Medicaid Crisis Planning: Advanced Techniques for Preserving Assets - - PowerPoint PPT Presentation

Medicaid Crisis Planning: Advanced Techniques for Preserving Assets After Nursing Home Admission

Leveraging DRA Promissory Notes, Community Spouse Resource Allowance and Medicaid Qualified Annuities

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WEDNESDAY, NOVEMBER 20, 2013

Presenting a live 90-minute webinar with interactive Q&A

Angela N. Manz, Attorney, The Law Office of Angela N. Manz, Virginia Beach, Va. Joley L. Eason, ThompsonMcMullan, Richmond, Va.

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Advanced Techniques for Preserving Assets After Nursing Home Admission

Medicaid Crisis Planning

3097 Brickhouse Court Virginia Beach, VA 23452 Tel: 757-271-6275 | Fax: 757-273-7129 www.manzlawfirm.com angela@manzlawfirm.com

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Disclaimer

• This presentation does not constitute legal,

accounting, or other professional advice. Only through a personal, confidential consultation with qualified legal counsel can anyone properly evaluate their own unique estate planning challenges and determine what, if any, appropriate legal strategies and tactics should be used.

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IRS Circular 230 Disclaimer

• Nothing in this presentation is intended or

written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same.

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Medicaid Compliant Promissory Notes

• S1120.220, S1140.300 and M1450.540
• Promissory notes are used to change a countable

resource into a non-countable resource

• Promissory notes can be considered a non-

countable resource as long as certain conditions are met.

• Funds used to purchase a promissory note, loan, or

mortgage on or after February 8, 2006, must be evaluated as an uncompensated transfer unless the note, loan, or mortgage:

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Medicaid Compliant Promissory Notes

• Promissory Note Requirements:
• Has a repayment term that is actuarially

sound (see M1450.520),

• Provides for payments to be made in equal

amounts during the term of the loan with no deferral and no balloon payments, and

• Prohibits the cancellation of the balance upon

the death of the lender.

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Medicaid Compliant Promissory Notes

• Promissory note requirements are very

similar to the Medicaid compliant annuity requirements.

• When would you use a promissory note?
• Use for a single person, or for a married

couple, where client has an amount of excess resources that do not justify using a longer term annuity and where the borrower child/family member is a low risk individual.

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Medicaid Compliant Promissory Notes

• Example:
• Mrs. Smith is single and in a NH. She has $52,000.

She may keep $2,000. $50,000 must be “spent down” before she can be eligible for Medicaid.

• In the reverse half a loaf plan (as discussed in later

slides), Mrs. Smith may make a loan to her child in exchange for a Medicaid compliant promissory note. The note would not be a countable asset and the loan proceeds would be structured to provide income to Mrs. Smith during her penalty period.

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Medicaid Compliant Promissory Notes

• General rule of thumb:
• The higher the amount of assets, the better it

may be to use a Medicaid compliant annuity

• instead. This is to ensure that:
• For a single person, the funds are guaranteed to

be available to the Medicaid applicant to help pay for care during a penalty period, or

• For a married couple, the funds are guaranteed to

be available to help provide for the CS.

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Medicaid Compliant Promissory Notes

• Consider not using a promissory note when

the child borrowing the money is at risk for a lawsuit, divorce, bankruptcy, etc.

• Goal is that the money is sheltered, so

evaluate the risk before proceeding.

• If the child is a higher risk than is

comfortable, consider using an irrevocable trust or a Medicaid compliant annuity instead.

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Medicaid Compliant Annuities

• See M1450.520 and 1450.530
• For Medicaid purposes, an annuity means a

contract or an agreement by which one receives fixed, non-variable payments on an investment for a lifetime or a specified number of years.

• Typically referring to single premium

immediate annuities, also known as a SPIA.

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Medicaid Compliant Annuities

• Annuities are typically used to change a

countable asset into an income stream.

• All annuities purchased by the Medicaid

applicant or by the CS must be reported to DSS.

• An annuity that names revocable

beneficiaries is considered to be an available resource because it can be surrendered, cashed in, assigned, transferred or have the beneficiary changed.

