GeriLaw | Robert Fleming, Tucson elder law attorney, and colleagues

Annuities and Long-term Care Planning

A recent Pennsylvania Commonwealth Court case provides some insight on the use of annuities in long-term care planning.  In Ross and Ross v. Department of Public Welfare (No. 137 C.D. 2007), the wife entered a nursing home on February 5, 2003.  On April 8, 2005, her husband transferred $418,026.66 into a single premium immediate annuity.  The annuity contract pays the husband $10,211.83 per month from May 15, 2005 to September 15, 2008.  The husband established the annuity in order to qualify his wife for Medicaid Assistance-Nursing Home Care (MA-NHC) benefits (equivalent to Virginia Medicaid) and to pass assets to his children.  The husband is the sole owner of the annuity, and his three children are the sole beneficiaries.  The wife has no interest in the annuity, and, after the annuity purchase, she had no funds to pay the nursing home.  The payment for the annuity is irrevocable, and the husband cannot terminate the annuity, but he can change the beneficiaries or sell his right to the income stream.

The husband filed an MA-NHC application, and the county assistance office determined that the annuity was an available resource with a value of $202,364.00.  The husband filed an appeal on behalf of his wife, and the Administrative Law Judge (ALJ) denied the appeal.  The ALJ determined that: (1) the language of the annuity did not interfere with the husband’s ability to sell his right to the income stream, thereby converting the annuity into immediate cash; (2) the present value of the income stream exceeds the resource limit; and (3) the annuity was purchased not only for the benefit of the husband and wife, but also as a way to pass assets to the children and qualify the wife for MA-NHC benefits. On further appeal, the Department of Public Welfare (DPW) affirmed the ALJ’s decision.  The husband and wife petitioned the court for review, claiming that the DPW erred in concluding that the income stream from the annuity is an available resource for the wife’s eligibility for MA-NHC benefits.  The court agreed and reversed the DPW order.

The court stated that under 42 U.S.C. §1396r-5, income and resources are treated differently, and that “no income of the community spouse shall be deemed available to the institutionalized spouse.”  Therefore, “[t]he community spouse’s income does not affect the determination [of] whether the institutionalized spouse qualifies for Medicaid.”  The court said that if the payment of income is made solely in the name of the community spouse, the income is income only to that spouse.  In this case, the payment of the income from the annuity is made solely in the husband’s name, the income is considered income only to the husband, and none of the income is deemed available to the wife.  The DPW treated the husband’s income as an available resource, but the court cited an opinion by the Superior Court of New Jersey for the proposition that “treating the market value of an income stream paid to a community spouse ‘blurs the distinction between resource allocation and income allocation’ under the federal law.”  The court concluded that DPW “improperly considered [the husband’s] income stream from an irrevocable and non-assignable annuity as an available resource based on the existence of a secondary market for such income streams.”

Andrew H. Hook
Oast & Hook
www.oasthook.com
Offices in Virginia Beach, Virginia and Portsmouth, Virginia

2008 Long-term Care Spousal Standards

The Center for Medicare and Medicaid Services (CMS) has announced changes to the Long-term Care Spousal Standards that apply to a community spouse.  A community spouse is a person who is not an inpatient in a medical institution or a nursing facility, but is married to a person who is an inpatient in a medical institution or a nursing facility (the institutionalized spouse).  The standards that will change in 2008 include, but are not limited to, the Maximum and Minimum Spousal Resource Standards and the Maximum Monthly Maintenance Needs Allowance (MMMNA). 

