THE MEDICAID PROGRAM’S EFFECT ON ESTATE

PLANNING FOR THE ELDERLY

THE MEDICAID PROGRAM’S EFFECT ON ESTATE

PLANNING FOR THE ELDERLY

Michael A. Fuerst

BUCKLEY & ZOPF

Michael A. Fuerst

BUCKLEY & ZOPF

OBJECTIVES OF MEDICAID ESTATE

PLANNING

OBJECTIVES OF MEDICAID ESTATE

PLANNING

Protection of community spouse 1. adequate income, resources 2. prevent impoverishment

Assure care for institutionalized spouse Maximize estate for heirs

Protection of community spouse 1. adequate income, resources 2. prevent impoverishment

Assure care for institutionalized spouse Maximize estate for heirs

DIFFERS FROM STANDARD ESTATE PLANNING

DIFFERS FROM STANDARD ESTATE PLANNING

A. Standard estate planning techniques will not work

B. Gifts are problematic C. Grantor trusts mostly ineffective D. Traditional ownership concepts do not

necessarily apply

A. Standard estate planning techniques will not work

B. Gifts are problematic C. Grantor trusts mostly ineffective D. Traditional ownership concepts do not

necessarily apply

MEDICAID PROGRAMMEDICAID PROGRAM

Needs based health insurance program Income and resource limitations Only health insurance which pays for

nursing home care

Needs based health insurance program Income and resource limitations Only health insurance which pays for

nursing home care

MedicareMedicare

Health insurance for Social Security retirees Does not cover long term care in a nursing

home Covers skilled/rehabilatative care in nursing

home

Health insurance for Social Security retirees Does not cover long term care in a nursing

home Covers skilled/rehabilatative care in nursing

home

ELIGIBILITY FOR MEDICAIDELIGIBILITY FOR MEDICAID

$2500 assets. Income below State reimbursement rate for

nursing home.(approximately $4300/mo)

$2500 assets. Income below State reimbursement rate for

nursing home.(approximately $4300/mo)

Spousal Impoverishment RulesSpousal Impoverishment Rules

1.Income Rules

2.Resource Rules

1.Income Rules

2.Resource Rules

INCOME RULESINCOME RULES

Community (healthy) spouse may protect up to $1822/mo of ill spouse’s income.

If high shelter (housing) expenses up to $2739. None of healthy spouse’s income attributable to ill

spouse. Ownership- “name on the check” concept If no document, 1/2 of income attributable to each

spouse.

Community (healthy) spouse may protect up to $1822/mo of ill spouse’s income.

If high shelter (housing) expenses up to $2739. None of healthy spouse’s income attributable to ill

spouse. Ownership- “name on the check” concept If no document, 1/2 of income attributable to each

spouse.

IncomeIncome

An immediate payment annuity is treated as income of the owner/annuitant.

Social Security or a pension is treated as the income of the individual who is entitled to receive it

Wages Interest/Dividends Loan

An immediate payment annuity is treated as income of the owner/annuitant.

Social Security or a pension is treated as the income of the individual who is entitled to receive it

Wages Interest/Dividends Loan

ExampleExample

Ill spouse- social security and pension-$3000;

Healthy spouse- $750 social security Healthy spouse entitled to keep at least

$1072 of ill spouses income. If shelter expenses are high may keep

additional $917(750+1072+917=$2739)

Ill spouse- social security and pension-$3000;

Healthy spouse- $750 social security Healthy spouse entitled to keep at least

$1072 of ill spouses income. If shelter expenses are high may keep

additional $917(750+1072+917=$2739)

ExampleExample

Healthy spouse- social security and pension-$3000;

Ill spouse- $750 social security Healthy spouse entitled to keep all $3000 Healthy spouse entitled to an unlimited

amount of income if in his/her name

Healthy spouse- social security and pension-$3000;

Ill spouse- $750 social security Healthy spouse entitled to keep all $3000 Healthy spouse entitled to an unlimited

amount of income if in his/her name

RESOURCE RULES:RESOURCE RULES:

All resources are countable regardless of which spouse holds title or jointly owned.

The “marital pie”

All resources are countable regardless of which spouse holds title or jointly owned.

