Protecting the Family Cottage from a Medicaid (MassHealth) Spend Down through an Irrevocable Trust

An irrevocable trust is an excellent tool when preplanning for Medicaid benefits.  Anything that is put into the irrevocable trust is protected from a Medicaid spend-down if five years pass from the date of the transfer.

For example, Alice Smith, a 77-year-old widow, wants to protect her family cottage from potential long-term care nursing home bills and preserve it for the benefit of her four children and their immediate families.  To do so she would need to establish an irrevocable trust, fund it with the cottage property, and have five years pass from the date of the transfer.  Additionally, to ensure her children have sufficient funds to maintain the family cottage, Alice also simultaneously transferred $250,000 of cash assets into the trust.  Finally, in order to bullet-proof the plan in the event of an accident, Alice purchased a traditional long-term care insurance policy which will provide her with five years worth of long-term care benefits, including home health, assisted living, and nursing home care.  The long-term care insurance policy also offered a full return of premium rider in the event that she passed away without using any of the coverage.  After such an event, the annual premiums would be refunded to her revocable living trust.

With the above plan in place, Alice was confident that her wish to have the family cottage remain in the family for many years to come would be long lasting.  Notwithstanding the above, Alice understood that when the maintenance funds ran out that a financial problem may soon develop.  However, to avoid a point of impasse among her children, Alice designed the trust so that if a financial problem persisted for more than 90 days, the trustee was directed to sell the property, giving each child an equal share of the sale proceeds.

This week’s blog originally appeared in a blog from Kraus Financial Services and can be viewed here.

Applying for MassHealth: Is the No-Cost Solution Really “No-Cost”?

Medicaid, or MassHealth as it is referred to in Massachusetts, is an avenue available for funding long-term nursing home care. To qualify, you must meet asset thresholds that many elders exceed. Additionally there are income requirements for MassHealth/Mediciad. Adequate understanding of MassHealth/Medicaid law and proper strategizing is a critical component of any plan for the future. With the proper planning of an elder-law attorney, you can protect your property, spouse, and assets.

After attempting to cope with his mother’s diagnosis of dementia for several months, Joe has finally decided to research local nursing homes for his mother. However, he is concerned about the cost while protecting his mother’s multiple properties, which have been in the family for generations. During a vist, Lindsay, a social worker from the facility, reached out to Joe, offering to complete a MassHealth application for his mother at no-cost. While Joe likes the concept of this free service, he can’t help but wonder if there is a catch involved.

Employed by the nursing home, social workers and other nursing home advocates focus on the rights of the nursing home and not the resident. The nursing home has a vested interest in keeping someone on “private-pay” for as long as possible because their private pay-rates are much higher than the amount received in MassHealth/Medicaid reimbursement. This means more out-of-pocket costs for residents than may be necessary.

Further, even if nursing home advocates do have the best of intentions, the MassHealth/Medicaid process is riddled with complex rules and regulations that are difficult to navigate for those not educated in the eligibility requirements and advantageous planning opportunities available under MassHealth/Medicaid. For instance, an individual encouraged to apply too soon might be ineligible for an extended time period and have to pay privately for a longer duration. Alternatively, the “advocate” may not inform the family that they can pre-pay for funeral expenses as part of a spend down, thereby reducing the burden on family members when the applicant passes.

Individuals that enlist family members to fill out their MassHealth applications or file themselves may face similar problems. Unfamiliar with eligibility requirements and liable to miss prime planning opportunities, these individuals are likely to encounter harsh penalties or confusion when faced with the application process, as well as income and asset verifications. Once they receive their denial notice in the mail, it will be much more expensive to get an Elder Law attorney involved at that point. Additionally there are strict time periods that must be adhered to in order to have any change at being sucessful in a MassHealth/Medicaid appeal.

