New Transfer Rules and Their Effect

New Transfer Rules and Their Effect

When I commenced writing articles for my blog, I promised I would not immediately discuss the new transfer rules as it is my opinion that the basics should be understood first. This article compares the prior transfer rules to the new transfer rules in a general sense as I feel the time is appropriate to have such discussion.

However, before discussing the current rules, I will review the prior transfer rules as a comparison.

I. Transfers – Prior Law

A. Transfers within 36 months of application are scrutinized by Medicaid; may or may not give rise to a period of ineligibility.

B. Transfer Penalty = amount transferred divided by penalty rate (assume $6,525). Example: individual transfer $30,000 to daughter upon entering nursing home. Penalty is $30,000/6,525 = 4.59 months (rounded down to 4 months).


C. New Jersey Medicaid has adopted the favorable rule that penalty periods are “rounded down”. For example, if a transfer gives rise to a period of ineligibility of 4.9 months, treat it as a penalty of 4.0 months. This favorable rule has been changed by the new law as will be discussed.

D. Numerous Exemptions to the Transfer Rules – Typical exemptions are transfers to spouse, real estate to designated individuals, transfer for sole purpose other than Medicaid eligibility, transfers to disabled child or trust for disabled child, transfers to a trust for a disabled individual under age 65 (the applicant), assets transferred that are returned to the individual.

II. The New Law (Transfers)

A. Transfers – deemed to have been made on date individual would otherwise be eligible for Medicaid but for the new law. Example considers only single applicant.

1. five-year lookback.

2. individual in nursing home.

3. assets down to $2,000 (except if income exceeds the income cap of $2,022 in which case the number is $4,000).

B. Basically, transfers within 60 months treated as made when assets reduced to $2,000. That is, the penalty commences when an individual is out of funds, and has no money to pay the nursing home. Statute makes no sense in that the period of ineligibility commences when individual has no funds to pay for nursing home.

C. Major Effects of New Transfer Law

1. Individual has no funds but has obligation to pay nursing home until end of penalty period.

2. Nursing home does not receive Medicaid nor payments from individual who has exhausted his or her assets. New law creates burden on nursing home to review resident’s records prior to admission to determine any transfers within 60 months. Nursing home might face financial problems as fewer people might apply to nursing homes in light of the onerous transfer rules.

3. Families will be seeking alternative living arrangements such as day care and home care.

4. Children might have to pay for nursing home costs till end of penalty period.

5. Long-term care insurance will increase in popularity, and the typical period of coverage will increase from 36 to 60 months. In addition, individuals will be more likely to purchase long-term care insurance options such as cost of living adjustment.

6. People will be transferring assets to children at younger ages (possibly when in good health to beat the 60-month rule).

7. Hardship waivers will be sought by applicant or by nursing home on behalf of applicant. Individual could qualify for hardship waiver for Medicaid when application of transfer rules would deprive individual of medical care such that individual’s health or life would be endangered or is deprived of food, clothing or necessities of life. Nursing home could apply for waiver on behalf of individual. States have the option to pay nursing home costs for 30-day period while application is pending.


Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© March 2009, Post #15

Accelerating the Date of Eligibility

Accelerating the Date of Eligibility

1. While timely payment of debts is an important step in establishing the date of eligibility, it is often possible to accelerate such date by the prepayment of a future debt or by acquiring excludable resources.

2. Frequently in the planning process an income tax liability is generated due to the liquidation of assets. Typical examples are the redemption of E or EE bonds, sales of securities and the withdrawal of funds from an IRA. Payment of income taxes on these transactions on April 15 could delay the date of eligibility. Counsel should confer with applicant’s accountant to discuss maximum payment of estimated taxes.

3. If applicant is married and community spouse is residing in the marital home, monies can be utilized for mortgage payments or for home repairs.

4. Monies can be used to purchase excludable resources such as an irrevocable burial arrangement – N.J.A.C. 10:71-4.4(b)9.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© February 2009, Post #5

Life Insurance Issues

Life Insurance Issues

A. One of the most common oversights which can delay eligibility is the failure to inquire about applicant’s (or spouse’s) life insurance policies. References to the relevant New Jersey Administrative Code citations are included.

