A. Medicare
Most people confuse the two federal programs Medicare and Medicaid. Generally, Medicare is a health insurance program for people who have worked for at least ten years in Medicare-covered employment and is 65 years of age or older; and, is a citizen or permanent resident of the United States. A person under the age of 65 might also qualify for coverage if the person has a disability or End-State-Renal disease, which is permanent kidney failure requiring dialysis or transplant.
Medicare is divided into four parts, as follows:
1. Part A, hospital insurance, no premium payment.
2. Part B, medical insurance, now $115.40 per month.
3. Part C, the Medicare Advantage program.
4. Part D, the prescription drug program.
Traditional Medicare covers services which include physician services, outpatient services, preventative services, ambulance services, and durable medical equipment.
Part C, the Medicare Advantage program is an alternative delivery system for the patient to receive the Part A and Part B benefits through private insurance companies. The private Medicare Advantage plans must provide the same benefits as traditional Medicare, but they can provide extra benefits, change cost-sharing, and change the benefit package each year.
Part D, prescription drug coverage, is a voluntary benefit through private insurance companies. The senior does not need Part D if the senior has creditable drug coverage through his/her employer, VA, or other source. Some assistance with premiums can be provided for individuals with low-incomes.
Medicare pays for medically-necessary care and rehabilitation support, but not “custodial care”, such as help with bathing, dressing, eating, getting in or out of bed or chair, moving around, and using the bathroom. Medicaid pays for that if the patient qualifies to receive Medicaid benefits.

B. Medicaid
Medicaid is a federal-state program that pays for long-term care for needy individuals. The federal government sets the overall rules and pays for about one-half of the cost. The states administer the program and fund the remainder of the expenses. Some states have enacted specific legislation codifying the Medicaid law into the state code. Other states “passed through” the Medicaid law and incorporated it into state law by reference.
The federal Medicaid laws can be found in Title XIX of the Social Security Act, 42 U.S.C. §1396 et seq; and, companion regulations are found at 42 CFR Part 430 et seq. To advise our clients competently, one must know the federal and state law, regulations, policy and administration.
Medicaid is the only broad government program that pays for long-term care. In contrast to Medicaid, Medicare pays only for short-term skilled nursing care and rehabilitative care.
The following scenario, which frequently occurs, helps clarify the differences between the Medicare and Medicaid programs, as follows:
The patient falls at home breaking a hip. The ambulance takes the patient to the hospital where the patient stays for three days. After three days of medical care, which is paid by health insurance/Medicare, the patient is not yet ready to go home. After assessment, the patient is transferred to a nursing home or rehabilitative center paid for by Medicare.
If the patient needs medically-necessary requiring skilled nursing or rehabilitative services, Medicare will pay a portion of the cost of such care for a period of up to one hundred days. Typically, the patient does not receive the full one hundred days of Medicare benefits because the patient has “leveled off”, meaning the patient is no longer improving from the services provided.
At this point, if the patient is still not ready to return home, the staff at the nursing home/rehab center meets with the family and tells the family that the Medicaid application must be filed or the patient must pay the cost for private nursing home care, which is approximately $300 per day until the patient qualifies for Medicaid.

II. Other Sources of Long-Term Care Funding
A. Long Term Care Insurance. Besides Medicaid and private pay, long term care insurance is the third major method used to pay for long term care in a skilled nursing home.
Long term care insurance is usually worth pursuing. I suggest that my clients contact a couple different agents who sell long term care insurance and compare the premium and policy terms between two or more policies. Often the premium is unaffordable because the potential insured waited too long. The older and less healthy the potential insured, the more expensive the premium. Moreover, once the health of the potential insured is too compromised, he/she will not be approved for long term care insurance. If this type of insurance is affordable and the applicant is healthy, obtaining this insurance before age 70 is recommended.
My clients are often surprised to hear that long term care insurance is like a “pot of money” which can be used for home health care as well as for skilled nursing home care. Because nearly everyone would rather stay at home and never enter a nursing home, long term care insurance is a valuable resource to help make that happen.
If the insured enters a nursing home, the remaining funds in the “pot of money” are used to pay a certain daily amount. The nursing home resident or Medicaid will pay the difference.
B. Home Care. Long term care is frequently provided in the home. The following approaches are useful to know in assisting clients in their effort to pay for long term care at home.
1. State and local programs funding home care. The money available to allow the senior to stay at home varies tremendously from state and state and even from location to location within the same state. In addition, these programs frequently change names, procedures, and benefits. For this reason, establishing contact with someone who is highly knowledgeable of each local program is key.
Check with the local representatives who provide services for seniors in your geographical area. Find the most knowledgeable person in this field. This person will usually be a well experienced social worker in an agency devoted to assisting seniors. You can also attend seminars on this topic and follow up with instructors who have such knowledge.
From this knowledge base, list each and every source of funding for home health care. For each of these programs, list the requirements, benefits provided, the contact agency and specific forms and procedures utilized. I have this list with me when I meet with my client so I can determine which program(s) might benefit my client.
For most programs, a medical assessment is required to determine what, if any, home health care is needed. If benefits are provided, they are usually not retroactive, so it is important to get started on the application process as soon as possible and stay involved so the process does not get stalled.
It must be noted that if these funds would prevent or slow the patient’s admission into a skilled nursing home, which is usually much more expensive than home care, there is a good chance funding will be available.
2. Caregiver Agreements. Another way to “stretch the money” and allow the person to stay at home as long as possible, is to prepare a caregiver agreement for family members/friends willing to perform home care and be paid for it.
Frequently, a caregiver, such as a child or close friend, helps the patient at home for free until a significant sum of money, or even a house, is given to the caregiver. Without having a caregiver agreement in place before such a transfer, the Medicaid caseworker will most likely deem that transfer a gift and not a payment for services rendered. If the gift occurred within five years before the date the Medicaid application was filed, a severe penalty will be imposed.
Even when the caregiver insists that the transfer was made to pay for past services the Medicaid caseworker will ask to see the tax returns showing that such payment was in fact treated as income. It is rare that the caregiver receiving such sums has actually reported the income on his/her income taxes. If the payment was not income, it was a gift.
It is important to check the law in your state to see how these agreements are treated by the Medicaid caseworkers in your region.
I frequently prepare the agreements whenever a family member or friend wants or deserves to be paid for providing home care. As stated above, without such an agreement, the risk is that the Medicaid caseworker will deem the payment a gift and require the money to be paid back by the caregiver. If the money is not paid back, the nursing home patient will have to pay privately during the penalty period. This usually costs more than the gift.
If the regulations and case law in your region permit caregiver agreements the following is recommended:
a. Set an hourly rate less than the hourly rate paid to an agency home health care worker.
b. List the care to be given which is in conformance with a medical assessment by an objective third party. Keep a copy of the assessment with the contract.
c. Have the caregiver keep a daily log, as most professional home care workers do, and keep track of the caregiver’s hours and mileage (such as trips to the doctor).
d. Pay the caregiver every Friday for the hours and expenses submitted by the caregiver that week.
e. Provide no payments for the work the caregiver provides until on or after the date the contract was signed.
f. The caregiver must pay the income taxes for all money earned as a caregiver. It must be noted that the definition of an employee is so broad it is usually difficult to prove the caregiver was an independent contractor should there be a tax audit. Consultation with a tax expert should be considered. Virtually the same contract can be written either as an independent contractor or employment agreement.
To be safest, payments should stop if the patient enters a skilled nursing home because the Medicaid caseworker will likely claim that the services were no longer needed. Check the regulations and case law in your region to determine how long the payments can continue. For example, all caregivers will contend that their services are vital even when the patient is in a nursing home because no nursing home can provide all services needed.
3. Home Care Agencies. There are usually numerous home care agencies in your local area, each agency having its own unique services and rates. I recommend that at least three agencies be studied before making the final choice. I suggest to my families that they also speak to well experienced elder representatives in the area for their recommendations, and check for any violations or misconduct by any of your selected agencies. It is important that home care workers be bonded in case valuables become “missing.”
4. Reverse Mortgages. In a reverse mortgage, the borrower obtains the mortgage, receiving the money in monthly or quarterly payments, monthly/regular payments, a lump sum, or a line of credit. The money does not have to be paid back to the bank until the death of the borrower or upon the sale of the house.
If the borrower is 62 years of age, roughly one-half of the fair market value of the home can be borrowed. The borrower must use the borrower’s money to pay off any existing encumbrances recorded on the home, such as mortgages, liens, and home equity loans. For each year older than age 62, approximately one percent (1%) more of the fair market value can be borrowed.
Currently interest will accrue on the amount loaned at approximately three percent (3%) per annum. Some argue that the low interest rate justifies obtaining a reverse mortgage to buy assets that will provide a return greater than three percent (3%) plus the cost of the loan.
In truth, a reverse mortgage is usually done as a last resort. Unfortunately, sometimes our clients need to enter a skilled nursing home simply because Medicaid will pay the cost of care. In other words, the client’s money has run out so the client can no longer pay the cost of home care.
A reverse mortgage can delay the client’s entry into a skilled nursing home by using the money borrowed to pay for home care.

