SUMMARY OF CONTENTS CERTIFIED MEDICAID PLANNING (CMP ) COURSE OFFERED EXCLUSVILY THROUGH THE WEALTH PRESERVATION INSTITUTE

Transcription

1 SUMMARY OF CONTENTS CERTIFIED MEDICAID PLANNING (CMP ) COURSE OFFERED EXCLUSVILY THROUGH THE WEALTH PRESERVATION INSTITUTE SECTION 1: INTRODUCTION... 1 SECTION 2: WHAT IS MEDICAID... 7 SECTION 3: WHAT IS COVERED BY MEDICAID?...9 SECTION 4: APPLYING FOR BENEFITS SECTION 5: MEDICAL QUALIFICATION RULES...23 SECTION 6: INCOME QUALIFICATION RULES...24 SECTION 7: ASSET QUALIFICATION RULES...36 SECTION 8: TRANSFERRING ASSETS (GIFTS)...55 SECTION 9: TRUSTS...66 SECTION 10: STRATEGIES TO QUALIFY...87 SECTION 11: THE HOME: PLANNING IDEAS SECTION 12: ANNUITIES SECTION 13: PROMISSORY NOTES SECTION 14: TRANSFER (GIFT) STRATEGIES SECTION 15: POST-ELIGIBILITY ISSUES SECTION 16: ESTATE RECOVERY SECTION 17: CASE STUDIES SECTION 18: VETERANS PENSION: HOW IT WORKS SECTION 19: VETERANS PENSION: PLANNING TECHNIQUES SECTION 20: TRUST TAXATION: INCOME, ESTATE, GIFT SECTION 21: PRE-DRA PLANNING APPENDIX GLOSSARY ANNUITY (LIFE EXPECTANCY) TABLE LIFE ESTATE TABLE (UNISEX) STATE NUMBERS FEDERAL STATUTES RESOURCES i

2 DETAILED TABLE OF CONTENTS SECTION 1: INTRODUCTION... 1 How to Use This Manual...2 Is It Ethical?...3 Is Medicaid Planning Illegal?...5 SECTION 2: WHAT IS MEDICAID... 7 How is Medicaid Administered?... 8 SECTION 3: WHAT IS COVERED BY MEDICAID?...9 Medical Coverage...9 Care in the Home...10 Assisted living Nursing Homes Medicare Coverage of Nursing Home Expenses State Coverage Options SECTION 4: APPLYING FOR BENEFITS Who May Apply When to Apply Applying Too Late Applying Too Early Where to Apply List of State Agencies Application Process Retroactive Coverage Documentation of Citizenship...18 Nursing Home Bills Before Medicaid Eligibility SECTION 5: MEDICAL QUALIFICATION RULES...23 SECTION 6: INCOME QUALIFICATION RULES...24 Types of Income...24 Earned Unearned In-Kind...25 Exclusions from Income...25 Unmarried...25 Income-cap States...25 Spenddown ("Medically Needy") States...27 Married...27 Share of Costs ii

3 MIA/MMMNA Rules Increasing the MMMNA...31 Excess Shelter Allowance (ESA)...31 Borrowing to Increase the ESA and MMMNA...33 Family Allowance Fair Hearings Court Order of Support...35 SECTION 7: ASSET QUALIFICATION RULES...36 What s Counted, What s Excluded?...36 Valuation...36 Countable Assets...36 Unavailable Assets...37 Excluded Assets...37 $2,000 Cash The Home One Automobile...41 Personal Property...41 Funeral and Burial Funds and Spaces IRAs Property Used in a Trade or Business Non-Business Property Used for Self-Support Life Insurance...45 Married...45 Community Spouse Resource Allowance (CSRA)...45 Snapshot Rule Fifty Percent States...47 Hundred Percent States Increasing the CSRA...49 Fair Hearing Court Orders Convert Non-Countable Assets to Countable Before Snapshot Date Implementing the CSRA...52 Post-Eligibility Changes to the CSRA...52 Sale of Community Spouse s Assets...52 Gift of Community Spouse s Assets...52 What if both spouses are in a nursing home?...53 SECTION 8: TRANSFERRING ASSETS (GIFTS)...55 Penalty Period...55 Penalty Start Date: Pre-DRA Gifts...57 Penalty Start Date: Post-DRA Gifts...57 iii

