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

The Uniform Power of Attorney Act

The Virginia General Assembly is currently reviewing legislation, which, if signed into law, will have a significant impact on laws related to the use and acceptance of durable powers of attorney (“DPA”).  The Uniform Power of Attorney Act, (“UPOAA”) was introduced into the January 2009 legislative session in an effort to bring uniformity to an area of law that has been rapidly emerging as a significant, if not vital, estate planning tool.

A DPA is legal document that grants authority to an agent to act on behalf of the principal, and provides for the continuation of that authority in the event the principal suffers a subsequent disability or incapacity.  As the popularity of DPAs continues to increase, so has litigation related to their use. Unlike guardianships and conservatorships, DPAs require little to no oversight. Therefore, financial exploitation by unscrupulous agents is a widespread problem.

DPAs are governed by state law, and those laws vary substantially. In 2002, the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) conducted a survey comparing state DPA statutes.  The study revealed many issues related to DPAs that needed to be addressed, including (1) improving portability, (2) including safeguards, remedies, and sanctions for abuse by an agent, (3) protecting the reliance of third parties on a DPA, and (4) providing remedies and sanctions for a third party’s refusal to honor a DPA.

As a result of this survey, in 2006 the NCCUSL adopted and promulgated the UPOAA.  The UPOAA is an endeavor by the NCCUSL to “codify both state legislative trends and collective best practices, and strike a balance between the need for flexibility and acceptance of an agent’s authority by third parties and the need to prevent and redress financial abuse.”  The UPOAA seeks to preserve DPAs as a low-cost, flexible, and private form of surrogate decision making while at the same time attempting to prevent and redress financial abuse of incapacitated individuals.  The UPOAA is basically a set of default rules that preserve a principal’s freedom to choose both the extent of the agent’s authority and the rules that govern the agent’s conduct.

Shortly after the UPOAA was developed, the Trust and Estate Section of the Virginia Bar Association formed a sub-committee, chaired by Oast & Hook attorney Andrew H. Hook, whose task it was to study the UPOAA and assess the impact that its enactment in Virginia would have on current Virginia law.  The sub-committee met regularly to discuss the UPOAA and made revisions to the Act where it thought that Virginia law was superior.  This sub-committee also consulted with various organizations, such as the Virginia Bankers Association and the AARP, to solicit feedback on the UPOAA.  In the fall of 2008, the sub-committee recommended the UPOAA bill to the Virginia General Assembly for enactment.

As of the date of this article, the UPOAA bill has made its way through the Virginia Senate Courts of Justice Committee, and the bill is expected to be voted on by the full Senate within the next few weeks.  If the Senate approves the bill, then it will cross over into the House of Delegates for its review and vote.  The bill is not expected to receive any opposition.  If the General Assembly enacts the UPOAA, then it will bring much needed certainty to Virginia law related to DPAs.  The enactment of the UPOAA will also provide greater protections for third parties at a time when a dramatically increasing amount of the nation’s wealth is being managed under DPAs because of the aging of the baby boomer generation.  Current Virginia law is inadequate to meet those needs.

Since its inception in 2006, the UPOAA has been enacted by two states, New Mexico and Idaho.  In 2008, however, bills were presented to the state legislatures in Indiana, Maine, Maryland, Michigan and Mississippi. These states are carefully studying the UPOAA and assessing the impact its enactment will have on their various constituencies.

Andrew Hook
Oast & Hook
www.oasthook.com

Social Security - Retire Online

The Social Security Administration (SSA) has recently introduced a service that permits people to apply for their retirement or disability benefits online.  The SSA’s Retire Online campaign is designed to inform the more than 80 million baby boomers about the new service.  SSA Commissioner Michael Astrue has said that, “We just don’t have the infrastructure to handle that workload in the traditional fashion.”  The SSA estimates that the baby boomers will become eligible for retirement at a rate of 10,000 per day for the next 20 years.

The SSA has had an online service since 2000, but applicants still have had to mail or deliver documents with their signatures, along with copies of birth certificates or W-2 forms.  The goal of the new system is for the process to be paperless in the majority of cases.  It now takes a field officer approximately 45 minutes to finish an application form for an individual who applies in person at Social Security office.  Most applicants using the new online system should be able to apply for their benefits in 15 minutes or less. 