Nursing home advocates and family members, although the cheapest solution up front, do not have the requisite knowledge, skills, or ability to compose trusts, devise appropriate estate plans, and represent you in an appeal setting if the need should arise. Rectifying the mistakes of an advocate or self-handled application may be more costly than a properly executed plan formulated a skilled elder law attorney. By hiring an elder law attorney to guide the MassHealth application process, you will ensure that your savings, your spousal support, and your family’s inheritance will not be jeopardized by lost opportunities in a last minute planning strategy.

Hiring a lawyer to handle your MassHealth application is a necessary investment. Elder law attorneys can save clients and their family members an amount greater than the cost of their legal services. If you are interested in learning more about the MassHealth application process or long-term care planning, contact Vickstrom Law today!

Estate Planning Myths Explained

Occasionally, I run across a great article written by someone else. Today is one of those days and I just had to share it with you. Clients are often confused when they come in for initial consultations and have preconceived notions about planning their estates based on things that they’ve heard from their friends, neighbors, hairdresser, etc. Most of the time the information shared is incorrect, or at least incorrectly applied to their situation. This article does a great job of debunking the most popular “myths” of estate planning.  I only added one little thought in bold below. Thank you to my colleague, Attorney Gina Barry, from Bacon & Wilson in Springfield for putting this article together…. and as far as I know unicorns are still mythical creatures.  

Certain ideas with respect to estate planning are widely accepted, yet unfortunately, inaccurate. This article will reveal and explain the most commonly stated estate planning myths. 

Myth No. 1: ‘If I have a valid will, my estate does not have to go through probate.’

Many people believe that having a will means that their estate will not have to be probated when they pass away. A will is a document that, in part, gives instructions as to the distribution of the assets in the decedent’s probate estate. The assets in the probate estate are those assets that are held in the decedent’s name alone that do not have a designated beneficiary. Thus, whether or not probate is needed is not based upon whether or not the decedent had a will; rather, it is based upon how the assets are owned by the decedent.

If the decedent left probate assets, then in order for their will to ‘speak,’ a probate estate must be opened. If all the assets held in the decedent’s name are jointly owned with a right of survivorship or have named beneficiaries, then there is no need for probate.

Myth No. 2: ‘I can give away $10,000 to as many people as I want each year, but if I give more, then I have to pay gift tax.’

This myth emanates from the gift-tax system. In 2010, the rule with respect to gift tax is that you may give up to $13,000 to as many people as you want without having to file a gift-tax return. Note that the amount that can be gifted is stated incorrectly in the myth because most people remain unaware of the ongoing increases to the allowable gift amount.

Also under the current rules, even if a gift-tax return must be filed because more than $13,000 is given to one person, the giver of the gift will not pay any gift tax until he or she has gifted more than $1 million during their lifetime. Thus, if a person has $100,000 and gives all of it away in one year to one person, they will need to file a gift tax return, but they will not owe any gift tax because the gift does not exceed the lifetime threshold.

The estate tax system is NOT to be confused with MassHealth/Medicaid planning. If nursing home care is eminent and you intend on having MassHealth/Medicaid pay for your care, gifts of any size are not allowed and can lead to MassHealth/Medicaid disqualification.

Myth No. 3: ‘I can give away assets when I enter a nursing home and still obtain Medicaid benefits.’

When faced with a nursing home bill of approximately $8,000 per month, many people wish to obtain Medicaid benefits to pay for this care. In order to obtain Medicaid benefits, an asset limit must be met; therefore, assets valued above this amount must be reduced to the asset limit before benefits will be granted. In their efforts to reduce the excess assets, many people believe that they can gift the excess assets due to the gift-tax exclusion explained in Myth No. 2. While a person can make a gift of up to $13,000 per person in 2010 without filing a gift tax return, the Medicaid program is not governed by the gift tax rules.

The Medicaid program imposes a penalty when any assets are given away within five years of the application for benefits, except in very specific circumstances. This penalty results in being unable to obtain Medicaid benefits for at least five years after such a gift is made. Thus, a gift of any amount will typically result in a penalty being imposed even if the gift does not have to be reported on a gift-tax return.