III. Medicaid Benefits
To the surprise of many, the skilled nursing facility has to provide the same level of care for its Medicaid residents as it provides for its private pay residents.
Medicaid pays for virtually all of the beneficiary’s nursing home expenses. This includes room and board and all health-related care needs. Medicaid may also pay for the beneficiary’s pre-Medicaid health care expenses for a limited period of time prior to the filing of the application. The only exclusions are between-meals snacks, clothing, and beauty care. Although Medicaid will pay for dental work, eyeglasses and hearing aids, there may be a wait because of the small number of professionals who offer such services and are willing to be reimbursed by Medicaid.
From the special needs account, mentioned above, the Medicaid recipient can obtain haircuts, needed clothing and other miscellaneous items.

IV. Medicaid Eligibility Requirements

A. Proving Medical Necessity. An applicant may only receive long-term care benefits if he/she has medical need for skilled nursing home care. This is determined by a professional individual who assesses the Medicaid applicant. Each state sets its own standards based upon the daily need for care by the applicant. Often the assessment includes which, if any, Activities of Daily Living (“ADL”) can no longer be performed by the applicant. ADLs include such activities as toileting, dressing, mobility, eating, and bathing.

B. Financial Eligibility Rules. If the applicant is medically qualified to receive Medicaid payments, the applicant must also meet the financial requirements. If the applicant is single, the applicant’s countable assets must be $2,000 to $4,000 (depending upon your state) and the applicant’s income must qualify. If the applicant is married, the well spouse, called the “community spouse”, is allowed to keep the “Maximum Community Spouse Resource Allowance” (“MCSRA”) of “countable assets.” Most states have their own regulations for its Medicaid program, regulating the amount of MCSRA, which is unique to each state.
The program eligibility standards are not universal, but vary from state to state. Most states treat all people receiving Federal and SSI benefits as automatically eligible for Medicaid. These states, called SSI states, follow the Social Security Administration’s criteria for who is eligible for SSI. These states accept SSI’s determination of disability and its financial qualification criteria. In general, only persons who have assets of $2,000 or less ($3,000) per couple and income of less than the SSI payment amount of ($674 per month single and $1,011 per couple in 2010) are financially eligible to receive SSI.
The second group of states may offer benefits to the age, blind and disabled based on criteria that are more restrictive than the current SSI rules. These states are called “Section 209(b)” states (named for the section of the Social Security Law that give states this right). However, Section 209(b) states may not implement rules more restrictive than the SSI rules effective on January 1, 1972, except for the spousal impoverishment rules. In addition, these states must subtract certain classes of income before determining eligibility including an individual’s actual SSI benefit and any state supplement to that benefit, the amount of statutory Social Security Benefit increases and medical expenses incurred by the applicant. The Section 209(b) states are Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, Utah and Virginia.
A “medically needy” person would qualify as a categorically needy person, but for the fact that the person has income and/or assets in excess of the criteria for the categorically needy. Such persons may “spend down” their income and assets in order to qualify for Medicaid. The majority of states are “spend-down” states for the medically needy.
In such “spend-down” states, asset limits for single person range from $2,000 to $4,000. States have the option of allowing income limits as high as the actual cost of care or impose an income cap of three times the SSI rate which was $2,022 in 2010.
Most states allow an applicant to be eligible for benefits provided the income does not exceed the private pay cost of care. In a few states called “income cap” states, an applicant can place income exceeding the cap amount into a special irrevocable trust know as a “Miller Trust.” See Miller v. Ibarra, 746 F. Supp. 19 (D. Colo. 1990). A Miller Trust is an explicitly permitted under federal law. See 42 U.S.C. §1396(d)(4)(b). The state has the right to claim assets remaining in the trust at the time of the beneficiary’s death for reimbursement for the cost of care it provided. The income cap states, or states that otherwise limit income for long-term care are Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Idaho, Iowa, Louisiana, Mississippi, Nebraska, Nevada, New Mexico, Oklahoma, Oregon, South Carolina, South Dakota and Wyoming.
Once the Medicaid applicant qualifies to receive Medicaid benefits, the applicant’s income is paid to the nursing home after certain deductions have been subtracted. The deductions are typically a small amount of money, usually referred to as a special needs allowance (to be used for incidentals such as haircuts and clothing, for example) and health insurance. Each state’s Medicaid program pays the nursing home the additional money required above the net income received by the nursing home. The total amount paid by the state to the nursing home is less than the amount of money the nursing home collects from its private pay patients. The actual amount the Medicaid office pays for each patient depends on the actual needs of the patient. The amount paid by the Medicaid office is not voluntarily provided, but can be obtained upon request. Sometimes the difference between the private pay amount and the amount Medicaid pays the nursing home is important for certain planning opportunities.

V. Assessing the Client’s Current and Future Needs

A. Questions to Ask. Before the appointment with me, I ask my client, if possible, to bring to the appointment as many of the following documents/information as possible:
1. List of assets stating for each, the type of asset and its value. The assets of both spouses must be included. For Medicaid planning purposes, I do not need the value of personal property such as jewelry, guns or collectables.
2. As to each asset, the names of all owners and how ownership is held, such as jointly with rights of survivorship or as joint tenants.
3. State the amount of debt, if any, associated with each asset.
4. As to each policy of life insurance, the cash surrender value, death benefit, name of owner, and upon whose death will the benefit be paid.
5. A list of all gifts made the previous five years, including the value. At my session I will ask my clients the story behind each gift and to whom each gift was made. I will also ask if the money has been spent or is being held for safe keeping.
A gift is a transfer of an asset (e.g. money; stocks; real property, either outright or the conveyance of a remainder interest) to a third party for less than fair market value. The value of the gift is computed by determining the fair market value of the asset and subtracting the amount actually paid.
Lastly, I will obtain the monthly income from all sources from each spouse.

B. Non-countable v. Countable. I divide the assets into two columns labeled non-countable and countable. Check the regulations in your state, but typically the non-countable assets include the residence, automobile, pre-paid irrevocable funeral contract and perhaps a burial account. The Medicaid applicant and community spouse are entitled to keep all non-countable assets. All other assets are countable.
A single Medicaid applicant is permitted to only have non-countable assets of $2,000 to $4,000, depending upon the regulations in your state. If the applicant has a spouse who resides in the home and not in a skilled nursing home, the community spouse can keep the Maximum Community Spouse Resource Allowance (“MCSRA”), typically an amount in excess of $100,000 of countable assets. The countable assets that exceed the maximum allowed amounts are considered “excess assets” and must be spent down or reduced in some other way. This is the essence of Medicaid planning.
The community spouse can occasionally receive more than the MCSRA amount. For example, if the community spouse depends upon the income generated by the excess assets, upon appeal the community spouse may be permitted to keep the excess asset amount.

