State Insurance Department.

During the period the insurance policy is in effect, the policyholder is not required to contribute any of his or her income to Medicaid. However, the policyholder is responsible for the difference between the cost of their care and their insurance benefits.

Once the policies benefits have been exhausted and the policyholder is now eligible for New York’s Medicaid, the policyholder and his or her spouse would be subject to Medicaid’s income restrictions.

XI. Powers of Attorney

A. Defined ‑ A Power of Attorney (“POA”) is a written document wherein one individual (“Principal”) appoints another individual(s) as his or her “attorney in fact” or agent. The attorney‑in‑fact or agent is given the authority to act on behalf of or in place of the principal for the purposes specified in the POA. A POA is effective immediately unless stated otherwise.

B. Purpose ‑ Permits one individual to delegate to another the authority to manage his or her day to day affairs such as banking (e.g., check writing), bond and stock transactions, real estate transactions, business transactions, among others. Important in event of emergency or illness or when someone is away or on vacation.

C. Types of Powers of Attorney

1. Durable ‑ Survives the incapacity or disability of the principal. It is extremely important that a POA be durable; if not, it will terminate upon the incapacity or incompetency of the principal. For example: POA should state ” This power of attorney shall not be affected by the subsequent disability or incompetence of the principal.”

2. Springing POA ‑ Not effective immediately but becomes effective upon the occurrence of a specific future date or event, e.g., the incompetency of the principal. If POA becomes effective upon occurrence of a specific event, it will be activated only by a written statement that the event has occurred. A new form of Power of Attorney became effective on October 1, 1994.

3. General POA ‑ Agent is given unlimited discretion to make all decisions for principal with exception of life sustaining medical decisions which requires execution of a Health Care Proxy in New York.

4. Limited POA ‑ Agent’s authority is limited to the specific activities stated in the POA, e.g., banking, real estate, etc.

Note: New York statutory short form Power of Attorney will not be effective to transfer real property in Florida unless it meets statutory requirements in Florida. For example, it must specify the exact real property in question, must be signed before two witnesses and notarized.

XII. Health Care Proxies

Defined ‑ A written document which enables a competent adult (“principal”) to designate an individual (“agent”) to make all health care decisions for the principal when he or she is unable to make his or her own health care decisions, e.g., incompetency.

‑ Only document legally recognized in New York State regarding health care decisions, effective as of January 18, 1991, when New York State adopted “The Health Care Proxy Law.”

Purpose ‑ Allows individual to designate someone he or she trusts to make important health care decisions in the event of incompetency or inability to make such decisions.

‑ The Health Care Proxy will be effective as to life sustaining treatments, medications, or any other special needs specified. The agent will be unable to make decisions as to principal’s intentions regarding artificial nutrition and hydration (feeding tubes) unless agent specifically knows said intentions or the Health Care Proxy specifies those intentions.

Effectiveness and Duration ‑ A Health Care Proxy will not be effective until the principal’s attending physician determines “to a reasonable degree of medical certainty” that a principal lacks capacity to make his or her own health decisions. To withhold life sustaining measures the attending physician must consult with a second physician that the principal lacks capacity.

‑ Proxy is in force indefinitely unless limited in document. Principal can revoke it any time orally or in writing.

‑ Only one agent at a time can be appointed, an alternate agent may be designated. The agent must be an adult with exception of an operator, administrator or employee of a residential health care facility or hospital in which the principal is a patient or resident.

– Agent will not be liable for health care decisions he has made if he has acted in good faith.

– In order to comply with the Health Insurance Portability and Accountability Act (HIPAA), the following language should be added to all Health Care Proxies:

In addition to other powers granted by me in this document, my agent shall have the power and authority to serve as my personal representative for all purposes of the Health Insurance Portability and Accountability Act. My agent is authorized to execute any and all releases and other documents necessary in order to obtain disclosure of my patient records and other medical information subject to and protected under HIPAA.

XIII. Living Wills

Defined ‑ A writing evidencing an individual’s intentions concerning health care decisions, e.g., artificial life sustaining procedures. It is unlike a Health Care Proxy which empowers the agent to act for all purposes.

‑ It has not been given legal statutory recognition in New York. Only serves to provide evidence of individual’s intentions in a court of law of his or her health care decisions.

