Tag Archives: Elder Law

Preserving Assets and Maximum Income for the Healthier Spouse When the Other Spouse Enters a Nursing Home

by: Brian E. Barreira, Esq.

When one spouse enters a nursing home and may be applying for MassHealth, the spouse who remains at home or in assisted living often has some important choices to make with an unbiased legal advisor.

One of the biggest mistakes that many spouses make when the other spouse enters a nursing home is not getting legal advice from an elder law attorney about Medicaid, known in Massachusetts as “MassHealth.” The “free” information that many community spouses (which under MassHealth law  means any spouse who is not in a nursing home) often rely on can turn out to be quite costly to them.

There are different layers in MassHealth law, and many persons only seem to know about the bottom layer, so let’s go over that one first. Under 2010 law, just about everything other than the home and car are totaled, and the community spouse supposedly can keep only the first $109,560 under 2011 law.

Unfortunately, this lower layer is where the knowledge of many persons ends, and two other upper layers of the law effectively override the lower layer. One upper layer is that the community spouse can enter into certain types of annuity agreements with the spenddown (that is, excess) assets.

Before even thinking about using the annuity layer, however, the community spouse should keep three things in mind: (A) not every annuity will work; (B) the published regulations and unpublished internal procedures and policies which now allow such a move can change with little advance notice, so it is often not advisable that an annuity be purchased until the institutionalized spouse’s nursing home stay has already occurred; and most importantly (C) many community spouses can keep everything without needing an annuity, and are better off without an annuity, due to the other upper layer of MassHealth law that protects income for the community spouse.

At present, the community spouse has the absolute right to an income of at least 1,821.25 per month. (Further, if shelter expenses exceed 30% of this figure, or $514.00, or if a disabled child lives at home, the community spouse is often entitled to keep much more than $1,821.25 per month.) If the Social Security and pension payable in the name of the community spouse is less than the $1821.25 figure, as is often the situation when the husband enters the nursing home, at the end of the MassHealth application process the community spouse is allowed to keep some or all of the institutionalized spouse’s income.

If the needs of the community spouse are greater than $2,739 per month, a higher amount of income can sometimes be preserved for the community spouse via the fair hearing appeal process, where the need to keep the other assets has to be proved to maintain the financial ability to remain in the community.  A common situation where need can be fairly easily proved is where the community spouse is living in an assisted living facility and needs to be there due to frailty, medical condition of other special needs.   Once the need to be in assisted living is established, the appeal is primarily about numbers and prevailing interest rates, so the community spouse need not go to the hearing, and the elder law attorney can often handle it alone.

Another option to retain greater income for the community spouse is a Probate Court procedure known as separate support.  Since both spouses need legal representation in court, it is important that the institutionalized spouse have a durable power of attorney that allows the appointed person to hire a lawyer.

When spenddown and appeal options are determined by an elder law attorney as potentially unsuccessful, the community spouse can often purchase certain types of immediate annuities, which are almost always the last resort due to the manner in which the institutionalized spouse’s income is treated for MassHealth purposes.

Maintaining the maximum retroactivity of the original MassHealth application is vital to preserve assets for the community spouse and to ensure that the nursing home will be paid by MassHealth, so the MassHealth fair hearing appeal process should never be overlooked if any type of notice of denial is ever received along the way.

Why don’t more persons know about the appeal and annuity options? Perhaps because the high-level state bureaucrats who run MassHealth do not want everyone taking advantage of these options, and have seen to it that their legal department keeps the official information about spousal rights and annuities as vague or hidden as is legally possible.  Perhaps because many nursing homes offer “free help” with the MassHealth application, yet do not give the family complete information about possible appeals and annuities, so that the community spouse feels relieved at receiving help yet unaware that some important alternatives are not being explored.

Last-Minute Medicaid Planning in Massachusetts

by: Brian E. Barreira, Esq.

Even After a Nursing Home Stay Has Begun, Some Asset Protection Planning Can Still Be Done

Lookback and Disqualification Periods

Many persons, including some who are rendering advice about Medicaid law, seem to misunderstand the Medicaid lookback period. The lookback period is not the same as the disqualification period. When a Medicaid application is filed, the state Medicaid agency looks back five (5) years for gifts made and trusts established on or after February 8, 2006. Based on whatever the state Medicaid agency finds in the lookback period, a disqualification period can be imposed.

A thorough understanding of the interaction between the lookback and disqualification periods is needed before deciding whether a gift can be made, or whether the filing of a Medicaid application should be delayed.

Last-Minute MassHealth (i.e., Medicaid) Planning for Married Couples

The community spouse (A) can keep all assets automatically in some cases; (B) can spenddown excess assets in some cases; and (C) can keep all assets in many other cases through a fair hearing process. All protected assets must be transferred into the community spouse’s name, and the 5-year lookback period does not apply to this allowable transfer of assets.

When all else is determined by an elder law attorney as potentially unsuccessful, the community spouse can purchase an immediate annuity, which is similar to buying a short-term pension.  There is no current regulation requiring that the annuity extend for the community spouse’s life expectancy or that the institutionalized spouse be the post-death beneficiary.