C. Records to Obtain. If a Medicaid application must be prepared, the following documents must be collected:
1. At least one year’s of statements for each bank account, investment account and retirement account. After the Medicaid application has been filed, the caseworker may ask for older statements, theoretically up to five years’ worth.
2. Statements from every life insurance company for every life insurance policy stating the death benefit, cash surrender value if any, and the owner. While I am looking at each life insurance policy, I ask the premium amount and whose life is insured. The cash surrender value of each life insurance policy owned by the applicant and community spouse is countable.
3. If burial accounts have been set up, a copy of each page of the passbook savings bank account.
4. If an irrevocable pre-paid funeral was purchased, a copy of the contract.
5. If a burial plot has been purchased, a copy of this information.
6. Health insurance cards, both front and back.
7. Statements for the cost of health insurance and annuities.
8. Real estate deeds.
9. Motor vehicle information.
10. Copies of all Trusts.
11. Documents supporting the expenses of the community spouse, if any.
12. If any gifts have been made, the paper trail in connection with each gift.

D. Agreements/Documents to Sign.
1. Caregiver Agreement. As stated above, a caregiver agreement can be a useful tool in certain situations. For example, if only a couple of children are taking care of a parent in the home, but other children are too busy or do not want to care for the parent, I have discovered that quite often the receipt of even a modest amount of money for the caregiver services reduces the guilt of the non-caregiver children and makes the caregiver children feel more appreciated.
Just as important, the caregiver agreement avoids the problem of payments for services rendered looking to the Medicaid caseworker as if impermissible gifts were made to the caregiver child. The caregiver agreement, executed before services were rendered, provides legitimacy for payments made from parent to child.
2. Estate Plan. Every adult of sound mind should have the basic estate plan, which consists of the Will, Durable Power of Attorney, Health Care Proxy; and, an Advance Directive, if desired.
During the appointment dealing with Medicaid, it is an excellent opportunity to review the client’s existing estate plan or prepare one for the client, if needed.
A new estate plan must be prepared for the community spouse when it is known which spouse is at risk of entering a nursing home. A typical example of this occurs when one spouse receives a diagnosis that he/she has Alzheimer’s Disease.
At the emotionally appropriate time, the community spouse will have to prepare a new estate plan. Most couples prepare “mirror wills” leaving all of their assets
to each other upon death. Unfortunately, about half the time, the community spouse dies before the death of the nursing home spouse who is already receiving Medicaid benefits. If this occurs, upon notice to the Medicaid office, the Medicaid payments will stop because the now single nursing home spouse usually inherits assets well above the $2,000 to $4,000 allowed for a single person.
This can be avoided by changing the community spouse’s will. Instead of leaving the assets outright to the nursing home spouse, the new will “pours over” into a testamentary trust leaving the assets to a trustee, for example a child, to be held to supplement, but not replace Medicaid benefits. With this technique, the nursing home spouse will continue to receive Medicaid benefits uninterrupted.
Changing the will to leave the marital estate outright to the children while the nursing home spouse is still alive should be avoided. If the new will skips the spouse and leaves the marital assets outright to the children, there is a risk that the state Medicaid office will attempt to force a spousal election. The testamentary trust avoids this problem.
This is called a testamentary trust because this trust comes into existence upon the death of the community spouse. Because it supplements, but does not replace, Medicaid benefits, the nursing home spouse will continue to receive Medicaid benefits uninterrupted. Upon the death of the nursing home spouse, the testamentary trust typically directs that any funds remaining are distributed to the named beneficiaries outright.
As well as changing the will, the health care proxy and durable power of attorney documents will have to be changed. The now ill spouse was usually named previously as the various agents for the well spouse. At this point, it is usually the case that the ill spouse will be unable to perform these jobs.
3. Independent Living Complexes, Assisted Living Facilities, Pre-Skilled Nursing Homes, and Skilled Nursing Homes. As our clients seek to downsize by selling their homes, their new home often has complex contracts. For example, independent living complexes, assisted living facilities, pre-skilled nursing homes, and skilled nursing homes have its own set of contracts and questionnaires.
It is important to get involved as early in the process as possible and attempt to review each contract before the client signs it. Unfortunately, frequently the clients will show the attorney the contracts after the clients have signed them.
The most troublesome issue is when the agent, for example, a child or best friend signs the document as if he/she is personally liable. I always advise my agents to sign, “…as agent for ….” or “…as DPA for …”

E. Special Family Considerations. Often intertwined with Medicaid issues are the following issues which must be addressed.
1. Irrevocable Income Only Trust (“IIOT”). If legally accepted in your state, this irrevocable income only trust (“IIOT”) works very well. After the trust has been created, the client decides how much to fund it. The grantor is not permitted to access the principal but can receive the income generated from the principal. The transfer of assets into this trust is considered a gift by Medicaid.
After the five year look back period has passed, in other words after more than five years has passed since the transfer of principal into the trust, this gift need not be reported on the Medicaid application.
If the grantor needs to apply for Medicaid benefits before the five year look back period has passed, the grantor can use the lifetime special power of appointment provision contained within the IIOT, and the grantor can direct that all or any of the money be given to one trusted child. That trusted child shall then immediately give the money to the grantor. This can be referred to as a “cure”, reversing the gift so the penalty period is not imposed. If this occurs, the money will be paid to the nursing home until the applicant spends down to the level needed to receive Medicaid benefits. The goal was not achieved, but at least no penalty will be suffered as a result of attempting to shelter this money.
2. Special Needs Trust. Occasionally the parent entering the nursing home has been taking care of a special needs child. This is a critical time to develop a system for substitute care for the dependant special needs child. It is important to meet with extended family members and determine potential trustees. A special needs trust can be prepared in order to supplement, but not replace, public benefits received by the special needs dependant.
3. The “Bad Child”. Unfortunately, the elder law attorney has to watch out for the individual I generically refer to as the “bad child.” What I mean by this is, for example, the adult child who is taking advantage of the elder to such a degree that it rises the level of elder financial abuse. Often the bad child is living with the parent, taking advantage of him/her and must be evicted.
Typically, a call to the local elder abuse hotline will trigger an immediate investigation into the situation upon the filing of your concerns with the agency. The caseworker will meet with the elder and first determine whether or not the elder is competent or not. If the elder is deemed competent, then the protective agency will not get involved because the elder has a right to choose, even if the elder’s choices are not safe. If the elder is deemed incompetent, protective systems can be imposed.
4. Guardianship/Conservatorship. Often individuals are deemed incompetent before they executed a health care proxy and durable power of attorney. At the point the client enters the nursing home, documents need to be signed and money needs to be paid to the nursing home. This is frequently the point when the nursing home representative advises family members that they must find an attorney to petition for a guardian so health care decisions can be made; and, for a conservator so the money can be properly handled.
5. Special Orders for Antipsychotic Medications. Many states have unique rules and court requirements if the physician recommends that the nursing home resident needs anti-psychotic medications. It is important to check the case law, statutes and regulations in your state.

I frequently meet with clients who tell me something similar to this: “I have been taking care of my parent and receiving money over the last few years. Now my parent has just entered the nursing home and there is a house and $20,000 left. Since I am paying my parent’s bills, I will have to pay the nursing home $8,000 a month until the money runs out and then apply for MassHealth (Medicaid). What about the money I’ve received over the years for taking care of my parent?” If nothing is done, all money paid to the child within the look-back period (the 5 year look-back period is phasing in and will be 5 years March, 2010) will be deemed a gift and must be paid to the nursing home.

This is an example of the value in planning ahead. Had I had the chance to speak to the child before the parent’s entry into the nursing home, I would have recommended that I prepare a caregiver agreement, to be signed by the caregiver(s) and the parent, or the parent’s agent if the parent is incompetent. The best plan: the parent’s doctor or health care provider states in writing what services the parent requires to keep the parent at home. I prepare an agreement specifically listing those services, hours per week, and amount of pay. The work is not paid for until after the contract has been signed by both (all) parties. The caregiver keeps a log and receives payment every week for the exact hours worked. Because the money paid to the caregiver is considered income, income taxes must be paid for the services rendered. I draft the contract as an independent contractor agreement, not as an employee.

However, if I do not have the opportunity to help the client before entry into the nursing home, I still have other ways to prevent MassHealth from forcing the child to pay the money back. I will address this approach in a future post. Also feel free to look at my blog at: elderlawtalk.blogspot.com.