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Medicaid Compliant Annuities

• Annuities are presumed to be revocable

when the annuity contract does not state that it is irrevocable.

• The countable value of the revocable annuity

is the amount of the funds in the annuity minus any fees required for surrender. M1140.260

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Medicaid Compliant Annuities

• A non-employment related annuity purchased by or for an

individual on or after February 8, 2006, using that individual’s assets will be considered an available resource unless it meets all of the following criteria: the annuity

• is irrevocable;
• is non-assignable;
• is actuarially sound;
• provides for payments in equal amounts during the term of the

annuity with no deferral and no balloon payments made; and

• the state is named as the remainder beneficiary in the first

position for at least the total amount of medical assistance paid

• n behalf of the institutionalized individual or the state is named

the remainder beneficiary in the second position after the community spouse or minor or disabled child.

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Medicaid Compliant Annuities

• If the annuity does not meet the criteria listed

above, the balance of the annuity is a countable asset regardless of whether or not the individual can access the balance.

• An annuity is actuarially sound when the

annuity payments do not exceed the annuitant’s life expectancy, according to the life expectancy chart in the Medicaid manual.

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Medicaid Compliant Annuities

• Typically use a Medicaid compliant annuity
• To provide an income stream during a reverse

half a loaf penalty period for a single applicant, or

• To shelter excess resources for a community

spouse and obtain immediate qualification for the institutionalized spouse.

• Both of these strategies are discussed later in

the presentation.

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Strategies for a Single Applicant

• For a single applicant, the following strategies

are typically used:

• Pre-purchase irrevocable funeral/burial plan

M1130.420

• Pay down debt
• Home improvements
• Purchase a life estate and reside in the home

for one year

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Strategies for a Single Applicant

• Utilize a care agreement to transfers assets to

a caregiver child without penalty

• Caregiver child transfer of the residence
• Purchase a more expensive home (if the

home is exempt)

• Purchase a vehicle
• Transfer assets to a minor or disabled child
• Reverse half a loaf

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Strategies for a Single Applicant

• Reverse Half a Loaf Strategy:
• Under this plan, the applicant transfers his

excess resources. See M1450 regarding transfers.

• This gift creates a penalty for Medicaid.
• The donee then returns approximately half of

the gifted funds in order to pay for the applicant’s care during the penalty period.

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Strategies for a Single Applicant

• The return of the gifted funds reduces the

penalty period, thereby allowing the donee to retain approximately half of the gifted funds.

• The client may also use a promissory note or

Medicaid compliant annuity for the half that will be used to pay for care.

• Review M1450.600 and 1450.630 for

calculation of penalty.

• Review M1450.640 for subsequent receipt of

compensation (i.e., return of a gift)

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Strategies for a Single Applicant

• If using an annuity or promissory note, the

amount of the applicant’s income, including the income received from the annuity or note, must be less than the nursing home’s private pay rate.

• If not, the applicant will not be “otherwise

eligible” for Medicaid and the penalty will not begin.

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Strategies for a Single Applicant

• Reverse half a loaf example
• Mrs. Smith is a single applicant with $40,000

in excess resources.

• Her income is $1,000 per month and her

nursing home cost is $5,100 per month.

• Her monthly income shortfall is $4,100. Mrs.

Smith transfers $40,000 to her daughter.

• Her penalty period would be 6.74 months if

no funds are returned.

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Strategies for a Single Applicant

Here is one way to calculate the gift and return: 1. Add the monthly shortfall to the penalty period divisor.

• $4,000 + $5,933 = $9,933.
• We are using $4,000 as the shortfall (instead of $4,100)

because we must make sure that her annuity or note payment, combined with her income, is less than the private pay NH rate.

2. Divide this amount into the total excess resources.

• $40,000/$9,933 = 4.03

3. Multiply the monthly penalty divisor by the figure in #2 above.

• 4.03*5933 = $23,909.99

4. Gift the amount in #3 above

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Strategies for a Single Applicant

• The remaining amount of excess resources

($16,090.01) will be used to privately pay for

• Mrs. Smith’s care during her 4 month penalty

period.

