EHDH Estate Planning

Medicaid, Whole Life Insurance and a Beneficiary: Who Owns the Proceeds?

In some states, the definition of estate recovery from Medicaid includes everything that belonged to the deceased person at the moment just before they die. nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” Here’s one example.

A person owned a whole life insurance policy with a named beneficiary. The person cashed out the policy with the intention of paying for funeral expenses, but the policy remained in effect because the beneficiary continued to make payments on the policy. The person who was receiving Medicaid passed two months after the policy was cashed out. Does Medicaid get to recover the balance of the policy, or does the beneficiary keep the cash proceeds?

In this situation, it looks like the beneficiary, not Medicaid, would receive the money from the life insurance policy.

Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.

States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.

Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.

This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.

Proceeds from whole life insurance policies are subject to estate recovery if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.

Since the policy was liquidated, there shouldn’t be any estate recovery against the policy. That’s because there was a designated beneficiary that was not the estate.

Situations like this differ based on the facts and the Medicaid rules of different states. Talk with an estate planning elder law attorney to guide you in your unique situation.

Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”

How Important is a Special Needs Trust?

For loved ones with disabilities or a debilitating and chronic illness, programs like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and Medicaid allow them to get the services and care they need. However, these programs have income limits to ensure that those who need these funds the most receive them.

A special needs trust is a specific type of trust fund that’s created to help a beneficiary with special needs but not jeopardize their eligibility for these programs, explains KAKE’s recent article, “How a Special Needs Trust Works.”

If a family member were to leave money to an individual who is receiving help from these programs, it could put their income above the income limit, and they would lose the government funding.

A special needs trust works around this. That’s because the owner of the funds is technically the trust, not the beneficiary. You also name a trustee to be in charge of disbursing the funds in the trust. Therefore, while the beneficiary benefits from the trust, she doesn’t have control of its assets.

If you are creating a special needs trust for a beneficiary, you must do this before the beneficiary turns 65. And funds from the trust typically can’t be used to pay for food or shelter.

If a person could benefit from a special needs trust, but they themselves own the funds, you can create a first-party special needs trust in which you serve as both the beneficiary and the grantor. These can be complicated to draw up, and states have varying rules determining their validity. A first-party special needs trust has the money that belongs to its beneficiary.

With a third-party special needs trust, the trust holds funds that a beneficiary doesn’t directly own. These are generally used by grantors to allow the beneficiary to start getting money from the trust, even before their death. The funds never technically belong to the beneficiary, so they can’t be used for Medicaid payments. The trust can be used to save money for the beneficiary and future beneficiaries.

The third type of these trusts is the pooled special needs trust. Nonprofit organizations manage assets for a fee, and these organizations pool the funds of multiple trusts together and invest them. When it comes to payments, beneficiaries get an amount equal to their percentage of the pooled trust’s balance.

Through the use of a special needs trust, you can help your loved one to have funds to deal with the expenses that come with a disability or illness, without risking their ability to receive government benefits. The trust can also be very specific about how the money is to be used.

A special needs trust lets you help your beneficiary deal with the expenses that come with illness or disability, without hampering their ability to get other assistance. An attorney whose practice focuses on special needs trusts will explain that these trusts are irrevocable, which means that creditors cannot attach the funds.

Reference: KAKE (September 30, 2019) “How a Special Needs Trust Works”

Estate Planning When the Family Includes a Disabled Child

The future can seem daunting when parents consider what will happen to a disabled child, when the parents become elderly and eventually pass away. There are steps that need to be taken, as reported by Yahoo News’ recent article, “4 Tips for Estate Planning When Your Child Has a Disability” to prepare.

