medicaid planning techniques: trusts, private annuities...
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Presenting a live 90-minute webinar with interactive Q&A
Medicaid Planning Techniques:
Trusts, Private Annuities, Spousal
Transfers, Caregiver Agreements
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, NOVEMBER 8, 2017
David A. Cutner, Lamson & Cutner, New York
Kyla G. Kelim, Esq., Aging in Alabama, Fairhope, Ala.
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Agenda
I. Asset protection and pooled income trusts
Presented by Kyla Kelim
II. Private annuities and promissory notes
Presented by David Cutner
III. Spousal transfers and spousal refusals
Presented by Kyla Kelim
IV. Caregiver agreements
Presented by David Cutner
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Medicaid Planning Techniques: Trusts, Private
Annuities, Spousal Transfers, Caregiver
Agreements
Kyla G. Kelim, Esq.
AGING IN ALABAMA
Fairhope, AL
ASSET PROTECTION AND
POOLED INCOME TRUSTS
PROTECTING ASSETS ON
NURSING HOME ADMISSION
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Qualifying for Medicaid - single
• Must have less than $2205.00 per month
income
• Must have less than $2000.00 in assets
• May also have home with intent to return
home
• May also have one vehicle
• May also have funeral benefits – will vary
slightly state to state
8
Five Year Lookback Period
• Deficit Reduction Act of 2005 imposed a 5 year lookback
period (effective for most states 2/8/2006)
• Restrictions on transfers of assets
• Established penalty period for transfers for less than fair
market value
• Penalty Period is UNLIMITED
• Changed beginning point of penalty period
• This will affect nursing home benefits/Medicaid waiver
• SSI recipients not in need of those services will have 24
month benefit interruption
9
Penalty Period
• Will be imposed for transfers for less than fair market
value after 2/8/2006
• Will not start running until applicant otherwise qualifies
for Medicaid benefits
--in a covered long term care facility
--spent down financially
--income qualified
• UNLIMITED
10
How the penalty is calculated
• Penalty may be imposed for even minimal
transfers
• The amount of the penalty is calculated by
adding up the transferred amounts and dividing
by the average cost of nursing home care in the
area or state as determined by the jurisdiction
• Can vary wildly by state
11
Cost of long term care relating to
Penalty • Can vary by state: may affect placement:
-- Mom transfers her home worth $100,000 to
daughter in July 2013. She falls, hits her head, and enters
a nursing home for long term care in July 2016. She
spends her savings and is under $2000 and eligible in
October, 2017. In Alabama, divisor is $5900 or 17 months,
so penalty period ends March 2019 and in Florida, divisor
is $8365 so penalty period is 12 months, she would be
eligible in October, 2018, saving about 5 months of nursing
home care
• PS: No long term care costs as little as $5900.00 in
Alabama
• In this scenario: higher income would dictate transferring
12
Cost of long term care relating to
Penalty
• If you said apply in August 2018 in AL, you win!!
• Remember the 5 year lookback, if you wait to
apply until August 2018, then the 5 years has
run…
• NO PENALTY
• If you apply in July of 2018, call your insurance
carrier
• THE PROBLEM: Most nursing homes have
your client sign a Medicaid application on
admission and routinely file them
13
Exempt purchases
• Funeral/Burial
• House
• Car
• Pay debt (mortgage, minimize debt
for community spouse)
14
Exempt transfers
• To spouse (but if spouse is sick…)
• To disabled child (everything)
• To caretaker child (house)
• To sibling with an equity interest (house)
• To minor child (house)
• To special needs trust (for disabled child
or self settled if under age 65)
• To special needs trust (pooled for over
age 65) 15
Fancier stuff
• Set up an irrevocable trust and wait 5
years to admit
• Set up an irrevocable trust or transfer to
others directly and then incur the transfer
penalty, pay it (smaller amounts)
• Reset the snapshot date if you need to
pay bills
• Use an annuity or promissory note
16
POOLED TRUSTS
PROTECTING ASSETS ON
NURSING HOME ADMISSION
17
Special Needs Trust Overview
• Special needs trust is established pursuant to 42 U.S.C.
Section 1396p(d)(4)(A) or (C)
• Authorized by Congress to protect the income and
medical benefits of a disabled individual
• The trust must strictly comply with the law to protect the
beneficiary
• There are several types of special needs trusts
• The law controls depending on circumstance and age
18
Types of Special Needs Trusts
• 1st party trust
• 3rd party trust
• Pooled Trust
• Supplemental Trust
• Support Trust
19
First party trust
• Most common type, and also known as “self-settled”, this
trust is funded by the beneficiary’s own funds or funds to
which the beneficiary is entitled
• Must be established by a parent, grandparent, guardian
or Court
• Now, after Special Needs Fairness Act, competent
beneficiary may establish
• If incapacitated and no parent, grandparent, or guardian
available, then you must request the Court to approve
• Medicaid and Social Security must also approve
• Commonly funded with personal injury settlements,
inheritance 20
Third party trust
• Established with assets that do not belong
to beneficiary
• No “payback provision” is required
• Must abide by same rules otherwise
21
Pooled trust
• Each state has one or more company that
provides pooled trust services
• The trust is established through a more
streamlined process and the “trustee” is really a
co-trustee, at best, with the trust administrator
• Must use a pooled trust for those over 64 years
of age
• Must have a payback provision
22
Supplemental vs. Support Trust
• Supplemental Trust “supplements” the
beneficiary’s lifestyle
• Can pay for cable, cell phone, furniture,
electronics, vacation, car, car insurance, funeral
arrangements, etc.