• This amount can be held by her daughter and

simply returned each month or it can be used to purchase a Medicaid compliant promissory note or annuity.

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Strategies for a Single Applicant

• This strategy allows Mrs. Smith’s to shelter

$23,909.99 of her assets, while only using $16,090.01 to pay for her care.

• If she did not use this strategy, her total

excess resources would be reduced to zero in 10 months.

• She would then be able to apply for Medicaid,

but she would have no sheltered assets.

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Strategies for a Single Applicant

• The exact amounts for an applicant will

depend on their income, cost of care, and the penalty divisor.

• Typically, the longer a penalty period must

run, the more advisable it is to use a promissory note or annuity to ensure that the funds are available to use for the applicant’s care.

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Strategies for a Single Applicant

• Important – When using the gift plus an

annuity or a promissory note, make sure that the applicant’s income, plus the additional annuity/promissory note income, is less than the nursing home’s private pay rate.

• If this is not the case, the applicant will not be

“otherwise eligible” for Medicaid and the penalty period will not start to run.

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Medicaid and VA Aid and Attendance Benefits

• When using the reverse half a loaf strategy

(or any Medicaid strategy), consider whether your client may be eligible for Veterans Aid and Attendance benefits.

• If client is eligible, that benefit can help pay

for the cost of care during the penalty period.

• Because the VA can take months to process

a claim, it may not be worth using for a very small penalty period.

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Medicaid and VA Aid and Attendance Benefits

• However, if the client would be eligible for an
• ngoing benefit after Medicaid is approved,

then it would be helpful to apply.

• VA benefit applications for a client in a

nursing home are typically approved much more quickly than an application for a claimant at home or in assisted living.

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Medicaid and VA Aid and Attendance Benefits

• A married claimant may receive Medicaid and VA

benefits at the same time. Evaluate whether the claimant is still eligible for VA benefits after Medicaid eligibility is established.

• Ex. Married veteran and wife have $1800 month of

countable income. Veteran is receiving Medicaid home care services with no copay. Veteran would still be eligible for the VA A&A benefit, because his income, minus his unreimbursed medical expenses, is less than the VA max pension benefit of $2,054.

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Medicaid and VA Aid and Attendance Benefits

• A single claimant who lives at home or in

assisted living may receive Medicaid and the full VA benefit.

• A single claimant in a nursing home may

receive $90 a month from VA A&A. The claimant may keep these funds in addition to his Medicaid patient pay

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Medicaid and VA Aid and Attendance Benefits

• Always evaluate both Medicaid and VA Aid and

Attendance benefits for a client. One may be better than the other, depending on their circumstances.

• Further, ensure that planning for one benefit does

not prevent the client from being able to receive the

• ther benefit at some point, unless that it part of the

plan.

• Ex. Transferring assets to obtain VA benefits eligibility

means that the client may not be eligible for Medicaid for 5 years. That is acceptable as long as it is part of the comprehensive plan and that there is a strategy for obtaining Medicaid should the client need services before the 5 year lookback period is over.

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Thank You For Attending!

3097 Brickhouse Court | Virginia Beach, VA 23452 Tel: 757-271-6275 | Fax: 757-273-7129 www.manzlawfirm.com angela@manzlawfirm.com

Advance Techniques for Preserving Assets After Nursing Home Admission

Joley ley L. Ea . Eason

• n

ThompsonMcMullan

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 Leveraging the Community Spouse

Resource Allowance

 Minimization of the Medicaid

spend-down

 Conversion of countable assets to

exempt assets

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 Medicaid law provides for special protections

for the spouse of a nursing home resident/ Waiver recipient.

 “Community Spouse” &

“Institutionalized Spouse”

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 Community spouse is permitted to keep 100% of

the couple’s combined assets, up to the minimum Community Spouse Resource Allowance (CSRA).

 Community Spouse is permitted to keep 50% of the

couple’s combined assets, up to the maximum Community Spouse Resource Allowance.

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Community Spouse

 Minimum Resource Allowance $23,184  Maximum Resource Allowance $115,920

Institutionalized Spouse (single or married)

 Maximum Resource Allowance $2,000

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SN SNAPSHOT PSHOT DA DATE

 Date that Medicaid uses to determine the total

countable assets for purposes of calculating the Community Spouse Resource Allowance.