1. Draft a letter of intent. This is a letter of instruction that includes instructions that your family and friends will need, if you die or for any reason become incapacitated. This letter should list the passwords to your online financial accounts and personal information someone would need to efficiently step into your life, your home and care for child with a disability. It can include medications, daily routine, strategies you use for calming, therapists’ contact info and other daily living items someone not living in your home may not know about your life.
2. See an estate planning lawyer. Ask an attorney to help you build a vision for what you want your child’s future to look like. Have the attorney create a will and a special needs trust. A special needs trust lets you to distribute funds and property in a way that doesn’t interfere with government program benefits.
3. Create a power of attorney or guardianship. A power of attorney for financial and medical issues may be a viable solution. Supported decision-making is an alternative that empowers those with intellectual disabilities to make choices with support and while preserving their rights. If guardianship is your objective, talk to an attorney before your child reaches age 17.
4. Create an ABLE account. This account can hold funds to ensure your child’s regular account never has more than $2000, which would jeopardize government program benefits, like Medicaid.

An experienced elder law estate planning attorney will have gone through this process before with other families and can help put all of these pieces into place. Take one step at a time, and keep going—this can be overwhelming, but the end result will be well worth it. You will feel better knowing that you did what was necessary to protect your child, and in the end, isn’t that what matters most?

Reference: Yahoo News (August 26, 2019) “4 Tips for Estate Planning When Your Child Has a Disability”

Which is Better for My Estate Plan: A Life Estate or An Irrevocable Trust?

Investopedia’s recent article asks “Life Estate vs. Irrevocable Trust: What's the Difference?” The article explains that a life estate and an irrevocable trust are two different ways to make certain that assets are transferred to the right party. Each of these has advantages and disadvantages.

A life estate that’s used to gift property will divide the ownership between the giver and receiver. Some parents create a life estate to reduce their assets to qualify for Medicaid. While the parent still has some interest in the property, Medicaid doesn’t count it as an asset. A life estate lasts for the lifetime of its creator and it prohibits the selling of the asset, without the permission of its beneficiaries. Therefore, a parent can’t sell a home without the permission of his children, if they are beneficiaries of the life estate.

If you’re attempting to be eligible for Medicaid and are concerned that your home will disqualify you, ask your estate planning or Medicaid planning attorney about an irrevocable trust. With this trust, if a husband and wife both own a home, the husband can transfer his portion to his wife, and his Medicaid eligibility won’t include the home.

There must be a five-year gap between the creation of the trust and the application for Medicaid. If there isn’t, those funds will be counted as part of existing assets when determining Medicaid eligibility. Therefore, you can’t start an irrevocable trust right before you apply for Medicaid, if you want to receive those benefits.

One negative of an irrevocable trust is that the founder of the trust relinquishes any rights he has to the home. However, the beneficiary of the trust can’t sell the home, unless he or she is also named as a trustee. Once an irrevocable trust has been created, the trustee can’t take back control of the trust.

Remember that a life estate and an irrevocable trust aren’t always mutually exclusive. It’s possible to place an asset (like a home) in an irrevocable trust and keep a life estate. In that case, you’re irrevocably transferring ownership of your house to the trust. However, you still keep control. In this case, you are permitted to sell the home, remodel, or rent out a room, but the house itself—or the sales proceeds from it—would remain in the irrevocable trust.

In this situation, a parent would also not risk giving their children part of the tax liability that is associated with owning a home. The parent would keep more personal control over the house and wouldn’t need their child’s permission to sell the home. This may be the best option because it would still allow the parents to apply for Medicaid and not have the property count in their assets, but he or she would remain the sole decision-maker for the house.

There are pros and cons to life estates and irrevocable trust. Every situation and every family have their own fact pattern, so an experienced estate planning elder law attorney should discuss the options with the family before moving forward. Mistakes here can be costly.

Reference: Investopedia (June 16, 2019) “Life Estate vs. Irrevocable Trust: What's the Difference?”

What is MERP and Will It Impact My Estate?

Medicaid does seek recovery of funds that are expended for providing long-term care.

You’ll never get a notice that Medicaid (let’s say in the State of Texas) is calculating a bill for mom’s entire healthcare tab that Medicaid paid. However, you may get a notice that says the state wants mom’s house. That’s because Medicaid is asking to be reimbursed for over $125,000 that was spent for the mother’s care and her prescriptions.