To allow extra items to be bought for the institutionalized spouse without causing the loss of MassHealth benefits that an outright inheritance would cause, after the gifts are made to the community spouse, the community spouse should often execute a will containing a testamentary trust for the institutionalized spouse’s benefit.

Last-Minute MassHealth (i.e., Medicaid) Planning for an Unmarried Person

Long-term care insurance protects the home from a MassHealth estate recovery claim for long-term care (but not community care) benefits if questions on the application are answered correctly.

Partial gifts of real estate and other assets can still be advisable, even after a nursing home stay has begun, if sufficient assets are retained to pay for the disqualification period caused by the gifts, or the remainder of the lookback period.

For a person whose realistic life expectancy is far less than average, an immediate annuity may, even under the 2006 law, be a way to minimize nursing home payments and preserve funds for the eventual post-death beneficiary of the annuity.

Using Long Term Care Insurance to Cover the Medicaid Disqualification Period

by: Brian E. Barreira, Esq.

Many persons do not become aware of long-term care financing issues (including Medicaid transfer restrictions and the lack of coverage of long-term health care by Medicare and other health insurance) until it is too late to engage in anything other than choosing among bad options.  Some persons, however, have the foresight to engage in advance planning, but cannot afford long-term care insurance, so that need to resort to Medicaid planning.  They often are middle-class persons who own a home and limited funds that they need to live on, and typically their primary concern in engaging in Medicaid planning is to preserve their home for eventual inheritance by their children without losing the right to occupy their home.

Long-term care insurance is often the best solution to the long-term care problem, but if it cannot be afforded on a long-term basis, the only way to preserve the home is to transfer it.  (If the home is not transferred, it can still be deemed exempt upon a Medicaid application, but only during the applicant’s lifetime.  After the death of a Medicaid recipient who was a homeowner, however, an estate recovery claim for reimbursement can be made by the state Medicaid program.)

No matter how the transfer is structured, unless it is made to one of the limited number of permissible transfers under federal Medicaid law and state Medicaid regulations, a 5-year (or, in some cases, greater) period of Medicaid disqualification will result, beginning in the month of the transfer.  For example, suppose an unmarried person transfers a home worth $630,000.00 in a state where the average nursing home cost is $7,000.00. If a Medicaid application is made within 5 years of the transfer, the disqualification period would be 90 months, beginning at the time of the application.  If the application is made more than 5 years after the transfer, under federal Medicaid law no disqualification period would exist.

If the need for a nursing home stay became necessary during the Medicaid disqualification period, private payment of nursing home costs will be necessary, unless the transaction is undone at that point; this process is known in Medicaid parlance as a “cure.”  Since a cure will sometimes result in gift tax complications, it may not be advisable from a tax standpoint.  Further, unless a cure is made, the spouse of an institutionalized person may end up spending all of his/her liquid assets, and thereby become impoverished.

For example, suppose an unmarried person transfers a home worth $270,000.00 in a state where the average nursing home cost is $9,000.00. Medicaid law would then provide for a maximum disqualification period of 30 months if a Medicaid application were filed within 5 years of the transfer. If the transferor needs nursing home care after 5 years have passed, the transferor will be eligible for Medicaid. If the transferor required a nursing home stay after 50 months had passed, he or she would be disqualified for the remaining 10 months of the lookback period. The transferor’s monthly income would pay for part of each month’s cost during the lookback period, but the transferees would have to either undo the transaction or pay for the remaining 10 months, an amount of $50,000.00 in this example.

If the transferees in this example were at all able to pay for the remaining disqualification period, they have a great deal to gain. If they were unable or unwilling to cover nursing home costs during this time and were required to make a full cure of the disqualifying transfer, the transferor would be revested with the $270,000.00 home, and a new plan would be needed to attempt to save something.

One way around these problems would be for the person to purchase long-term care insurance at the time of the transfer. While insurance premiums can be very expensive for people in their 70′s and 80’s, the policy could merely be purchased to eliminate the downside risk discussed above. Thus, the person would purchase the policy with short-term interests in mind, and obtain the smallest benefit necessary to cover nursing home care during the disqualification period.

The transferor’s income and other assets would factor into the determination of the amount of insurance to be purchased. As time went on, the transferor could drop the daily amount of the policy to fit his or her needs, and may even choose to get rid of the policy before the disqualification period expires. Once the disqualification period expires, however, the policy would likely be dropped (unless Medicaid laws had changed and it would be advisable to maintain the policy).

Many persons reject long-term care insurance as a long-term planning measure because the premiums are very expensive, and many persons reject the insurance as a short-term measure for the same reason. If someone is balking at the cost of the insurance, or if they are so concerned about the Medicaid disqualification period that they do not wish to make any transfer, it would perhaps be advisable to involve the transferees in the discussion, as it is their eventual inheritance that is at stake here. When the transferees learn how the Medicaid disqualification period works, they may find it is in their best interests to pay the premiums for the transferor. The transferor may not like the idea of others paying the premiums, but since without this insurance the purpose of the transfer can end up being frustrated by fate, payment by the transferee(s) should at least be considered.