Commissioner Astrue acknowledges that a large part of the population is not computer literate, so the online system does not eliminate the ability for applicants to deal with a person at the agency or a field office.  The following is an excerpt from the Retire Online website regarding the application process: “To apply, go to www.socialsecurity.gov and click on ‘Applying Online for Retirement Benefits.’  You will be asked a brief series of questions about you and your work.  Need to look up some information? You don't have to complete the application in one sitting.  You can stop and restart the application without losing any of the information entered.  Have a question?  There are convenient ‘more info’ links that you can access to get an answer.  And when you’re done, just click the ‘Sign Now’ button to submit the application.  There are no paper forms to sign, and usually no additional documents are required.  If more information is needed, then the SSA will contact you.”  It is estimated that 1 million people will use the new online form in 2009, up from 750,000 in 2008.

The SSA has also developed a new Retirement Estimator that people can use to obtain immediate and personalized information regarding their Social Security benefits.  Individuals will still receive an annual Social Security statement, and can use the Retirement Estimator to calculate the benefits that they will receive depending on the age at which they start receiving benefits.  Commissioner Astrue states, “It is simple, easy to use and will provide highly accurate benefit estimates for those nearing retirement age.  For younger workers, it will provide valuable information to help them plan and save for their retirement.”

For more information on Retire Online and the Retirement Estimator, please visit www.socialsecurity.gov/planners/about.htm.

Andrew Hook

Oast & Hook

www.oasthook.com

No Minimum Distributions Are Required from IRAs for 2009

“Defined contribution” retirement plans, like Individual Retirement Accounts (IRAs), 401k and 403b plans, generally follow the same rules regarding distributions. In the year after a plan participant turns 70½ he or she must begin taking distributions from the account, with the rate calculated based on his or her life expectancy. Failure to take the minimum distribution subjects the plan participant to a special tax of 50% of the amount he or she should have withdrawn. That rule has now been suspended for 2009.

Why has the government suspended the 50% tax penalty for one year? Because so many seniors would have been forced to take distributions at a time when their retirement accounts were already reeling from market setbacks, and many would have been required to liquidate stocks in those accounts at what may turn out to be their lowest point in years in order to satisfy the required distributions. Congress decided to let retirees leave their investments alone for one year — if they are so inclined.

The new law (“The Worker, Retiree and Employer Recovery Act of 2008”) does not prohibit anyone from withdrawing money from their retirement accounts. It only suspends the penalty for failure to withdraw any minimum amount required by the law. Those who want to continue (or begin) to withdraw funds from their IRAs are free to do so.

Retirees are not the only ones affected by the new provisions. When a younger person inherits an IRA (assuming it is not from the inheritor’s spouse), he or she must begin withdrawing immediately regardless of age. That means that there are a small but growing number of plan beneficiaries who have been required to withdraw money before — sometimes decades before — their 70½ birthday. Those younger beneficiaries are also permitted (but not required) to skip their 2009 distributions.

Distributions that were required to be made during calendar year 2008 were not affected by the new law. Of course, those distributions should all have been made already anyway; required distributions must (with a very few exceptions) be completed by December 31. As a consequence, some seniors and IRA inheritors have already had to liquidate stocks that had been hurt by the market decline in order to make a withdrawal that was calculated on the basis of the account’s value as of January 1, 2008 — near a historic high point in the market.

Some beneficiaries are required to take their entire account balances within five years of the original owner’s death. The law applies to them as if 2009 simply does not exist, giving them six years to complete their withdrawals.

The new law will affect a relatively small number of taxpayers (though it affects a large percentage of retirees). Its affects are fairly straightforward in most circumstances. It also, however, affects more than just the minimum distribution rules for 2009. For instance, it mandates that non-spouse plan beneficiaries must be given the option to roll over their inherited plans to a new IRA. This change is but one of many technical corrections included in the new law; for a more detailed report, look to the more comprehensive analysis prepared by CCH, one of the leading publishers of tax law analysis.

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

Housing Crisis Affects Seniors' Efforts to Move

A recent New York Times article highlighted the effect of the housing crisis on the ability of seniors to move into retirement communities or assisted living centers.  For many seniors, their homes are their most valuable asset, particularly as the stock market has declined, and they have seen their retirement savings disappear.  For these seniors, selling their homes is the first step toward the next step in their care.  Many seniors are cancelling plans to move, taking their names off waiting lists, and staying in their homes.  Although their homes were suitable for their needs years ago, some seniors find that their homes are too lonely, too large, or too hazardous.

