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Protecting Your House from Medicaid Estate Recovery

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After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available.

Life estates

For many people, setting up a “life estate” is the simplest and most appropriate alternative for protecting the home from estate recovery. A life estate is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.

Example: Jane gives a remainder interest in her house to her children, Robert and Mary, while retaining a life interest for herself. She carries this out through a simple deed. Thereafter, Jane, the life estate holder, has the right to live in the property or rent it out, collecting the rents for herself. On the other hand, she is responsible for the costs of maintenance and taxes on the property. In addition, the property cannot be sold to a third party without the cooperation of Robert and Mary, the remainder interest holders.

When Jane dies, the house will not go through probate, since at her death the ownership will pass automatically to the holders of the remainder interest, Robert and Mary. Although the property will not be included in Jane’s probate estate, it will be included in her taxable estate. The downside of this is that depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation. The upside is that this can mean a significant reduction in the tax on capital gains when Robert and Mary sell the property because they will receive a “step up” in the property’s basis.

As with a transfer to a trust, the deed into a life estate can trigger a Medicaid ineligibility period of up to five years. To avoid a transfer penalty the individual purchasing the life estate must actually reside in the home for at least one year after the purchase.

Life estates are created simply by executing a deed conveying the remainder interest to another while retaining a life interest, as Jane did in this example. In many states, once the house passes to Robert and Mary, the state cannot recover against it for any Medicaid expenses Jane may have incurred.

Trusts

Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. Trusts provide more flexibility than life estates but are somewhat more complicated. Once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust. This can protect more of the value of the house if it is sold. Further, if properly drafted, the later sale of the home while in this trust might allow the settlor, if he or she had met the residency requirements, to exclude up to $250,000 in taxable gain, an exclusion that would not be available if the owner had transferred the home outside of trust to a non-resident child or other third party before sale.

Contact me to find out what method will work best for you.

More Related Articles >

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

medicare denial

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).

Denise Hardy inherited a one-half interest in a house and placed it in an irrevocable trust. The trust instrument stated that the trustee could distribute income to Ms. Hardy at the trustee’s discretion and that the trust was intended to be a special needs trust. Ms. Hardy entered a nursing home and applied for Medicaid. The state determined that the trust was an available resource.

Ms. Hardy appealed, and an administrative law judge agreed that the trust was an available resource. Ms. Hardy appealed to court, arguing that the trust was not available because it was irrevocable and could not be altered. The trial court reversed the state’s decision and ordered the state to pay Ms. Hardy benefits. The state appealed.

The Alabama Court of Civil Appeals reverses, holding the trust is an available resource. According to the court, a trust is an available resource if there is any circumstance under which payments can be made to the beneficiary, and that in this case, “if the house was sold and half of the proceeds of the sale were placed in the trust, the trustee could then make distributions as required by the terms of  [Ms.] Hardy’s trust.”

For the full text of this decision, go to: https://acis.alabama.gov/displaydocs.cfm?no=713449&event=4JX0KDU8D

8 Medicaid Planning Mistakes to Avoid: Click here

Additional Medicaid Planning questions? Click here

Regards,

Brian A. Raphan

 

Choosing a trustee and an executor

The requirements for a trustee and how to choose one

How do you choose a trustee? What qualities should a trustee have? Alisa Shin and Sarah Price of Vanguard Advice Services discuss the requirements for a trustee and how to go about choosing one.

Video: https://personal.vanguard.com/us/insights/video/3437-Retail-Exc3

Transcript:

Liz Tammaro: And, Alisa, what are the pros and cons of creating a trust?

Alisa Shin: That’s a great question. People hear the word “trust,” and they automatically think of controlling people, and that’s not necessarily true. There are a lot of different types of trusts. I think most trusts that people are familiar with are trusts that are irrevocable, trusts that can’t be changed. And for a lot of people, that’s scary because they end up—They think they’re going to create this document that will date back to the dinosaur age, and, you know, they can’t ever change it again, and so they have to live with it. And that’s not necessarily true.

Trusts, irrevocable trusts, are really used for many reasons. One, obviously, if you have children or beneficiaries who are young and who can’t manage the money, a trust is a way to protect that money, to put a structure in place for the investment management and the management of how the assets are distributed to the beneficiary. And you can time it out so that a 15-year-old isn’t getting a large sum of money, and they can get it at a more appropriate time.