The “marital pie”

Countable ResourcesCountable Resources

Stocks, bonds, savings and checking accounts;

IRA and 401K accounts

Annuity and insurance policies

Real estate-other than the principal residence

Stocks, bonds, savings and checking accounts;

IRA and 401K accounts

Annuity and insurance policies

Real estate-other than the principal residence

Resource Assessment.Resource Assessment.

“Snapshot” of countable resources. As of date of first continuous period of

institutionalization. Even if application for Medicaid is later.

“Snapshot” of countable resources. As of date of first continuous period of

institutionalization. Even if application for Medicaid is later.

• Maximum countable resources

protected level for community

spouse - $109,560.

• All other resources to benefit institutionalized spouse

Spousal Share

Spousal ShareSpousal Share

One half of total countable resources to a maximum of $109,560.

If total assets $300,000 healthy spouse only entitled to protect $109,560, not $150,000.

If total assets $100,000 healthy spouse only entitled to $50,000.

Minimum protected amount is $21,912. If total assets $40,000 healthy spouse

keeps $21,912. Although community spouse may use the

remaining assets for his/her benefit as well.

One half of total countable resources to a maximum of $109,560.

If total assets $300,000 healthy spouse only entitled to protect $109,560, not $150,000.

If total assets $100,000 healthy spouse only entitled to $50,000.

Minimum protected amount is $21,912. If total assets $40,000 healthy spouse

keeps $21,912. Although community spouse may use the

remaining assets for his/her benefit as well.

Spousal ShareSpousal Share

Assets less than $43,824- $21,912 Assets between $43,824 and $219,120 -

One-half Assets more than $219,120 -$109,560

Assets less than $43,824- $21,912 Assets between $43,824 and $219,120 -

One-half Assets more than $219,120 -$109,560

The family home is an excluded resource

The family home is an excluded resource As long as it is used as

the residence of the community spouse

Up to a maximum equity value of $500,000 for ill spouse.

As long as it is used as the residence of the community spouse

Up to a maximum equity value of $500,000 for ill spouse.

Other Excluded Resources:Other Excluded Resources:

motor vehicle furniture and personal possessions prepaid funeral irrevocable burial trust

motor vehicle furniture and personal possessions prepaid funeral irrevocable burial trust

Deeming of Resources Stops as of Date of Eligibility for

Medicaid

Deeming of Resources Stops as of Date of Eligibility for

Medicaid timing is crucial no restrictions on what community spouse

does with these resources sale of home-no claim by Medicaid

timing is crucial no restrictions on what community spouse

does with these resources sale of home-no claim by Medicaid

TRANSFER OF ASSET RULES

TRANSFER OF ASSET RULES

Transfers between spouses are not disqualifying.

Gifts/transfers for less than adequate consideration are potentially disqualifying

Transfers between spouses are not disqualifying.

Gifts/transfers for less than adequate consideration are potentially disqualifying

Transfers After February 7, 2006Transfers After February 7, 2006

“Look Back” Period:

5 years from first date individual is both institutionalized and applies for Medicaid

applies to all gifts, including trusts.

“Look Back” Period:

5 years from first date individual is both institutionalized and applies for Medicaid

applies to all gifts, including trusts.

. Period of Disqualification:. Period of Disqualification:

Equal to the total uncompensated value of all gifted assets

Divided by state average nursing home cost ($8,421.11)

Commencing on the date of application for Medicaid for nursing home care.

All gifts disqualify regardless of size.

Equal to the total uncompensated value of all gifted assets

Divided by state average nursing home cost ($8,421.11)

Commencing on the date of application for Medicaid for nursing home care.

All gifts disqualify regardless of size.

