Medicaid Benefits – House Transfer: Deed Does Not Conflict

Reservation of Power of Appointment in Deed Does Not Conflict With Conveyance of Property to Children

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A Massachusetts appeals court rules that as part of Medicaid planning, a woman could reserve a power of appointment in a deed conveying property to her children while reserving a life estate for herself. Skye v. Hession (Mass. App. Ct., No. 16-P-282, Apr. 28, 2017).

Margaret Hession sought legal assistance to protect her house in the event she might need Medicaid benefits. As part of the Medicaid planning, she executed a deed transferring her house to her children. The deed reserved a life estate for her and granted her a special power of appointment that allowed her to appoint the property to any person except herself, her creditors, her estate, or her estate’s creditors. Ms. Hession decided her daughter Deaven Skye should inherit less than her other children. She wrote a will that exercised her power of appointment and reduced Ms. Skye’s interest in the property from one-third to 5 percent.

After Ms. Hession died, Ms. Skye objected to the will and argued that the power of appointment was void. The trial court dismissed Ms. Skye’s objection and admitted the will to probate. Ms. Skye appealed, arguing that the provisions in the deed granting the remainder interests and reserving a power of appointment are irreconcilably repugnant to each other.

The Massachusetts Court of Appeals, rules that the reservation of the power of appointment is consistent with the other provisions of the deed. According to the court, “because of the reservation of the life estate, the deed conveyed not present possessory estates but rather remainder interests; and, because of the reservation of the power, the remainder interests were defined, in part, by this limitation.” The court specifically does not express a “view on the effect of the reserved power of appointment on [Ms. Hession’s] strategy of avoiding MassHealth look-back period regulations.”

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A Medicaid Applicant’s Purchase of Life Insurance Policy Is Transfer for Less Than Market Value

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An Illinois appeals court rules that a Medicaid applicant’s purchase of a life insurance policy was a transfer for less than fair market value because the applicant did not receive any benefit from the policy. Moore v. State of Illinois (Ill. App. Ct., 4th Dist., No. 4-16-0414, April 11, 2017).

Nursing home resident Elda Buckley applied for Medicaid. On the same day, she purchased a whole life insurance policy for $15,000 that named Christine Moore as the beneficiary. The state approved Ms. Buckley’s Medicaid application, but it determined that the purchase of the life insurance policy was a transfer for less than fair market value and imposed a penalty period.

Ms. Buckley appealed, arguing that she purchased the life insurance policy for fair market value, so the transfer should not be subject to a penalty period. The state and the trial court affirmed the penalty period. Ms. Buckley appealed.

The Illinois Court of Appeal, 4th District, affirms, holding that the purchase of the life insurance policy was a transfer for less than fair market value because Ms. Buckley did not receive the benefit of the policy. According to the court, the “apparent purpose of [Ms.] Buckley’s purchase of the insurance policy, of which she would receive none of the proceeds, was to shelter assets from Medicaid while ensuring [Ms.] Moore received the benefits of her assets.”

For the full text of this decision, go to: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2017/4thDistrict/4160414.pdf

 

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Steps to Prevent a Contested Will

Emotions can run high at the death of a family member. If a family member is unhappy with the amount they received (or didn’t receive) under a Will, a Will contest may ensue. 

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Generally, only a person’s closest heirs, or “distributees” are able to contest a Will. Will contests can drag out for years, keeping all the beneficiaries from getting what they are entitled to. It may be impossible to prevent heirs from fighting over your Will entirely, but there are steps you can take to try to minimize squabbles and ensure your intentions are carried out.

Your Will can be contested if an heir believes you did not have the requisite mental capacity to execute the Will, someone exerted undue influence over you, someone committed fraud, or the Will was not executed properly.