The Protected Resource Allowance (PRA) is the amount of assets that the community spouse is allowed to retain when the institutionalized spouse is eligible for Medicaid.  The PRA is the greatest of either: 1) the Spousal Share (one-half of the total amount of joint countable assets as of the first day of continuous institutionalization for the institutionalized spouse), or 2) the Maximum Spousal Resource Standard at the time of application, or 3) the amount actually transferred to the community spouse as court-ordered spousal support, or 4) an amount determined at a hearing by the Department of Medical Assistance Services (DMAS).  The PRA can be no more than the Maximum Spousal Resource Standard and no less than the Minimum Spousal Resource Standard.  The Maximum and Minimum Spousal Resource Standards increase each year based on changes in the Consumer Price Index.  On January 1, 2008, the Maximum Spousal Resource Standard will increase by $2,760 to $104,400.  (The maximum for 2007 is $101,640.)  The Minimum Spousal Resource Standard will increase by $552, from $20,328 in 2007 to $20,880 in 2008.

The Spousal Resource Standard is often called the Community Spouse Resource Allowance (CSRA), but technically this is incorrect.  According to the Virginia Medicaid Manual, the CSRA is the amount of assets that can be transferred from the institutionalized spouse to the community spouse in order to bring the community spouse’s protected assets up to the PRA.  For example, if the total joint countable assets are $150,000, (and there is no court-ordered spousal support or DMAS hearing amount), then the Spousal Share (and thus the PRA) is $75,000.  If the community spouse has $50,000 in countable assets, and the institutionalized spouse has $100,000 in countable assets, then the amount that can be transferred from the institutionalized spouse to the community spouse (the CSRA) is $25,000.

The MMMNA has a minimum allowance amount and a maximum allowance amount.  The MMMNA for 2007 is $1,711.25, and this amount will remain as the minimum allowance for the first half of 2008.  The maximum maintenance needs allowance for 2008 will increase by $69.00, from $2,541.00 in 2007 to $2,610.00 in 2008.  The community spouse excess Shelter Standard for 2007 is $513.38, and this amount will remain the same for the first half of 2008.

Andrew H. Hook
Oast & Hook
www.oasthook.com
Offices in Virginia Beach, Virginia and Portsmouth, Virginia 

Pooled Trusts

What is a Pooled Trust?

A pooled trust is a trust established and administered by a non-profit organization.  A separate account is established for each beneficiary of the trust, but for the purposes of investment and management of funds, the trust pools these accounts.  Each subaccount is established by the person with a disability, a parent, grandparent, guardian, or a court.  The trust provides that, upon the death of the disabled beneficiary, to the extent any funds remain in the beneficiary’s subaccount, the trust must pay to the state the amount remaining up to the amount equal to the total amount of Medicaid assistance provided to the beneficiary.  The pooled trust should be irrevocable to avoid being treated as a resource.

When is a Pooled Trust used?

Elder law attorneys often assist persons with disabilities who receive public benefits, including Supplemental Security Income (SSI) and Medicaid, and then receive a modest inheritance, divorce settlement, or personal injury settlement or award.  These funds may make this disabled person ineligible for public benefits.  The disabled person could purchase exempt resources, and then reapply for benefits; however, in many cases, there are no appropriate exempt resources for the disabled person to purchase.  This person would then be ineligible for public benefits until these funds are spent down.  The disabled person could give the funds away, however, the gifts would result in a period of ineligibility for SSI and Medicaid long-term care benefits.  If under 65 years of age, the disabled person could transfer the funds to a d(4)(A) Special Needs Trust (SNT); however, it is frequently difficult to find an appropriate trustee for this type of trust, and the administrative expenses may be high for a trust funded with $100,000 or less.  A fourth alternative is to transfer the funds to a d(4)(C) (“Pooled Trust”) subaccount.

What are the advantages of a Pooled Trust subaccount compared to a d(4)(A) SNT?

The person with a disability may create his or her own pooled trust subaccount. Because the pooled trust is managed by a non-profit organization, it is not necessary to find a trustee who is willing to manage the trust.   Additionally, because the pooled trust funds are pooled for investment and management purposes, the administrative expenses of these trusts are frequently lower than those of a d(4)(A) SNT.

What are the disadvantages of a Pooled Trust compared to a d(4)(A) SNT?