The document may come from the Medicaid Estate Recovery Program (MERP) that says the state Medicaid program wants the money used for her care, because his mother owned the house.

The Houston Chronicle’s recent article, “Is Medicaid a good long-term care option?” emphasizes that we should all know about the MERP (Medicaid Estate Recovery Program), especially if it seems that our aging parents may need to apply for Medicaid for long-term care.

A Medicaid attorney can answer questions from adult children who are shocked when they find out the state has put a lien on their parent’s house because of long-term care health-care cost for which the specific state paid. Medicaid long-term care can be care can be provided at home, at an assisted living facility, or personal care at home or in a nursing home. It also doesn’t matter when the Medicaid system has paid for the mom’s care.

Medicaid can recover any and all medical expenses which include any hospital services, prescription drugs and even Medicare cost sharing expenses which are Medicare premiums (Part A—hospital insurance, Part B—medical insurance), deductibles and coinsurance amounts that the state’s Medicaid has paid.

Any claims against the estate, and that includes MERP claims, must be paid before assets can be distributed, according to the will. You won’t be required to sell the decedent’s home, if the MERP claim can be paid with other funds. However, if that’s the only available asset available, it may need to be sold, or the state may file a lien against the house.

The best approach is to speak with a Medicaid or elder law attorney in advance, so that planning can be done. There are strategies that can be used. However, a plan needs to be created in advance that meets all state and federal requirements.

Reference: Houston Chronicle (May 29, 2019) “Is Medicaid a good long-term care option?”

Will a Divorce Protect My Spouse from My Medical Debt After I Die?

The high cost of health care for one spouse could leave the surviving spouse facing a mountain of medical bills. Would it make sense to divorce, so that your spouse isn’t burdened with debt? There is no one answer, and many concerns, like fraud.

nj.com’s article asks “Will getting a divorce protect my spouse from my medical debt when I’m dead?” According to the article, the factors to consider include details on the couple’s assets, income and debts, the existence of a will and/or other estate planning documents and the amount and nature of the medical expenses.

There are a few medical expenses of a deceased spouse, for which the other spouse may be liable. The nature of the medical debt is relevant, in addition to the amount, in the Garden State.

In addition, whether the would-be deceased spouse has a will and the extent of his or her estate is also an important factor. If the estate assets are insufficient to pay all debts of the estate in full, it is possible that medical debt may not be paid at all. For example, New Jersey’s applicable statute—N.J.S. 3B:22-2—states the debts in order of priority to be repaid when the estate assets are not enough to pay all claims in full:

• Reasonable funeral expenses;
• Costs and expenses of administration;
• Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
• Debts and taxes with preference under federal law or the laws of New Jersey;
• Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
• Judgments entered against the decedent according to the priorities of their entries respectively; and then,
• All other claims.

An estate planning attorney who practices elder law and Medicaid planning will be able to help you navigate the cost of care and applying for Medicaid. Getting a divorce solely for the purpose of avoiding paying debt may be considered fraud, so you’ll want to be sure that you are not doing something legally and ethically wrong. Speak with an experienced estate planning attorney, who can guide you through this difficult area.

Reference: nj.com (May 16, 2019) “Will getting a divorce protect my spouse from my medical debt when I’m dead?”

Medicaid Work Rules Blocked by Federal Judge

Despite efforts by the Trump administration to force Medicaid recipients into the workplace, U.S. District Judge James E. Boasberg in Washington, D.C. ruled that the state’s requirements created obstacles to providing health care to the poor.

KCAU reports in the article “US judge blocks Medicaid work rules in blow to Trump” that Judge Boasberg sent the federal Health and Human Services Department back to square one. The judge didn’t determine the central question of whether work requirements are incompatible with Medicaid, a federal-state program that traditionally allows states broad leeway to set benefits and eligibility.