Many facilities have seen their waiting lists decrease and their occupancy rates fall in the past year, and some are finding creative ways to help seniors sell their homes.  Some assisted living centers have brought in real estate experts to help prospective residents learn about online advertising and preparing their homes to show to potential buyers.  Some have set up programs with banks to provide bridge loans, or they discount apartments or offer low-interest loans to potential new residents.  The Cedar Community in West Bend, Wisconsin, decided to let new residents pay month-to-month until they could sell their homes and pay the facility’s entry deposit; they did this after seeing their independent living occupancy rate drop by 4% in 2008. 

Larry Minnix, president of the American Association of Homes and Services for the Aging, said, “It remains to be seen whether we have short-term stress, or whether we are facing a crisis.  We’re into brand new territory here.  It is deeper and potentially broader.”  The problem is acute in Florida, with facilities reporting vacancy rates up 20% to 30% over 2007.  Some facilities are seeing waiting lists shrink from two years to six months, and some residents who moved into facilities prior to trying to sell their homes are spending through their remaining savings as they wait for their homes to sell.

Some families are using adult day care as an interim measure.  Providers of day care services report that business is increasing as people look for alternatives to facility care or home care.  Paul Williams, Director of Government Relations for the Assisted Living Federation of America, says that people who need more day-to-day care, who have problems with the stairs in their homes, or need supervision, are taking a risk by staying at home: “When they’re coming in at 85, they’re coming in very frail and needing services.  They can’t wait this out.  They need the care when they need the care.  That’s the scary part.  You have people putting it off when they need care right now.”

As parents continue to stay in their homes waiting for them to sell, their adult children worry, and many face financial hardships if the parents’ homes do not sell.  Some adult children are forced to place their parents in skilled care after medical events, and these children are not only spending their parents’ investments to pay for care, but they also worry about what may happen if the parents run out of money before the homes sell.  As the recession continues, seniors and their families continue to look for relief and creative ways to manage their finances and their care.

Andrew Hook
Oast & Hook
www.oasthook.com

MEDICARE SET-ASIDE ARRANGEMENTS IN THIRD PARTY CASE by Thomas D. Begley, Jr., Esquire

Medicare Set-Aside Arrangements (MSAs) have long been required in Worker’s Compensation (WC) cases where the claimant is receiving a lump sum settlement and the Worker’s Compensation carrier is being released from its liability to pay for the injured person’s medical expenses.  The Medicare Secondary Payer Act[1] requires an MSA in WC cases, as well as third party liability cases.  Up until now the Centers for Medicare and Medicaid Services (CMS) has not enforced the MSA requirement in third party liability cases. 

 

Medicare, Medicaid and SCHIP Extension Act of 2007

 

            Under the terms of the Medicare, Medicaid and SCHIP Extension Act of 2007,[2] all insurers, third party administrators for group health plans, self-insured plans, and self-administered plans are required to identify situations where the plan is or has been a primary plan to the Medicare program.  If a claimant is determined to be so entitled, the plan must submit a report including the identity of the claimant and the identity of the personal injury attorney to CMS.  There is a stiff penalty of $1,000 per day for non-compliance.

 

Future Medicals

 

            The rules pertaining to MSAs apply to future medicals.  There has long been a Medicare lien for past medicals paid by Medicare to the date of the settlement.  These liens remain in effect.  The MSA applies only to future medicals.  The theory is that Medicare makes a conditional payment for medical expenses for beneficiaries with the understanding that Medicare will be repaid when the beneficiary receives payment from a third party.  Medicare is opposed to any settlement that results in a contrived shift to Medicare of responsibilities of the plaintiff’s future medical care.  In settlement claims, Medicare’s interest must be considered.  The solution to the problem of burden shifting is to establish an MSA.

 

            The amount of the Set-Aside is determined by evaluating past medical treatment, current medical condition, and the probability of future medical needs, as well as other factors.  Prescription drugs are included in the calculation.  Future medicals are limited only to those expenses that Medicare would pay that are related to the injury.  The amount of the Set-Aside is based only on those expenses that would be paid by Medicare.  In calculating the Set-Aside, the plaintiff’s life expectancy is considered.  It is often useful to obtain a rated age as a part of this process. 

 

            There are companies that will calculate the Set-Aside amount.  Currently, CMS in most Regions is not reviewing the calculation in third party liability cases.

 

            There are four possibilities for administering an MSA:

 

·         Self-administered account

·         Custodial account

·         Medicare Set-Aside Trust

·         Pooled Trust

 

            In order for personal injury attorneys to protect themselves against the risk of future claims by Medicare or malpractice claims by the client, an MSA should be considered in third party liability cases.

