Transfer On Death Account and Medicaid

[GoingDown]

This is a follow up question related to one I asked earlier. My 27 year old cousin died suddenly from a heat stroke while hiking. He had a lot of assets. He left a small amount of them to his brother in the form of a Transfer On Death account with about $40,000 in it. Transfer on Death accounts supposedly avoid probate and can almost istantly be inherited by the person listed as beneficiary on the account.

Here's the problem. His brother is disabled and on Medicaid. If he inherits $40,000 it will throw him off Medicaid, at least temporarily, and he needs a lot of medical care-- far in excess of $40,000.

No one ever expected the disabled brother to outlive the healthy one, so no one ever expected to have to deal with this issue.

Can he just reject the inheritance from the Transfer on Death account?

What will be the effect if he does nothing?

Wouldn't he have to sign something to claim the inheritance, etc.?

[AngelinaCat]

You or the disabled brother, or both, need to talk to an estate planning attorney ASAP. There may be ways to form a Charitable Remainder Unitrust that the $40,000.00 will go into and fund. And each year a small stipend goes to the brother. 'Hub and I have one as part of our Retirement planning, and we get a small stipend each year in the form of an annuity. My husband has a much better grasp of how this works than I do, and he is not home right now. When he gets back I'll ask him to add his two cents.

[momof5]

If he is on Medicaid I wouldnt be surprised if Medicaid went after some of the money to cover past medical expense.

[AngelinaCatHub]

You have a tough problem here. Let me ask you, has anything at all been transferred? You are dealing with the possibility of fraud if he does not accept this as the state is going to ask why. Of course they will eat it up, then he has to go onto Medicaid and all that paperwork again. Is there anyone in the family who can contest this transfer? It would have been better if the brother set it up in a Trust. A Trust in considered a person (entity) completely separate of the Trustee or beneficiary.

We set up a Charitable Remainder UniTrust to avoid Capital Gains as well as get an income. However 40k really isn't much. We put near 3/4 million from our gift of lands to the State for a Park. They had to pay something so the CRUT as it is called is holding in an annuity this money. By law you must take 5% from the principle per year minimum. We take 7% and it is taxed on the draw not the Trust. When we pass on, the amount in the Trust goes to a Charity. Taxed free. It is irrevocable except we the Trustees can change, add or subtract the beneficiary anytime we wish but we cannot self deal or take more out of it yearly. Now that we are broke, the Trust as a separate person is not counted as part of our estate, and the annuity cannot be bked against. It was not planned that way, it just worked out.

In your case, the person is gone and therefore cannot change his terms. Only a contest of the terms and a Judge can do this. It does not look good and that is too bad as the State will get it, I'm sure. 'Hub