• Does not pay for “support” items like food,
shelter, medical care
23
Interested parties in SNT
• Settlor
• Trustee
• Beneficiary
• Guardian
• Court
• Social Security Administration
• Medicaid Agency
24
PUBLIC BENEFITS
CONSIDERATIONS
• Goal in most is not to lose means tested
benefits
• SSI vs. SSDI
• Medicaid benefits
• Lookback period
• Penalty
• Termination of benefits
• Payback and estate recovery
25
SSI vs. SSDI
• SSDI is not means tested benefits
• Caution! Those on SSDI may qualify for
substantial discounts or Medicaid waiver
or nursing home and will lose it if assets,
income, rise
• SSDI otherwise does not need 1st party
trust, use 3rd party trust
• All SSI must have 1st party trust
• All Medicaid must have 1st party trust
26
Medicaid benefits
• Caution! Those on SSDI may qualify for
substantial discounts or Medicaid waiver
or nursing home and will lose it if assets,
income, rise
• There are many many different types of
Medicaid so important to find out if the
beneficiary receives any of them
• Ex: caregivers at home, QMB, SNP,
Sobra, CHIP
27
Payback provision and estate
recovery
• A first party or pooled trust must have payback
provision to reimburse Medicaid at death
• The moment of death, the payback kicks in (if
you are going to pay for funeral…pay for it now!)
• After death, if Medicaid is owed anything, they
will come after estate assets
28
David A. Cutner
Attorney at Law
9 East 40th Street 84 Calvert Street New York, NY 10016 Harrison, NY 10528
Phone: (212) 447-8690 (914) 732-3636 Fax: (212) 447-8691 (212) 447-8691
Email: dcutner@lamson-cutner.com Website: www.lamson-cutner.com
29
Cost of Nursing Home Care
Example: NYC Metro Area
Approximate cost is $400 – 700 / day =
$12,000 – 21,000 / mo =
$144,000 – 252,000 / year
30
Medicaid Eligibility Requirements for Nursing Home Care
Resources – no more than $14,850
Income – keep $50 per month, pay medical insurance premiums, balance to nursing home (subject to spouse’s right to receive up to $3,022.50 per month)
31
“Look Back” Period
“Look Back” Period = the 5 years preceding the month you apply for Medicaid benefits in the nursing home
Medicaid is looking for transfers of money or property that would disqualify you from receiving benefits in the nursing home
32
“Penalty Period” • If a disqualifying transfer of money or property has
occurred during the “look back” period, a “penalty period” will be established. The penalty period is the length of time that Medicaid will not pay for the cost of your nursing home care.
• Length of the penalty period = amount or value of the disqualifying transfers divided by Medicaid’s monthly regional rate for nursing home care
• Medicaid regional rate for nursing home care varies by state or geographic region (e.g., New York has 7 regional rates)
33
Example of Penalty Calculation
• Client lives in NYC where regional rate is $12,157
• Client needs nursing home care, but has $214,850 in savings
• Client transfers $200,000 in order to become Medicaid eligible
• $200,000 divided by $12,157 =
16.5 month penalty period
34
When does the Penalty Period commence?
You are in the nursing home
You have applied for Medicaid
You are eligible for Medicaid “but for” the transfer of assets in the “look back” period
35
Private Annuities & Promissory Notes
What ?
Why ?
When ?
How ? 36
What ?
• Private Annuities & Promissory Notes are legal instruments used in Medicaid Planning to convert countable resources into streams of income.
• In order to be effective for this purpose, they must comply with Federal and State Law.
• Deficit Reduction Act of 2005, 42 U.S.C. §1396p(c)(1)
37
Why ?
• The goal is to reduce the penalty period and thereby protect a portion of the client’s assets.
• If the Private Annuity or Promissory Note is properly drafted, the amount paid for it is not a disqualifying transfer.
• The income stream can then used to pay the nursing home during the penalty period resulting from a gift or transfer.
38
When? - Example of Use of Private Annuity or Promissory Note
• Client needs nursing home care but has $214,850 in savings. $200,000 must be transferred or spent.
• Transfer $100,000 to a child or friend, resulting in 8 month penalty period. This amount will be saved.
• Purchase $100,000 Private Annuity, which produces income stream of $12,500 per month for 8 months.
• Pay privately at nursing home for 8 months, using Private Annuity income, plus Social Security, etc.