 

            Begley, Begley & Bookbinder has issued a Special Report entitled “Medicare Set-Aside Arrangements in Third Party Liability Cases.”  The Report is posted on the firm’s website (www.begleylawyer.com).

 

 

Thomas D. Begley, Jr., CELA

Begley, Begley & Bookbinder, PC

ATTORNEYS AT LAW

 

COMMITTED TO EXCELLENCE

Specializing in Elder & Disability Law

    

www.begleylawyer.com

 

(800) 533-7227

 

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[1] 42 U.S.C. §1395y(b)(2).

[2] 42 U.S.C. §1305.

WHEN IS A SELF-SETTLED SPECIAL NEEDS TRUST INAPPROPRIATE? by Thomas D. Begley, Jr., Esquire

Self-Settled Special Needs Trusts are often use when a person with disabilities receives a personal injury settlement, an inheritance, equitable distribution, alimony or child support.  However, in many instances a Self-Settled Special Needs Trust is not appropriate.  A disability lawyer must make an analysis on the onset to make this determination. 

Some of the reasons that the trust may be inappropriate are:

•           The beneficiary does not qualify. For example, the beneficiary may not be disabled or may be over age 64.

•           The beneficiary may not be receiving means-tested public benefits, such as SSI and Medicaid, and may never require such benefits in the future. Also, the amount may be so large that benefits may not be necessary.  In those situations a determination should be made whether a special needs trust is appropriate for other reasons. Perhaps a support trust would be adequate.

•           The amount of the net settlement may be too small. For net amounts under $100,000 it is usually better to seek an alternative to a standalone Self-Settled Special Needs Trust, because of the expense associated with establishing and maintaining the trust. If the net settlement is between $100,000 and $200,000, then a trust may or may not be appropriate. If an individual trustee is available then the trust cost may not be prohibitive. A pooled or community trust may be a good option.

•           It is difficult to find a professional trustee if the amount of liquid assets to be placed in the trust is less than $500,000 - $1,000,000. If a substantial percentage of the settlement is in the form of a structured settlement annuity, there will be insufficient liquid assets to interest a financial institution in serving as trustee.

 A Quick Screen should be developed to screen those cases where a Self-Settled Special Needs Trust is not appropriate.

 

Thomas D. Begley, Jr., CELA

Begley, Begley & Bookbinder, PC

ATTORNEYS AT LAW

 

COMMITTED TO EXCELLENCE

Specializing in Elder & Disability Law

    

www.begleylawyer.com

 

(800) 533-7227

 

ASSIGNMENT OF INCOME TO SPECIAL NEEDS TRUSTS by Thomas D. Begley, Jr., Esquire

Some payments are assignable by law while others are not. Payments that are assignable may be assigned to special needs trusts.

•           Nonassignable Payments. Certain payments are nonassignable by law and, therefore, are income to the individual entitled to receive the payment under regular income rules. They may not be paid directly to a special needs trust. Nonassignable payments include:

            ◦           Temporary Assistance to Needy Families (TANF);

            ◦           Railroad Retirement Board–Administered Pensions;

            ◦           Veteran’s pensions and assistance;

                        ◦           Federal employee retirement payments (CSRS, FERS) administered by the Office of Personnel Management;

            ◦           Social Security title II and SSI payments; and

                        ◦           Private pensions under the Employee Retirement Income Security Act (ERISA) (29 U.S.C.A. §1056(d)).[1]

These payments cannot be assigned to a trust and protected through the use of a special needs trust.

•           Assignable Payments. An assignable payment is defined as a legally assignable payment that is assigned to a trust, is income for SSI purposes unless the assignment is irrevocable. If the assignment is revocable, the payment is income to the individual legally entitled to receive it.[2]

Thus, it would appear that an irrevocable assignment of an alimony payment to a self-settled special needs trust would protect SSI benefits. For example, if a divorced woman is entitled to $300 per month alimony, the receipt of the alimony would reduce her SSI payment by $300 per month. However, if the $300 is paid into a special needs trust, the SSI payment remains unchanged.

There is an issue as to whether worker’s compensation benefits are assignable. The Social Security Administration will permit an assignment of worker’s compensation to a Self-Settled Special Needs Trust, if state law permits the assignment of worker’s compensation benefits.