The judge said that HHS approval of the Arkansas work requirement was "arbitrary and capricious because it did not address...whether and how the project would implicate the 'core' objective of Medicaid: the provision of medical coverage to the needy.” Likewise, the judge said the same in his ruling on Kentucky.

About 60% of adults on Medicaid already work in low-wage jobs, according to the nonpartisan Kaiser Family Foundation. Most of those not working say they are in poor health, are caring for an elderly family member or a child are attending school full-time.

Kentucky Republican Governor Matt Bevin said his state would appeal.

"We have one guy in Washington who thinks he owns Kentucky," said Bevin, referring to the judge. "We're right, and we'll be right in the end. And one guy can gum up the works if he wants, for a while, but this, too, shall pass."

Arkansas Gov. Asa Hutchinson, also a Republican, said he doesn't think the ruling jeopardizes the future of Medicaid expansion, which covers more than 200,000 residents. About 18,000 have lost coverage as a result of the work requirements.

President Donald Trump supports work requirements for public programs across the government. Last year, he signed an executive order directing Cabinet agencies to add or strengthen work requirements for programs, including subsidized housing, food stamps and cash welfare.

Advocates for the poor say that there is no place for work requirements in the Medicaid program. They say that large groups of Medicaid recipients are already working, or they are providing full-time health care for family members or suffering themselves from chronic health issues.

Roughly 12 million Americans are covered by Medicaid expansion, a key part of former President Obama’s health care law. Officials in GOP-led states argue that work requirements and modest premiums are needed to ensure political acceptance of the program.

Medicaid is the largest health insurance program run by the federal government, providing health care for one in five Americans. Many pregnant women, infants, severely disabled people and elderly nursing home residents are Medicaid recipients.

Reference: KCAU (March 27, 2019) “US judge blocks Medicaid work rules in blow to Trump”

Medicaid Penalties to Be Aware Of

When someone applies for Medicaid, the government wants to be sure that they need the benefits. If you own an investment home and sell it to your daughter for a single dollar, you aren’t going to fool the people at Medicaid. There’s a look-back penalty, advises nj.com in the recent article, “If mom sells her house for $1, what Medicaid penalty will apply?”

A Medicaid applicant is required by the government to document all of her financial transactions during the "look-back period." That period is five years immediately prior to the date of application.

If the applicant’s financial records show a transfer of assets within that period, the Medicaid administrators will presume that the assets were transferred to promote eligibility for Medicaid benefits. This could be a check or withdrawal, for which there is no explanation other than a gift.

The value of the transfer will be divided by the statewide daily nursing home rate to get the number of months of the ineligibility, also known as the penalty period. In New Jersey, that rate is currently $343.85, or $10,459 per month.

The five-year year look-back period commences when the transfer is made. However, the penalty period of ineligibility starts on the date the applicant is otherwise eligible for medical assistance under the State plan, but for the application of the penalty period.

So, in our $1 house example, if the New Jersey Medicaid applicant transferred $300,000, the monthly penalty period of ineligibility for this transfer would be calculated by dividing $300,000 by $10,459, which equals 28.68 months of ineligibility. There is no rounding down, by the way.

The penalty period would start when the applicant medically needs an institutional level of care, has countable resources below $2,000 and has filed a Medicaid application to establish that she would have been otherwise eligible but for the asset transfer. Note: there’s no limit on the length of the penalty period.

Thus, assuming the applicant otherwise would have qualified for Medicaid but for the asset transfer, the applicant wouldn’t be eligible for Medicaid for an additional 28.68 months.

However, if the application was made more than 60 months after the transfer date, then the transfer would be outside of the 60-month lookback period and, if no other transfers were made, then no penalty period would be imposed, and the applicant would be eligible 61 months after the transfer date.

An elder law attorney should be contacted to create a strategic plan that incorporates any available asset protection tools. It is far better to do this in advance, rather than on an emergency basis. Any strategies will need to be done in accordance with Medicaid rules.

