Retain Life Estate as a Medicaid Planning Technique (Pros and Cons)
In an ICLE seminar material entitled, Hot Topics in Medicaid Planning, in the chapter entitled “Real Property,” I discussed the possibility of the potential applicant transferring a home to a child and retaining a life estate.
Some of the salient features of such a transaction are as follows:
1. There is a gift of the remainder interest, and such gift becomes subject to the transfer rules of the Deficit Reduction Act. However, if such transaction occurs more than 60 months prior to the date of application, the beneficial factors listed below apply.
2. No value is assigned to the retained interest for resource eligibility purposes. Therefore, a person applying for Medicaid with a retained life estate would not be treated as having a resource for that interest.
3. The basis in the property is “stepped-up” upon mother’s death (Sections 1014 and 2036 of the Internal Revenue Code).
However advantageous such technique may appear, it is important to consider some major stumbling blocks. As indicated in New Jersey Practice, Celentano, ¶4.8, the author points out various financial obligations of the life tenant (i.e. the Medicaid recipient in our hypothetical) which include the duty to keep the property in as good repair as when the estate began.
4. Ordinarily the life tenant is required to pay taxes, make repairs and pay interest on a mortgage. Possibly the life tenant may be required to provide security to protect the interest of the remainderman.
Therefore, a life tenant-Medicaid recipient will have financial obligations. However, if such individual is a Medicaid recipient, the life tenant will not have any funds to pay such obligations since the Medicaid reimbursement rate is to be reduced by social security and pension monies. Notwithstanding, Medicaid has recently adopted the position that pension and social security can be used to pay the life tenant’s obligations.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 86
Tuesday, July 13, 2010
Tuesday, July 6, 2010
Special Planning Problems for Elderly Person (Single)
The posts have discussed in detail methods of protecting the elderly. However, often a parent will have issues with a child. The problems addressed in this post are not those of a disabled child, but deal more with the typical problem of a will for a child-beneficiary with creditor issues or a child-beneficiary who may be unable to handle money.
This post will discuss one approach for the will of the elderly parent who is survived by a creditor-prone child with other beneficiaries such as siblings or issue. For purposes of this article, I will assume that the child has both siblings and/or issue.
Numerous possibilities come to mind when providing for a child. Clearly, if the funds are devised to the child outright, the funds upon receipt will be subject to claims of creditors. The method by which the elderly individual should provide for such child is clearly by trust under the parent’s will (testamentary trust).
The trust that provides maximum protection would give the trustee pure discretion to distribute the income and/or principal. If the trust had language allowing distributions for the child’s support, etc., such distribution might be subject to a creditor’s claims. However, if the trustee could distribute income and/or principal at the trustee’s discretion, that would be a better approach and render the child’s inheritance less available to creditors.
After considering this problem in great detail and discussing the matter with bankruptcy lawyers, I have concluded that I would desire a trust that accomplishes the following goals:
1. Distributions can be made to the child when needed.
2. Render the trust as immune to creditors as possible.
3. Be available to the child if his or her problems have been resolved.
The trust that I recommend given the above issues would allow the trustee to distribute income or principal to or amongst the child and his issue or the child and his siblings or both.
A creditor seeking to attach the child’s interest would be faced with the argument that a trust which is purely discretionary for the child and other relatives is not available to creditors since there is no interest in a trust of the child alone since the trust is discretionary for the child and others.
Perhaps the most important aspect of the trust is its discretionary nature, which would allow the trustee to terminate the trust and distribute the principal to the child if the situation changes and the creditor problems are deemed to no longer exist by the trustee.
The key to such planning is that there must be a trustee designation (and presumably contingent designations) that provides confidence that the intent of the will is carried out.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 85
This post will discuss one approach for the will of the elderly parent who is survived by a creditor-prone child with other beneficiaries such as siblings or issue. For purposes of this article, I will assume that the child has both siblings and/or issue.
Numerous possibilities come to mind when providing for a child. Clearly, if the funds are devised to the child outright, the funds upon receipt will be subject to claims of creditors. The method by which the elderly individual should provide for such child is clearly by trust under the parent’s will (testamentary trust).
The trust that provides maximum protection would give the trustee pure discretion to distribute the income and/or principal. If the trust had language allowing distributions for the child’s support, etc., such distribution might be subject to a creditor’s claims. However, if the trustee could distribute income and/or principal at the trustee’s discretion, that would be a better approach and render the child’s inheritance less available to creditors.