The following are some steps that may make a will contest less likely to succeed:

  • Make sure your Will is properly executed. The best way to do this is to have an experienced elder law or estate planning attorney assist you in drafting and executing the will. Wills need to be signed and witnessed, usually by two independent witnesses.
  • Explain your decision. If family members understand the reasoning behind the decisions in your Will, they may be less likely to contest the Will. It is a good idea to talk to family members at the time you draft the will and explain why someone is getting left out of the Will or getting a reduced share. If you don’t discuss it in person, state the reason in the Will. You may also want to include a letter with the Will.
  • Use a no-contest clause. One of the most effective ways of preventing a challenge to your Will is to include a no-contest clause (also called an “in terrorem clause”) in the will. This will only work if you are willing to leave something of value to the potentially disgruntled family member. A no-contest clause provides that if an heir challenges the Will and loses, then he or she will get nothing. You must leave the heir enough so that a challenge is not worth the risk of losing the inheritance.
  • Prove competency. One common way of challenging a Will is to argue that the deceased family member was not mentally competent at the time he or she signed the Will. You can try to avoid this by making sure the attorney drafting the Will tests you for competency. This could involve seeing a doctor or answering a series of questions.
  • Remove the appearance of undue influence. Another common method of challenging a Will is to argue that someone exerted undue influence over the deceased family member. For example, if you are planning on leaving everything to your daughter who is also your primary caregiver, your other children may argue that your daughter took advantage of her position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your Will in drafting your will. Family members should not be present when you discuss the Will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive you to the attorney’s office.

Bear in mind that some of these strategies may not be advisable in certain states and certain situations. Feel free to talk to me about the best strategy for you.

(For more information on Wills click here.)

Regards,

Brian A. Raphan, Esq.

Top 10 Elder Law decisions of 2016

Below, in chronological order, is ElderLawAnswers’ annual roundup of the top 10 elder law decisions for the year just ended, as measured by the number of “unique page views” of our summary of the case.

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1. Medicaid Applicant’s Irrevocable Trust Is an Available Resource Because Trustee Can Make Distributions

An Alabama appeals court rules that a Medicaid applicant’s special needs trust is an available resource because the trustee had discretion to make payments under the trust. Alabama Medicaid Agency v. Hardy (Ala. Civ. App., No. 2140565, Jan. 29, 2016). To read the full summary, click here.

2. Trust Is an Available Asset Because Trustees Have Discretion to Make Distributions

A New York appeals court rules that a Medicaid applicant’s trust is an available asset because the trustees have discretion to make distributions to her. In the Matter of Frances Flannery v. Zucker (N.Y. Sup. Ct., App. Div., 4th Dept., No. TP 15-01033, Feb. 11, 2016). To read the full summary, click here.

3. Medicaid Applicant Who Transferred Assets in Exchange for Promissory Note May Proceed with Suit Against State

A U.S. district court holds that a Medicaid applicant who was denied Medicaid benefits after transferring assets to her children in exchange for a promissory note may proceed with her claim against the state because Medicaid law confers a private right of action and the Eleventh Amendment does not bar the claim. Ansley v. Lake (U.S. Dist. Ct., W.D. Okla., No. CIV-14-1383-D, March 9, 2016). To read the full summary, click here.

4. Mass. Court Bridles at Allegations in Request for Reconsideration in Irrevocable Trust Case

In a strongly worded response to a Medicaid applicant’s request for reconsideration of an unsuccessful appeal involving an irrevocable trust, a Massachusetts trial court strikes the applicant’s pleadings after it takes great exception to the tone of the argument.  Daley v. Sudders (Mass.Super.Ct., No.15-CV-0188-D, March 28, 2016). To read the full summary, click here.

5. Caretaker Exception Denied Because Child Did Not Provide Continuous Care

A New Jersey appeals court determines that the caretaker child exception does not apply to a Medicaid applicant who transferred her house to her daughter because the daughter did not provide continuous care for the two years before the Medicaid applicant entered a nursing home. M.K. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., App. Div., No. A-0790-14T3, May 13, 2016). To read the full summary, click here.