I.         Pre- and Post- Deficit Reduction Act (“DRA”).

1. Introduction.

The implementation of the Deficit Reduction Act (“DRA”), 42 U.S.C. 1396p, effective February 8, 2006, which modified the Federal Medicaid Act, has significantly changed the strategies that were used pre-DRA.

This federal law must always be used in conjunction with your particular state’s DRA implementation legislation, if any, for all of your cases.  A state is not permitted to change the federal law unless the state applies for, and obtains, a waiver.  Practice Note:  If no waiver is obtained, and the state law is materially different from the federal law, you have an avenue for appeal, to be addressed in this seminar.

2.   Most Significant Changes Between Pre- and Post- DRA.

1.         The Look-Back Period, 42 U.S.C. 1396p (c)(1)(B).

Medicaid rules, both pre- and post- DRA, prohibited the transfer of income or resources (“assets”) by individuals requesting long-term care coverage for less than fair market value.  The gift is the difference between fair market value and the consideration paid for the asset.

Pre-DRA, the Medicaid applicant only had to report gifts made within the thirty-six (36) month period before the date of application. Post-DRA, the look-back period has been extended to sixty (60) months.

Most states, if not all, have employed a phase-in period, computing the look-back period by counting the number of months backwards from the date of application to February 8, 2006, up to a maximum of sixty (60) months.  For example, the look-back period was thirty-six (36) months until March 8, 2009, when the look-back period became thirty-seven (37) months, and so on, until the maximum sixty (60) months’ period will be fully phased in for any Medicaid application filed on or after March 8, 2010.

2.         Start Date of Gift Penalty, 42 U.S.C. 1396p (c)(1)(D).

Pre-DRA, the gift penalty period started from the date of transfer.  This rule permitted Medicaid planners to employ the so-called “half a loaf” strategy.  However, post-DRA, the penalty period does not begin to run until “the date on which the individual is eligible for medical assistance…”, meaning that the penalty period does not begin to run until after the Medicaid application is filed and the individual would have otherwise qualified “but for” the gift.

As Medicaid planners, this provision is one of the biggest challenges we face.

3.         Home Equity.

Pre-DRA, the equity in the residence was fully protected regardless of its equity amount.  Post-DRA, Medicaid coverage for long-term care services is prohibited when an individual has home equity in excess of $500,000.  Each state has the option to increase this amount up to $750,000.  42 U.S.C. 1396p (f).

4.         Penalizing Transactions Involving Annuities.

Pre-DRA, Medicaid qualified annuities purchased before February 8, 2006, must meet the following rules:

1. The beneficiary must be the applicant or spouse;
2. The total present value of the projected payments from the annuity must be at least the value of the transferred assets;
3. The first payment from the annuity must be received within sixty (60) days from the date of application; and,
4. The terms of the annuity must provide for equal payments.

Post-DRA, a Medicaid qualified annuity purchased on or after February 8, 2006, is subject to penalty unless the state is named as the remainder beneficiary in the first position for at least the total amount of Medicaid payments made’ or, is named as such a beneficiary in the second position after the community spouse and/or minor or disabled child.  42 U.S.C. 1396p (c)(1)(F)(G).

5.         Penalizing Transactions Involving Promissory Notes.

Post-DRA, the definition of assets includes promissory notes.  The Medicaid applicant’s transfer of assets in exchange for a promissory note is a permitted transfer if the repayment terms are actuarially sound; provide for payments to be made in equal amounts during the term of the loan and with no deferral or balloon payments; and, prohibits the cancellation of the balance upon the death of the lender.  42 U.S.C. 1396p (c)(1)(I).

6.         Undue Hardship Waiver.

Post-DRA, Medicaid benefits are provided in cases where the imposition of the asset transfer or home equity provision would result in undue hardship.  The law varies considerably from state to state because each state has the option to establish its own undue hardship appeal process.  The state’s procedures must provide basic due process rights, which are discussed in this paper.  42 U.S.C. 1396p (c)(2)(D).

7.         Long-Term Care Insurance.

Post-DRA, assets can be retained in an amount equal to the amount paid under a state qualified long-term care insurance partnership policy.  42 U.S.C. 1396p (b).

II.          Preserving Assets During Medicaid Planning.

A.        The Basics.

1.         Transfer Remainder Interest of Residence.

Convey the remainder interest of the Medicaid applicant’s residence to the children/beneficiaries, reserving a life estate.  However, if the Medicaid application is filed within the look-back period, a cure will have to be made, with the children/beneficiaries having to deed the home back to the Medicaid applicant or to the community spouse, if married.

2.         Purchase an Irrevocable Pre-Paid Funeral.

There is no monetary limit, but caution against the “Cadillac” funeral.

3.         Set up a Burial Account.

Set up a burial account for $1,500 at the Medicaid applicant’s representative’s chosen bank.  I recommend that the Medicaid applicant’s name be listed first, jointly with the trusted child/beneficiary.  This passbook savings account can start at $1,500 and receive interest thereon.  It is important to set up the account jointly with a trusted child/beneficiary so the account will not be subject to probate administration.  Because these funds will automatically pass to the child/beneficiary upon the death of the Medicaid applicant, the child/beneficiary must be trustworthy.  If the child/beneficiary predeceases the Medicaid applicant, it is important that a second representative be added to this account in order to avoid probate administration.

4.         Purchase of Annuity by Community Spouse.

The community spouse can purchase a Medicaid qualified annuity, converting the excess assets into an income stream for the community spouse’s benefit.  When the spouse/Medicaid applicant qualifies for Medicaid, the community spouse can keep all of the annuity’s income stream.

An Ohio appeals court held that the purchase of a post-DRA annuity by a community spouse is not an improper transfer of assets.  Vieth v. Ohio Dept. of Job & Family Services, (Ohio Ct. App., 10^th Dist., No. 08AP-635, 7/30/09).  The Ohio Court of Appeals reversed the trial court in held that “funds used to purchase an actuarially sound, non-revocable, non-transferable commercial annuity, for the sole benefit of the community spouse, are not countable resources for Medicaid eligibility purposes.”  The Court went on to conclude that the DRA amendments to the Federal Medicaid Law did not change the rational behind allowing a spouse to purchase an annuity.

B.        Advanced Asset Planning.

State law must always be carefully examined for these issues.

1.         Trusts.

a.         Testamentary Trust.

This is a trust funded by a will in order to avoid the Medicaid disqualifying transfer of asset rules, as well as the “spousal election” issue (See below).  Typically, the pour-over will of the community spouse who predeceased the Medicaid applicant, leaves the community spouse’s assets to the testamentary trust, to be administered by a child/trusted person.  The trustee of the testamentary trust is not permitted to use the trust assets for public assistance, but only to supplement the Medicaid applicant’s needs.

b.         Irrevocable Income Only Trust.

The grantor of an Irrevocable Income Only Trust (“IIOT”) must irrevocably transfer assets into the trust and is only permitted to receive the income from those transferred assets, not the principal.

The IIIOT works well if it is probable that the Medicaid applicant will not need Medicaid benefits within the five year look-back period.  If the Medicaid applicant must file the Medicaid application before the look-back period has passed, technically there is not “cure”; i.e., there is no way to reverse the irrevocable trust.  There are “escape hatches” that can be built into the IIOT, but if too many are included in the IIOT, you run the risk of the state Medicaid agency disqualifying it.  It is critical that your state law is carefully studied.

The IIOT is an excellent device to hold vacation homes and over-limit assets providing the Medicaid applicant/community spouse with only the income stream.  The IIOT is often used to hold even non-countable assets such as the residence.

c.         Medicaid Qualifying Trusts.

Because the state is a remainder beneficiary in the following three trusts, the assets transferred into these trusts are not treated as countable in determining Medicaid eligibility.  However, please note then See Hobes v, Zanderman (10^th Cir., No. 08-2099, 9/1/09), in which the 10^th Circuit Court of Appeals held that each state is free to count assets held in  (d)(4) and (d)(4)(c) trusts as available resources for Medicaid purposes.

i.          Special Needs Trust.