The d(4)(A) SNT is a trust managed by a trustee for the sole benefit of the disabled beneficiary. A family member or friend of the disabled person may serve as the trustee, or a corporate or professional trustee might serve.  The d(4)(A) SNT permits the trustee to customize the management and investment of the trust to meet the unique needs of the beneficiary.

Can you give me an example of the use of a Pooled Trust?

Oast & Hook recently represented a client who needed nursing home care, and who was receiving SSI and Medicaid.  This client received an inheritance from her mother of approximately $50,000.  Oast & Hook assisted the client in establishing a pooled trust subaccount to hold the inherited funds.  Because the client’s resources were less than $2,000 and there was no resulting period of ineligibility, the client continued to qualify for Medicaid long-term care assistance.  The funds in her pooled trust subaccount may be used for goods and services for which SSI and Medicaid do not pay, such as dental care.

Andrew H. Hook
Oast & Hook
www.oasthook.com
Offices in Virginia Beach, Virgina and Portsmouth, Virginia

Long-term care insurance industry needs to change

Long-term care insurance remains a bit player in the financing of
nursing home and home care. Why? That's the question addressed by a
recent study from the Center for Retirement Research at Boston College.

The study suggests several problems the long-term care insurance
industry will need to address before it can increase it significance in
paying for skilled care. Among the problems:

    1. The cost of long-term care insurance can be high, especially for
buyers who delay purchasing the policies until later in life. For
example, using standards of affordability established by the National
Association of Insurance Commissioners, the study
finds that less than 40% of those aged 60-64 can afford the coverage.
Less than half that many can afford policies at age 70.

    2. Buyers do not perceive value. This is complicated by the fact
that many prospective policy holders believe that they can qualify for
most of the same benefits through the Medicaid program if they choose
not to buy insurance. Of course, insurance coverage may mean the quality
of care is more controllable--and at least placement and services will
be more under the direct supervision of the patient or family members.
Those benefits are not, apparently, compelling to people who are
considering the purchase of insurance.

What should be done to increase long-term care insurance's effect? The
study argues that recent trends toward improved benefits must be
continued, and that the pool of buyers---especially younger
buyers---needs to be increased. Without major structural changes in
long-term care insurance, reports the study, "is is not likely that this
insurance will ever play more than a niche role in financing long-term
care."

Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
www.elder-law.com
www.specialneedsalliance.com

Balance Billing

by Thomas D. Begley, Jr.

     There is a significant difference on the issue of balance billing between the Medicaid program and the Medicare program. 

     1. Medicaid. Medicaid reimbursement rates are very low and as a result it is often difficult to obtain services because providers refuse to accept Medicaid.  It is not possible for the patient to pay the difference between the private pay rate and the Medicaid pay rate.  This is known as balance billing.  Medicaid participating providers must accept the Medicaid payment as "payment in full."[1]  This means that providers accepting Medicaid waive their right to bill Medicaid beneficiaries for any amounts over the Medicaid payment.

     Several states have refused to allow providers to assert liens against Medicaid beneficiaries where there is clear third party liability and the Medicaid beneficiary has obtained a significant tort recovery.

     In Illinois,[2] the hospital brought an action against the Medicaid agency to allow it to refund the Medicaid reimbursement so that it could sue the Medicaid beneficiary who had obtained a substantial tort judgment.  The Seventh Circuit held that the hospital could not refund the Medicaid payment to the Medicaid agency and sue the Medicaid beneficiary.  The Court noted, "Medicaid is a payer of last resort."  The state can seek reimbursement from third parties, but private providers may not. 

     In a similar case in Florida,[3] the hospital placed a lien on the settlement award, but the court held that when a Medicaid patient obtains a tort recovery in excess of the medical expenditures paid by Medicaid, that recovery is meant to go to the injured party, not the provider.  A similar result was reached in another Florida case.[4]

     A federal appellate court has found that a hospital's lien on the proceeds of a malpractice settlement was invalid and unenforceable because the hospital had already accepted Medicaid payments for the care provided to the patient.[5] "By accepting Medicaid payments, Spectrum waived its right to its customary fee for services provided to Bowling..."  "Although Medicaid rates are typically lower than a service provider's customary fees, medical service providers must accept state-approved Medicaid payment as payment in full and may not require that patients pay anything beyond that amount."