6. State Can Place Lien on Medicaid Recipient’s Life Estate After Recipient Dies

An Ohio appeals court rules that a deceased Medicaid recipient’s life estate does not extinguish at death for the purposes of Medicaid estate recovery, so the state may place a lien on the property. Phillips v. McCarthy (Ohio Ct. App., 12th Dist., No. CA2015-08-01, May 16, 2016). To read the full summary, click here.

7. Attorney Liable to Third-Party Beneficiary of Will for Legal Malpractice

Virginia’s highest court rules that an intended third-party beneficiary of a will may sue the attorney who drafted the will for legal malpractice. Thorsen v. Richmond Society for the Prevention of Cruelty to Animals (Va., No. 150528, June 2, 2016). To read the full summary, click here.

8. Nursing Home’s Fraudulent Transfer Claim Against Resident’s Sons Can Move Forward

A U.S. district court rules that a nursing home can proceed with its case against the sons of a resident who transferred the resident’s funds to themselves because the fraudulent transfer claim survived the resident’s death. Kindred Nursing Centers East, LLC v. Estate of Barbara Nyce (U.S. Dist. Ct., D. Vt., No. 5:16-cv-73, June 21, 2016). To read the full summary, click here.

9. Irrevocable Trust Is Available Asset Because Medicaid Applicant Retained Some Control

New Hampshire’s highest court rules that a Medicaid applicant’s irrevocable trust is an available asset even though the applicant was not a beneficiary of the trust because the applicant retained a degree of discretionary authority over the trust assets. Petition of Estate of Thea Braiterman (N.H., No. 2015-0395, July 12, 2016). To read the full summary, click here.

10. NY Court Rules that  Spouse’s Refusal to Contribute to Care Creates Implied Contract to Repay Benefits

A New York trial court enters judgment against a woman who refused to contribute to her spouse’s nursing home expenses, finding that because she had adequate resources to do so, an implied contract was created between her and the state entitling the state to repayment of Medicaid benefits it paid on the spouse’s behalf. Banks v. Gonzalez (N.Y. Sup. Ct., Pt. 5, No. 452318/15, Aug. 8, 2016). To read the full summary, click here.

Feel Free to contact me to see how any of these decisions may affect your personal situation.

-Brian A. Raphan, Esq. 

Is It Better to Remarry in 2017 or Just Live Together?

Finding love later in life may be unexpected and exciting, but should it lead to marriage? The considerations are much different for an older couple with adult children and retirement plans than for a young couple just starting out. Before deciding whether to get married or just live together, you need to look at your estate plan, your Social Security benefits, and your potential long-term care needs, among other things. Whatever you decide to do, you may want to consult with your lawyer to make sure your wishes will be carried out.

Here are some things to think about: 

  • Estate Planning. Getting married can have a big effect on your estate plan. Even if you don’t include a new spouse in your will, in most states spouses are automatically entitled to a share of your estate (usually one-third to one-half). One way to prevent a spouse from taking his or her share is to enter into a prenuptial agreement in which both spouses agree not to take anything from the other’s estate. If you want to leave something to your spouse and ensure your heirs receive their inheritance, a trust may be the best option.
  • Long-Term Care. Trusts and prenuptial agreements, however, won’t necessarily keep a spouse from being responsible for your long-term care costs or vice versa. In addition, getting married can have an effect on your or your spouse’s Medicaid eligibility. If you can afford it, a long-term care insurance policy may be a good investment once you remarry.
  • The Family Home. Whether you are getting married or just living together, before combining households you will need to think about what will happen to the house once the owner of the house dies. If the owner wants to keep the house within his or her family, putting the house in both spouse’s names is not an option. On the other hand, the owner may also not want his or her heirs to evict the surviving spouse once the owner dies. One solution is for the owner of the house to give the surviving spouse a life estate. Once the surviving spouse dies, the house will pass to the original owner’s heirs.
  • Social Security. Many divorced or widowed seniors receive Social Security from their former spouses, and remarriage can affect benefits. If you are divorced after at least 10 years of marriage, you can collect retirement benefits on your former spouse’s Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment). However, if your are a widow, widower or surviving divorced spouse who remarries after age 60, you are entitled to benefits on your prior deceased spouse’s Social Security earnings record.
  • Alimony. If you are receiving alimony from a divorced spouse, it will likely end once you remarry. Depending on the laws in your state and your divorce settlement, alimony may end even if you simply live with someone else.
  • Survivor’s Annuities. Widows and widowers of public employees, such as police officers and firefighters, often receive survivor’s annuities. Many of these annuities end if the surviving spouse remarries. In addition widows and widowers of military personnel may lose their annuities if they remarry before age 57. Before getting married, check your annuity policy to see what the affect will be.
  • College Financial Aid. Single parents with children in college may want to reconsider before getting married. A new spouse’s income could affect the amount of financial aid the college student receives. Some private colleges may even count the combined income of a couple that lives together if they commingle their expenses.