After considering this problem in great detail and discussing the matter with bankruptcy lawyers, I have concluded that I would desire a trust that accomplishes the following goals:
1. Distributions can be made to the child when needed.
2. Render the trust as immune to creditors as possible.
3. Be available to the child if his or her problems have been resolved.
The trust that I recommend given the above issues would allow the trustee to distribute income or principal to or amongst the child and his issue or the child and his siblings or both.
A creditor seeking to attach the child’s interest would be faced with the argument that a trust which is purely discretionary for the child and other relatives is not available to creditors since there is no interest in a trust of the child alone since the trust is discretionary for the child and others.
Perhaps the most important aspect of the trust is its discretionary nature, which would allow the trustee to terminate the trust and distribute the principal to the child if the situation changes and the creditor problems are deemed to no longer exist by the trustee.
The key to such planning is that there must be a trustee designation (and presumably contingent designations) that provides confidence that the intent of the will is carried out.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 85
Tuesday, June 29, 2010
Changes That Affect Planning For Medicaid
The various posts have addressed the fact that there are annual changes that affect the projection of the date of Medicaid and Medicaid planning. These changes must be kept in mind as one projects the probable date for Medicaid (see Post 7, “Rules of Medicaid Eligibility”). The changes discussed include the following:
1. The community spouse resource allowance maximum and minimum, which changes the first of every year effective January 1. Currently, the maximum is $109,560 and the minimum is $21,912 (see Post 50 for further discussion of the rules governing such changes).
2. Also, the penalty rate for transfers changes annually on the first of any given year retroactive back to November 1 of the prior year (see Post 51 for this topic in greater detail).
3. The income cap, which currently is $2,022, is particularly relevant with respect to Medicaid waiver programs which also change annually.
4. Although not previously discussed, but particularly significant, is the fact that the costs of nursing home care also change annually. Therefore, if you are anticipating eligibility in the next calendar year, this change or anticipated change must be kept in mind.
5. The amount the potential applicant receives for social security increases each year in a percentage equal to the COLA.
6. The pension that the potential applicant receives may or may not increase annually and this should also be considered.
7. The pension and social security payments and their effect on post-eligibility Medigap insurance are discussed extensively in Post 1. That is, planning not only is to be considered through the date of eligibility, but with respect to several issues, including Medigap insurance, is to continue after eligibility.
8. Of course, post-eligibility planning must consider the fact that a Medicaid recipient would lose eligibility if resources exceed $2,000 on the first of any given month. Post-eligibility planning also is stressed in Post 13 which discusses the fact that the community spouse is not limited by the community spouse resource allowance after the date of eligibility of applicant.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 84
1. The community spouse resource allowance maximum and minimum, which changes the first of every year effective January 1. Currently, the maximum is $109,560 and the minimum is $21,912 (see Post 50 for further discussion of the rules governing such changes).
2. Also, the penalty rate for transfers changes annually on the first of any given year retroactive back to November 1 of the prior year (see Post 51 for this topic in greater detail).
3. The income cap, which currently is $2,022, is particularly relevant with respect to Medicaid waiver programs which also change annually.
4. Although not previously discussed, but particularly significant, is the fact that the costs of nursing home care also change annually. Therefore, if you are anticipating eligibility in the next calendar year, this change or anticipated change must be kept in mind.
5. The amount the potential applicant receives for social security increases each year in a percentage equal to the COLA.
6. The pension that the potential applicant receives may or may not increase annually and this should also be considered.
7. The pension and social security payments and their effect on post-eligibility Medigap insurance are discussed extensively in Post 1. That is, planning not only is to be considered through the date of eligibility, but with respect to several issues, including Medigap insurance, is to continue after eligibility.
8. Of course, post-eligibility planning must consider the fact that a Medicaid recipient would lose eligibility if resources exceed $2,000 on the first of any given month. Post-eligibility planning also is stressed in Post 13 which discusses the fact that the community spouse is not limited by the community spouse resource allowance after the date of eligibility of applicant.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 84
Thursday, June 24, 2010
Real Estate Expenses As Part Of The Spenddown
Real Estate Expenses As Part Of The Spenddown
In Post 11, the basic rule that real estate owned by a married couple is an excludable resource.
At various points in the posts presented, we have indicated that reasonable expenses relating to the home can also be treated as part of the spenddown.
However, Medicaid insists that any monies expended on the home be needed and that verification be provided.
For example, in reviewing my files I noticed a case with extraordinary home improvement expenses, which were necessary and allowed as part of the spenddown by the County Board. The expenses allowed and the verification provided were as follows:
1. $12,500 air conditioner (doctor’s letter about wife’s breathing problems).
