Medicaid Planning After the Deficit Reduction Act Mark S. Reckman, Esq. Wood & Lamping 513-852-6054 msreckman@woodlamping.com May 18, 2007 Medicaid Financial Criteria Income Test Count only the income of the Institutionalized Spouse (I.S.) Income < (N.H.) bill Assets Test Count assets of both I.S. and Community Spouse (C.S.) Total Available Resources (TAR) < $1,500 Available Resources Bank Deposits Securities Life Insurance over $1,500 Rental and Vacation Property Retirement Accounts Promissory Notes/Land Contracts Life Estates and Life Leases Assets in Trust Deferred Annuities Any asset with a Vested claim (Dower, Rights of Surviving Spouse, etc.) 1
Exempt Assets HHG Rings Car Term Life Insurance Whole Life < $1,500 Prepaid Funeral (irrevocable) Burial Spaces House (If occupied by qualified person) Community Spouse s Share of Assets (CSRA) 3 Steps: Pool all assets as of date of institutionalization Subtract exempt assets TAR 2 = CSRA Max $101,640 Min $ 20,328 Key DRA Changes $500,000 cap on home equity Annuities must be actuarially sound Annuities must name Ohio as remainder beneficiary Life Estates are no longer exempt Notes and installment contracts are available resources? Authorizes LTC partnerships Requires income first rule for MIA Defines when CCRC entrance fee is an available resource Multiple transfers equal one transfer 2
Improper Transfer Rules Old Rule New Rule Look Back 36/60 Months 60 Months Penalty Period of Ineligibility Period of Ineligibility Length of Gift 5247 Gift 5247 Penalty Beginning Date of Gift Date of Impoverishment Date Rounding Yes No Down Proper Transfer Rules Non-Medicaid Transfers Two Years of Care Transfers to or for a Blind or Disabled Child Transfers of Homestead to a Sibling with an Equity Interest Transfers to a Safe Harbor Trust Start with Goals Set by Client Quality of Care Supplemental Care Community Spouse s Financial Security Needs of Disabled Family Member Inheritance The Least Important Thing We Do 3
Medicaid Planning Strategies Exemption Planning Annuities Transfer Planning Care Contracts Divorce Life Estates Just Say No Stalling Exemption Planning Pay All Debt Prepay Funeral(s) Irrevocably Burial Plots for Family Stock up on Household Goods Prepay Living Expenses Car Buy a Residence or Make Home Repairs/Improvements Exemption Planning Case Study 1 Fred (Age 75) & Wilma (Age 71) Assets (as of 4/18/2001) 1992 Crown Victoria $ 1,000 HHG/TPP $ 2,000 Checking Account $ 10,000 4 CDs $ 150,000 IRA Stock (low basis) $ 20,000 NET WORTH $ 183,000 Total Countable Resources $ 180,000 Spouse Resource Allowance $ 90,000 Spend Down Target $ 91,500 4
Solution-Case Study 1 Search for additional assets POA, LW, and POAHC Buy condo for $90,000. Title in Wilma s name, T.O.D. Apply for Medicaid after condo purchase Get favorable MIA because of condo fees, insurance and Wilma s low income Transfer all assets out of Fred s name into non probate ownership New Will for Wilma New beneficiary designation on Wilma s IRA or close out IRA to offset Fred s medical deductions Annuities: Key Principles Deferred annuities are an available resource to the owner Immediate annuities are income based on name on the check rule Effect of SPIA on spend down was dependant on date of purchase and marital status: No more Now purchase of non-qualified annuity is an improper transfer only if: Purchased Privately The applicant or spouse is not the owner and annuitant Payment is not actuarially sound Ohio is not listed as the remainder beneficiary Annuity Planning-Case Study 2 Richard (Age 82) & Ann (Age 79) Richard = skilled care Ann = in residence Assets as of 10/1/06 House $ 150,000 1996 Buick $ 3,000 Bank Deposits $ 183,000 Richard s IRA $ 5,000 Life Insurance (Richard) DB $ 35,000 CV $ 5,000 Total Countable Resources $ 198,000 Spouse Resource Allowance $ 99,000 Spend Down Target $ 100,500 Income = Richard s Firefighter s pension $ 1,405 Survivor s pension $ 659 5
Solution-Case Study 2 Check for additional assets POA, LW, and POAHC for both Place all assets into Ann s name POD/TOD to kids Leave life insurance beneficiaries alone for now because payable to healthy spouse Purchase SPIA inside Richard s IRA joint life payout Use $96,000 to purchase SPIA owned by Richard, joint life payout Solution-Case Study 2 Total spent on 2 annuities $ 106,000 Amount of Countable Assets Remaining $ 92,000 Income during Richard s life boosted by $700/mo ½ passes thru as MIA Income after Richard s death boosted by $700/mo Transfer Planning-Improper Transfers Improper Transfers One-time Gifts - wait 5 yrs. Serial Gifts ($5,247/month) - no longer viable File the 709 Post Eligibility Transfer by Spouse - wait 5 yrs. 6
Transfer Planning-Proper Transfers Safe Harbor Trusts Sanctioned Safe Harbors Ohio Medicaid payback Trusts available only to MRDD/MR & ODMH ltd. to $224,000 50/50 split of residue Safe Harbor Trusts Sanctioned Safe Harbors Federal Medicaid Payback Trusts Any disabled person under 65 No dollar cap Repayment up to 100% of trust Safe Harbor Trusts Sanctioned Safe Harbors Pooled Trusts Three in Ohio 7
Safe Harbor Trusts-Third Party Money Unsanctioned Safe Harbor Purely discretionary trust limited to third party money like inheritance. Care Contracts In writing Market Priced Fees Can be secured (mtg) Payment can be deferred Payment can be in non-cash (e.g. credits toward equity in house) Estate Recovery Key Principle: Recovery limited to assets owned by Medicaid recipient at death Practice Tips: Get assets out of Medicaid recipient s name ASAP Keep all assets out of probate in case spouse predeceases recipient Call Columbus if you need to work something out 8
Planning After DRA Technique Status after DRA Exemption Planning No Change Gifts/ Half a loaf Substantially eliminated Serial (Monthly) gifting Eliminated Divorce No Change Just Say No Unclear until hardship is defined under OAC Life Estate Less effective Annuities Prior to institutionalization no change after institutionalization significantly better Notes, Mortgages, and Installment Sales Significantly better if Ohio complies w/dar Caregiver contracts No change Retirement accounts No change Post eligibility transfers by a spouse Subject to new 60 month look back Hardship Unclear until defined by OAC Reverse Mortgages No change Trust POD/TOD and JTWROS accts to avoid estate recovery No longer avoid estate recovery Thank You 9