NY Court Rules that Community Spouse’s Refusal to Contribute to Care Creates Implied Contract to Repay Benefits

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A New York trial court enters judgment against a woman who refused to contribute to her spouse’s nursing home expenses, finding that because she had adequate resources to do so, an implied contract was created between her and the state entitling the state to repayment of Medicaid benefits it paid on the spouse’s behalf. Banks v. Gonzalez (N.Y. Sup. Ct., Pt. 5, No. 452318/15, Aug. 8, 2016).

Evelyn Gonzalez’ spouse was admitted to a nursing home and received $28,235.56 in Medicaid benefits from the Department of Social Services of the City of New York.  At the time of her spouse’s Medicaid application, Ms. Gonzalez’ assets exceeded the community spouse resource allowance.  However, she signed a declaration refusing to make her income or resources available to pay for her spouse’s care.

After a letter to Ms. Gonzalez demanding repayment of the cost of Medicaid benefits paid on behalf of her spouse went unanswered, the agency filed suit.  Ms. Gonzalez did not respond to the summons and complaint nor to the agency’s motion for default judgment.

The Supreme Court of New York, New York County, grants the motion and enters default judgment against Ms. Gonzalez for the cost of benefits provided to her spouse.  The court notes that in cases such as this where Ms. Gonzalez has the income and resources but refuses to contribute to her spouse’s care, state law creates an implied contract between her and the state allowing recovery of the cost of the benefits provided during the preceding 10 years.

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The Money Letter That Every Parent Should Write

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As an elder law attorney I come across many clients that are looking to pass their wealth to their children–but how about passing on some of your hard earned financial wisdom as well. Read on and you’ll find great ways to pass along your most prized asset…your wisdom.

6/17/16  via The New York Times Ron Lieber

The Money Talk, capital “M” and capital “T,” is overrated. As with the Sex Talk, children can sense that one is coming. And if they get antsy, your words will go in one ear and out the other.

Tempted to hand over a notecard instead? Your first principles may fit on it, and making one for a new graduate is a fine thing to do. But there isn’t much space for storytelling.

So in this season of transitions, consider the old-fashioned letter. It’s long enough to tell some tales to bolster your advice, and if it’s written with enough soul, there’s a good chance the recipient will keep it for a long time. Plus, it’s a literal conversation piece, since the good letters will inspire more curiosity about how the writers oversee their own financial affairs.

Kimberly Palmer still has the money letter her mother wrote her and her two younger sisters 13 years ago, and in her new book, “Smart Mom, Rich Mom: How to Build Wealth While Raising a Family,” she offers a template that parents or grandparents can use to pass on similar wisdom.

A good letter, according to Ms. Palmer, should include at least one story about a large financial challenge and another one about a big money triumph. Then, include a list of crucial habits and the tangible things they have helped the family achieve.

HEED YOUR IGNORANCE: Quite often, the best stories and takeaways come from the biggest mistakes, and so it is with Gail Shearer, Ms. Palmer’s mother. Lesson No. 6 in her letter is this one: Never invest in anything you don’t totally understand.

How many times did she and her husband ignore this advice? “Oh, three or four,” she said in an interview this week. Ms. Shearer, 65, a retired consumer health advocate who spent years at Consumers Union, proceeded to tick them off.