     California invalidated two state statutes authorizing provider liens against Medicaid beneficiaries.[6] The statutes authorized providers to file liens against recoveries obtained by Medicaid beneficiaries even after the provider received Medicaid.  The court found that the state statutes were preempted by federal legislation banning balance billing.

      2. Medicare. Previously, Medicare had a prohibition against billing Medicare beneficiaries in excess of the payment made by Medicare.  Participation has been limited to providers who agreed to accept Medicare as payment in full.  Recent changes in the Medicare law[7] now permit a provider to bill a Medicare beneficiary or assert a lien against the beneficiary's recovery obtained from the tortfeasor by way of settlement or award.[8]

      In the seminal case,[9] a hospital sought to recover from the Medicare patient more than it received from Medicare reimbursement.  The 1st Circuit held that the fact that the patient recovered more than Medicare reimbursed the hospital did not entitle the hospital to charge the patient the difference between its full fee and Medicare's lower flat fee.  The agreement between Medicare and the hospital was that in exchange for Medicare guaranteeing payment to the hospital, there would be no additional payment required from the Medicare beneficiary. 

      The recent changes now allow providers to bill the liability insurer or place a lien against the Medicare beneficiary's recovery.

Begley & Bookbinder, P.C.
509 S. Lenola Road, Bldg 7
Moorestown, NJ  08057
856-235-8501
www.begleylawyer.com

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[1] 42 U.S.C. §1396a(a)(25)(c); 42 C.F.R. §447.15; 42 U.S.C. §1320a-7b(d) .

[2] Evanston Hospital v.  Hauck, 1 F.3d 540 (7th Cir. 1993).

[3] Mallo v.  Public Health Trust of Dade County, 88 F.Supp.2d 1376 (S.D. Fla. 2000).

[4] Public Health Trust of Dade County v.  Dade County School Board, 693 So.2d 562 (Fla. Dist. Ct. App. 1996).

[5] Spectrum v. Bowling, 410 F.3d 304 (6th Cir. 2005).

[6] Olszewski v.  Scripps Health, 135 Cal. Rptr. 2d 1 (Cal. 2003).

[7] 68 Fed.  Reg.  43940 (July 25, 2003).

[8] 42 C.F.R. 411.54(c)(2).

[9] Rybicki v. Hartley, 782 F.2d 260 (1st Cir. 1986).

Challenges in Special Needs Trust Administration, Part II

Last week’s post discussed several challenges facing trustees in the administration of special needs trusts (SNTs).  This week’s post completes that discussion, as presented by William Main, Vice President and Senior Trust Officer with Wells Fargo, at the recent Stetson Special Needs Trust IX seminar.

Challenge #6: Houses.  Trustees often immediately face the issue of whether the trust can and should purchase a house for the beneficiary.  The trustee must consider the financial implications of the purchase, as well as the suitability of the proposed house for the beneficiary.  The trustee must also consider whether household expenses will be paid by the trust.  Some trusts include language limiting the amount of trust assets that can be used to purchase a house.  The trustee may consider preparing a real estate management agreement specifying who can live in the house, whether the others need to pay rent, and what will happen if the beneficiary has to move out of the house.  The agreement should also specify who will pay the maintenance and utility costs.  The trustee needs to be aware that trust payments for food and shelter items may jeopardize the beneficiary’s eligibility for needs-based benefits.  For example, payments for mortgages, real property taxes, rent, heating, fuel, gas, electricity, water, sewer, and garbage removal can reduce Supplemental Security Income (SSI) benefits.  In many situations, it may be in the beneficiary’s best interest for the trust to pay for these items even if the SSI benefit is reduced.  If permitted by the trust document, the SNT can pay for real estate maintenance and upkeep, and, provided the improvements are for the beneficiary’s benefit, the SNT can also pay for structural renovations, swimming pools, whirlpool baths, and recreational spaces.  Titling the house is another important consideration.  It may be better for the house to be titled in the name of the beneficiary or the beneficiary’s conservator, in order to limit liability for an accident on the property.