2. $ 4,900 boiler (letter provided indicating deterioration of current boiler and necessity for a new boiler).
3. $13,000 landscaping and drainage (pictures submitted of flooded property).
4. $ 2,900 electrical upgrade (letter provided and pictures shown regarding condition of current electrical setup).
5. $ 2,007 replacing shed damage (pictures shown).
Although Post 53 stresses that allowable expenditures are limited by the concept of reasonableness, verification of an extraordinary amount of home expenditures was allowed in this particular case.
The point of this example is to show that necessity is the test for expenditures and that verification can often justify unanticipated expenditures.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 83
In Post 11, the basic rule that real estate owned by a married couple is an excludable resource.
At various points in the posts presented, we have indicated that reasonable expenses relating to the home can also be treated as part of the spenddown.
However, Medicaid insists that any monies expended on the home be needed and that verification be provided.
For example, in reviewing my files I noticed a case with extraordinary home improvement expenses, which were necessary and allowed as part of the spenddown by the County Board. The expenses allowed and the verification provided were as follows:
1. $12,500 air conditioner (doctor’s letter about wife’s breathing problems).
2. $ 4,900 boiler (letter provided indicating deterioration of current boiler and necessity for a new boiler).
3. $13,000 landscaping and drainage (pictures submitted of flooded property).
4. $ 2,900 electrical upgrade (letter provided and pictures shown regarding condition of current electrical setup).
5. $ 2,007 replacing shed damage (pictures shown).
Although Post 53 stresses that allowable expenditures are limited by the concept of reasonableness, verification of an extraordinary amount of home expenditures was allowed in this particular case.
The point of this example is to show that necessity is the test for expenditures and that verification can often justify unanticipated expenditures.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 83
Tuesday, June 15, 2010
Method For Increasing Community Spouse Resource allowance
Method for Increasing the Community Spouse Resource Allowance
The community spouse resource allowance, which is the amount of resources that the community spouse may have at the time of eligibility of the applicant has been given a broader interpretation by the county boards and provides an opportunity for protecting a greater amount. For example, we have defined the community spouse resource allowance as being determined at the first moment of the first month of continuous institutionalization at a hospital or a long-term care facility (see particularly Post 8).
However, Medicaid is allowing this “snapshot” to be taken prior to the above dates if the individual is at home and is paying for his or her care to a homecare provider of such services like an aide or a licensed practical nurse. Therefore, assume that a person enters a nursing home with spousal assets of $80,000. The community spouse resource allowance would be $40,000. However, further suppose the individual has been cared for at home for the last two years and at the first day of the first month of homecare assets of the husband and wife total $300,000. The individual then enters a nursing home with the above-referenced $80,000. The community spouse resource allowance based upon resources of $300,000 at the first day of the first month of homecare, would be $109,560. Therefore, the person would immediately qualify for Medicaid and, have expended a substantial portion of the protected amount.
Awareness of this extended interpretation would allow the individual to decide to go into the nursing home at an earlier date. For example, if the individual entered the nursing home when the applicant had $2,000 and the community spouse had $109,560, the community spouse resource allowance having been determined at a much earlier date at $109,560, would allow this individual to now immediately qualify for Medicaid.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 82
The community spouse resource allowance, which is the amount of resources that the community spouse may have at the time of eligibility of the applicant has been given a broader interpretation by the county boards and provides an opportunity for protecting a greater amount. For example, we have defined the community spouse resource allowance as being determined at the first moment of the first month of continuous institutionalization at a hospital or a long-term care facility (see particularly Post 8).
However, Medicaid is allowing this “snapshot” to be taken prior to the above dates if the individual is at home and is paying for his or her care to a homecare provider of such services like an aide or a licensed practical nurse. Therefore, assume that a person enters a nursing home with spousal assets of $80,000. The community spouse resource allowance would be $40,000. However, further suppose the individual has been cared for at home for the last two years and at the first day of the first month of homecare assets of the husband and wife total $300,000. The individual then enters a nursing home with the above-referenced $80,000. The community spouse resource allowance based upon resources of $300,000 at the first day of the first month of homecare, would be $109,560. Therefore, the person would immediately qualify for Medicaid and, have expended a substantial portion of the protected amount.