There was the tax shelter. “In the 1980s, they were the thing,” she said. “We drank the Kool-Aid, just a little bit.” And then suffered through many years of complex tax filings, which nobody tells you about during the sales pitch.

Then, there was some variable life insurance. And an annuity. And an adviser who promoted a “black box” investment strategy, as if that were a good thing.

The couple did not lose a lot of money, though if they had put it all in indexed mutual funds in the first place (See Lesson No. 5 in the letter). as they did with most of the rest of their savings, they would have more money now.

So better that their daughters avoid any such blunders from the beginning.

BEWARE OF GENIUS: The Palmer-Shearer clan is not the only one with a letter-writing tradition. Four years ago, John D. Spooner, an investment adviser and writer, collected an entire book of them called, “No One Ever Told Us That: Money and Life Letters to my Grandchildren.”

In it, Mr. Spooner takes to its logical conclusion Ms. Shearer’s advice about not understanding something: Don’t trust the person who claims to be omniscient either.

In a chapter titled “Beware of Genius,” Mr. Spooner tells the story of an impenetrable Alan Greenspan speech he once heard. He instructs his grandchildren to consider the following hypothetical: “If someone cannot explain his economic concepts to you in several simple paragraphs, then you should view those concepts as probably being dangerous to your financial health.”

STICK TO YOUR SELLING PLANS: The most memorable tale in Mr. Spooner’s book is about his failure to sell his seven-figure holding in Citigroup stock before the economic collapse in 2008.

As an investment adviser with the firm, he thought he knew it well enough. He had made plans to sell after any change in leadership. But the new chief executive liked him. “We can be blinded by flattery from the seats of power,” he wrote to his grandchildren. “Be aware of this in your business lives.”

Selling something that is still valuable is the hardest part of any trade, he added. So if you can’t name three good reasons to continue owning something, he warned his grandchildren, then it’s time to sell. In retrospect, he did not have three good ones, but he kept the stock anyway as it fell to $1 a share. (It had been above $55.) He held on to it as the stock rebounded and made some money buying shares of other blue-chip companies during the downturn.

Another idea that I’ll include in my own letter someday: You could just follow Ms. Shearer’s lead and invest in a variety of index funds that own every stock in a particular market, thus avoiding this sort of concentrated stock risk.

BUDGETS ARE ABOUT VALUES It may be tempting for any of Ms. Shearer’s daughters to gloss over Lesson No. 8, where she exhorts them to keep track of their spending. How boring, right? But almost in passing, she seizes on one of the least understood, yet most essential, pieces of money wisdom.

Testamentary Trust & MEDICAID…

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Testamentary Trust Qualifies As SNT Despite Support Language

The Supreme Court of Connecticut rules that the state Department of Social Services improperly denied a Medicaid application after counting assets in a testamentary trust that should have been considered exempt because, the court holds, the trust was a discretionary supplemental needs trust, not a support trust. Pikula v. Department of Social Services (Conn., No. SC 19533, May 10, 2016).

John Pikula died in 1991, leaving behind a testamentary trust for the benefit of his daughters.  The trust gave the trustee the ability to use the trust income and principal for the daughters “as the trustee may deem advisable for [their] maintenance and support”.  In 2012, one of Mr. Pikula’s daughters, Marian Pikula, entered a long-term care facility and applied for Medicaid.  The Department of Social Services (DSS) denied Ms. Pikula’s application, alleging that the assets in the testamentary trust constituted a countable support trust.

Ms. Pikula appealed DSS’s decision, arguing that her father had intended to create a supplemental needs trust and that the discretionary language in the trust met the requirements of such a trust because Ms. Pikula could not compel payments from the trust for her support.  She was denied at an administrative level and on appeal to the trial court.  The Connecticut Supreme Court transferred Ms. Pikula’s appeal from the intermediate appellate court.

