In my last post, I talked a little about intergenerational joint tenancy. Although it seems like an attractive strategy to some clients, adding children to assets as joint tenants in an effort to avoid probate has enough unintended consequences – both during a client’s lifetime and after – that it’s rarely the best option.
One of the unintended consequences of joint tenancy that can have particularly damaging effects during a client’s lifetime has to do with Medicaid eligibility.
Let’s say a father anticipates the need for nursing home care within the decade. He knows he won’t be able to afford to pay for the expenses out-of-pocket, so he wants to qualify for Medicaid eventually. If he gifts assets to one of his children, the five-year clock starts running for Medicaid eligibility purposes. Five years from the date of the gift, the assets dad gifted away are no longer reportable. So, if dad applies five years later, he is not penalized for having made the gifts.
Not so if he makes his child co-owner of his assets as a joint tenant with rights of survivorship. At least as to bank, brokerage, and similar accounts, the gifts are not complete because dad could get the money back unilaterally. Thus, dad still owns 100% of those assets.
What’s the solution? One strategy would be for dad actually to give half his assets to his child in tenancy-in-common. Since this means relinquishing control of the property, it is considered a completed gift that would start the 5-year clock running for Medicaid purposes. Of course, the other half of the assets, which was retained by dad, would still be considered a countable resource for Medicaid purposes. Similarly, dad could give a 100% interest in half the asset to the child.
Let’s put some numbers to this. Dad has $100,000 in a brokerage account. Otherwise, dad is financially qualified for Medicaid. If dad puts the account in joint tenancy with his child, after five years he still does not qualify because he has not made a completed gift. If dad puts the child on the account as a tenant-in-common, he still has $50,000 as a countable resource. Of course, if he gives the entire account to the child, it would not be a countable resource and he would not have to report the gift after the expiration of the five-year look-back period.
Thus, joint tenancy turns out to be the least attractive option, at least in this case, for Medicaid and many other reasons.
Stephen C. Hartnett, J.D., LL.M. (Tax)
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
- Tax Planning for 2024 - December 26, 2023
- Learning, Re-inventing, and Camaraderie in San Diego - October 10, 2023
- The Magic of Grantor Trusts - September 19, 2023