Awareness of this extended interpretation would allow the individual to decide to go into the nursing home at an earlier date. For example, if the individual entered the nursing home when the applicant had $2,000 and the community spouse had $109,560, the community spouse resource allowance having been determined at a much earlier date at $109,560, would allow this individual to now immediately qualify for Medicaid.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 82
Wednesday, June 9, 2010
Transfer to New Jersey of Individual Receiving New York Medicaid
A common situation involves a Medicaid recipient in New York who desires to relocate to a nursing home in New Jersey. The seminal question is whether such Medicaid eligibility is transferrable. The general answer is no and a new application for Medicaid must be made in New Jersey under the applicable rules.
The rules governing Medicaid eligibility are substantially different in New York than in New Jersey. For example, Medicaid in New York will cover 24-hour home care. Although our home care benefits have increased in New Jersey, they are not equivalent to New York.
I have spoken to supervisory people in Morris County and it has been observed that there is one exception. Lincoln Park Nursing Home in Lincoln Park will honor New York Medicaid eligibility.
One final issue relating to this topic is the constitutional question as to the point in time that an individual moving to New Jersey can become eligible for governmental benefits. As Janice Chapin, Esq. pointed out in our Institute for Continuing Legal Education materials entitled, Hot Topics in Medicaid Planning, since 1969 the rule has been that a state cannot impose a duration of residency on public benefits. The Supreme Court of the United States in Shapiro v. Thompson, 394 U.S. 618 (1969) ruled that states cannot deny welfare benefits to those newly arrived from other states. That is, the moment that an individual enters that State of New Jersey, such individual becomes eligible for benefits (subject to meeting the requirements).
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 81
The rules governing Medicaid eligibility are substantially different in New York than in New Jersey. For example, Medicaid in New York will cover 24-hour home care. Although our home care benefits have increased in New Jersey, they are not equivalent to New York.
I have spoken to supervisory people in Morris County and it has been observed that there is one exception. Lincoln Park Nursing Home in Lincoln Park will honor New York Medicaid eligibility.
One final issue relating to this topic is the constitutional question as to the point in time that an individual moving to New Jersey can become eligible for governmental benefits. As Janice Chapin, Esq. pointed out in our Institute for Continuing Legal Education materials entitled, Hot Topics in Medicaid Planning, since 1969 the rule has been that a state cannot impose a duration of residency on public benefits. The Supreme Court of the United States in Shapiro v. Thompson, 394 U.S. 618 (1969) ruled that states cannot deny welfare benefits to those newly arrived from other states. That is, the moment that an individual enters that State of New Jersey, such individual becomes eligible for benefits (subject to meeting the requirements).
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 81
Tuesday, June 1, 2010
State Incorrectly Interprets Transfer Penalty Period in Medicaid Communication No. 10-02
On May 26, 2010 the State issued Medicaid Communication No. 10-02. In denying give-backs (the basis of reverse half-a-loaf planning), Medicaid authorities have relied on the underlined language, "all assets transferred for less than fair market value have been returned to the individual", of the federal statute (42 U.S.C. Section 1396p(c)(2)(C)).
I cited to the Medicaid authorities Comment 7 to the OBRA '93 regulations and the State's Response. The language expressly allows for give-backs.
It was then called to my attention that under the Supremacy Clause, all assets have to be returned, when the federal statute is read in conjunction with the aforementioned Comment and Response to the OBRA '93 regulations.
It is my respectful opinion that the State is incorrect on this point and that federal pre-emption is not applicable. My reasoning is as follows:
(1) 42 U.S.C. Section 1396p(c)(2)(C) does appear to contradict the above and control under the doctrine of federal pre-emption;
(2) However, the federal statute requiring a transfer of all assets was also in effect at the time that the aforementioned Comment and Response were made (Response being the State's interpretation);
(3) Therefore, since the State law allowing give-backs is less restrictive than the federal statute, give-backs and reverse half-a-loaf planning are not impaired.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© June 2010, Post # 110
I cited to the Medicaid authorities Comment 7 to the OBRA '93 regulations and the State's Response. The language expressly allows for give-backs.
It was then called to my attention that under the Supremacy Clause, all assets have to be returned, when the federal statute is read in conjunction with the aforementioned Comment and Response to the OBRA '93 regulations.
It is my respectful opinion that the State is incorrect on this point and that federal pre-emption is not applicable. My reasoning is as follows:
(1) 42 U.S.C. Section 1396p(c)(2)(C) does appear to contradict the above and control under the doctrine of federal pre-emption;
(2) However, the federal statute requiring a transfer of all assets was also in effect at the time that the aforementioned Comment and Response were made (Response being the State's interpretation);
(3) Therefore, since the State law allowing give-backs is less restrictive than the federal statute, give-backs and reverse half-a-loaf planning are not impaired.
Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© June 2010, Post # 110
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