The Supreme Court of Connecticut reverses the trial court.  The court determines that “the fact that the trustee is only required to use as much income as he ‘may deem advisable’ to provide for [Ms. Pikula’s] maintenance, indicates that the testator intended for the trustee to have complete discretion in determining what, if any, of the income was to be used for [Ms. Pikula’s] maintenance.”  The court goes on the analyze the circumstances behind the creation of the trust, and it reasons that because the trust was established with a modest amount of money, it was clearly not intended to be used for Ms. Pikula’s long-term support.

Feel free to contact me for information about the type of Trust to suit your needs.

Regards,

Brian

www.RaphanLaw.com

Payments to Caregiver Subject Medicaid Applicant to Penalty Period

Reversing a lower court, a Michigan appeals court rules that under state regulations a Medicaid applicant’s payments to a non-relative caregiver subjected the applicant to a penalty period because the caregiver did not have a written contract and a doctor had not recommended the service be provided. Jensen v. Department of Human Services (Mich. Ct. App., No. 319098, Feb. 19, 2015).

Jason Jensen hired a non-relative caregiver for his grandmother, Betty Jensen, who suffered from dementia. Mr. Jensen and the caregiver had an informal agreement and no contract was signed, but Mr. Jensen paid the caregiver a total of $19,000 from Ms. Jensen’s assets over the course of the months she worked for Ms. Jensen. When Ms. Jensen’s condition worsened, she entered a nursing home and applied for Medicaid. The state established a penalty period, holding that the payments to the caregiver were an unlawful transfer. Ms. Jensen died before the penalty period ended.

Mr. Jensen appealed, but the state upheld the decision. Under state regulations, payments to caregivers are considered “divestments” and transfers for less than fair market value unless there is a signed contract and a doctor has recommended in writing that the services be provided, among other requirements. Mr. Jensen appealed to court, and the trial court reversed, holding that the regulation requiring that a contract be in writing applied only to relative caregivers. The state appealed.

The Michigan Court of Appeals reverses, holding that the trial court improperly interpreted the regulations and that the penalty period was appropriate. According to the court, because there was no written contract and no written doctor’s recommendation for the services, the payments to the caregiver were a divestment. The court notes that “it does not appear from the factual record that [Mr.] Jensen overpaid for [the caregiver’s] services, or hired [the caregiver] unnecessarily. If we were not bound by the plain language of [the regulations], and were we permitted de novo review of the lower tribunals’ factual considerations, we would reach quite a different result.”

TOP 8 MISTAKES

IN MEDICAID PLANNING

Feel free to contact me with any Medicaid Planning questions,

Regards,

Brian A. Raphan

Should My Parents Give Me Their Home?

Many people wonder if it is a good idea to give their home to their children. While it is possible to do this, giving away a house can have major tax consequences, among other results.

When you give anyone property valued at more than $14,000 (in 2016) in any one year, you have to file a gift tax form.  Also, under current law you can gift a total of $5.45 million (in 2016) over your lifetime without incurring a gift tax. If your parents’ residence is worth less than this amount, they likely won’t have to pay any gift taxes, but they will still have to file a gift tax form

While your parents may not have to pay taxes on the gift, if you sell the house right away, you may be facing steep taxes. The reason is that when property is given away, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose your parents bought the house years ago for $150,000 and it is now worth $350,000. If they give their house to you, the tax basis will be $150,000. If you sell the house, you will have to pay capital gains taxes on $200,000 — the difference between $150,000 and the selling price. The only way for you to avoid the taxes is for you to live in the house for at least two years before selling it. In that case, you can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.

Inherited property does not face the same taxes as gifted property. If you were to inherit the property, the property’s tax basis would be “stepped up,” which means the basis would be the current value of the property. However, the home will remain in your parents’ estate, which may have estate tax consequences.

Beyond the tax consequences, gifting a house to you can affect your parents’ eligibility for Medicaid coverage of long-term care.  There are other options for giving a house to children, including putting it in a trust or selling it to them. Before your parents give away their home, they should consult with your elder law attorney, who can advise them on the best method for passing on their home.

To read more articles about gifting from Brian A. Raphan, P.C. click here.

 

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