The more common reasons why people also use trusts is, one, to provide asset protection. A properly drawn irrevocable trust can protect those assets from future creditors in case the beneficiary gets sued, and a future creditor can also mean a divorcing spouse. So even if a beneficiary doesn’t have a prenuptial agreement, an irrevocable trust, if it’s drawn up correctly, could protect those assets so the divorcing spouse could not get those assets.

Liz Tammaro: And I’m hearing you say irrevocable doesn’t necessarily mean not changeable, right?

Alisa Shin: Correct. So there’ll be restrictions as to who could make the change, but a lot of times, when we talk with clients here at Vanguard, we really encourage clients because we just don’t know what the future is going to entail, to empower a beneficiary to have the ability to change the terms of the trust and determine who should get it at the beneficiary’s later passing, at their death.

And that’s typically called a testamentary limited power of appointment. It’s limited because you can decide who could receive the money. You could say that your child could give it to anybody they would like, or you could say that they can only give it to their descendants or charitable organizations. You can make it as broad or as restrictive as you would like.

Liz Tammaro: Okay, so you talked about some of the benefits of a trust. How about, are there any drawbacks to creating trusts?

Alisa Shin: You know, the drawbacks of creating a trust, it creates a little bit of a complexity in your life. When someone has a trust, that trust is a separate taxpayer, technically. It will have a second taxpayer identification number. So that means that that trust will have to file its own income tax returns, meaning the trustee will do that for them. It will have a separate account that won’t be combined into your own personal account because you want that to make sure that it stays protected from future creditors and so forth for the reasons we discussed.

Sometimes, depending on who your trustees are, there are additional costs associated with the trust. You need to, if you have a professional trustee serving, they might charge a commission. Clearly, if you have an accountant who’s preparing the tax return, there’s going to be one additional tax return that needs to be prepared for that trust.

Liz Tammaro: And one other thing, I’ll just open this up to both of you. I heard you say that it’s really important that it’s drawn up properly. Talk to me a little bit more about what you mean there?

Alisa Shin: In terms of, I assume, asset protection and so forth?

Liz Tammaro: Yes, the trust. You said it’s really important that it must be drawn up properly; the document must be— What do you mean by that?

Alisa Shin: There are certain provisions, something called a spendthrift provision that would need to be included in the document. I would say, in today’s day and age, a spendthrift provision is almost always in every trust document. But the other part of drawing it up properly is understanding what impact guaranteeing money from the trust would have for your beneficiary.

So if you create a trust that says, “Pay the income to my beneficiary every month,” because that’s a guaranteed income stream, that income stream loses its protection from a future creditor. Whereas, if the trust said, “The trustee has the discretion to use the income for my beneficiaries’ benefit,” that gives it a more solid layer of protection from a future creditor or a divorcing spouse.

So when you think about asset protection, divorce protection, it’s really a balancing game between giving your beneficiary access to the money and some comfort knowing that he or she might be able to get the money that they needed versus leaving it to a trusted advisor, a trusted family friend to make sure those assets are protected.

Important information

All investing is subject to risk, including the possible loss of money you invest. Diversification does not ensure a profit or protect against a loss.

This hangout is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

Read more on the subject: Download Free Probate Guide.

What’s the Difference Between Medicare and Medicaid in the Context of Long-Term Care?

Although their names are confusingly alike, Medicaid and Medicare are quite different programs. Both programs provide health coverage, but Medicare is an “entitlement” program, meaning that everyone who reaches age 65 and is entitled to receive Social Security benefits also receives Medicare (Medicare also covers people of any age who are permanently disabled or who have end-stage renal disease.)

Brian Raphan, P.C.

Medicaid, on the other hand, is a public assistance program that that helps pay medical costs for individuals with limited income and assets. To be eligible for Medicaid coverage, you must meet the program’s strict income and asset guidelines. Also, unlike Medicare, which is totally federal, Medicaid is a joint state-federal program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs. (The state picks up the rest of the tab.)

Medicare and Medicaid Coverage of Long-Term Care

The most significant difference between Medicare and Medicaid in the realm of long-term care planning, however, is that Medicaid covers nursing home care, while Medicare, for the most part, does not. Medicare Part A covers only up to 100 days of care in a “skilled nursing” facility per spell of illness. The care in the skilled nursing facility must follow a stay of at least three days in a hospital. And for days 21 through 100, you must pay a co-payment of $152 a day (in 2014). (This is generally covered by Medigap insurance.) In addition, the definition of “skilled nursing” and the other conditions for obtaining this coverage are quite stringent, meaning that few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for less than a quarter of long-term care costs in the U.S. In the absence of any other public program covering long-term care, Medicaid has become the default nursing home insurance of the middle class. Lacking access to alternatives such as paying privately or being covered by a longterm care insurance policy, most people pay out of their own pockets for long-term care until they become eligible for Medicaid. The fact that Medicaid is a joint state-federal program complicates matters, because the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (The states also sometimes have their own names for the program, such as “Medi-Cal” in California and “MassHealth” in Massachusetts.)

Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions.

This is why consulting with your elder law attorney is so important. As for home care, Medicaid has traditionally offered very little — except in New York, which provides home care to all Medicaid recipients who need it. Recognizing that home care costs far less than nursing home care, more and more states are providing Medicaid-covered services to those who remain in their homes. It’s possible to qualify for both Medicare and Medicaid. Such recipients are called “dual eligibles.” Medicare beneficiaries who have limited income and resources can get help paying their out-of-pocket medical expenses from their state Medicaid program. For details, click here.

Estate Exclusion to Rise to $5.45M in 2016

The IRS has announced that the basic estate tax exclusion amount for the estates of decedents dying during calendar year 2016 will be $5.45 million, up from $5.43 million for calendar year 2015.  This figure is in line with earlier projections.

Estate Planning, Raphan

Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,110,000, up from $1,100,000 for 2015.

The increase in the estate tax exclusion means that the lifetime tax exclusion for gifts should also rise to $5.45 million, as will the generation-skipping transfer tax exemption. The annual gift tax exclusion will remain at $14,000 for 2016.

For details on many of these and other inflation adjustments to tax benefits, go to: https://www.irs.gov/pub/irs-drop/rp-15-53.pdf

For more information on Estate Planning and a Free Estate Planing Guide click here.

Medicaid Spousal Impoverishment Numbers Likely to Be Unchanged for 2016

With the just-announced September 2015 Consumer Price Index for All Urban Consumers (CPI-U) actually lower than the comparable figure in September 2014, the betting is that next year’s Medicaid’s spousal impoverishment figures and related numbers will remain the same as 2015. 

In an email to his state colleagues in the National Academy of Elder Law Attorneys, Pennsylvania ElderLawAnswers member Robert Clofine points out that the last time the CPI-U was lower than the previous year (in 2009) , the Centers for Medicare and Medicaid Services (CMS) did not adjust the Medicaid numbers downward but kept them level.

This means that the 2016 community spouse resource allowance (CSRA) should continue to be a maximum of $119,220 and a minimum of $23,844.  The maximum monthly maintenance needs allowance should remain $2,980.50 a month and the income cap stay at $2,199.  Medicaid’s home equity limits should also be unchanged at a minimum of $552,000 and a maximum of $828,000.

LINK: MEDICAID PLANNING FOR NEW YORKERS

Regards,

Brian A. Raphan

Q: When Do I Need a Guardianship?

A:

The standard under which a person is deemed to require a guardian differs from state to state. And even within some states the standards are different, depending on whether a complete guardianship or only a conservatorship over finances is being sought. Generally a person is judged to be in need of guardianship when he or she shows a lack of capacity to make responsible decisions.

A person cannot be declared incompetent simply because he or she makes irresponsible or foolish decisions, but only if the person is shown to lack the capacity to make sound decisions. For example, a man may not be declared incompetent because he spends money in ways that seem odd to someone else. In addition, a developmental disability or mental illness is not, by itself, enough to have a person declared incompetent.

Guardianship and Conservatorship

Every adult is assumed to be capable of making his or her own decisions unless a court determines otherwise. If an adult becomes incapable of making responsible decisions due to a mental disability, the court will appoint a substitute decision maker, often called a “guardian,” but in some states called a “conservator” or other term. Guardianship is a legal relationship between a competent adult (the “guardian”) and a person who because of incapacity is no longer able to take care of his or her own affairs (the “ward”).

The guardian can be authorized to make legal, financial, and health care decisions for the ward. Depending on the terms of the guardianship and state practices, the guardian may or may not have to seek court approval for various decisions. In many states, a person appointed only to handle finances is called a “conservator.”

Some incapacitated individuals can make responsible decisions in some areas of their lives but not others. In such cases, the court may give the guardian decision making power over only those areas in which the incapacitated person is unable to make responsible decisions (a so-called “limited guardianship”). In other words, the guardian may exercise only those rights that have been removed from the ward and delegated to the guardian.