Reference: nj.com (December 25, 2018) “If mom sells her house for $1, what Medicaid penalty will apply?”

How Does Medicare Differ from Medicaid?

Maybe people get confused because the first six letters of both Medicare and Medicaid are identical. But they are very different, as the article “Medicare vs. Medicaid” from U.S. News & World Report explains.

Each program concentrates on different populations and offers specific benefits for its insured. There are several differences between Medicare and Medicaid. However, they share one thing: they are similarly complex. Let’s look at the key differences between Medicare and Medicaid and how each health insurance program works.

Medicare

Medicare beneficiaries are primarily seniors. Everyone who has paid into the Medicare system becomes eligible for Medicare when they reach age 65. Medicare isn’t based on income. Those who’ve received Social Security disability benefits for two years or who have certain conditions, like ALS (Lou Gehrig’s Disease), are also eligible. Medicare is operated by the federal government, and expenses are paid from Medicare trust funds. Original Medicare includes Part A, which pays for expenses related to hospitalizations, and Part B, which covers outpatient care. Beneficiaries can also buy a separate Part D plan for prescription drugs. There may be deductible and copayment costs associated with these plans.

Those who’d rather get benefits from a private insurer, instead of from the government, can sign up for Medicare Advantage, or Part C. These plans are required to cover everything provided by Medicare Parts A and B, and many also provide Part D coverage and dental or vision care benefits. Medicare Advantage plans vary in their deductibles and out-of-pocket costs and can restrict participants to the use of a network of approved providers.

Medicaid

Medicaid is the government health insurance program for those in low to moderate income households. People may also be eligible if they have physical, intellectual, or behavioral disabilities. The income and asset limits vary by state, but 138% of the federal poverty limit is the median eligibility requirement for adults. Applicants can usually have no more than $2,000 in liquid assets. Medicaid coverage includes hospitalizations, outpatient care and prescription drugs, as well as long-term care. Many enrollees have little or no out-of-pocket costs for coverage.

To be eligible for Medicaid, seniors must spend down most of their assets, as well as meet income requirements. Most states have a five-year look-back period that prevents seniors from transferring assets to another family member to meet Medicaid eligibility.

Medicare and Medicaid pay for many of the basic services, but there may be gaps in coverage, such as dental services or prescriptions. One can close the gap in dental care, by coupling their Medicare or Medicaid coverage with an affordable alternative to dental insurance, such as a dental savings plan, which can save members between 10 to 60% on procedures. For prescriptions, free discount services can reduce drug costs by half or more.

One of the areas of practice for an elder law attorney is helping clients protect their assets and their families, so that they can qualify for Medicaid benefits, especially in a situation where they need long-term care. An estate planning attorney can also guide you through this complex process.

Reference: U.S. News & World Report (November 21, 2018) “Medicare vs. Medicaid”

What You Need to Know About Nursing Homes

A nursing home is defined by Medicare as a special facility or part of a hospital that provides medically necessary professional services from a nurse, physical or occupational therapists, speech pathologists or audiologists. These rules are specific to a skilled nursing facilities, reports Investopedia in the article, “Things Nursing Homes Are Not Allowed to Do.” These rules do not apply to assisted living facilities or retirement homes, which have their own rules.

The following are some of the patient’s rights as spelled out by Medicare, and some are insights shared by a nursing home expert.

Discrimination. Skilled nursing facilities are prohibited by federal law from making a decision about whether someone can become a resident for reasons of race, color, religion, age, sex or any other protected characteristic.

Provided Services. The types of services to be provided and fees must be stated in writing before a patient becomes a resident. In some facilities, like continuing care communities, a large buy-in fee is required that ensures that residents will have access to various levels of care, as health needs change. Skilled nursing facilities may not charge those fees.