Myth No. 4 – ‘If I need nursing home care, Medicare will pay for my care.’

In part, this myth is perpetuated due to the fact that “Medicare” sounds very much like “Medicaid,” which does pay benefits for nursing home care for approved applicants. Medicare Part A will pay for medically necessary inpatient care in a skilled nursing facility, but only following a three-day hospital stay. Medicare will pay for up to 100 days of skilled nursing care or rehabilitation services. The actual length of benefits could be much shorter than 100 days if those services are no longer required.

When Medicare benefits are paid, Medicare pays 100% of the cost for the first 20 days, but only 80% of the cost of the next 80 days. Most Medicare recipients also have Medigap insurance, which will pay the balance not paid by Medicare. When Medicare benefits are exhausted, an alternative payment source is needed to pay for ongoing nursing home care.

Questions? Wondering if something you’ve heard is a ‘myth?’

 This article was originally published in Business West.

When it Could be OK to Give Assets Away When Planning for Long Term Care (Nursing Home)

Not long ago, I posted a blog on gift transfers and their affect on qualification for MassHealth (Medicaid) for an institutionalized individual. Generally, transferring assets to dispose of property so that you qualify for MassHealth will not actually help you qualify because the state imposes a five-year “look-back” period, in which those assets are counted and used to assess eligibility for MassHealth. Fortunately, there are some exceptions to the general rule.

Under the Deficit Reduction Act of 2005, an individual may still be eligible for MassHealth if certain assets were transferred to specific individuals. One of your biggest assets is probably your home. You can transfer title to your home to the following individuals without it being counted and without subjecting you to the 5-year look-back period: (1) your spouse; (2) your child who is under age 21, or is blind or permanently disabled; (3) your brother or sister who has lived with you for at least one whole year prior to the day you entered an institution and holds an equity interest in the home; or (4) your “caregiver” child.

A “caregiver” child is a son or daughter that lived with you for the two whole years prior to the date you entered an institution and provided the care you needed to remain in your home. If you were healthy enough to live in your home without your child’s help, a transfer of your home to that child will not protect you from the transfer rules. All other assets can also be transferred without being counted or subjecting you to the 5-year look-back period if they are transferred correctly and fall within the other exceptions to the general rule.

Any and all assets can be transferred to your spouse or to someone else for the sole benefit of your spouse. Your spouse may also transfer any and all of the assets to someone else for the sole benefit of your spouse. This means that someone else would hold legal title to the property, but it would only be used for the needs and wishes of your spouse.

Assets may also be transferred to your child if he or she is blind or permanently disabled. You have the option of transferring such assets directly to your child or to a trust for the sole benefit of your child. Either way, these gifts would not be subject to the new transfer rules.

Finally, you may transfer any and all of your assets to a trust for the sole benefit of any disabled person under age 65. Under this exception, a disabled individual is someone whose mental or physical impairment is so severe that he or she will be unable to perform substantial gainful work in order to provide for him or herself. This mental or physical impairment must be expected either to result in death, or to last continuously for a period of at least one year. There is no statutory requirement that you be related to this disabled individual for your transfers to fall within the exception.

While exceptions to the general rule on transfers of gifts do exist, it is very important that you speak with an attorney before making any transfers to ensure that you will still qualify for MassHealth. The 5-year look-back period is a long time to wait to be eligible for the services you need.

No, You Can’t Just Give It Away! The Dangers of “Gifting” when Considering Long Term Care

Hardly a day goes by when I don’t have a client who tells me that they can give away a certain amount of money free and clear, avoiding look-back periods for long-term care planning. They inform me that their neighbor, friend, or cousin told them that this is allowable. I then have the unfortunate task of telling them that they are wrong and that most states that have enacted the Deficit Reduction Act. After February 8, 2006, the rules relative to gifts changed.