 

 

 

Thomas D. Begley, Jr., CELA

 

Begley, Begley & Bookbinder, PC

 

ATTORNEYS AT LAW

 

COMMITTED TO EXCELLENCE

 

 

Specializing in Elder & Disability Law

    

www.begleylawyer.com

 

(800) 533-7227

 

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[1] POMS SI 01120.200.F.1.c.

[2] Id. at G.1.d.

Assignment of Income to Special Needs Trusts by Thomas D. Begley, Jr., Esquire

Some payments are assignable by law while others are not. Payments that are assignable may be assigned to special needs trusts. • Nonassignable Payments. Certain payments are nonassignable by law and, therefore, are income to the individual entitled to receive the payment under regular income rules. They may not be paid directly to a special needs trust. Nonassignable payments include: ◦ Temporary Assistance to Needy Families (TANF); ◦ Railroad Retirement Board–Administered Pensions; ◦ Veteran’s pensions and assistance; ◦ Federal employee retirement payments (CSRS, FERS) administered by the Office of Personnel Management; ◦ Social Security title II and SSI payments; and ◦ Private pensions under the Employee Retirement Income Security Act (ERISA) (29 U.S.C.A. §1056(d)). These payments cannot be assigned to a trust and protected through the use of a special needs trust. • Assignable Payments. An assignable payment is defined as a legally assignable payment that is assigned to a trust, is income for SSI purposes unless the assignment is irrevocable. If the assignment is revocable, the payment is income to the individual legally entitled to receive it. Thus, it would appear that an irrevocable assignment of an alimony payment to a self-settled special needs trust would protect SSI benefits. For example, if a divorced woman is entitled to $300 per month alimony, the receipt of the alimony would reduce her SSI payment by $300 per month. However, if the $300 is paid into a special needs trust, the SSI payment remains unchanged. There is an issue as to whether worker’s compensation benefits are assignable. The Social Security Administration will permit an assignment of worker’s compensation to a Self-Settled Special Needs Trust, if state law permits the assignment of worker’s compensation benefits. Thomas D. Begley, Jr., CELA Begley, Begley & Bookbinder, PC ATTORNEYS AT LAW COMMITTED TO EXCELLENCE Specializing in Elder & Disability Law www.begleylawyer.com (800) 533-7227

Spending Down by Thomas D. Begley, Jr., Esquire

 

The client who engages in Medicaid planning is usually a person of modest means who has been diagnosed with an illness and therefore the option of long-term care insurance is no longer available. A typical client may own a home and have countable assets of between $100,000 and $400,000. Most clients' goals are as follows:

1.      To obtain the best quality of care for the institutionalized person

2.      To maintain the standard of living of the community spouse, including providing sufficient income and assets so that the community spouse can continue to reside in the family home

3.      Avoid Medicaid liens being placed on the home

4.      Preserving a modest legacy for the children

5.      Addressing tax issues, including:

o    Federal and state income taxes

o    Federal and state gift taxes

o    Federal estate tax

o    State estate tax

o    State inheritance tax

At the beginning of the initial client meeting, the attorney must begin the process of managing client expectations. 

 

There are many strategies available to obtain or accelerate Medicaid eligibility.  Significant factors include whether the client is married; whether the client is in crisis; the nature and extent of the client's assets; and the size of the IRAs of the respective spouses.

 

Spending Down

 

Most states limit a Medicaid recipient to approximately $2,000 of countable resources.[1] One way to achieve this limit is to “spend down” all but the permissible amount of countable resources. What clients typically want to avoid is spending all of their assets on nursing home care. There are several ways a client might spend down his assets.

 

Pay Off Debts

 

Repayment of a debt is not considered a transfer, because the individual is receiving fair market value, and transfers are penalized only if the transferor does not receive fair market value.[2] Typical debts clients might have include mortgages, home equity loans, car loans, and credit card bills. In order for the spend down to be accomplished, the check must actually be written and delivered. An outstanding debt is simply a liability that does not reduce assets for Medicaid eligibility purposes.

 

Payment for Services

 

Payment for services, including medical bills and legal fees, does not constitute a transfer. The services performed by the attorney are the value the client receives for the payment. Therefore, there is no uncompensated transfer of funds.

 

Prepayment of Real Estate Taxes

 

In situations where the home is occupied by a community spouse it makes sense to prepay real estate taxes. Since the home is occupied by the community spouse it is a noncountable resource. Expenditure of the funds for payment of the real estate taxes constitutes valid spend down.

 

Buy Household Goods or Personal Effects

 

Personal effects and household goods are excluded to the extent that the total equity value of such resources does not exceed $2,000.[3] In practice, Medicaid does not appear to enforce the $2,000 limit.