A trust qualifies as a special needs trust under the following conditions:

1. The trust contains the assets of an applicant’s/recipient younger than age sixty-five (65) or the assets of other individual;

b.         The applicant is disabled;

c.         The trust is established for the benefit of the applicant/recipient by a parent, grandparent, legal guardian, or a court; and,

d.         The trust requires that upon the death of the Medicaid applicant the state will receive all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid on behalf of the applicant/recipient.  42 U.S.C. 1396p (d)(4)(A).

ii.         Qualifying (“Miller”) Income Trust.

A trust qualifies as a qualifying income trust only under the following conditions:

1. The trust is composed only of pension, Social Security, and other income to the individual, including accumulated interest in the trust;
2. The income must be received by the individual and the right to receive income cannot be assigned or transferred to the trust; and,
3. The trust requires, that upon the death of individual, the state will receive all amounts remaining in the trust up to an amount equal to the total amount of medical assistance paid on behalf of the individual.  42 U.S.C. 1396p (d)(4)(B).

iii.        Pooled Trust.

A trust qualifies as a pooled trust only under the following conditions:

1. The trust contains the assets of an individual of any age who is disabled;
2. The trust is established and managed by a non-profit association;
3. A separate account is maintained for each beneficiary of the trust but, for purposes of investment and management of funds, the trust pools the funds in these accounts;Accounts in the trust are established solely for the benefit of individuals who are disabled by the individual, by the parent, grandparent, or legal guardian of the individual, or by the a court; and,
4. To the extent any amounts remaining in the beneficiary’s account upon the death of beneficiary are not retained by the trust, the trust pays to the state the amount remaining in the account up to an amount equal to the total amount of medical assistance paid on behalf of the individual.

2.         Property Essential for Self-Support.

Business or non-business property essential for self-support can be treated as non-countable.  For example, this is a useful technique to maintain non-residential real property generating income needed by the community spouse.

3.         Inaccessible Assets.

Any assets not accessible to the Medicaid applicant are non-countable; for example, property subject to probate; divorce; held up by a life insurance company.  Any inability to sell or receive the benefits of an asset after a due diligent attempt has been made to collect such asset is non-countable.  This issue usually requires an appeal.

4.         Spousal Refusal.

If the community spouse refuses to cooperate, the marital assets controlled by the community spouse are non-countable.

5.         Gift and Promissory Note.

42 U.S.C. §1396p (c)(1) requires that promissory note payments must be paid in equal amounts during the term of the loan; with no deferral and no balloon payments made; and, prohibits the cancellation of the balance upon the death of the lender.

One example: the Medicaid applicant’s excess assets are exchanged for a promissory note from the children.  The note must meet the requirements set forth in the DRA and state law.  The children’s payments can be made to the Medicaid applicant/community spouse, who is the lender, or used to pay the provider directly.

This accomplishes the immediate conversion of excess assets to an income stream; and, the Medicaid applicant will qualify for Medicaid almost immediately.

This technique works much better for a married couple; however, for an individual, benefits can also be derived from this approach.

6.         Annuities.

This involves the same concept as with promissory notes, but through the use of annuities instead.  To work, the annuity must be irrevocable and non-assignable, purchased for the benefit of the community spouse.

A typical example: the Medicaid applicant/spouse purchases an annuity, providing a stream of income.  An actuary expert computes the present value of the annuity income stream, which is usually under twenty-five percent.  The children purchase the annuity by paying its present value in a lump sum payment.  Upon the purchase of the annuity, the children begin to receive its stream of income.  The lump sum payment made by the children to the Medicaid applicant/spouse is considered a countable resource, which must be spent down until the Medicaid applicant qualifies for Medicaid benefits.  The children continue to receive the annuity’s income stream, even though they only paid under twenty-five percent (25%) of the value of the parent’s asset.

For example, the Medicaid applicant purchases a post-DRA qualified annuity for $400,000, then the Medicaid applicant enters a nursing home.  Using a twenty-five (25%) percent value estimate, the children pay the Medicaid applicant $100,000 for ownership of the annuity contract of $400,000.  After the Medicaid applicant has spent down the $100,000 received from the children, the Medicaid applicant will immediately qualify for Medicaid.  The children, not the nursing home, receive the income stream because the children paid for that benefit.

7.         Family Care Agreement.

a.         Best Chance of Success.

The best chance of success for a family care agreement to work is one that follow these rules:

1. The caregiver is paid weekly/monthly based upon actual services rendered, supported by timesheets, before the Medicaid applicant enters a nursing home.
2. A physician or other expert documents the need for such services.  For example, the physician states in writing that the Medicaid applicant is unable to do one or more activities of daily living.
3. The caregiver is responsible to pay income taxes for all money received.

b.         Issues to Avoid.

1. No professional documentation to support the need for caregiver.
2. Lump sum transfers for future services.
3. Services rendered while the Medicaid applicant is in the nursing home.

A New York appeals court held in Matter of Barbato v. New York State, (N.Y. Supp. Ct., App. Div., 4^th Dept., No. 711 TP 08-02216, Aug. 21, 2009), with related cases.  In this case, the court held that transfers for future personal services were not for fair market value “because there is no basis upon which to conclude that the transfer of a specific amount of assets for services that may or may not be rendered is for fair value.”  The court further noted that in the absence of a refund provision in the care giver agreement, the care giver could receive a windfall if the Medicaid applicant did not meet his or her life expectancy.

III.         Medicaid Hearing Strategies.

A.        Procedural Practice Tips.

1.         Claim of Appeal.

Spot any challenging issues as early as possible in the process as you prepare the Medicaid application for your client.  When the Medicaid application is filed, include the applicable law, with explanation.  If your client’s Medicaid application is denied, immediately file your claim of appeal.  It is better to later withdraw your appeal than to miss the deadline, which is usually short.

2.         Do Not Be Intimidated.

3.         Review Entire File.

Make arrangements to carefully review the entire file before your hearing.  Often you will find surprises.  You have the right to obtain any and all copies of the documents you request.   Preferably, do not review the file on the day of the hearing.  You want to have enough time to adequately prepare.

4.         Your State’s Administrative Procedure.

Before the hearing, study your state’s administrative procedure rules carefully.  Determine whether or not the rules of evidence are strictly observed during the hearing procedure.  Before the hearing, go through each proposed exhibit and anticipated testimony to analyze which rule(s) of evidence you will use to get each piece of proposed testimonial and documentary evidence entered.

5.         Feel Free to Call the Hearing Office.

Before the hearing, you can call the state agency to speak to an appeal’s clerk to ask your questions. For example, if you desire to appear at the hearing telephonically, ask if that is an acceptable procedure.  Practice Tip:  whenever possible, have your hearing in person.

6.         Research.

Research all case law, appeal decisions, and federal law on your issue(s). Often, the facts are undisputed, but there is a disagreement as to how to apply the law to the facts.  If there is a factual dispute, carefully prepare your client and any other witnesses to truthfully testify as to all necessary facts.  If you must appeal from the hearing, you want to make certain that all appropriate evidence has been entered.

If a key witness is not able to attend the hearing, you will likely have a couple of options.  For example, your witness could testify telephonically; or you can take that witness’ deposition in advance of the hearing.

7.         Submit Your Information in Advance.

In advance of the hearing, submit to the hearing officer, with copies to the state agency representative, all of your proposed exhibits and legal arguments.  This is an excellent opportunity to present your case before the hearing.

8.         Additional Time.

If, at the hearing, you are surprised or need additional time for other reasons, ask to keep the record open so you can submit additional documents and/or testimony.  Alternatively, simply ask to continue the hearing.

9.         Record.

It is critical that you ensure that a complete record is being made of your hearing.  If you must file an appeal with the court, you will want your entire record before the judge.

10.       Timely Submit.

Timely submit all additional documents required by the hearing officer.