B. While the cash value of life insurance policies with a total face value of $1,500 or less is an excludable resource (N.J.A.C. 10:71-4. 4(b)4.), the existence of a life insurance policy(s) often presents a trap for the unwary. Often an elderly client will have a small policy with a substantial cash value. If the face value of such policy (or total face value of several policies) exceeds $1,500, the cash value constitutes a countable resource. Therefore, it is necessary to surrender the policy and spend the cash value.

Caution: While a group policy has no cash value, the aggregate face amount of all policies (including group) is considered in the determination of whether the cash value(s) is an excludable resource.

Note: Another solution to the cash value problem is for the owner of the policy (generally the applicant) to borrow against the policy. While this technique would reduce the death proceeds, the cash value would no longer be a resource. Hopefully, the borrowed funds can be used to pay debts or acquire excludable resources.

1. If the face amount of a policy is large and/or the death of an applicant is near, consideration should be given to a transfer of ownership of the policy to the community spouse. Of course, the cash value will then count toward the Community Spouse Resource Allowance.

2. Life insurance on the life of and owned by the community spouse could also present a problem. That is, the cash value on such policy counts toward the Community Spouse Resource Allowance and will result in a denial of eligibility if not considered. There is no express $1,500 exclusion in the regulations for a policy owned by and on the life of the community spouse.

Note: Again, policies need not always be surrendered. As indicated above, it might be advantageous to transfer a policy with a substantial death benefit to the community spouse, particularly if death of the applicant is near.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© February 2009, Post #3

Additional Post-Eligibility Considerations

Additional Post-Eligibility Considerations

Accounts Closed Out During the Look-back Period

In addition to providing history for all accounts during the relevant look-back period, documentation should be provided for any accounts terminated during such time. Also, tracing the proceeds of such accounts is necessary. Firstly, this process will allow you to detect unknown transfers. Secondly, such information is to be provided since the County Board does a crosscheck with the IRS of Forms 1099 of a Medicaid recipient prior to eligibility. Such crosschecks will reveal all interest bearing accounts held by a Medicaid recipient (and other assets such as stocks) during this time period. If such search reveals an account(s) not disclosed in the Medicaid application papers, the County will make a post-eligibility inquiry. By providing such documentation at the time of application, the family avoids the nuisance of subsequent inquiry by Medicaid with respect to accounts closed out and not mentioned.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.



© February 2009, Post #2

Methods of Payment of Medigap Insurance After Eligibility

Appointment of Representative Payee

1. Once eligibility is established, the nursing home receives the Medicaid reimbursement rate as payment. The actual amount paid to the nursing home by Medicaid is reduced by any recurring monies received by the individual such as social security and pension payments, which are to be remitted to the nursing home on a monthly basis.

2. Such payments received during any given month constitute resources on the “first moment of the first day” of the subsequent month.

3. The $2,000 threshold could be exceeded due to the lack of attention to automatic deposits of social security and pension payments to a Medicaid recipient’s checking account.

Planning Point: Once the date of eligibility is near, counsel should advise and assist the responsible family member to designate the nursing home as representative payee for social security benefits of the Medicaid recipient. Social security payments will then be made directly to the nursing home. The danger of disqualification due to inadvertent accumulation of social security monies will be eliminated.

Alternative Arrangements: If a recipient maintains Medigap insurance, Medicaid will subsidize such costs. In such case, it might be prudent not to designate the nursing home as representative payee since the recipient would have to rely on the nursing home to pay the Medigap premiums from the assigned monies. If Medigap insurance is to be maintained, the following possibilities exist:

(a) Designate nursing home as representative payee and arrange for home to pay Medigap premiums (risky).

(b) Continue Social Security payments to applicant’s account. Applicant (or attorney-in-fact) pays premiums directly and remits any excess funds to the nursing home.

(c) If pension payments can cover the Medigap premiums, designate nursing home as representative payee of Social Security, pay premiums from pension funds, remit any excess pension monies to nursing home.

4. Payments from qualified retirement plans cannot be assigned. Therefore, in the event of such payments, recipient should maintain a checking account for deposit of such funds. These monies are to be paid to the nursing home monthly.

5. At the point of eligibility or within ninety days of eligibility (the “90-Day Rule”), all joint accounts with community spouse should be terminated. The entire balance in a joint account will be treated as a resource of applicant. There should be a separate account for applicant. Also, a separate account in the name of community spouse should be the receptacle for pension and social security payments of community spouse and other monies.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.

© February 11, 2009, Issue 1