 

The personal effects actually should be used by the community spouse. An excellent example of a violation of the “pig principle” is a recent New Jersey case.[4] In that case, a 92-year-old grandmother was penalized for transfer of assets. The grandmother lived in a nursing home and purchased a computer that was kept at her granddaughter's home. The court held that there was no evidence that the Medicaid applicant received anything of value for her $1,478.61 expenditure.

 

Make Home Improvements

 

Making home improvements is a way to convert countable assets (i.e., cash and securities) into a noncountable asset (i.e., a personal residence). A home and lot used as a principal residence are excludable resources.[5]

 

Purchase New Home

 

Occasionally, when one spouse enters a nursing home, the community spouse decides that the current home is too big and decides to move to a smaller home or a condominium. Since the home is a noncountable resource,[6] if the home is sold and the proceeds of sale from the original principal residence are reinvested into a more expensive home, the additional funds spent on the new home are converted from a countable asset to a noncountable asset. This strategy relies on the principal residence exemption.

 

Purchase Life Estate from Children

 

The Deficit Reduction Act–2005 exempts from the transfer of assets penalties the purchase of a life interest in another individual's home if the purchaser resides in the home for a period of at least one year after the date of the purchase.[7] The Act is silent as to how the life estate is to be valued, but elsewhere there are references to the publication of the Office of Chief Actuary of the Social Security Administration.

 

In a New Jersey case, a parent purchased a life estate in a child's house for $126,665.10. The decision noted that a life estate entitles the person to use and occupy the home. There was no evidence that the daughter or her family vacated the home. The daughter and her family had no legal right to remain in the home absent payment of rent.[8]

 

The CMS Guidance contains some troubling language: “Unless a state has a provision for excluding the value of life estates in its approved State Medicaid Plan, or the property in which the individual has purchased a life estate qualifies as the individual's exempt home, the value of the life estate should be counted as a resource in determining Medicaid eligibility.”[9]

 

The child would not receive a Section 121 exclusion from the sale of a principal residence, because he did not sell his entire interest in the residence.[10]

 

Prepaid Funeral

 

Most states do not count funds in an irrevocable funeral trust as countable assets. Also, most states do not have a dollar limit on the amount that can be expended for the funeral. The monies must be put in an irrevocable trust; the trust must be for the benefit of the Medicaid applicant; and the trust must be established by an individual who reasonably anticipates applying for or receiving Medicaid benefits.

An alternative to an irrevocable funeral trust is an irrevocable assignment of a life insurance policy in exchange for funeral services of the same or greater value as the cash surrender value of the policy. Funeral directors require a paid-up policy.

 

Irrevocable policies issued by companies, such as Choices or Forethought, are also acceptable to Medicaid and to most funeral homes. One of the nice features of these policies is that insurance companies having significant assets back them and they can be used in most funeral homes.

 

Purchase of burial spaces for adult children and their spouses do not constitute transfers for Medicaid penalty purposes. The burial space resource exemption applies to burial spaces for the Medicaid Applicant and also any member of his or her immediate family. Immediate family means an individual's minor or adult children, including adopted children and stepchildren, an individual's brothers, sisters, parents, adoptive parents, and the spouses of those individuals. Neither dependency nor living in the same household will be a factor in determining whether a person is an immediate family member.[11]

 

Purchase New Car

 

Frequently, when one spouse enters a nursing home, the other spouse is driving an old car with high mileage. A good strategy is to have the community spouse purchase a new car as part of the spend down. Under current law the best time to purchase the car would be after the institutionalized spouse enters a nursing home. Under federal law, the first $4,500 of the value of a car is excluded from the calculation of countable assets.[12] However, if the car is used for medical transportation or transportation in connection with employment, the entire value of the car is noncountable.[13] Many states simply permit one car to be noncountable regardless of value or use.

 

 

 

Thomas D. Begley, Jr., CELA

 

Begley, Begley & Bookbinder, PC

 

ATTORNEYS AT LAW

 

COMMITTED TO EXCELLENCE

 

 

Specializing in Elder & Disability Law

    

www.begleylawyer.com

 

(800) 533-7227

 

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[1] 42 U.S.C. §1382(a)(3)(B).

[2] HCFA Transmittal 64 §3258.1.

 

[3] 42 C.F.R. §416.1216.

[4] M.G. v. Division of Medical Assistance and Health Servs., A-5161-02T5 (N.J. App. Div. April 5, 2004) (not approved for publication).