Challenge #7:  Caregivers.  The trustee must determine whether a caregiver is an employee or an independent contractor.  An employer may be required to withhold Social Security tax, Medicare tax, and income taxes from an employee’s wages.  Family members and conservators often argue that a caregiver is an independent contractor because the family members and conservators do not want to pay the taxes or file the required forms; caregivers may not want their earnings reported to the IRS.  The IRS, however, is strict about these issues.  IRS Publication 926 outlines the tax requirements in this area.  There may also be state requirements for payment of withholding and worker’s compensation taxes.  Trustees should consult a tax advisor, and they may want to consider working with an employment/payroll service.

Challenge #8:  Family Members as Caregivers.  In many cases, family members are the primary caregivers.  The trustee should consider whether the family members are qualified to provide the care needed.  If the family members are not qualified to provide the level of care needed, then the trustee and family should discuss alternate care arrangements, such as having trained caregivers paid for by public benefits or the trust.  If the family members want to be compensated for their services, then the trustee and caregiver should have a written agreement specifying how the rate of pay is calculated and how the wages are paid.  An employment agreement can distinguish between the duties performed as parent, for example, versus the duties performed as a paid caregiver.  The trustee should be aware of the beneficiary’s ability to develop independent living skills, and caregiver burnout.  The trustee should maintain open communication with the caregivers, and may recommend respite care when necessary.  The same taxation issues apply to family members as caregivers as with non-family members.  Family members may be even more reluctant to be classified as employees than non-family members.  The trust, however, can be liable for interest and penalties for failing to pay withholding taxes, so it is critical that the trust follow the tax laws and regulations.

Andrew H. Hook, CELA

Oast & Hook

www.oasthook.com

Offices in Virgina Beach, Virginia and Portsmouth, Virginia

Challenges in Special Needs Trust Administration

At the recent Stetson Special Needs Trusts IX seminar, William Main, Vice President & Senior Trust Officer of the Wells Fargo Special Needs Trust Group, gave a presentation entitled “Administrative Nightmares: Top 10 Challenges in SNT Administration.”  Special needs trusts (SNTs) are designed to maintain the beneficiary’s eligibility for government needs-based benefits, while providing funds for the beneficiary’s supplemental needs.  They can be self-settled (funded with the beneficiary’s assets, such as a personal injury award or settlement), or third-party (funded with the assets of a third person, such as a parent as part of the parent’s estate plan.)  Trustees of either type of SNT face many similar issues when trying to administer these trusts.

Challenge #1: Dealing with family members.  A self-settled SNT must be for the sole benefit of the beneficiary with a disability.  This means that distributions must be made for the sole benefit of the beneficiary, although family members may receive incidental benefit from the expenditure.  The trustee must manage the expectations of the family members.  For example, a beneficiary’s parents may want the trust to pay for furnishing their home, for expensive vehicles for the parents’ use, or for the beneficiary to give them gifts.  The trust document may place limitations on distributions, and there are several types of distributions that are considered for the sole benefit of the benefit of the beneficiary, even though family members may receive incidental benefit.  These items include telephone and internet expenses, entertainment items like books and videos, vacation travel, a vehicle for the beneficiary’s use (even though the parents are the drivers), exercise equipment, and the purchase of a home for the beneficiary.  Prohibited distributions include gifts to caregivers, friends or family members, paying members for “family time,” paying for a companion’s travel expenses if not medically necessary, and, under some circumstances, providing rent-free housing for the other family members residing in the home.  If the trustee does not effectively manage the family members’ expectations, then dealing with the family members can be one of the greatest challenges in SNT administration.