• After 8 months, Medicaid starts to pay for nursing home. The initial transfer of $100,000 is protected.
39
How ? – Private Annuity
• The State is named as remainder beneficiary
• Irrevocable and non-assignable
• Actuarially sound (use IRS or Medicaid tables depending on local requirements)
• Provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments
40
How ? -- Promissory Note
• Repayment term that is actuarially sound
• Equal repayments during the term of the loan, with no deferral and no balloon payments
• Prohibits cancellation upon death of the lender
41
Calculation of the Monthly Payment
• Monthly payment from the Private Annuity or Promissory Note should be slightly less than the amount needed to pay the nursing home, after taking other income into account (e.g., Social Security, pension, RMD from retirement account).
• “Zero sum game” -- the smaller the amount needed to fund the Private Annuity or Promissory Note, the greater the amount saved. 42
SPOUSAL TRANSFER AND
SPOUSAL REFUSAL
PROTECTING ASSETS ON
NURSING HOME ADMISSION
43
Qualifying for Medicaid - Married
• Applicant must have less than $2205.00
per month income
• Must have less than $241,800.00 in assets
• May also have home if spouse is living in
home
• May also have one vehicle
• May also have funeral benefits for each –
will vary slightly state to state
44
Community spouse can also have
• Community spouse can keep all of their income
OR
• Income from applicant can be diverted to a total of $
2030.00 for community spouse
• In Florida, can keep up to one half of asset limit:
$120,900.00
• It does not matter whose name is on assets
• Consider annuities to max income
• If community spouse has low income, look for other
savings
• Long term care insurance can save assets
45
Can and should transfer assets to
spouse
• No lookback period or transfer
penalty
• Can put new beneficiary
• Can draft new will
• Avoid estate recovery or the
institutional spouse inheriting
46
Problems with transfer
• Stepchildren
• No authority
• Court order required
• Mandatory elective share/spousal
exemptions if community spouse dies
47
Spousal refusal
• Refuse to contribute towards
spenddown
• Many states will still come after
spouse (some won’t)
• Alternative to divorce
48
CAREGIVER AGREEMENT
• Also called a Personal Services Contract
• A formal written agreement with an adult child, other relative, friend, or professional, for companionship, paying bills, managing finances, providing transportation, managing social activities, personal care, or the like.
49
Role of Caregiver Agreements in Medicaid Planning
• Payment for services under a Caregiver Agreement is made in a lump sum, in advance.
• If the Caregiver Agreement is properly prepared, the lump sum payment will not be counted as an available resource or a penalized transfer.
50
The Medicaid Compliant Caregiver Agreement
(1) A formal written document that sets forth the duties and responsibilities of the caregiver, and the method of calculating the caregiver’s compensation.
(2) Compensation in line with cost of similar services in the same geographic area.
(3) Services do not replace or duplicate services being provided by a nursing home or home aide.
51
The Medicaid Compliant Caregiver Agreement con’t
(4) Lump sum payment is calculated with reference to the Medicaid applicant/recipient’s life expectancy. (Use IRS or Medicaid table depending on local requirements.)
(5) Repayment to Medicaid of unearned portion of lump sum if caregiver becomes unable to fulfill his or her duties under the agreement, or if Medicaid recipient dies before entire lump sum is earned.
52
The Medicaid Compliant Caregiver Agreement con’t
(6) The agreement must be irrevocable and non- assignable.
(7) Services can be on an “as needed” basis subject to a maximum number of hours to be provided each month. Caregiver should keep detailed logs of all services provided, and, as a best practice, render invoices for such services, and have the Medicaid recipient or representative sign the invoices.
53
Role of the Caregiver Agreement in the Family
(1) Caregiver may experience financial hardship as a result of reducing hours at work to care for a parent or other relative.
– Compensation helps offset the loss or diminution of income.
– The parent might have had to pay the same or more to an agency to provide the same services.
54
Role of the Caregiver Agreement in the Family (con’t)
(2) Many children feel guilty about complaining that caring for a parent is a burden, but
– Caring for an aging parent can be extremely trying, both mentally and physically.
– The Caregiver Agreement acknowledges the caregiver child’s hard work and personal sacrifice.
55
Role of the Caregiver Agreement in the Family (con’t)
(3) If siblings are unable or unwilling to help
– Caregiver may feel resentment, and relationships can become strained.
– Fair compensation to the caregiver can minimize these conflicts.
– Non-caregiving siblings may be relieved of their guilt or embarrassment when caregiver is paid.
56
David A. Cutner
Attorney at Law
9 East 40th Street 84 Calvert Street New York, NY 10016 Harrison, NY 10528
Phone: (212) 447-8690 (914) 732-3636 Fax: (212) 447-8691 (212) 447-8691
Email: dcutner@lamson-cutner.com Website: www.lamson-cutner.com
57
Kyla G. Kelim, Esq.
AGING IN ALABAMA P.O. Box 109
Fairhope, AL 36532
(855) ELD-RLAW
attorney@elderconsults.com
www.elderconsults.com
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