Patient Health Assessment. Patients receive a health assessment when they first enter a nursing home, and every day for as long as they are in the nursing home. The medical staff evaluates the physical and mental health, ability to speak and make decisions and to perform basic acts of daily living. The information from the assessment is used to plan treatment, evaluate progress and decide if the patient continues to be eligible for Medicare coverage. Residents have the right to be actively involved in their care planning. If they cannot, an adult child can participate for them.

Finances. While the nursing home is permitted to manage a resident’s personal finances, it cannot require a resident to do s, and it cannot do so without the written consent of the resident. If the resident decides to permit the nursing home to manage his money, they must receive quarterly financial statements, may not prevent residents from accessing their accounts, cash or financial documents and if more than $50 is deposited, the account must pay interest.

Respect and Dignity. It’s unfortunate that this has to be a law, but it does. Residents have the right to decide when they want to go to bed, when they want to wake, when they want to take their meals and what activities they want to do, as long as their decisions do not conflict with the plan of care. Abuse is not allowed, verbal or physical. No one is allowed to be medicated with any drugs not in their treatment plan. Physical restraint is not permitted, unless they pose a danger to themselves or others, and no one should be isolated. Residents also have the right to own personal property, privacy and security.

Visitation. Patients have the same rights in the nursing home that they have at their own homes. They may have visitors during reasonable times of day and they have the right not to see people, if they do not wish to see them. Family members must be permitted to visit at any time, unless the patient does not wish to see them.

General Health. The patient has the right to be treated like an adult, regardless of his or her physical or mental health. That means she is entitled to know her diagnoses, what medications she is being given and to see her medical records. She is also entitled to see her own doctor and not those of the nursing home. She may refuse treatments and medications, just as an outpatient may do. If she requests mental, legal or financial counseling, those services must be provided.

Medicare Benefits. Things get a little tricky here. The nursing home is not required to track the Medicare benefits being used to pay for the patient’s care. They also don’t have notify residents that the benefit days are ending. The only exception: if Original Medicare benefits stop earlier than expected because the patient is deemed not to be in need of the care. That’s the only time the nursing home is legally obligated to inform the patient. Patients or their family members need to be very cognizant of their coverage status. Medicare may cover a certain amount of time, under certain conditions, and then the benefits may end. Patients will be responsible for the rest of the bill.

Discharge Planning. Patients have the right to have help from the nursing home in the discharge planning process. Without the patient’s consent, they may not be discharged or transferred, unless:

• the patient’s health has declined to the stage, where the facility can no longer meet his needs;
• the patient has improved to the point, where he no longer requires the facility’s services; or
• the patient poses a threat to his own welfare or that of other residents.

In addition, a resident can be discharged for not paying the facility’s bills (but not when the delinquency is caused by waiting for Medicaid payments from the government).

Complaints. Residents and their advocates have a right to complain about any issue they have in a nursing home, and nursing homes can’t punish someone for doing so.

Ability to Sue. A 2016 regulation gave nursing home residents and their families the ability to sue any nursing home that receives federal funding. Before this, nursing homes could try to force people into arbitration, and any quality of care and safety issues could be kept private. However, a preliminary injunction granted in Mississippi in late in 2016 put this regulation on hold for now.

New Rules. There are new rules that give nursing home residents more rights. Residents will be allowed to receive any visitor, not just relatives, at any hour of the day, provided visitors don’t disturb fellow residents. Residents who want to live together will be permitted to do so, and nursing homes will have greater responsibility for ensuring that residents’ personal belongings aren’t lost or taken. In addition, nursing homes will be required to provide meals and snacks when residents want them, rather than only at set times. Staff will get more training in caring for dementia patients and preventing elder abuse, and nursing homes won’t be able to easily discharge residents with dementia, by sending them to a hospital and then refusing to readmit them.

At the essence, the patient’s rights in a nursing home should be the same as the patient’s rights in their own home. The more family members can be involved in their loved one’s day to day life at the home, the better the quality of life will be for the patient.

Reference: Investopedia (September 30, 2018) “Things Nursing Homes Are Not Allowed to Do”