With the 2021 federal estate tax exemption amount at $11.7 million for individuals and $23.4 million for couples, many estate planning attorneys have shifted to other financial savings objectives to plan for their clients whose taxable estates fall below these thresholds. Because of this high exemption amount, the federal estate tax has impacted less than 1 percent of the US population, and thus the planning focus has shifted towards reducing income tax liability for clients. More specifically, the focus has been on how to strategically and effectively reduce a client’s capital gains tax liability. Although these strategies may eventually need to change given new proposals by the Biden administration, there are several important rules regarding capital gains taxes that currently apply to gifts made during a client’s life or at death that legal counsel must consider when advising clients. 

Yesterday, you were alerted to the groundbreaking decision out of Minnesota that confirmed an irrevocable trust could be an exempt asset regarding Medicaid eligibility and struck down state law that contradicted federal law on the matter.

Now, let’s discuss a similar case out of Montana.

In this case, Marilyn owned a home. Her sister, Glenda, moved into it with her. In 2008, Marilyn sold to Glenda a one-half interest in the home. Thereafter, both sisters established an irrevocable trust and transferred their respective shares of the home into the trust. In 2016, Marilyn’s health was failing and she needed care. She entered a nursing home and applied for Medicaid the next year. Her application was denied because the state counted the trust property in her eligibility determination.

In a Minnesota appeals court decision, the court ruled that a Medicaid recipient’s irrevocable trust was not a countable asset and that Minnesota law on the matter is preempted by federal law. The decision turned long standing case law on its head, and gave the green light that an irrevocable trust can indeed be a non-countable asset for Medicaid eligibility purposes in Minnesota.

In this case, Geyen was the Grantor of two irrevocable trusts, which were identical except for their names. Her children were Trustees; her children and grandchildren were beneficiaries. Both trusts indicated their irrevocability and gave the Trustees “full power and authority to control” trust property. The trusts forbade the Trustees from loaning or gifting any assets to Geyen.