4 Tacking Gifts by Married Persons...59 Joint Interests...59 Valuing the Gift Automobiles Bank Accounts, CDs Life Insurance Real Estate Stocks, Bonds, Mutual Funds...61 Partial Gifts...61 Lookback Period...61 Outright Gifts...61 DRA Transition Rules Gifts to Trusts Taxable Gifts...63 Fraudulent Transfers...64 SECTION 9: TRUSTS...66 Revocable Trusts...66 All Trust Assets Countable Transfers To and From...67 Irrevocable Trusts Transfers To and From Planning with Irrevocable Trusts "IIOTs": Irrevocable Income-Only Trusts...72 Principal Distributions to Children ( Back Door )...73 Valuing Gifts into the Trust...75 Dealing with Trust Income...75 Trigger Trust Option...75 Avoiding Estate Recovery...76 Irrevocable Trusts vs. Outright Gifts Self-Settled Trusts...79 Pooled Trusts Upon the Contributor s Death...81 Reasons for Using Pooled Trusts...81 Third-Party Trusts Supplemental Needs Limitations Trusts Created Within a Spouse s Will Children-Funded Trust Supplemental Needs: List SECTION 10: STRATEGIES TO QUALIFY...87 iv

5 Hiding Assets: Don t Do It!...87 Spenddown Converting Countable Assets to Non-Countable Home Improvements New Home, Bigger Home (or More Expensive Smaller Home or Condo) Personal Property...91 New Auto, Bigger Auto...91 Funeral/Burial Expenses Income-Producing Property Single Premium No Cash Value Life Insurance Annuities Converting Non-Countable Assets to Countable...94 Decreasing the Home Equity Amount...97 Take out a reverse mortgage...97 Obtain a home equity loan...97 Deed a small percentage of the house to a family member Borrow Money from a Family Member Sell a Percentage or Remainder Interest in Home to Family Member Married Couple: Leave Percentage to Children or to Trust for Spouse Avoiding Estate Recovery Transferring Excluded Assets IRAs Income-Producing Property Just Say No (Spousal Refusal to Support) Personal Services Contracts Life Care Contract Types of Services Allowed Income Taxes/Reporting Requirements Payments for Past Services Long-Term Care Partnership Programs Liquidating Assets Annuities Real Estate CDs IRAs Questionable Techniques Family Limited Partnership Self-Canceling Installment Notes ( SCIN ) SECTION 11: THE HOME: PLANNING IDEAS What to Do With the Home: The Goal v

6 Do Nothing Outright Transfer to Children Medicaid Gift Add Child s Name to Deed Gift Value Exposure to Child s Creditors Loss of Control Transfer to Children, Keep Life Estate How to Calculate the Gift Joint Interest vs. Remainder Interest: Gift Transfer to Trust, Keep life Estate Outright Transfer to Trust Ladybird Deed Purchase Life Estate in Child s Home Purchase Joint Interest in Child s Home Joint Interest vs. Life Estate: Purchase Parent s Child Moves into the Home ( Caretaker Child ) Parent s Sibling Moves into the Home Income Tax Basis of the Home Reverse Mortgages SECTION 12: ANNUITIES Background Medicaid Planning Annuities Why Annuities Work in Medicaid Planning General Requirements Retirement Plan Annuities Payback to State General Rule Notice Requirements Single Person Annuity Purchase Age Amount Term: Possible Gift Example Payments How to Estimate the Monthly Payments Normal Life Expectancy Shorter Than Normal Life Expectancy Married Couple Annuity Purchase Effect on Community Spouse s Income vi

7 Effect on Community Spouse s Assets (CSRA) Deciding on the Length of the Annuity Term Too Long a Term Can Cause a Gift Advance Large Annuity Purchase by the Community Spouse How Large Can the Annuity Be? Long-Term Care Insurance Option Planning for the Community Spouse Entering a Nursing Home Recent Developments IRAs and Converting to an Annuity Private Annuities Balloon Payment SECTION 13: PROMISSORY NOTES Length of Payment Term Equal Payments Other Important Clauses of the Note Interest Rate Charged Recent Developments SECTION 14: TRANSFER (GIFT) STRATEGIES The Half-A-Loaf Method Why the Classic Half-A-Loaf Method No Longer Works New Half-A-Loaf Alternative Methods Gift + Return of Half the Assets (Reverse Half-a-Loaf) Gift + Annuity Gift + Promissory Note The Too Much Income Problem Gift of Interest in Home + Sale of Balance Gift of Cash from Reverse Mortgage Exceptions Transfer to Spouse Trust for the Sole Benefit of the Spouse Transfer to Blind or Disabled Child Trust for the Sole Benefit of a Blind or Disabled Child Trust for Sole Benefit of a Disabled Person Under Age Transfer of the Home: Caretaker Child Transfer of the Home: Resident Sibling Transfer of the Home: Minor, Blind or Disabled Child Transfers Exclusively for Non-Medicaid Purposes Hardship Waiver Nursing Home Eviction Rules Transfers to Community Spouse vii

