MEDICAID SPEND DOWN AND MEDICAID ELIGIBLE TRUSTS

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1 MEDICAID SPEND DOWN AND MEDICAID ELIGIBLE TRUSTS Medicare v. Medicaid Medicare is a single payer (government) medical system for those over 65, those who have been on Social Security Disability Insurance (SSDI) for two years or more, or persons who have end stage renal disease or ALS. Four Parts: Part A - Hospital Insurance. No cost to participate. Part B - Supplemental Medical Insurance. Pays for physician visits and outpatient care. Monthly premium which is automatically deducted from your Social Security. Part C - Medicare Advantage. Optional program that allows a person to participate in a managed care plan like an HMO. Covers everything that Part A and Part B cover except hospice care. If you are participating in Part C, you are not participating in Part A and Part B. There is a premium to participate in Part C. Part D - drug coverage. Medigap coverage - people who participate in Part A and Part B often supplement this coverage with private insurance. Medicare does NOT cover long term-care (nursing home). Medicaid is a joint federal/state program to provide medical care to low-income persons who are disabled, aged, blind, pregnant, children (and sometimes families with eligible children). This is a means tested program - in order to qualify you must meet income and resource requirements. Medicaid WILL provide long-term care assistance IF the person is eligible and meets resources and income requirements. These requirements are: Income less than the cost of long term care (for non-institutionalized applicants less than the maximum monthly Supplemental Security Income payment - $710 for 2013) $2,000 or less in resources (in SSI states, some states are 209(b) states and set other limits which will be even lower) Must qualify for assistance such as through proving citizenship, establishing disability status, and proving residency in the state of the application. Medicaid Spend-down It is assumed that persons in a long-term care facility will consume their resources for their care and eventually need to apply for Medicaid assistance; this is referred to as spending down. Each state has its own exempt resources, but generally the following items do not need to be consumed to become Medicaid eligible: Real property. You may keep your primary residence if it is the home of yourself, your spouse, or your dependent child.

2 Household goods, personal effects, tools used around the home, and keepsakes. This usually includes pets. One vehicle for your household. Prepaid burial funds/funeral arrangements. The resources of the applicantʼs spouse OR any person with a legal responsibility to care for the Medicaid applicant, such as sponsor to alien, will be deemed to be available to provide care to the applicant. Medicaid Look back and Transfer Penalty Medicaid eligibility rules include a five year look back period and a transfer penalty. A transfer is a sale for less than fair market value or a gift of any resource that is not exempt by either the applicant or their spouse (sponsor, parent). The penalty is the value of the item divided by the cost of one dayʼs care. The result is the number of days the applicant is disqualified (cannot exceed five years). The penalty begins to run on the later of the first day of the month after the transfer OR the date the person would have become Medicaid eligible but for the transfer. Division of Assets If the institutionalized spouse is likely to remain in a nursing facility for at least 30 days, the community spouse can divide their resources. Five parts to the division: Financial snapshot. Calculate all resources and income at the time the Medicaid applicant is institutionalized Community Spouse Resource Allowance. The community spouse keeps all exempt resources and half of the coupleʼs other resources (there is a state established minimum and maximum - for Kansas it is $23,284 and $115,920 for 2013). Spend down. Application for Medicaid Assistance. Community Spouse Monthly Income Allowance. The community spouse keeps his or her own income. If it is too low (less than $1,892 in Kansas) then you can keep part of the institutionalized spouseʼs income, as well (this is increased slightly for renters and those with dependent children in the home). Medicaid Eligible Trusts Assets in a self-settled trust (one created by the spouse, parent of a minor, sponsor or the Medicaid applicant) are considered available resources. They will make an applicant ineligible for Medicaid (and other public benefits) UNLESS they are d4a trusts (a Medicaid payback trust), a Qualifying Income or Miller Trust, or a Pooled Trust. These trusts promise the residue will be paid to the state to reimburse for the benefits received OR in the case of a pooled trust the residue is paid to a charity. A third party-settled trust is funded by assets that do not belong to the applicant, such as a parent funding a trust for their adult child who is disabled. In order for these trusts

