Medicaid Planning Techniques: Trusts, Private Annuities, Spousal Transfers, Caregiver Agreements

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Medicaid Planning Techniques: Trusts, Private Annuities, Spousal Transfers, Caregiver Agreements WEDNESDAY, NOVEMBER 8, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: David A. Cutner, Lamson & Cutner, New York Kyla G. Kelim, Esq., Aging in Alabama, Fairhope, Ala. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Agenda I. Asset protection and pooled income trusts Presented by Kyla Kelim II. III. IV. Private annuities and promissory notes Presented by David Cutner Spousal transfers and spousal refusals Presented by Kyla Kelim Caregiver agreements Presented by David Cutner

6 Medicaid Planning Techniques: Trusts, Private Annuities, Spousal Transfers, Caregiver Agreements Kyla G. Kelim, Esq. AGING IN ALABAMA Fairhope, AL 6

7 ASSET PROTECTION AND POOLED INCOME TRUSTS PROTECTING ASSETS ON NURSING HOME ADMISSION 7

8 Qualifying for Medicaid - single Must have less than $ per month income Must have less than $ in assets May also have home with intent to return home May also have one vehicle May also have funeral benefits will vary slightly state to state 8

9 Five Year Lookback Period Deficit Reduction Act of 2005 imposed a 5 year lookback period (effective for most states 2/8/2006) Restrictions on transfers of assets Established penalty period for transfers for less than fair market value Penalty Period is UNLIMITED Changed beginning point of penalty period This will affect nursing home benefits/medicaid waiver SSI recipients not in need of those services will have 24 month benefit interruption 9

10 Penalty Period Will be imposed for transfers for less than fair market value after 2/8/2006 Will not start running until applicant otherwise qualifies for Medicaid benefits --in a covered long term care facility --spent down financially --income qualified UNLIMITED 10

11 How the penalty is calculated Penalty may be imposed for even minimal transfers The amount of the penalty is calculated by adding up the transferred amounts and dividing by the average cost of nursing home care in the area or state as determined by the jurisdiction Can vary wildly by state 11

12 Cost of long term care relating to Penalty Can vary by state: may affect placement: -- Mom transfers her home worth $100,000 to daughter in July She falls, hits her head, and enters a nursing home for long term care in July She spends her savings and is under $2000 and eligible in October, In Alabama, divisor is $5900 or 17 months, so penalty period ends March 2019 and in Florida, divisor is $8365 so penalty period is 12 months, she would be eligible in October, 2018, saving about 5 months of nursing home care PS: No long term care costs as little as $ in Alabama In this scenario: higher income would dictate transferring 12

13 Cost of long term care relating to Penalty If you said apply in August 2018 in AL, you win!! Remember the 5 year lookback, if you wait to apply until August 2018, then the 5 years has run NO PENALTY If you apply in July of 2018, call your insurance carrier THE PROBLEM: Most nursing homes have your client sign a Medicaid application on admission and routinely file them 13

14 Exempt purchases Funeral/Burial House Car Pay debt (mortgage, minimize debt for community spouse) 14

15 Exempt transfers To spouse (but if spouse is sick ) To disabled child (everything) To caretaker child (house) To sibling with an equity interest (house) To minor child (house) To special needs trust (for disabled child or self settled if under age 65) To special needs trust (pooled for over age 65) 15

16 Fancier stuff Set up an irrevocable trust and wait 5 years to admit Set up an irrevocable trust or transfer to others directly and then incur the transfer penalty, pay it (smaller amounts) Reset the snapshot date if you need to pay bills Use an annuity or promissory note 16

17 POOLED TRUSTS PROTECTING ASSETS ON NURSING HOME ADMISSION 17

18 Special Needs Trust Overview Special needs trust is established pursuant to 42 U.S.C. Section 1396p(d)(4)(A) or (C) Authorized by Congress to protect the income and medical benefits of a disabled individual The trust must strictly comply with the law to protect the beneficiary There are several types of special needs trusts The law controls depending on circumstance and age 18

19 Types of Special Needs Trusts 1 st party trust 3 rd party trust Pooled Trust Supplemental Trust Support Trust 19

20 First party trust Most common type, and also known as self-settled, this trust is funded by the beneficiary s own funds or funds to which the beneficiary is entitled Must be established by a parent, grandparent, guardian or Court Now, after Special Needs Fairness Act, competent beneficiary may establish If incapacitated and no parent, grandparent, or guardian available, then you must request the Court to approve Medicaid and Social Security must also approve Commonly funded with personal injury settlements, inheritance 20