ExampleExample

Gift of $84,211 to pay for college for grandchild made on Jan 1, 2010

Apply for Medicaid Jan 1, 2014 Disqualification period-10 months

($84,211 divided by $8,421/mo) Disqualification period commences on date

of application for Medicaid:1-1-20114

Gift of $84,211 to pay for college for grandchild made on Jan 1, 2010

Apply for Medicaid Jan 1, 2014 Disqualification period-10 months

($84,211 divided by $8,421/mo) Disqualification period commences on date

of application for Medicaid:1-1-20114

Exempt TransfersExempt Transfers

To spouse To sibling who has “equity interest” and has

resided in home for 1 year To child who has resided in home for 2

years and provided care enabling recipient to stay out of nursing home

To disabled or minor child

To spouse To sibling who has “equity interest” and has

resided in home for 1 year To child who has resided in home for 2

years and provided care enabling recipient to stay out of nursing home

To disabled or minor child

TrustsTrusts

3 types of trust recognized:

Revocable Irrevocable/grantor retained interest Irrevocable/no grantor retained interest

3 types of trust recognized:

Revocable Irrevocable/grantor retained interest Irrevocable/no grantor retained interest

RevocableRevocable

Countable resource Residence will be countable Subject to lien recovery

Countable resource Residence will be countable Subject to lien recovery

Irrevocable -Retained InterestIrrevocable -Retained Interest

Income only Right to principal-available asset regardless of

trustee’s discretion Grantor’s residence considered countable asset Risk of inclusion if Grantor retains incidents of

ownership ( right to borrow, power of appointment, Grantor as trustee)

No clause or requirement in trust precludes it from being considered under Medicaid program.

Income only Right to principal-available asset regardless of

trustee’s discretion Grantor’s residence considered countable asset Risk of inclusion if Grantor retains incidents of

ownership ( right to borrow, power of appointment, Grantor as trustee)

No clause or requirement in trust precludes it from being considered under Medicaid program.

Irrevocable-No Retained InterestIrrevocable-No Retained Interest

Transfer-must cover 5 year disqualification Not treated as income or asset. Congress and State have tried to make the

use of trusts more difficult.Rules do not apply to trusts created on or before August 10, 1993.

Transfer-must cover 5 year disqualification Not treated as income or asset. Congress and State have tried to make the

use of trusts more difficult.Rules do not apply to trusts created on or before August 10, 1993.

ESTATE RECOVERIESESTATE RECOVERIES

New Hampshire has an expanded definition of “Estate” for recovery purposes

New Hampshire has an expanded definition of “Estate” for recovery purposes

“Estate”“Estate”

“Estate” includes not only probate assets but also property held by the recipient as a joint tenant, tenant in common or holder of a life estate. RSA 167;14-A

Property in a revocable trust is subject to recovery as well Possible recovery against irrevocable “income only” trust

to the extent of the life interest in the income

“Estate” includes not only probate assets but also property held by the recipient as a joint tenant, tenant in common or holder of a life estate. RSA 167;14-A

Property in a revocable trust is subject to recovery as well Possible recovery against irrevocable “income only” trust

to the extent of the life interest in the income

“Estate”“Estate”

Enforceable only against the estate of the recipient/institutionalized spouse-55 or older; not against estate of surviving spouse

Not enforceable against estate if child under age of 21 or disabled

Enforceable only against the estate of the recipient/institutionalized spouse-55 or older; not against estate of surviving spouse

Not enforceable against estate if child under age of 21 or disabled

Life Estate/Joint TenancyLife Estate/Joint Tenancy

Joint ownership and life estate which avoid probate, will not now avoid the lien.

Life estate valued as of one minute before date of death based upon actuarial tables

Joint tenancy valued as percentage of the total value (e.g. 50%).

Joint ownership and life estate which avoid probate, will not now avoid the lien.

Life estate valued as of one minute before date of death based upon actuarial tables

Joint tenancy valued as percentage of the total value (e.g. 50%).

Lien on HomeLien on Home Not enforceable against home of surviving spouse ( or

minor or disabled child of recipient) Not enforceable if: sibling has resided with recipient for 1 year and has equity

interest; or, child has resided for 2 years and provided care to keep

recipient out of nursing home

Not enforceable against home of surviving spouse ( or minor or disabled child of recipient)

Not enforceable if: sibling has resided with recipient for 1 year and has equity

interest; or, child has resided for 2 years and provided care to keep

recipient out of nursing home

Estate Recoveries-Annuities

Estate Recoveries-Annuities

Annuities require the State to be the primary beneficiary for Medicaid payments made to annuitant or spouse.

If State not named then purchase of annuity will be deemed a transfer for less than adequate consideration

Annuities require the State to be the primary beneficiary for Medicaid payments made to annuitant or spouse.