3 to maintain Medicaid eligibility, the trustee must have total discretion to decide whether to support the beneficiary or not. This will mean that the resources are not countable to the beneficiary. Special Needs trusts are not countable resources. These trusts generally use language that the trustee can make distributions to the beneficiary that supplement but do not supplant public benefits. Estate Recovery States can make claims against the estate of a Medicaid beneficiary (or their spouse) for repayment of medical expenses. Generally this is in the form of a lien against the beneficiaryʼs home. This cannot be done until the community spouse dies. Durable General Power of Attorney ADVANCE DIRECTIVES Allows a person to name an attorney-in-fact. This person can take the actions allowed by the DPOA. A DPOA stays in effect upon the disability of the principal. Requires the following: Language that states that it is a durable power of attorney Must specify if it takes effect immediately or upon disability (and define how disability will be determined if the later option is chosen) Must be signed and dated by the principal in front of a notary. Powers that can be granted: To make gifts To handle tax matters To do trust planning To apply for government and charitable benefits To change residence To waive attorney/client and physician/patient privilege To nominate a guardian or conservator for the principal To give consent for an autopsy To disclaim a gift To pay the expenses of the principalʼs funeral. Powers that cannot be granted: To sell real property (unless the property is specifically identified and the spouse gives consent - in Kansas, may not be the same in other states, but be cautious) To make a Last Will and Testament To require the principal to take action against his or her will To modify the principalʼs living will or other health care documents To carry out any action forbidden to the principal.

4 Durable Power of Attorney for Health Care Names an agent to make medical decisions on your behalf in the event that you are disabled. Living Will Prevents the application of life sustaining procedures that would serve only to artificially prolong the dying process. Directs physicians and family to allow the document s signer to be permitted to die naturally with only the administration of medication or the performance of medical procedures necessary to provide comfort care. What is Probate PROBATE The process of going to court to get the authority to collect the property of a deceased person, pay their bills and taxes (income tax for every deceased person and estate taxes for estates over $5,250,000), and distribute their property according to their will (or state intestacy laws). Advantages and Disadvantages of the Probate Process Advantages of Probate: court supervised which is beneficial if you do not have a person you trust to serve as the executor if you anticipate disagreements in your family (a challenge to your will) when your debts exceed your assets (probate terminates all claims against the estate that are not filed within the claims period) Disadvantages of Probate: delay (often takes over a year to finalize an estate) cost % of an estate is taken with court costs, attorney fees, publication costs, and fees to the executor probate court records are open to the public Avoiding Probate Ways to Avoid Probate: Property that is held in joint tenancy with right of survivorship Property that has a beneficiary designation (such as IRAs and life insurance policies) Property owned by a living trust (you still need a will to pour over your property into the trust) Transfer on Death Deed (permissible in Kansas, may not be in every state) Small estate probate - less costly, no formal accounting made to the court. Kansas $40,000 estate or less.

5 GUARDIANSHIP/CONSERVATORSHIP Definitions A guardian is appointed to make decisions on behalf of an incapacitated person (known as the ward), such as where the person will live and what type of medical care he or she will receive. A conservator is the person who makes financial decisions for an incapacitated individual, known as the conservatee or protectee. A guardian ad litem is an attorney who is appointed by the court to represent the incapacitated individual in court. Incapacitation: being unable by reason of physical or mental impairment to receive and evaluate information or communicate decisions to such an extent that the person lacks the ability to meet his or her needs for the requirements of life such as food, clothing, shelter, safety, or other care such that physical illness, injury, or disease is likely to occur. This definition is different in each state. Appointment Process Adjudication of incapacity Appointment of a Guardian and/or Conservator Administration - any change in circumstances such as moving the ward must be approved by the court. The guardian must provide the court with an annual report. The conservator must inventory the protecteeʼs assets shortly after being appointed and report these to the court. The conservator must file annual reports with the court. The conservator usually must purchase a surety bond. Responsibilities of the Guardian and Conservator A Guardian must do what is in the wardʼs best interests. Generally the guardian cannot do the following without court approval: consent to termination of the wardʼs parental rights consent to the wardʼs adoption consent to the wardʼs sterilization consent to medical experimentation upon the ward place the ward in a mental health or long term care facility consent to the wardʼs marriage or divorce make a Last Will and Testament for the ward.

6 A conservator must invest the protecteeʼs money in a prudent manner and is personally liable for waste of this money. Reasons for a Guardianship/Conservatorship When the person is too impaired to execute a DPOA If the DPOA does not grant broad powers If the person is acting in a manner that is not in their own best interest such as entering into contracts that do not benefit him or her, refusing necessary medical treatment, or being swindled by unsavory people Remember, once a guardianship is in place, it is the guardian, not the ward, who makes decisions on behalf of the ward. Persons like the wardʼs physician will communicate with the guardian and not the ward. Reasons Against a Guardianship/Conservatorship Cost Annual reports must be filed with the court Difficult to terminate Time required to meet the courtʼs requirements.