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Thriving in Today’s Estate Planning and Elder Law Climate Post Deficit Reduction Act Harry S. Margolis Elder. Law. Answers
Agenda l Explanation of DRA Changes – – l Planning Options – – l Transfers Home Equity Annuities Partnership Programs Annuities House Transfer (Crisis) House Transfer (Advance) Long-Term Care Insurance. Questions and answers Questions and Answers
Transfers l The Old Rules – – – One month of ineligibility for every $x transferred Three- or five- year lookback Penalty period begins on first day of month in which transfers occurs or on first day of the following month, at state option
Transfers: Old Rules Example l Mr. Green in state with $5, 000 average cost of care transfers $100, 000 on April 1, 2005 l He is ineligible for Medicaid benefits for 20 months ($100, 000 ÷ $5, 000 = 20) l The 20 -month penalty period begins April 1, 2005, and ends November 30, 2006 l This transfer is not affected by the new rules
Transfers: The New Rules l l l Lookback period extended to five years for all transfers Length of penalty period remains the same Start date begins when applicant – – – Is in a nursing home (or receiving an institutional level of care? ) Has spent down to the asset limit for nursing home eligibility Is otherwise eligible for benefits (whether an application must be filed and approved but for the transfer is unclear)
Transfers: The New Rules SEC. 6011. LENGTHENING LOOK-BACK PERIOD; CHANGE IN BEGINNING DATE FOR PERIOD OF INELIGIBILITY (ii) In the case of a transfer of asset made on or after the date of the enactment of the Deficit Reduction Act of 2005, the date specified in this subparagraph is the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care described in subparagraph (C) based on an approved application for such care but for the application of the penalty period, whichever is later, and which does not occur during any other period of ineligibility under this subsection.
Transfers: The New Rules Parsed (ii) In the case of a transfer of asset made on or after the date of the enactment of the Deficit Reduction Act of 2005, the date specified in this subparagraph is the first day of a month during or after which assets have been transferred for less than fair market value, or
Transfers: The New Rules Parsed or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care described in subparagraph (C) based on an approved application for such care
Transfers: The New Rules Parsed but for the application of the penalty period, whichever is later,
The New Rules: Example • April 1, 2006: • April 1, 2007: • April 1, 2008: Mr. Green transfers $100, 000 Mr. Green enters nursing home Mr. Greens runs out of money When will Mr. Green be eligible for Medicaid coverage of his nursing home care?
The New Rules: Example Answer l December 1, 2009 – – 20 months after Mr. Green has run out of money 24 months after the penalty period would have ended under the old rules
Effective Date Question l l Law is effective on date of enactment But states have grace period to come into compliance – until the first day of the first calendar quarter beginning after the end of the next legislative session What happens to transfers made between the two dates? Does it matter if the application for Medicaid is filed between the two dates?
The Effective Date Question The statute In case of a State [which]. . . Requires State legislation in order for the plan to meet the additional requirements imposed by the amendments made by a provision of this section, the State plan shall not be regarded as failing to comply with the requirements of such title solely on the basis of its failure to meet these additionally requirements before the first day of the first calendar quarter beginning after the close of the first regular session of the State legislature that begins after the date of the enactment of this Act.
The Effective Date Question l l Is legislation required? Is February 8 th the effective date of the statute? What happens to transfers after February 8 th, but before the enactment of state legislation? What happens to transfers after February 8 th, but before promulgation of state regulations?
Transfers: Hardship Waiver l l States must institute procedure for granting waiver where imposition of the transfer penalty will impose a risk to the health of the nursing home resident Eviction would do that But facilities cannot evict if there is no place for the resident to move Facilities may pursue hardship waiver with permission of resident or resident’s guardian
Hardship Waiver: The Statute Each state shall provide for a hardship waiver process in accordance with section 1917(c)(2)(D) of the Social Security Act (42 U. S. C. 1396(c)(2)(D))-(1) under which an undue harship exists when application of the transfer of assets provision would deprive the individual-(A) of medical care such that the individual's health or life would be endangered; or (B) of food, clothing, shelter, or other necessities of life; and (2) which provides for-(A) notice to recipients that an undue hardship exception exists; (B) a timely process for determining whether an undue hardship waiver will be granted; and (C) a process under which an adverse determination can be appealed.