Purpose ‑ Generally used to state an individual’s intentions regarding withholding of artificial life sustaining measures, e.g., upon determination of two neurologists that one is neurologically brain dead.

– Specifies one’s intentions as to the medical treatments and procedures that one finds abhorrent and wishes to be withheld, e.g., electrical or mechanical resuscitation of the heart, nasogastric tubal feeding.

‑ Pursuant to the U.S. Patient Self Determination Act which became effective on December 1, 1991, all hospitals are required to inquire if a patient wants to sign a Living Will even for routine procedures.

*U.S. Rep. Bill Archer “No one should have to visit the IRS and the undertaker the same day”.


A writing wherein you state your wishes as to how assets (real property, tangible personal property) which are in your name alone on the date of your death are to be disposed of upon your demise.

– A Last Will disposes of property either outright or in trust to named beneficiaries.

– A Last Will and Testament has no control over assets which are in joint name, in trust for accounts or have named beneficiaries (e.g. IRA’s, Life Insurance, etc.)

– In your Last Will you will have to appoint someone to act as the executor or executrix of your Will. Person(s) responsible for executing upon the described dispositions stated in said Last Will.

– Executor or Executrix gathers all assets and pays all debts of the estate, arranges for filing and payment of any estate taxes due.

– A Last Will and Testament must be admitted to probate in the Surrogate’s Court of the County where the decedent resides in New York before it is legally recognized as the valid Last Will and Testament of the decedent. Once the Last Will is admitted to probate, the Court will issue letters testamentary to the executor named in the Last Will.


– Married couples who are U.S. citizens get a special break on estate taxes known as the ” unlimited marital deduction”. Husband and wife during their lifetimes and upon death can transfer unlimited amounts of assets and property to each other without any estate or gift tax consequences. However, upon the
death of the second to die of husband and wife, estate taxes, if any are due, can be reduced or eliminated if proper use of the exemption amount has been taken advantage of during the lifetime of both husband and wife.

– The Unified Gift and Estate Tax Credit allows everyone to make taxable gifts or transfers of assets during their lifetime or upon their death which are exempt from estate and gift taxes:

2004 and 2005- – – – – – – – – – – – – – $1,500,000
2006, 2007 and 2008 — – – – – – – – – – $2,000,000
2009 – – – – – – – – – – – – – – – – – – $3,500,000
2010 – – – – – – – – – – – – – – – – – – Repealed
2011 – – – – – – – – – – – – – – – – – – $1,000,000

– New York Credit is $1,000,000

– Proper utilization of the exemption amount in both the estate of a husband and wife can save the estate of the second to die hundreds of thousands of dollars in estate taxes.

– Last Will and Testaments or Living Trusts which contain what are known as “Credit Shelter Trust Provisions” will allow both a husband and wife to take full advantage of the Exemption amount in each of their estates upon their demise.

– Credit Shelter Trust provisions in a Last Will be ineffective if there are not sufficient assets in the decedent’s name alone on the date of death so as to utilize the exemption on date of death.


A Revocable Living Trust is an agreement between the Grantor(s) (Creator(s)) of the Trust and the Trustee(s) (Administrator(s)) as to how property transferred to the trust is going to be held, distributed and administered during both the lifetime of the Grantor(s) and upon the death of the Grantor(s).

– Grantor can also be a sole trustee of the Revocable Living Trust so long as the trust has remainder beneficiaries.

– To be effectively utilized, all of the assets of the Grantor(s) have to be transferred into the name of the trust during the lifetime of the Grantor(s).

– Advantages of a Revocable Living Trust

Avoids probate
Can utilize all estate tax planning tools (e.g. Credit Shelter provisions) that could be taken advantage of by use of a Last Will.

– Disadvantages

Need to transfer all assets to trust during your lifetime

Need to consult with your attorney to make any revisions to the trust regarding terms of administration during lifetime or death.

May still need to probate a Last Will if all assets not transferred to trust.

Has no special estate tax treatment – depending on size of estate may need to file Estate Tax Returns and pay estate taxes.

Higher standard of competency required than a Last Will.

Enea, Scanlan & Sirignano, LLP