8 Purchase Long-Term Care Insurance, Make Gift Disclaiming an Inheritance SECTION 15: POST-ELIGIBILITY ISSUES Patient s Share-of-Costs Personal Needs Allowance Health Care Expenses Post-eligibility Transfers by the Community Spouse If the Community Spouse Dies First Elective Share Problem Change Beneficiary Designations Divorce Option Post-Gift Transfers by Children Moving from State to State SECTION 16: ESTATE RECOVERY Definition of Estate Expanded Definition of Estate Planning for Change Exceptions Timing of the Recovery Claim Procedure and Time limit Waivers Married Couples Issues If the Nursing Home Spouse Dies First If the Community Spouse Dies First Avoiding Estate Recovery Eliminate Probate Assets Transfer House Shortly Before Death Liens When Applied Exceptions SECTION 17: CASE STUDIES Summary of Case Studies Study #1: Single, no home, in nursing home If George Is Already In The Nursing Home What If George Is Not Yet In The Nursing Home? Dealing With The Auto Study #2: Single, owns home, in nursing home If Maria Is Already In The Nursing Home vii viii

9 The Home: Possible Solutions to Avoid Estate Recovery Study #3: Married, owns home, in nursing home Study #4: Married, owns home, not in nursing home Study #5: Single, no home, not in nursing home SECTION 18: VETERANS PENSION: HOW IT WORKS Introduction What is Pension? Eligibility Tests Service Requirement The Medical Needs Test The Income Test The Asset Test How is Pension Calculated? Establishing the Maximum Allowable Pension Rate (MAPR) Doing the Calculation SECTION 19: VETERANS PENSION: PLANNING TECHNIQUES Decisions by VA Are Based on Guidelines Instead of Specific Rules Net Worth in Excess of a Reasonable Amount Will Disqualify for Pension Assets Must Be Completely Divested Including No Life Estates Exempt Assets Converting Assets to Cash Should Not Result in Substantial Sacrifice The Possibility of a 12-Month Lookback Penalty on Divestment of Assets Planning Opportunities for Reallocating Assets to Qualify for Pension Transfers At Least 12 Months Prior to Application Converting Assets into an Income Annuity Converting Assets into a Financial Product or Ownership Form with Little or No Cash Value Incorporating Veterans' Benefits Assistance into Your Practice Charging for Advice Accreditation Helpful Resources re Veterans Benefits SECTION 20: TRUST TAXATION: INCOME, ESTATE, GIFT Income Taxation Type of trusts simple vs. complex Computing the Taxable Income of Trusts Grantor Trusts What Makes a Trust a Grantor Trust? Reversionary interests viii ix

10 674. Power to control beneficial enjoyment Administrative powers Power to revoke Income for benefit of grantor Person other than grantor treated as substantial owner Application To Medicaid Trusts Application to Trusts for Children Gift Taxes Estate Taxes Real Estate Transfer Taxes SECTION 21: PRE-DRA PLANNING APPENDIX The Importance of a Durable Power of Attorney Avoiding Unauthorized Practice of Law Claims Attorney Organizations for the Elder Lawyer Local Bar Association Elder Law Committees NAELA CELA Designation ElderCounsel ACTEC Martindale-Hubbell State Certification Who Is the Client? Aggressive State Regulations Figures GLOSSARY ANNUITY (LIFE EXPECTANCY) TABLE LIFE ESTATE TABLE (UNISEX) STATE NUMBERS Individual Countable Resource Allowance Monthly Divestment Penalty Divisor Monthly Maintenance Needs Allowance (MMMNA) Standard Shelter Amount/Heating and Utility Allowance Community Spouse Resource Allowance (CSRA) FEDERAL STATUTES RESOURCES State Law Issues to Resolve x