Incapacity

The standard under which a person is deemed to require a guardian differs from state to state. In some states the standards are different, depending on whether a complete guardianship or a conservatorship over finances only is being sought. Generally a person is judged to be in need of guardianship when he or she shows a lack of capacity to make responsible decisions. A person cannot be declared incompetent simply because he or she makes irresponsible or foolish decisions, but only if the person is shown to lack the capacity to make sound decisions. For example, a person may not be declared incompetent simply because he spends money in ways that seem odd to someone else. Also, a developmental disability or mental illness is not, by itself, enough to declare a person incompetent.

Process

In most states, anyone interested in the proposed ward’s well-being can request a guardianship. An attorney is usually retained to file a petition for a hearing in the probate court in the proposed ward’s county of residence. Protections for the proposed ward vary greatly from state to state, with some simply requiring that notice of the proceeding be provided and others requiring the proposed ward’s presence at the hearing. The proposed ward is usually entitled to legal representation at the hearing, and the court will appoint an attorney if the allegedly incapacitated person cannot afford a lawyer.

At the hearing, the court attempts to determine if the proposed ward is incapacitated and, if so, to what extent the individual requires assistance. If the court determines that the proposed ward is indeed incapacitated, the court then decides if the person seeking the role of guardian will be a responsible guardian.

A guardian can be any competent adult — the ward’s spouse, another family member, a friend, a neighbor, or a professional guardian (an unrelated person who has received special training). A competent individual may nominate a proposed guardian through a durable power of attorney in case she ever needs a guardian.

The guardian need not be a person at all — it can be a non-profit agency or a public or private corporation. If a person is found to be incapacitated and a suitable guardian cannot be found, courts in many states can appoint a public guardian, a publicly financed agency that serves this purpose. In naming someone to serve as a guardian, courts give first consideration to those who play a significant role in the ward’s life — people who are both aware of and sensitive to the ward’s needs and preferences. If two individuals wish to share guardianship duties, courts can name co-guardians.

Reporting Requirements

Courts often give guardians broad authority to manage the ward’s affairs. In addition to lacking the power to decide how money is spent or managed, where to live and what medical care he or she should receive, wards also may not have the right to vote, marry or divorce, or carry a driver’s license. Guardians are expected to act in the best interests of the ward, but given the guardian’s often broad authority, there is the potential for abuse. For this reason, courts hold guardians accountable for their actions to ensure that they don’t take advantage of or neglect the ward.

The guardian of the property inventories the ward’s property, invests the ward’s funds so that they can be used for the ward’s support, and files regular, detailed reports with the court. A guardian of the property also must obtain court approval for certain financial transactions. Guardians must file an annual account of how they have handled the ward’s finances. In some states guardians must also give an annual report on the ward’s status. Guardians must offer proof that they made adequate residential arrangements for the ward, that they provided sufficient health care and treatment services, and that they made available educational and training programs, as needed. Guardians who cannot prove that they have adequately cared for the ward may be removed and replaced by another guardian.

Alternatives to Guardianship

Because guardianship involves a profound loss of freedom and dignity, state laws require that guardianship be imposed only when less restrictive alternatives have been tried and proven to be ineffective. Less restrictive alternatives that should be considered before pursuing guardianship include:

Power of Attorney. A power of attorney is the grant of legal rights and powers by a person (the principal) to another (the agent or attorney-in-fact). The attorney-in-fact, in effect, stands in the shoes of the principal and acts for him or her on financial, business or other matters. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used unless and until he or she becomes incapacitated.

Representative or Protective Payee. This is a person appointed to manage Social Security, Veterans’ Administration, Railroad Retirement, welfare or other state or federal benefits or entitlement program payments on behalf of an individual.

Conservatorship. In some states this proceeding can be voluntary, where the person needing assistance with finances petitions the probate court to appoint a specific person (the conservator) to manage his or her financial affairs. The court must determine that the conservatee is unable to manage his or her own financial affairs, but nevertheless has the capacity to make the decision to have a conservator appointed to handle his or her affairs.

Revocable trust. A revocable or “living” trust can be set up to hold an older person’s assets, with a relative, friend or financial institution serving as trustee. Alternatively, the older person can be a co-trustee of the trust with another individual who will take over the duties of trustee should the older person become incapacitated.

For more information visit http://www.RaphanLaw.com or contact me at 212-268-8200 for a free initial consultation.

Regards,

Brian

Why your Medicaid Application should be entrusted to an Elder Law Attorney:

The New York State Bar Association provides this informational pamphlet for long term care and Medicaid needs.