21 Third party trust Established with assets that do not belong to beneficiary No payback provision is required Must abide by same rules otherwise 21

22 Pooled trust Each state has one or more company that provides pooled trust services The trust is established through a more streamlined process and the trustee is really a co-trustee, at best, with the trust administrator Must use a pooled trust for those over 64 years of age Must have a payback provision 22

23 Supplemental vs. Support Trust Supplemental Trust supplements the beneficiary s lifestyle Can pay for cable, cell phone, furniture, electronics, vacation, car, car insurance, funeral arrangements, etc. Does not pay for support items like food, shelter, medical care 23

24 Interested parties in SNT Settlor Trustee Beneficiary Guardian Court Social Security Administration Medicaid Agency 24

25 PUBLIC BENEFITS CONSIDERATIONS Goal in most is not to lose means tested benefits SSI vs. SSDI Medicaid benefits Lookback period Penalty Termination of benefits Payback and estate recovery 25

26 SSI vs. SSDI SSDI is not means tested benefits Caution! Those on SSDI may qualify for substantial discounts or Medicaid waiver or nursing home and will lose it if assets, income, rise SSDI otherwise does not need 1 st party trust, use 3 rd party trust All SSI must have 1 st party trust All Medicaid must have 1 st party trust 26

27 Medicaid benefits Caution! Those on SSDI may qualify for substantial discounts or Medicaid waiver or nursing home and will lose it if assets, income, rise There are many many different types of Medicaid so important to find out if the beneficiary receives any of them Ex: caregivers at home, QMB, SNP, Sobra, CHIP 27

28 Payback provision and estate recovery A first party or pooled trust must have payback provision to reimburse Medicaid at death The moment of death, the payback kicks in (if you are going to pay for funeral pay for it now!) After death, if Medicaid is owed anything, they will come after estate assets 28

29 David A. Cutner Attorney at Law 9 East 40th Street 84 Calvert Street New York, NY Harrison, NY Phone: (212) (914) Fax: (212) (212) dcutner@lamson-cutner.com Website: 29

30 Cost of Nursing Home Care Example: NYC Metro Area Approximate cost is $ / day = $12,000 21,000 / mo = $144, ,000 / year 30

31 Medicaid Eligibility Requirements for Nursing Home Care Resources no more than $14,850 Income keep $50 per month, pay medical insurance premiums, balance to nursing home (subject to spouse s right to receive up to $3, per month) 31

32 Look Back Period Look Back Period = the 5 years preceding the month you apply for Medicaid benefits in the nursing home Medicaid is looking for transfers of money or property that would disqualify you from receiving benefits in the nursing home 32

33 Penalty Period If a disqualifying transfer of money or property has occurred during the look back period, a penalty period will be established. The penalty period is the length of time that Medicaid will not pay for the cost of your nursing home care. Length of the penalty period = amount or value of the disqualifying transfers divided by Medicaid s monthly regional rate for nursing home care Medicaid regional rate for nursing home care varies by state or geographic region (e.g., New York has 7 regional rates) 33

34 Example of Penalty Calculation Client lives in NYC where regional rate is $12,157 Client needs nursing home care, but has $214,850 in savings Client transfers $200,000 in order to become Medicaid eligible $200,000 divided by $12,157 = 16.5 month penalty period 34

35 When does the Penalty Period commence? You are in the nursing home You have applied for Medicaid You are eligible for Medicaid but for the transfer of assets in the look back period 35

36 Private Annuities & Promissory Notes What? Why? When? How? 36

37 What? Private Annuities & Promissory Notes are legal instruments used in Medicaid Planning to convert countable resources into streams of income. In order to be effective for this purpose, they must comply with Federal and State Law. Deficit Reduction Act of 2005, 42 U.S.C. 1396p(c)(1) 37

38 Why? The goal is to reduce the penalty period and thereby protect a portion of the client s assets. If the Private Annuity or Promissory Note is properly drafted, the amount paid for it is not a disqualifying transfer. The income stream can then used to pay the nursing home during the penalty period resulting from a gift or transfer. 38

39 When? - Example of Use of Private Annuity or Promissory Note Client needs nursing home care but has $214,850 in savings. $200,000 must be transferred or spent. Transfer $100,000 to a child or friend, resulting in 8 month penalty period. This amount will be saved. Purchase $100,000 Private Annuity, which produces income stream of $12,500 per month for 8 months. Pay privately at nursing home for 8 months, using Private Annuity income, plus Social Security, etc. After 8 months, Medicaid starts to pay for nursing home. The initial transfer of $100,000 is protected. 39