Challenge #2: Communicating effectively with clients.  The trustee must have open lines of communication with the beneficiary and family members.  The beneficiary may have disabilities that present communication challenges, like those requiring assistive technology, or the beneficiary may suffer from a mental illness that causes the beneficiary to believe things that are not grounded in reality.  A trustee must modify the trustee’s communication techniques so that the trustee can involve the beneficiary as much as possible.  The trustee should treat the person with a disability as the trustee would any other person, use nonverbal methods when necessary, and always ask before rendering assistance to that person.  The trustee may want to have an initial meeting with the beneficiary and the members of the beneficiary’s family in their home in order to learn as much as possible about the beneficiary’s daily life, as well as the beneficiary’s interests, ideas, goals and plans.  If the trustee explains the trust document and the financial issues in a way that the beneficiary and the family members can understand, this can help foster a good relationship.

Challenge #3: Vehicle purchases.  Vehicle purchases can cause major conflicts between trustees and family members.  The vehicle that the family members want may be the family members’ “dream vehicle” rather than a vehicle that best meets the beneficiary’s needs.  The trustee may want to hire an occupational therapist to determine the beneficiary’s physical needs, and which vehicle or lift system will best meet those needs.   The trustee should analyze the family’s expected use of the vehicle, including the weather and driving conditions the family may face, as well as the family’s recreational preferences.  The budget for the vehicle should include the costs of insurance, repairs, and maintenance.  The vehicle should not be titled in the name of the trust because of liability issues, and the trust should be listed as a lien holder.  The trustee should retain the vehicle title, and the trust should purchase enough insurance coverage to protect the trust’s assets.

Challenge #4: Vacations.  Most trust documents permit distributions for the beneficiary’s vacations.  The major issues trustees face with regard to vacations are determining which expenses are for the beneficiary’s benefit, and balancing the value of the vacation with the beneficiary’s other needs.  An SNT can usually pay for airfare, food and lodging for the beneficiary, and generally for those same expenses for one companion, unless it is medically necessary for additional caregivers to accompany the beneficiary.  The program guidance for the Supplemental Security Income (SSI) program, allows an SSI recipient to receive, without penalty, both food and shelter during a temporary absence of greater than 24 hours from a home for a vacation.  The trustee should consider whether the amount requested for the trip is reasonable; a beneficiary may require special accommodation and transportation, and these additional costs should be considered.  It may not be necessary, however, for the beneficiary to stay in four-star hotels and dine at the most expensive restaurants.  The trustee should pay travel costs directly, and the beneficiary and companion should submit receipts for all purchases made with disbursed spending money.  The trustee should request a letter from the beneficiary’s physician that gives a detailed explanation of the medical necessity for additional companions.  The trustee should carefully analyze the impact of annual vacation spending on the trust’s financial future, and the trustee should budget accordingly in coordination with the beneficiary and the beneficiary’s family.  The beneficiary may have more expensive vacations in alternate years and less expensive vacations in the other years.

Challenge #5: Over allocation of award or settlement to annuity.  There are good reasons to allocate a portion of a personal injury award or settlement to a structured settlement paid directly to a beneficiary.  A structured settlement often provides a steady source of income to the beneficiary, and it protects a beneficiary who lacks money management skills or knowledge of investments.  Conversely, the structured settlement payments may not be sufficient to meet the beneficiary’s needs, and if all of the personal injury award or settlement is structured, then the trustee may not have enough funds at one time to be able to purchase a home or vehicle for the beneficiary.  Further, having the structured settlement payments made directly to the beneficiary may make the beneficiary ineligible for needs-based benefits.  An SNT can provide flexibility to meet the beneficiary’s changing needs.  Even if the beneficiary would like to have a structured settlement for part of the award or settlement, an initial lump sum can be placed in the trust, and some or all of the structured settlement periodic payments can be paid directly to the trustee.  Trust distributions can then be made when appropriate needs arise.

Andrew H. Hook, CELA

Oast & Hook, P.C.

www.oasthook.com