If State not named then purchase of annuity will be deemed a transfer for less than adequate consideration

Planning: Protection of Community SpousePlanning: Protection of Community Spouse

Re-title assets in healthy spouse’s name. Apply for Resource Assessment as soon as

possible. Do not need to be eligible for Medicaid to

apply for resource assessment

Re-title assets in healthy spouse’s name. Apply for Resource Assessment as soon as

possible. Do not need to be eligible for Medicaid to

apply for resource assessment

Planning: Protection of Community SpousePlanning: Protection of Community Spouse Convert countable resources to excluded

resources. (payoff mortgage, make improvements to home,buy car).

Insure greatest amount of income in healthy spouse’s name.

After institutionalization spend down ill spouse’s share - for benefit of healthy spouse.(pre-pay taxes, purchase annuity).

After Medicaid eligibility, convert excluded resources to liquid resources.

Convert countable resources to excluded resources. (payoff mortgage, make improvements to home,buy car).

Insure greatest amount of income in healthy spouse’s name.

After institutionalization spend down ill spouse’s share - for benefit of healthy spouse.(pre-pay taxes, purchase annuity).

After Medicaid eligibility, convert excluded resources to liquid resources.

ANNUITIESANNUITIES

Countable asset unless immediate annuity Convert from countable asset to income Convert after Resource Assessment Not a transfer for less than adequate consideration Annuitization for “period certain”cannot exceed life

expectancy pursuant to CMS standards The State must be primary beneficiary for any Medicaid

provided to annuitant or spouse

Countable asset unless immediate annuity Convert from countable asset to income Convert after Resource Assessment Not a transfer for less than adequate consideration Annuitization for “period certain”cannot exceed life

expectancy pursuant to CMS standards The State must be primary beneficiary for any Medicaid

provided to annuitant or spouse

Maximizing Estate for HeirsMaximizing Estate for Heirs

Transfers before 60 months Long-term care insurance Irrevocable Trusts - are they of any use? Life estates Change will of healthy spouse All assets in name of healthy spouse

Transfers before 60 months Long-term care insurance Irrevocable Trusts - are they of any use? Life estates Change will of healthy spouse All assets in name of healthy spouse

Risks of GiftingRisks of Gifting

Unable to pay for care for entire 5 years Gifts made to children no longer available Spent by kids Divorce or death of child Bankruptcy of or lawsuit against child

Unable to pay for care for entire 5 years Gifts made to children no longer available Spent by kids Divorce or death of child Bankruptcy of or lawsuit against child

Choice of LawChoice of Law

The location of the Nursing Home controls which State’s Medicaid rules apply.

Legal residence is irrelevant

The location of the Nursing Home controls which State’s Medicaid rules apply.

Legal residence is irrelevant

VIII. RULES OF THUMBVIII. RULES OF THUMB

A. Property transferred more than 60 months before institutionalization will be protected

B. Property transferred within 60 months of institutionalization will cause disqualification.

C. The rules will change

A. Property transferred more than 60 months before institutionalization will be protected

B. Property transferred within 60 months of institutionalization will cause disqualification.

C. The rules will change

1. IS THERE A DIFFERENCE BETWEEN MEDICARE AND

MEDICAID OR IS THE FEDERAL GOVERNMENT TRYING TO

CONFUSE ME?

1. IS THERE A DIFFERENCE BETWEEN MEDICARE AND

MEDICAID OR IS THE FEDERAL GOVERNMENT TRYING TO

CONFUSE ME?

2. WHO IS ELIGIBLE FOR MEDICAID FOR NURSING HOME CARE?

2. WHO IS ELIGIBLE FOR MEDICAID FOR NURSING HOME CARE?

3. IF A SPOUSE GOES INTO A NURSING HOME DOES THE

NURSING HOME OR MEDICAID TAKE CONTROL OF OUR

SAVINGS?

3. IF A SPOUSE GOES INTO A NURSING HOME DOES THE

NURSING HOME OR MEDICAID TAKE CONTROL OF OUR

SAVINGS?