11.       File Your Appeal to the State Court.

If the Appeal Decision is incorrect, file your appeal with the proper court in your state timely.  Strictly follow the procedural law of your state.  A typical standard for judicial review is that the agency action is “based on an error of law or on unlawful procedure, arbitrary and capricious or unwarranted by facts found by the agency and supported by substantial evidence.”  The Plaintiff bears the burden of proof.

B.        Issues Frequently Appealed.

1.         Community Spouse’s Minimum Monthly Maintenance Needs Allowance (“MMMNA”).

The community spouse is entitled to keep all of his/her income.  If the community spouse’s income amount is not adequate, the state agency will determine the community spouse’s Community Spouse’s Minimum Monthly Maintenance Needs Allowance (“MMMNA”).  This is the amount of income needed by the community spouse to meet basic needs.  If the community spouse’s income does not meet this threshold, the state agency will allow the community spouse to retain as much of the Medicaid applicant’s income needed to meet the MMMNA.

Frequently, an appeal must be filed to seek an increase in the MMMNA set by the Medicaid agency.  If you must appeal this issue, carefully prepare your facts to support the community spouse’s claim that more income is needed to meet the community’s spouse’s basic needs.

2.         Community Spouse Resource Allowance (“See CSRA”).  42 U.S.C. 1396r-5(f)(2).

The Community Spouse Resource Allowance (CSRA) is the amount of assets set aside for the Medicaid applicant’s spouse.  This allowance is not considered “available” to the Medicaid applicant and is not used to determine eligibility for Medicaid.  If, after setting aside the CSRA, the Medicaid applicant still has non-except assets in excess of $2,000, the couple must reduce the excess to be eligible for Medicaid benefits, unless excess assets are required to maintain the community spouse’s basic income needs.

If the combined income of both spouses is insufficient to satisfy the MMMNA, the community spouse can request an increase in the CSRA so as to generate enough income to achieve the MMMNA.

In this situation, 42 U.S.C. 1396r-5 (e)(2)(c) requires the state agency to revise the CSRA to an “amount adequate.”  The state’s procedures must adhere to these federal standards.  This issue must usually be appealed.

Frequently, the state Medicaid office will use an unrealistically high interest rate to make these calculations, which results in a lower level of permitted asset amount.  This issue can be successfully appealed.

A compelling case can be made by proving that the community spouse’s income is inadequate and that the interest rate applied should be based on an actual interest income available to elderly couples.  The preparation of the community spouse’s testimony with supporting documentation can achieve this goal.

If the hearing officer “rubber stamps” the procedures used by the state agency, I recommend that you appeal the decision by use of the standard stated above.

3.         Appeal the State Agency Decisions as Inconsistant with Federal Law.

a.         Promissory Notes.

In G.L. v. Division of Medical Assistance, (New Jersey, 07/17/08), the Court granted Plaintiff’s motion for summary decision.  In this case, the Medicaid applicant made an $86,000 loan to her son in exchange for a promissory note.  The note was non-negotiable, non-assignable, non-transferable, and had to be paid during the Medicaid applicant’s life expectancy, making it actuarially sound.  There was no deferral of payment nor balloon payment. There was proof it could not be sold on the open market.  The Medicaid applicant filed her appeal from the state agency’s imposition of a transfer penalty.  The Court found in favor of the Medicaid applicant holding that the promissory note was excluded by definition pursuant to the DRA because the subject note met all of the DRA criteria set forth at 42 U.S.C. 1396p (c)(1)(l).  The state agency argued that a transfer of assets for less than fair market value is prohibited.  The note had no value because it could not be sold on the open market.

The Court rejected the state agency’s argument by holding that a qualified promissory note is not a transfer of assets, and therefore is not subject to a definition of fair market value.

Essentially put, this case opens the door to a powerful planning strategy.  Moreover, it provides a good example of the use of the federal Medicaid law and DRA to “trump” state law through the appellate process.  See Weatherby v. Richman, for a post-DRA analysis.

b.         Annuities.

See A. B. v. Division of Medical Assistance and Health Services, e.t. all, Superior Court of New Jersey, Appellate Division (Decided 1/21/05), for another example of a successful challenge of state law not in conformity with the Federal Medicaid Act, amended by the DRA.  In this case, the court concluded that the Federal Medicaid Act prohibits the state from treating an actuarially sound commercial annuity as an available resource of the community spouse; and, that the state may not require that it be named as the remainder beneficiary of such an annuity.

c.         Penalty Divisor Calculation.

There are widely divergent state calculations of the monthly penalty divisor required under the Federal Medicaid Law.  The number is supposed to be the average private pay rate of a semi-private/private room in a facility.

If you state uses an incorrect number, this rate can be challenged on appeal, if helpful to your client.

d.         Undue Hardship Waiver.

To obtain the undue hardship waiver an appeal/request for fair hearing is usually required.  Because this is a very fact specific appeal, carefully prepare the testimony of your witnesses and documents.

If the hearing officer is not persuaded and you must file your matter in state court, a challenge can be made to the state law as defective because the hearing process provided insufficient due process rights.  42 U.S.C. 1396p (c)(2)(D).

e.         Violation of Due Process Rights.

i.          Basis.

A solid basis for appeal is the claim that the Medicaid applicant’s due process rights were violated.  In O’Bannon v. Town Court Nursing Center, 447 U.S. 773, 787 (1984), the United States Supreme Court held that Medicaid recipients were entitled to procedural due process rights before direct benefits could be terminated.  In Garret v. Puett, 717 F. 2d 930, 931 (6^th Cir. 1983) the Sixth Circuit held that adequate notice for the reduction or termination of Medicaid benefits required four elements:

1. A detailed statement of the intended action,
2. The reason for the change in status,
3. Citation to the specific statutory section requiring reduction or termination,
4. An specific notice of the recipient’s right to appeal.  See Moffitt v. Austin, 600 F. Supp. 295, 297 (1984).

ii.         Hearing officer.

The Code of Federal Regulations requires that all hearing be conducted by “one or more impartial officials or other individuals who have not been directly involved in the initial determination of the action in question.”  42 C.F.R. §431.240 (2006)  In Goldberg v. Kelly, 397 U.S. 254 (1970), the Court held that the hearing officer’s decision be based “solely on the legal rules and evidence adduced at the hearing.”  p. 271  The hearing officer is required to cite to the specific regulations that dictate the ruling.

iii.        Burden.

This is a complex issue that has minimal case law. In Collins v. Eichler, 1991 Del. Supr. LEXIS 105, the Superior Court of Delaware found the burden of proof to be on the state when termination or reducing Medicaid benefits.  In Weaver v. Colorado Department of Social Services, the Colorado Court of Appeals articulated the states burden to show a change in a recipient’s circumstances before benefits can be reduced or terminated.

iv.        Right to Face Accuser and Subpoena Witnesses.

The court in Goldberg held that a welfare recipient has a right to face adverse witnesses.  “In almost every setting in which important decisions turn on questions of face, due process requires an opportunity to confront an cross-examine adverse witnesses.”  Goldberg, 397 U.S. 254 at 269.

v.         Right to Record.

42 C.F.R. §431.233 (a)(2006) entitles the applicant to record the hearing and receive a transcript of the proceedings.  This is critical if the Medicaid applicant will file an appeal from the agency’s decision.  See Bowden v. Delaware, 1993 Del. Super. LEXIS 304 (Del. Super. Ct. 1993)

IV.        Additional Complex Issues in Medicaid.

A.        Question of Whether the Application Needs to be Filed and Denied to begin the Penalty Period.

B.        The Phase-In of DRA.

C.        Argue that the Resources were Transferred “Exclusively for a Purpose Other than to Qualify for Medicaid.”

For gifts made within the look-back period, an argument can be made that the resources were transferred “exclusively for a purpose other than to qualify for Medicaid.”  Search the law in your state for any similar language.  It is quite common for a Medicaid applicant to innocently give money to his/her children without any awareness, whatsoever, of the Medicaid law.  With excellent documentation such as affidavits prepared by the children and parents stating the real reason the money was gifted, you have a good change of success.  I have often had clients who gave their money to their children for reasons other than to qualify for Medicaid; for example, the child was in financial distress.  With excellent documentation and upon requests for fair hearing this might give you success if the gifts cannot be returned.