 Resource assessment as of first day of the month

• f institutionalization of the nursing home

spouse in the hospital or long-term care facility with subsequent 30-day stay. (If not institutionalized, use date Medicaid determined the individual met medical requirements.)

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 It is advantageous for the couple to have as much

money as possible in their names on the snapshot date up to $231,840 ($115,920 x 2) so that the amount the community spouse is allowed to keep will be as high as possible.

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 After the institutionalized spouse qualifies for

Medicaid long-term care assistance, the community spouse’s resources are no longer deemed available to the institutionalized spouse.

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 $115,920 in Virginia

• If countable assets have value of more than

$231,840 ($115,920 x 2)

 Allocate tax-free assets to CS

• If countable assets have value of less than

$231,840 ($115,920 x 2)

 Borrow before snapshot date to increase the community spouse resource allowance

 Home equity loan  Personal loan (eg from family member)

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 Jim and Jane have $150,000 in countable

assets.

• Jane’s Community Spouse Resource Allowance

$75,000

• Jim’s Resource Allowance

 $2,000

• Excess: $73,000

 Remaining excess toward exempt assets, other debts

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 Jim and Jane had $150,000 in countable

assets.

 By borrowing $80,000 before the snapshot

date, their net worth increases to $230,000.

• Jane’s Community Spouse Resource Allowance

$115,000

• Jim’s Resource Allowance

 $2,000

• Excess: $112,000

 Use $80,000 to repay loan after snapshot date  Remaining excess toward exempt assets, other debts

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This strategy resulted in an additional $40,000 in protected assets for the Community Spouse.

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 Transfer home to Community Spouse  Transfer all other assets to Community

Spouse

 Draft new Last Will and Testament for

Community Spouse that includes a Special Needs Trust for the Institutionalized Spouse

(VA- elective share requirement)

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 Community spouse is permitted to keep 100% of his/her

income, and will not have to use his/her income to support the institutionalized spouse.

 Community Spouse is also entitled to a share of the

institutionalized spouse’s income if his/her own income falls below the Minimum Monthly Maintenance Needs Allowance (MMMNA).

 Community Spouse may be able to keep an additional share

• f the institutionalized spouse’s income if they have excess

shelter expenses (certain calculations apply).

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Community mmunity Sp Spouse use In Income come Al Allowance wance

 Minimum Monthly Maintenance Needs Allowance

$1,891

 Maximum Income Allowance $2,841

In Inst stituti itutionali

• nalized

zed Sp Spous use e Pe Personal sonal Needs eds Al Allowance wance

(if available after patient pay deductions)

 Waiver Recipients- $1,171  Skilled Nursing Facility Residents- $40

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 Ex

Exempt Tra empt Transfers nsfers

• Transfers to minor or disabled child or, or to a

trust for their benefit.

• Transfer residence to a caretaker child

(2 year requirement in VA)

• Transfer residence to co-owner sibling

(1 yr requirement in VA)

 Tr

Tran ansfer sfer as assets sets to to fa family mily me member mber

• Retain sufficient assets to pay for care during

penalty period

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 Va

Vali lid Exp d Expendit enditures ures

• Home Repairs or Improvements
• Pay outstanding debts (mortgage)
• Prepay real estate taxes, homeowner’s insurance
• Medicaid-Qualifying Personal Services Contract
• Term Life insurance

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 Purchase or upgrade principal residence  Purchase or upgrade vehicle  Purchase household furnishings  Purchase irrevocable funeral plan & burial plot  Purchase life estate (12 month residency required in VA)  Purchase savings bonds (up to $20,000/yr per person)

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 Purchase Medicaid-qualifying annuity in the

name of the Community Spouse

 Purchase Medicaid-qualifying promissory

note in the name of the Community Spouse

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Thank you for your time and attention! Joley L. Eason ThompsonMcMullan 100 Shockoe Slip Richmond, VA 2319 (804) 698-5934 jeason@t-mlaw.com

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