New Law Punishes Retirees

February 6, 2006

On December 21, 2005, the United States Senate, by a vote of 51 to 50 with Vice President Cheney breaking the tie, passed the &Deficit Reduction Act of 2005 &.

On February 1, 2006, The House of Representatives passed this Act by a vote of 216 to 214.

According to the website of the National Academy of Elderlaw Attorneys ( www.naela.org ), the President is expected to sign this Bill into Law on February 8, 2006. This planned signing date could change. When the President does sign, it will likely be reported on the front page of most newspapers.

Most provisions of this Law take effect on the date it is signed by the President. However, New York State will need to pass enabling legislation before the Law becomes effective in New York. It is not known whether New York will make the Law retroactive to the Federal date. In the past, New York has made its laws retroactive.

This legislation makes numerous changes to the Medicaid laws which will be very detrimental to individuals who are faced with long term illnesses.

One major change is the Medicaid transfer penalty rules.

Under the old law, transfers made to an Irrevocable Trust were subject to a 5 year lookback period. Transfers made to individuals were subject to a 3 year lookback period. Transfers made within the lookback period could be protected under a special &federal credit formula& at a rate of approximately $6,000 per month in Upstate New York. This rate varied depending on your region of residence. For example, if you transferred $60,000 to your children or to an Irrevocable Trust within the lookback period, your transfer would be protected in 10 months ($6000 credit times 10 months equals $60,000). This credit formula made it possible for you to make periodic transfers over time and protect your assets incrementally.

Under the new law, all transfers to a Trust or to individuals will be subject to a 5 year lookback period. The federal credit formula for transfers made within the lookback period has been abolished. Any transfer made will now be subject to a straight 5 year waiting period before it becomes protected. For example, if you make a $60,000 transfer either to your Trust or to your children, this transfer will no longer be protected in 10 months. It will take 5 years before this transfer becomes protected.

This new law takes effect immediately upon its enactment and only applies to transfers made on or after the effective date of the law. Any transfers made before this law is enacted are grandfathered under the old rules. Therefore, it is still possible to make transfers under the old law before the apparent February 8, 2006 planned presidential signing ceremony.

Under this new Law, estate planning in advance of an illness becomes even more critical. If you are already ill, your options are now more limited, but there are still steps that can be taken to protect some of your assets which should be considered.

If you are a client of our office and wish to discuss your file, please call your legal assistant. If you are not a client and want to review your options, please contact our office to schedule an appointment. There is no fee for the initial consultation. This newsletter is not intended to provide legal advice, but is intended to alert you of an important legal development.


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