[5] 42 C.F.R. §§416.1210, 415.1212.

[6] 42 C.F.R. §416.1210.

[7] Deficit Reduction Act of 2005 §6014(d).

[8] A. R. v. DMHAS, Administrative Action, The Final Agency Decision, OAL Dkt. No. HMA8802-04.

[9] Center for Medicaid and State Operations, SMDL No. 06-018, July 27, 2006, §§6011 and 6016 iv.

[10] Rev. Rul. 84-43.

[11] C.F.R. §416.1231(a)(4).

[12] 42 U.S.C. §1382b.

[13] 42 C.F.R. §416.1218.

EXEMPT MEDICAID TRANSFERS by Thomas D. Begley, Jr., Esquire

           

As a general rule, when assets are transferred to third parties, the transfer results in a period of Medicaid ineligibility. Some transfers, however, are exempt and do not result in the imposition of a period of ineligibility for Medicaid. It is important to make transfers that are consistent with the estate planning goals of the client. If inconsistent transfers are made, they may result in litigation from beneficiaries of the estate who consider themselves to be treated unfairly.

 

1.       The Family Home

 

There are four exceptions from the general transfer rules relating to a principal residence. These transfers are exempt.

 

Community Spouse

 

The residence can be transferred to the community spouse without penalty.[1] A married couple can simply deed the house to the community spouse. There is no transfer penalty because the transfer is between spouses. In a typical situation, husband and wife own the home as tenants by the entirety. If one spouse enters a nursing home, and the community spouse predeceases that spouse, then by operation of law, title to the home will vest in the institutionalized spouse. The institutionalized spouse would then be required to sell the home and use the proceeds for nursing home care. In states that have a broad definition of estate for purposes of Medicaid estate recovery, the home should always be transferred to the community spouse to avoid Medicaid estate recovery.[2]

 

If the property is deeded to the community spouse, and that spouse dies first, the property can be left by the will of the community spouse to a special needs trust for the benefit of the institutionalized spouse or to the children. The elder law attorney must also be aware of the state elective share statute, which prohibits a person from disinheriting a spouse. Medicaid could, conceivably, take the position that failure of the surviving spouse to exercise his rights under the elective share statute constitutes a transfer, subject to the transfer penalty provisions.

 

Child Under 21, Blind, or Disabled

 

The home can be transferred to a child of the institutionalized individual who is under the age of 21, or a child of any age who is blind or disabled.[3] For example, a person about to enter a nursing home has a daughter who is blind. The potential Medicaid applicant can transfer the home to the blind daughter as an exempt transfer, and there will be no transfer penalty. In a second marriage situation, the question remains whether the institutionalized individual could transfer ownership of the home to a stepchild who met the criteria of caregiver.

 

Sibling

 

The home can be transferred to a brother or sister of the institutionalized individual who already had an equity interest in the home prior to the transfer and who was residing in the home for a period of at least one year immediately before the individual becomes an institutionalized individual.[4] It may not be necessary for the sibling to be named on the deed to the property for a year prior to the transfer. The sibling may have an equity interest if he or she has paid taxes or other expenses and has actually lived in the home for a period of time. For example, a potential Medicaid applicant is not married and lives in his home with his brother. Each owns a portion of the house as tenants in common and they have been living together for more than one year. The potential Medicaid applicant would simply deed the property to the healthy sibling, and there would be no transfer penalty.

 

Caregiver Child

 

The home can be transferred to a caregiver child.[5] A caregiver is defined as a son or daughter of the institutionalized individual who is residing in the individual's home for a period of at least two years immediately before the date the individual becomes an institutionalized individual, and who has provided care to such individual that permitted the individual to reside at home rather than in an institution or facility.[6] The care provided by the son or daughter must have been essential to the safety of the individual and consisted of activities such as, but not limited to, supervision of medication, monitoring of nutritional status, and ensuring the safety of the individual.

 

There may be an issue as to when the transfer of the home to the caregiver child must take place. In a New Jersey case, the Burlington County Board of Social Services contended that a deed transferred 90 days after institutionalization did not qualify, and that such transfers need be made within 30 days of institutionalization.[7] The Administrative Law Judge held and the Director affirmed that there is no time set forth in the regulation as to when the deed must be given. The only reference to time is that the home must be the home in which the individual resided immediately prior to entering the nursing home. Based on this case, it would appear that a deed could be given at any time prior to, or subsequent to, entering a nursing home. For example, a potential Medicaid recipient is about to enter a nursing home. His daughter has lived with him for two years and provided a level of care sufficient to keep him out of a nursing home. The deed to the house can simply be deeded to the daughter. There would be no transfer penalty, because this is an exempt transfer.