4. IF A SPOUSE HAS TO GO INTO A NURSING HOME DOES THE HEALTHY SPOUSE HAVE

TO SPEND ALL OF HIS/HER ASSETS FOR THE CARE OF

THE ILL SPOUSE?

4. IF A SPOUSE HAS TO GO INTO A NURSING HOME DOES THE HEALTHY SPOUSE HAVE

TO SPEND ALL OF HIS/HER ASSETS FOR THE CARE OF

THE ILL SPOUSE?

5. IF MY ILL SPOUSE HAS TO GO INTO A NURSING HOME WILL HIS MUCH LARGER RETIREMENT INCOME HAVE TO GO WITH HIM?

5. IF MY ILL SPOUSE HAS TO GO INTO A NURSING HOME WILL HIS MUCH LARGER RETIREMENT INCOME HAVE TO GO WITH HIM?

6. DO WE HAVE TO SELL OUR HOME IF ONE OF US MUST GO INTO A NURSING HOME TO BE ELIGIBLE FOR MEDICAID?

6. DO WE HAVE TO SELL OUR HOME IF ONE OF US MUST GO INTO A NURSING HOME TO BE ELIGIBLE FOR MEDICAID?

7. DOES IT MATTER IN WHOSE NAME THE ASSETS ARE TITLED WHEN DETERMING WHAT MUST BE PAID TO THE NURSING HOME.

7. DOES IT MATTER IN WHOSE NAME THE ASSETS ARE TITLED WHEN DETERMING WHAT MUST BE PAID TO THE NURSING HOME.

8. WHEN DOES THE MEDICAID PROGRAM DETERMINE WHAT AMOUNT OF ASSETS MUST BE USED FOR NURSING HOME CARE?

8. WHEN DOES THE MEDICAID PROGRAM DETERMINE WHAT AMOUNT OF ASSETS MUST BE USED FOR NURSING HOME CARE?

9. IS A LIEN PLACED ON THE HOME OF A HEALTHY SPOUSE BY THE MEDICAID PROGRAM?

9. IS A LIEN PLACED ON THE HOME OF A HEALTHY SPOUSE BY THE MEDICAID PROGRAM?

10. IF MY CHILDREN OWN PROPERTY JOINTLY WITH ME WILL THEY BE REQUIRED TO PAY OFF THE LIEN?

10. IF MY CHILDREN OWN PROPERTY JOINTLY WITH ME WILL THEY BE REQUIRED TO PAY OFF THE LIEN?

11. CAN THE HEALTHY SPOUSE SELL THE HOME?.

11. CAN THE HEALTHY SPOUSE SELL THE HOME?.

12. IS THERE A 5 YEAR DISQUALIFICATION FROM MEDICAID FOR ANY GIFTS I MAKE?

12. IS THERE A 5 YEAR DISQUALIFICATION FROM MEDICAID FOR ANY GIFTS I MAKE?

13. CAN AN INDIVIDUAL GIVE AWAY HIS/HER ASSETS TO

BECOME ELIGIBLE FOR MEDICAID?

13. CAN AN INDIVIDUAL GIVE AWAY HIS/HER ASSETS TO

BECOME ELIGIBLE FOR MEDICAID?

14. IF A SPOUSE IS JUST ABOUT TO GO INTO A NURSING HOME IS IT TOO LATE TO PROTECT ASSETS?

14. IF A SPOUSE IS JUST ABOUT TO GO INTO A NURSING HOME IS IT TOO LATE TO PROTECT ASSETS?

15. IF IT LOOKS LIKE A SPOUSE MIGHT HAVE TO GO INTO A NURSING HOME, WHAT SHOULD WE DO?

15. IF IT LOOKS LIKE A SPOUSE MIGHT HAVE TO GO INTO A NURSING HOME, WHAT SHOULD WE DO?

Michael A. Fuerst, Esq.Buckley & Zopf

Michael A. Fuerst, Esq.Buckley & Zopf

PO Box 1485, 233 Broad St

Claremont, NH 03743 603 542 5114 603 543 1570 fax Mfuerst@buckleyzopf.com November 2011

PO Box 1485, 233 Broad St

Claremont, NH 03743 603 542 5114 603 543 1570 fax Mfuerst@buckleyzopf.com November 2011