D.        Divorce.

Study the proofs required for divorce in your state.  If the community spouse can honestly testify that the marriage has irretrievably broken down (or whatever language is used in your state), you can request the divorce court to award spousal support in excess of the MMMNA and award assets in excess of the CRSA.

E.        Post Eligibility Transfers by Community Spouse.

Some states are attempting to block post-eligibility transfers by a community spouse.  However, there is no basis in the DRA to support this attempt.

“Under the transfer of assets provisions in §1917(c) of the Social Security Act (the Act), transfers between spouses are except from any transfer penalty.  Under the spousal impoverishment provisions of §1924 of the Act, one eligibility is determined, the resources of the community spouse are no longer considered available to the institutionalized spouse.  Thus, after the month in which an institutionalized spouse is determined eligible for Medicaid, and resources belonging o the community spouse are solely the property of that spouse.  That is, the community spouse can do whatever he or she wants to do with them.” (emphasis supplied).

Health Care Financing Administration (HCFA), Ronald Preston, Associate Regional Administration, Region 1, Boston, Massachusetts to Brian E. Barreira (“the Barreira letter”) April 5, 2002.

F.         Estate Recovery.

The best approach to minimize the impact of estate recovery are the following two techniques.

1.         Remainder Deed.

Before or at the time of the Medicaid application, the parents execute a deed conveying the remainder interest in their home to their children/beneficiaries, retaining a life estate.  If state law permits, this allows the home to bypass probate administration and the estate recovery process, the home vesting immediately with the children/beneficiaries upon the second death of both parents.

2.         Pour-Over Will and Testamentary Trust.

The pour-over will and testamentary trust have been previously addressed in this paper.

Additionally, all the attorneys at Jackson & Torrone were recognized for their pro bono service to low income individuals by a Proclamation from Massachusetts Govenor Deval Patrick.

If you have not had an ownership interest in a home in the past three years the Federal Government considers you a first time homebuyer.

First time homebuyers are entitled to an income tax credit of $8,000.00 if they purchase a home before December 1, 2009. So long as the home costs more than $80,000.00 the first time homebuyer receives the full tax credit. For homes less than $80,000.00 they will still get the tax credit but it will be 10% of the cost of the home and not the full $8,000.00.

This tax credit works dollar for dollar to reduce the first time homebuyer’s income tax liability when they file tax returns. If he/she owes less than $8,000.00 they will receive a refund of the difference of what is owed in taxes and the credit. This is a tax credit so there would not be an obligation to repay this amount; however, if you did sell the home within three years you may be required to pay back the credit.

The Massachusetts Department of Revenue has also indicated that it has a program for certain types of loans where it will loan the first time homebuyer $8,000.00 to be used as a down payment on a home. the loan becomes due in June 2010. For more details on the Department of Revenue Program please visit their website at www.dor.state.ma.us

For someone looking to purchase a home or even considering do so, this is a great opportunity that you do not want to miss out on. As it can take time to complete a home purchase the prospective first time homebuyer should look to enter into a contract for a home as soon as possible. If the sale is not completed by December 1, 2009 you will not be eligible for the credit.

I encourage people interested in this program to contact a lender or myself to discuss whether this is an appropriate program for them. Also, my firm can handle your purchase in a very efficient manner and have been successful in closing transactions on very short notice. I urge anyone thinking about buying a home to get started now, because even though my office can close close a transaction quickly, the surge in home sales occurring because of this program may cause delays from the lenders.

This article is for informational purposes only and is not meant as tax or legal advice.  For specific advice on your matter please contact Attorney Torrone directly. For tax advice please contact a qualified tax professional.

Anyone over 18 years of age needs a will.  Even if a person has few assets, significant sums of money could be due that person’s Estate after death, such as life insurance proceeds (without a named beneficiary) or a settlement from a wrongful death claim.

WHAT WILL HAPPEN IF I DIE WITHOUT A WILL?  DOES THAT AVOID PROBATE?

If you die without a Will, the state where you lived at the time of your death will declare you intestate and write it for you.  Each state has its own laws of intestate succession.  “Intestate succession” is the means through which the law directs to whom your property will go in the event you die without a Will.  Dying without a Will does not help you to avoid probate and it usually makes probate much more complicated and expensive.

WHAT IS PROBATE?

All of your real and personal property titled in your name alone must go through a process directing your property to someone else.  This is the process of “probating your Estate.”  After your death, a petition is filed with the Probate Court listing all of your property that does not pass “by operation of law.”  For example, if you have property jointly titled with someone else in such a way that it automatically passes to the other owner at your death passes “by operation of law.”  This property does not need to be probated.

WHAT IS A HEALTH CARE PROXY AND WHY IS IT IMPORTANT?

In your Health Care Proxy you appoint an Agent to speak to your health care professionals in the event you are unable to communicate your instructions yourself.  Your Agent can be any adult person of sound mind.  Your Agent need not be a family member.  You want an Agent who will not be intimidated by physicians and whom you trust to follow your wishes.

Health Care Proxies in Massachusetts are often combined with a Living Will.  In your Living Will you direct your health care professionals to do or not to do certain medical procedures in the event you are unconscious and there is no reasonable chance you will survive.  Some people want many medical procedures to be taken and others choose none or few.  It is entirely up to you.

A Health Care Proxy is a critical document in the event you become incapacitated in any way and are unable to make or communicate your decisions about your medical care.  Your health care professional needs to know what you want, not what your family wants.  Also, it is often difficult for family members to reach an agreement among themselves if any decisions are necessary.

You want everyone to know that you have prepared this document; therefore, you want your key family members and each one of your physicians to have copies of your Health Care Proxy.  It is important that you talk to your family and your physician about your Health Care Proxy.

WHAT IS A DURABLE POWER OF ATTORNEY AND WHY IS IT IMPORTANT?

A Durable Power of Attorney means it survives your mental incapacity and can be used if you become mentally incompetent.

In your Durable Power of Attorney you appoint an Agent to handle your business affairs.  Specifically, you give your Agent permission to sign anything you would sign as a competent adult.  For example, your Agent shows your Power of Attorney to the bank representative.  Your Agent then signs their own name to your check or document.  Your Agent prints below the Agent’s signature, “As Attorney in Fact for (your name).”

You can sign a Durable Power of Attorney that is immediately effective or one that “springs” alive only in the event of your mental incapacity as determined by one or two physicians (you decide if you want one or two physician letters).  If you sign a springing Durable Power of Attorney, your Agent would show the bank your Power of Attorney and the one or two letters from physicians before signing the check or document.

You can give your Agent very broad powers stating that your Agent can essentially sign anything and everything on your behalf.  You must only give this kind of Power of Attorney to someone you absolutely trust.  If you give an Agent this power and later change your mind, you must immediately destroy the original document and all copies.  You must take all steps to be certain your former Agent is not taking your money or property without your permission.  This is why I recommend that you permit your attorney to keep original document in the attorney’s safe and keep only one copy for yourself.  Tell your Agent where to find this document if and when it must be used.

If you do not wish to give your Agent a broad Power of Attorney, you can give your Agent specific authority just to do certain things.  For example, you can direct that your Agent only sign checks from one specific bank account.  I generally recommend against using this kind of Power of Attorney because it usually defeats its primary purpose, to avoid a Guardianship proceeding.

In the event you become mentally incapacitated and you previously signed a Durable Power of Attorney, your Agent can immediately take over your affairs.  If you become mentally incompetent without this document, someone may eventually be forced to petition the Probate Court to have a person appointed to be your Conservator or Guardian, a time consuming and usually expensive process.

HOW DO I KNOW IF I NEED A TRUST?

This is a complicated question to answer.  If you are married and the value of your combined assets (including the amount of life insurance your beneficiary will receive upon your death) is over a million dollars, a Trust is usually recommended.  You will usually prefer a Trust if you have significant monies you wish to pay out over a period of time to your beneficiary (the person to whom you wish to give your assets), such as a child or disabled individual.  A trust is very useful if you own real estate in a state other than the state of your residency.