Regardless of the amount, any gift that is made is a transfer and is subject to a look-back period of five-years for MassHealth (Medicaid) purposes. This doesn’t mean that the State will take that money, but rather, that the State will not pay for the donor’s long-term care costs until the five-year look-back is exhausted, or in the alternative, until all the gifts that have been transferred are used to pay for the institutionalized person’s care.

The sum that most clients feel that can be gifted (erroneously) without a look-back is $10,000. This amount actually relates to a past year’s annual amount that could have been gifted on an annual basis to as many individuals as the donor wishes without the need to file a GIFT TAX return. This has NOTHING to do with the look-back period when applying for MassHealth (Medicaid) coverage of a nursing home. However, the exemption in 2010 for gift giving on an annual basis is $13,000 per donee per year. Again, this is only a tax amount gift, and is not a Medicaid or asset protection plan exempt amount. A gift of $13,000 from a parent to a child will constitute a non-taxable gift, but this gift will carry with it a waiting period of five-years relative to MassHealth (Medicaid) qualification.

Far too often, family, friends, and other non-professional advisors provide well-intended but erroneous advice that can lead to significant adverse consequences if relied upon. If in doubt, it is always appropriate to contact a professional accountant, geriatric care manager, attorney, or other financial advisor for the appropriate and up to date laws relative to gifts, Medicaid planning, taxes, etc.

If you are unsure about how to find a qualified elder law attorney contact the National Academy of Elder Law Attorneys.

I drafted a follow-up to this blog, dealing with the exceptions to the gifting rule. It can be found here.

This blog was modified from one originally posted by Attorney Hy Darling from Bacon Wilson, Attorneys at Law in Springfield, MA. Its original version can be found here.

Proposed Massachusetts Legislation Could Change the Way Assets are Counted for MassHealth

How often do you feel like you know what your state legislators are doing? The whole process can be mysterious and confusing. This week I would like to shed some light on the subject and tell you about a potentially helpful piece of legislation currently pending in the Massachusetts state legislature.

The proposed law would change the way assets are counted when determining whether a spouse in a nursing home, or certain other institutions and community based programs, is eligible for medical assistance through MassHealth (Medicaid). For MassHealth purposes, the spouse in the nursing home is called the “institutionalized spouse” and the spouse still living at home is referred to as the “community spouse.” Currently, under Massachusetts General Laws, chapter 118E, subsection 21A, many different types of income and asset types of both spouses are considered countable for purposes of determining eligibility. The total amount of countable income and assets are major factors the Division of Medical Assistance takes into account when determining if the institutionalized spouse is eligible for medical assistance from the Commonwealth (MassHealth/Medicaid).

The proposed legislation, sponsored in the State House by Representative Alice Peisch, and sponsored in the State Senate by Senator James Eldridge, would alter the language in the statute to make some assets that are currently countable, no longer countable. The proposals in both houses are identical. The proposed legislation would make any money held by the community spouse in an IRA, Keogh plan, or other pension fund non-countable assets as long as regular income distributions are made from the fund OR the community spouse is employed. This means that those assets would not affect the institutionalized spouse’s eligibility for medical assistance. This would come in handy in lots of potential situations, but especially in situations like a spouse in their 50’s suffering from early onset dementia, where the community spouse is still working. Many spouses in their 50’s, 60’s, and even early 70’s still work and more importantly have to work to make ends meet.

This change in the law would also be hugely beneficial to aging couples who have worked hard and diligently saved their money. If one spouse is institutionalized, the community spouse still needs to have the means for adequate support. No one should be penalized for following their financial planner’s advice and putting money away for retirement. In this system, frivolity and impoverishment would no longer be the only path to assistance from MassHealth.

The proposed legislation has been referred to the Joint Committee on Health Care Financing, and a public hearing is scheduled for June 3, 2010, at 1:00, in Hearing Room B1. If you are interested in learning more, contact State Senator James Eldridge. He represents parts of Middlesex and Worcester county. Most importantly, if you would like to see this legislation passed, contact your own local representative and express your support.