40 How? Private Annuity The State is named as remainder beneficiary Irrevocable and non-assignable Actuarially sound (use IRS or Medicaid tables depending on local requirements) Provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments 40

41 How? -- Promissory Note Repayment term that is actuarially sound Equal repayments during the term of the loan, with no deferral and no balloon payments Prohibits cancellation upon death of the lender 41

42 Calculation of the Monthly Payment Monthly payment from the Private Annuity or Promissory Note should be slightly less than the amount needed to pay the nursing home, after taking other income into account (e.g., Social Security, pension, RMD from retirement account). Zero sum game -- the smaller the amount needed to fund the Private Annuity or Promissory Note, the greater the amount saved. 42

43 SPOUSAL TRANSFER AND SPOUSAL REFUSAL PROTECTING ASSETS ON NURSING HOME ADMISSION 43

44 Qualifying for Medicaid - Married Applicant must have less than $ per month income Must have less than $241, in assets May also have home if spouse is living in home May also have one vehicle May also have funeral benefits for each will vary slightly state to state 44

45 Community spouse can also have Community spouse can keep all of their income OR Income from applicant can be diverted to a total of $ for community spouse In Florida, can keep up to one half of asset limit: $120, It does not matter whose name is on assets Consider annuities to max income If community spouse has low income, look for other savings Long term care insurance can save assets 45

46 Can and should transfer assets to spouse No lookback period or transfer penalty Can put new beneficiary Can draft new will Avoid estate recovery or the institutional spouse inheriting 46

47 Problems with transfer Stepchildren No authority Court order required Mandatory elective share/spousal exemptions if community spouse dies 47

48 Spousal refusal Refuse to contribute towards spenddown Many states will still come after spouse (some won t) Alternative to divorce 48

49 CAREGIVER AGREEMENT Also called a Personal Services Contract A formal written agreement with an adult child, other relative, friend, or professional, for companionship, paying bills, managing finances, providing transportation, managing social activities, personal care, or the like. 49

50 Role of Caregiver Agreements in Medicaid Planning Payment for services under a Caregiver Agreement is made in a lump sum, in advance. If the Caregiver Agreement is properly prepared, the lump sum payment will not be counted as an available resource or a penalized transfer. 50

51 The Medicaid Compliant Caregiver Agreement (1) A formal written document that sets forth the duties and responsibilities of the caregiver, and the method of calculating the caregiver s compensation. (2) Compensation in line with cost of similar services in the same geographic area. (3) Services do not replace or duplicate services being provided by a nursing home or home aide. 51

52 The Medicaid Compliant Caregiver Agreement con t (4) Lump sum payment is calculated with reference to the Medicaid applicant/recipient s life expectancy. (Use IRS or Medicaid table depending on local requirements.) (5) Repayment to Medicaid of unearned portion of lump sum if caregiver becomes unable to fulfill his or her duties under the agreement, or if Medicaid recipient dies before entire lump sum is earned. 52

53 The Medicaid Compliant Caregiver Agreement con t (6) The agreement must be irrevocable and nonassignable. (7) Services can be on an as needed basis subject to a maximum number of hours to be provided each month. Caregiver should keep detailed logs of all services provided, and, as a best practice, render invoices for such services, and have the Medicaid recipient or representative sign the invoices. 53

54 Role of the Caregiver Agreement in the Family (1) Caregiver may experience financial hardship as a result of reducing hours at work to care for a parent or other relative. Compensation helps offset the loss or diminution of income. The parent might have had to pay the same or more to an agency to provide the same services. 54

55 Role of the Caregiver Agreement in the Family (con t) (2) Many children feel guilty about complaining that caring for a parent is a burden, but Caring for an aging parent can be extremely trying, both mentally and physically. The Caregiver Agreement acknowledges the caregiver child s hard work and personal sacrifice. 55

56 Role of the Caregiver Agreement in the Family (con t) (3) If siblings are unable or unwilling to help Caregiver may feel resentment, and relationships can become strained. Fair compensation to the caregiver can minimize these conflicts. Non-caregiving siblings may be relieved of their guilt or embarrassment when caregiver is paid. 56

57 David A. Cutner Attorney at Law 9 East 40th Street 84 Calvert Street New York, NY Harrison, NY Phone: (212) (914) Fax: (212) (212) dcutner@lamson-cutner.com Website: 57

58 Kyla G. Kelim, Esq. AGING IN ALABAMA P.O. Box 109 Fairhope, AL (855) ELD-RLAW 58