 

Special California Ruling

 

The California Department of Health Services has ruled that transfer of a home may be an exempt transfer.[8] The letter states that the home is an exempt resource so long as the individual files a written notice of intent to return home. Exempt property can be retained without affecting Medicaid eligibility. Since the transfer is not made for purposes of establishing Medicaid eligibility it is an exempt transfer.

 

2.       Non-Home Assets

 

The Community Spouse

 

The transfer penalties do not apply to a transfer of assets to the community spouse. This is also an exempt transfer. The assets forming a part of the Community Spouse Resource Allowance (CSRA) must be transferred to the community spouse within 90 days of Medicaid eligibility; otherwise, they are no longer exempt as part of the CSRA.[9]

 

For example, a husband is ready to enter a nursing home. The husband transfers all of his assets to his wife. All assets in the names of the husband and wife are also transferred to the wife. This protects the assets as a part of the wife's CSRA. If the wife dies prematurely, her will leaves the assets to a special needs trust for the benefit of the husband, and on the death of the husband to their children.

 

Exempt Children

 

Transfers from the institutionalized individual or the community spouse to the institutionalized individual's child, who is blind or permanently and totally disabled, are exempt.[10] Therefore, there is no transfer penalty. For example, a potential Medicaid applicant is single and has $100,000 of assets. He could transfer the $100,000 to his blind daughter immediately prior to entering a nursing home. There would be no period of ineligibility due to the transfer.

 

Taxation

 

In transferring a home to an exempt child, consideration must be given to the gift tax rules, carry over basis, and the capital gains tax exclusion from the sale of a principal residence.

 

 

Thomas D. Begley, Jr., CELA

 

Begley & Bookbinder, PC

 

ATTORNEYS AT LAW

 

COMMITTED TO EXCELLENCE

 

 

Specializing in Elder & Disability Law

    

www.begleylawyer.com

 

(800) 533-7227

 

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[1] 42 U.S.C. §1396p(c)(2)(A).

[2] The following states have a broad definition of estate: Alabama (Ala. Admin. Code 560-x-33-.01 et seq.); Maine (Me. Rev. Stat. Ann. tit. 22, §14) (living trust, joint property); Missouri (Mo. Rev. Stat. §473-398) (includes life insurance); Montana (Mont. Code. Ann. §53-6-167) (estate & distribution by survival); Nevada (Nev. Rev. Stat. §164.025) (includes nontestamentary trust); New Jersey (N.J. Stat. Ann. §30:4D-7.2) (estate and joint property, living trust and life estate); Utah (Utah Code Ann. §§26-19-2, 26-19-13.5) (includes augmented estate, nonprobate, probate trusts); Washington (Wash. Rev. Code Ann. §43.20B.080) (estate & nonprobate assets, joint accounts but not life insurance); Wyoming (Wyo. Stat. Ann. §42-4-206) (includes joint property, living trust and estate of surviving spouse).  The following states have a modified broad definition of estate: Idaho (Idaho Code §56-218) (estate & spouse's estate); Illinois (305 Ill. Comp. Stat. 5/5-13) (estate & spouse's estate); Kansas (Kan. Stat. Ann. §39-709) (estate & spouse's estate); New Hampshire (N.H. Rev. Stat. Ann. §§167:13, 167:14) (includes joint tenants, recipient's spouse); New York (N.Y. Soc. Serv. L. §369) (includes trusts); North Dakota (N.D. Cent. Code §50-24.1-07) (includes joint tenants); Oregon (Or. Rev. Stat. §413.200) (estate & spouse's estate); Wisconsin (Wis. Stat Ann. §§49.496, 49.682) (estate & estate of surviving spouse).

 

[3] 42 U.S.C. §1396p(c)(2)(A).

[4] 42 U.S.C. §1396p(c)(2)(A)(iii).

[5] 42 U.S.C. §1396(c)(2)(A)(iv).

[6] Id.

[7] M.S. v. Burlington County Bd. of Social Servs. & DMAHS, 96 N.J. Admin. 2d (DMA) 11 (1996).

[8] California Department of Health Services All County Letter No. 00-11 (March 14, 2000).

[9] 42 C.F.R. §416.1242.

[10] 42 U.S.C. §1396p(c)(2)(B)(iii).