Ouch, That SMARTS!

July 19th, 2012 | written by Nancy Larson

In recent attempts to pull Illinois into financial responsibility, Governor Quinn and the Illinois legislature have taken steps that effect seniors of all income levels.  He has given estate tax breaks to the wealthy and taken away services for the middle class which include new Medicaid rules that affect long-term care recipients.

Specifically, on January 1, 2012, new Medicaid rules were put in place that include several important changes.  The most notable change was to the look-back period on the transfer of assets (for less than fair market value) from three (3) years to five (5) years.  This change is one of the most frequently asked questions from our clients as it relates to gifting money or assets to family members.  Another transfer that can cause a penalty is paying family members to help with taking loved ones to doctor appointments, run errands, housekeeping chores, etc.  If these payments to friends or family go undocumented and are of any value, Medicaid will penalize you for transferring your assets for less than fair market value.

The SMART Act,  known as Save Medicaid Access and Resources Together Act, was signed by the Governor on June 14, 2012.  Officially it is Senate Bill 2840 and Public Act 07-0689.  The not-so  SMART Act makes even more changes to the new Medicaid rules that directly affect seniors facing long-term care and nursing home placement, including but not limited to the termination of the prescription drug programs.

As of July 1, 2012, the Illinois Cares Rx program was terminated.  This means that seniors who received assistance with payment of their prescription drugs and Medicare Part D premiums will no longer receive such funding.  It is important that those affected by this funding cut contact their Medicare Part D prescription drug plan to find out what their premium and prescription drug costs will be starting July 1, 2012.

The SMART Act also limits the amount that can be spent on an irrevocable pre-paid funeral from $10,000 to now only $5,874.  Also noteworthy is the change in the homestead equity exemption from $750,000 to $500,000.  There are also provisions in the SMART Act that make it even more difficult for spouses who have their loved one in the nursing home to maintain their hard-earned savings from being depleted down to $109,560 in order for their loved one to receive Medicaid benefits.

On another note, in a surprise move at the end of 2011, the Illinois legislature amended the Illinois estate tax exemption so that there is no estate tax at death unless an estate is $3.5 million or more in 2011 – or $4 million or more in 2013.

Now this certainly does effect some of our clients in a positive way, but anyone with a more modest estate will be not be effected at all.  Federal estate tax was adjusted to $5 million in 2012. Unless the US Congress takes further action, the federal transfer tax exemption will drop to $1million in 2013 with a taxable rate of 55%.

It is time to be more alert than ever as our state and federal governments continue to change the rules, which makes planning to save and conserve our hard-earned life savings even more of a challenge.  Stay tuned!

Submitted to BND 7/19/12