New York State Bar Association - Elder Law

What Is Medicaid?
Medicaid is the government funded program through which many persons receive care at home or in a nursing home. Medicaid is a state-wide and state specific program, currently admin- istered through each county’s Department of Social Services (with the exception of the five counties comprising metropolitan NewYork, which are administered through the single NYC entity, Human Resources Administration).
The process of applying for Medicaid is complex and often times confusing. Because Medicaid offers many different programs, the eligibility rules and application processes differ. Having an attor- ney who has a full and thorough understanding of the benefits available through Medicaid, the rules for eligibility, and the process by which to secure those benefits provides a tremendous advantage to the applicant for Medicaid benefits.
The Medicaid Application Process
Information Needed
Depending upon the program for which you are applying, different information may be required. All Medicaid applications, regardless of benefits sought, require extensive personal documenta- tion and detailed proof of income. Certain pro- grams require proof of assets and sixty months of records for all assets held during that period.
Help with the Application
An experienced Elder Law Attorney can advise you on the benefits available, the process for obtaining the benefits you need, the provisions of the law that might enable your family to protect assets, and the rights that certain family members of the applicant may have.
In New York State, it is not required that an attor- ney assist with the Medicaid appli- cation. In fact, you can prepare the appli- cation yourself. There are many entities, agencies, or divisions within hospitals and nursing homes which may offer to prepare and submit the application for you
for free or for a reduced fee. However, you must exercise great caution when accepting that help, as those entities and agencies are not obligated to advise you of your rights and are not permitted to give legal advice or implement legal strategies. Using these services might expose you and your family to risk.
Be Wary Of:
• Offers to prepare the Medicaid application free of charge or at a significantly reduced rate—
if it’s“too good to be true,”it probably is!
• Persons holding themselves out as attorneys or giving legal advice without confirming they are admitted to the New York State Bar.
• Guarantees of Medicaid eligibility or other government benefits.
• Agencies, entities or groups which have as their “sole job”the securing of Medicaid benefits for you. These entities may not have any liability to you if they fail to secure Medicaid eligibility.
Exposure to Risks When an Elder Law Attorney Is Not Used 

The law has many nuances and intricacies. An Elder Law Attorney has the obligation to ensure
that you are fully informed of all the provisions of law related to Medicaid, and to accurately answer any questions you may have. The Elder Law Attorney does not work for the nursing home. In fact, the Elder Law Attorney has an ethical duty to advocate for you and your interests.

Failing to use an Elder Law Attorney could expose you to the following risks:
• Failure to be fully informed of spousal rights;

• Failure to be informed of oppor-tunities for asset protection;
• Incomplete or inaccurate application submission;
• Denial of application due to failure to provide information;
• Failure to be informed of consequences of prior actions;
• Imposition of a penalty period for which mitigation strategies could have been implemented;

• Failure to have a dedicated advocate working with you through the process.

To learn read THE TOP 8 MEDICAID PLANNING MISTAKES click here.

Regards,

Brian

Appeals Court Upholds Class Certification of Nursing Home Residents Seeking Community-Based Alternatives

A U.S. Court of Appeals upholds a district court ruling that granted class certification to a group of disabled nursing home residents who complained of a lack of Medicaid-funded community-based alternatives.  In re District of Columbia, (D.C. Cir., No. 14-8001, June 26, 2015).
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The plaintiffs, a group of disabled nursing home residents receiving Medicaid-funded long term care, sued the District of Columbia for allegedly violating its obligation, pursuant to the Americans with Disabilities Act, to provide services to the disabled in the most appropriate, integrated setting. The plaintiffs filed a motion seeking class certification, asserting that they were all similarly situated nursing home residents who wanted to live in the community but were forced to remain institutionalized against their will.

The U.S. District Court for the District of Columbia granted the motion for class certification, finding that alleged systemic deficiencies, such as the District’s failure to offer sufficient discharge planning or to provide residents with meaningful choices of community-based alternatives to nursing home care, were sufficient bases upon which to certify the class.

The District filed a petition for permission to file an interlocutory appeal of the district court’s ruling certifying the class.  The District argued that the lower court committed manifest error by failing to identify policies or practices that were common to all members of the class and that were amenable to class-wide resolution.

The U.S. Court of Appeals for the District of Columbia Circuit disagrees and upholds the class certification.  The court concludes that it was not manifest error for the lower court to find the allegations of systemic deficiencies in the program sufficient to establish a class of plaintiffs.

For the full text of this decision, click here.