People choose to execute Trusts for other reasons, such as privacy and flexibility.  You can have a Pourover Will and a Trust.  The Will simply “pours” all of your probate assets into your Trust.  Only your Will, not your Trust, is filed in Probate Court.  This technique can significantly simplify the probate of your assets.  Only the Will is public record, not your Trust.

CONCLUSION

Almost everyone needs a Will, Durable Power of Attorney, Health Care Proxy and Living Will.  It is very important to execute these documents as soon as possible before it becomes too late.  Once a person becomes mentally incompetent, (i.e. is unable to understand what they are signing), it is too late. Once it is too late, petitioning the Probate Court may be the only choice left.

The Need for Planning

One of the greatest fears of older Americans is that they may end up in a nursing home. This not only means the loss of independence, but also a tremendous financial burden. The average nursing home care costs $75,000 per year, and often times, more.

Many people end up paying for nursing home care out of their savings until they run out. The advantages of paying privately are that you are more likely to gain entrance to a better quality facility and doing so eliminates or postpones dealing with your state’s welfare bureaucracy–an often burdensome process. The disadvantage is that it is expensive and often wipes out a lifetime of hard work and savings.

Careful planning, whether in advance or in response to an unanticipated need for care, can help maximize one’s resources and protect one’s estate.

Medicare

Medicare Part A covers up to 100 days of “skilled nursing” care per spell of illness. However, the definition of “skilled nursing” and the other conditions for obtaining this coverage are quite strict and in reality, few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for only about 9 percent of nursing home care in the United States.

Medicaid

Unlike Medicare, which is totally federal, Medicaid is a joint federal-state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs.

This complicates matters, since the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (The states also sometimes have their own names for the program, such as “MediCal” in California and “MassHealth” in Massachusetts.) Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. To be certain of your rights, consult an expert. He or she can guide you through the complicated rules of the different programs and help you plan ahead.

Those who plan far enough in advance may have the luxury of distributing or protecting their assets. This way, when they do need long-term care, they will quickly qualify for Medicaid benefits. Giving general rules for so-called “Medicaid planning” is difficult because every client’s case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent. So while I have provided an overview of planning strategies, consulting with an expert about your individual situation is very important.

Transfers a.k.a. Just giving the money away

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

Any transfer strategy must take into account the nursing home resident’s income and all of her expenses, including the cost of the nursing home. Also, be very, very careful before making transfers. Also, bear in mind that if you give money outright to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.

Permitted Transfers

While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

• Your spouse (but this may not help you become eligible since the same limit on both spouse’s assets will apply)
• Your child who is blind or permanently disabled.
• Into trust for the sole benefit of anyone under age 65 and permanently disabled. In addition, you may transfer your home to the following individuals (as well as to those listed above):
• Your child who is under age 21.
• Your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time.
• A sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home.

Trusts a.k.a. Giving the money away with restrictions

The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust. Whether trust assets are counted against Medicaid’s resource limits depends on the terms of the trust and who created it.

A “revocable” trust is one that may be changed or rescinded by the person who created it. Medicaid considers the principal of such trusts to be assets that are countable in determining Medicaid eligibility. Thus, revocable trusts are of no use in Medicaid planning.

Income-only Trusts

An “irrevocable” trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust) for life, and the principal cannot be applied to benefit your or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home.

You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose.

One advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, you (the grantor) can retain a “special testamentary power of appointment” so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust.

Remember, funding an irrevocable trust can cause you to be ineligible for Medicaid for the following five years. An irrevocable trust should always be drafted by an experienced elder law attorney.

Protection of the House

After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.”

Life Estates

For many people, setting up a “life estate” is the most simple alternative for protecting the home from estate recovery. A life estate is a form of joint ownership of property between two or more people. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner cannot take possession until the end of the life estate, which occurs at the death of the life estate holder. As with a transfer to a trust, the deed into a life estate can trigger a Medicaid ineligibility period of up to five years.

Trusts

Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. Trusts provide more flexibility than life estates but are somewhat more complicated. Once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust.

Spending Down

Applicants for Medicaid and their spouses may protect savings by spending them on noncountable assets. These expenditures may include:

• prepaying funeral expenses,
• paying off a mortgage,
• making repairs to a home,
• replacing an old automobile,
• updating home furnishings,
• paying for more care at home
• paying attorney’s fees

In the case of married couples, it is often important that any spend-down steps be taken only after the unhealthy spouse moves to a nursing home if this would affect the community spouse’s resource allowance.

Immediate Annuities – Making Assets into Income

Immediate annuities can be ideal planning tools for spouses of nursing home residents. For single individuals, they are usually less useful. An immediate annuity is a contract with an insurance company under which the consumer pays a lump sum to the company and the company sends a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for Medicaid purposes, but is instead the purchase of an investment. It transforms a countable assets into a non-countable income stream. As long as the income is in the name of the community spouse, it’s not a problem.

In order for the annuity purchase not to be considered a transfer, it must meet three basic requirements: (1) It must be irrevocable (2) You must receive back at least what you paid into the annuity during your actuarial life expectancy. For example, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000). (3) If you purchase an annuity with a term certain, it must be shorter than your actuarial life expectancy. (4) the state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant’s behalf.

The Attorney’s Role

Do you need an attorney for even “simple” Medicaid planning? This depends on your situation, but in most cases, the prudent answer would be “yes.” The social worker at your mother’s nursing home assigned to assist in preparing a Medicaid application for your mother knows a lot about the program, but maybe not the particular rule that applies in your case or the newest changes in the law. In addition, by the time you’re applying for Medicaid, you may have missed out on significant planning opportunities.

The best bet is to consult with a qualified professional who can advise you on the entire situation. At the very least, the price of the consultation should purchase some peace of mind. And what you learn can mean significant financial savings or better care for you or your loved one. As described above, this may involve the use of trusts, transfers of assets, purchase of annuities or increased income and resource allowances for the healthy spouse.

If you are going to consult with a qualified professional, the sooner the better. If you wait, it may be too late to take some steps available to preserve your assets

Purchasing a home is one of the largest investments that a person will make. If you purchase a home, due to the complex nature and technicalities involved, you should consult an attorney at the earliest stage of buying or selling a home.

Once an offer is accepted it is a binding legal contract, which creates certain obligations and rights for both a buyer and seller. These obligations and rights are often altered or expanded in the purchase and sale agreement. It is important to thoroughly review the purchase and sale agreement, as many issues addressed in it can have financial impacts on the transaction.

There are many so called, “standard form” purchase and sale agreements available from a number of different organizations, however, no one form is appropriate for all real estate transactions. These “standard forms” are often amended significantly for each transaction. These forms often contain intricate wording that can create a disadvantage to one or both parties.

There are many issues that need to be addressed when drafting a Purchase and Sale Agreement. The following is a list of some of the common provisions within such an agreement:

· Buyer’s right to have the home inspected by a qualified professional, and to inspect for pest, lead paint and other hazardous materials, and Title 5 issues;

· The purchase price and the amount of the deposit to be paid;

· Any items of personal property that are included in the sale such as appliances and above ground swimming pools;

· Seller’s obligation to vacate the property and remove all of there personal property prior to the closing;

· Seller’s obligation to transfer the property free of any tenants;

· Buyer’s obligation to obtain financing by a certain date;

· Seller’s right to keep the deposit if buyer defaults on its obligation;

· The date, time and location of the closing;

· The parties respective right to sue for damages;

· Credits to the Buyer towards closing costs; and,

· Obligation for hazard insurance, as well as, obligations to purchase even if house is destroyed.

In order to protect your investment it is imperative that you understand all of your obligations under the purchase and sale agreement prior to signing it. Signing an agreement prior to review with your attorney can be detrimental and costly if the agreement is poorly worded. There are often many matters that a buyer and seller many not recognize as problems, that if overlooked will likely cause undue stress and financial loss.

Once an agreement is entered into, it becomes very difficult for an attorney to protect the client if the client bargained away rights prior to consulting the attorney about the transaction.

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