Transfers: Hardship Waiver l l l More work for attorneys More expense for clients At all available if facility can’t evict? Conflict for facility to pursue if basis of waiver is threat to evict? (not based on facility’s hardship) What if resident is incompetent but there’s no guardian?
The House: Old Rules In most states, a nursing home resident could keep his home as long as he stated an intent to return home, no matter the reality of such hope.
The Home: New Rules l l Non-countable equity limited to $500, 000 States may increase this up to $750, 000 Both figures to be indexed with inflation Limit does not apply if any of the following are residing in the house: – – – Spouse Child under age 21 Disabled or blind child
What if Mr. Green’s House is worth $800, 000? l Home equity line or reverse mortgage for $50, 000? Probably unavailable since he’s no living in house – But home equity may be available if he rents it out – Or if child co-signs loan But what if no child? –
Other options for Mr. Green? l l Mortgage from children Mortgage from nursing home New market of high-interest mortgages Sell house
The House: Effective Date l l l January 1, 2006 But the states have a grace period What about applications filed between January 1, 2006, and the effective date of the state legislation? Will they be reevaluated based on the new law?
Annuities: The Old Rule The spouse of a nursing home resident may convert excess assets to a permissible income stream by purchasing an immediate annuity that is “actuarially sound” The annuity may have a term certain that is no longer than the actuarial life expectancy of the community spouse Children may be named the remainder beneficiaries under the term certain
Annuities: New Rules l l The same rules apply But the state must be named to receive the remainder interest on a term certain up to the amount of Medicaid paid on the nursing home spouse’s behalf Unclear whether this applies only to the nursing home resident’s annuity, or also to the community spouse’s Qualified plans are exempt from these rules
Annuities: Effective Date l l Date of enactment Except for the states’ grace period What about existing annuities? What about annuities purchased between the federal and state effective dates?
Annuities: The Statute SEC. 6012. DISCLOSURE AND TREATMENT OF ANNUITIES (b) Requirement for State to be Named Beneficiary (F) For purposes of this paragraph, the purchase of an annuity shall be treated as the disposal of an asset for less than fair market value unless— (i)the State is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant under this title; or (ii)the State is named as such a beneficiary in the second position after the community spouse or minor or disabled child and is named in the first position if such spouse or a representative of such child disposes of any such remainder for less than fair market value.
Insurance Partnership Programs l l l The old partnership programs OBRA ’ 93 New partnership programs may be established if they meet certain requirements
Partnership Program Requirements SEC. 6201. EXPANSION OF STATE LONG-TERM CARE PARTNERSHIP PROGRAM. (I) The policy covers an insured who was a resident of such State when coverage first became effective under the policy. (II) The policy is a qualified long-term care insurance policy…issued not earlier than the effective date of the State plan amendment. (III) The policy meets the model regulations and requirements of the model act. (IV) The policy is sold to an individual who-l (aa)has not attained age 61 as of the date purchase, the policy provides compound inflation protection; (bb)has attained age 61 but has not attained age 76 of such date, the policy provides some level of inflation protection; and (cc)has attained age 76 as of such date, the policy may (but is not required to) provide some level of inflation protection.
Planning Options l Transfers – – l Protecting the home – – l Advance planning Crisis planning Long-term care insurance
Transfers: Advance Planning l Any transfer can cause up to five years of ineligibility, so – – Keep enough cash to cover five years of care, Or make sure that the recipient of the gift holds it to cover any remaining period of need, l l – Trust by parent or by children Family agreement Or purchase LTCI and hold the policy for only five years
Transfers: Crisis Planning l l Half-a-loaf transfer with annuity, probably private Transfer and half-a-loaf cure Transfer of house prior to sale Personal care contract
Protecting the Home: Advance Planning l Life estates – l Irrevocable trusts – l l l Less favorable More favorable LTCI to cover the ineligibility period Private annuities Reducing equity – – – Joint ownership Line of credit Mortgage to family member
Protecting the House: Crisis Planning l l Conveying a partial joint interest Private annuity Convey interest before sale Convey and partial cure
Long-Term Care Insurance l l l Now more than ever Question of affordability Financial planning
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