Doherty Case Should Cause Some Concern about Irrevocable Medicaid Trusts in Massachusetts

by: Brian E. Barreira, Esq.

In Doherty v. Director of the Office of Medicaid, the Massachusetts Appeals Court rendered a 2009 decision that could be viewed as an assault on irrevocable, income-only trusts in Massachusetts that were designed for MassHealth (i.e., Medicaid) purposes. The decision may simply have been about the facts of a poorly-drafted trust.

A lot of discussion has occurred among Massachusetts elder law attorneys about this case. While the decision appears to be justified based on the details of the trust, what is troubling is that the language in the decision was not as concise as one would expect from an appellate court. It is difficult to read the case and see exactly why the court made its decision, but perhaps the court simply didn’t see sufficient reason to overturn the decisions made below in the Superior Court and at the MassHealth fair hearing level.

The trust in Doherty had some fatal flaws. The person who established it had the authority to make decisions as to what constituted principal and income, and had the right to terminate the trust and make distributions to the “beneficiaries” (which was an undefined term). It appeared that the person who established the trust could be given the assets from the trust, and Medicaid would then be correct in treating the assets of the trust as countable assets, but because the court was not specific about what was wrong with this trust under Medicaid law, any trust under which too much control is reserved could eventually be under attack under Doherty’s poorly-written decision.

Fortunately, in the months since the Doherty decision was handed down, it does not appear that the case is being stretched by MassHealth lawyers to apply to other irrevocable trusts. Still, to be conservative, I have been suggesting to my clients who have established irrevocable trusts that a thorough review is necessary, and, in some cases, we have been releasing some of the powers and rights that were reserved when the trust was originally established. It may also be a good idea for the older person who established the trust to step down as trustee.

New MassHealth developments are reported by elder law attorneys through listservs to each other on a daily basis. We learn about new positions taken by MassHealth lawyers before those problems ever are in reported court cases, and change our strategies. Because of Doherty, irrevocable trusts should often be reevaluated. My suggestion to all persons who have established irrevocable trusts for Medicaid or long-term care planning purposes is that you have your irrevocable trust reviewed every 2 years.

Problems with Outright Gifts in the Medicaid Planning Context

by: Brian E. Barreira, Esq.

An irrevocable trust is often a better planning maneuver than an outright gift.  There are several problems with outright gifts in the Medicaid planning context that can lead to the recommendation of the use of an irrevocable trust. Below are a few of these problems.

(1) Appreciated Assets

Clients are often concerned about leaving behind the greatest possible inheritance, yet they are unaware of the consequences of making gifts of appreciated assets. Upon a gift, the transferees receive a carryover basis (i.e., will be treated for capital gains tax purposes upon a subsequent sale as if the transferees had purchased the asset for the same price at which the client had purchased it, plus capital improvements, if applicable). Thus, any gift of appreciated assets is also a gift of a possible capital gains tax. If a trust is structured so that the assets of the client are subject to estate taxation, the transferees would then receive a step-up in basis (i.e., the transferees would be treated for capital gains tax purposes, upon any sale occurring after the death of the client, as if the transferees had purchased the asset from the estate at its fair market value as finally determined for estate tax purposes). Thus, by use of a trust which causes assets to be subject to estate taxation, the transferees would in all likelihood not be liable for any capital gains taxes upon a sale immediately after the death of the client. This result will occur even if the client’s gross estate is less than $1,000,000.00 and no federal or Massachusetts estate taxes would thereby be due. Further, this result is often of greater benefit to the transferees than the avoidance of a minimal level of estate taxation.

(2) Fear of Loss of Control

The most obvious situation where an outright gift would not be feasible is where the client does not wish to lose control over the assets, due to the desire to maintain control over his or her own destiny. If the lawyer begins with the premise that estate taxation is not undesirable, the trust can be drafted to give the Donor a great deal of control.

(3) Transferees of Unequal Financial Abilities

The client may wish to treat all of his or her children (or other transferees) equally, and may not wish to make any gifts unless treatment is exactly equal. The problem the client may have is that either the investment prowess of the transferees or their ability to segregate and maintain the transferred assets may be questionable. The issue of a transferee’s spouse meddling into these affairs can also be a concern in this regard. With such client concerns, a trust would be appropriate in that one or more of the transferees who will handle investment and managerial responsibilities better than the others can become the trustee(s). By use of the trust, then, the client can feel secure that the assets will be managed properly and for such person’s benefit during such person’s lifetime, and after such person’s death whatever assets remain will be distributed equally to all of such person’s children.

Upon a conveyance of real estate subject to the Donor’s reserved life estate, any attempted sale, mortgage or other conveyance of the real estate would require the signature of the life tenant, or someone acting in a fiduciary capacity or under a durable power of attorney on behalf of the life tenant. Further, a particular person would not be empowered to make any decisions or expend any funds with regard to upkeep of and improvements to the property. By way of contrast, placing the home into a trust could allow the trustee to take any action with respect to the property without any action required by the Donor or someone acting on behalf of the Donor and without obtaining the agreement of all of the remainderpersons.

(4) Possible Bankruptcy of or Other Lawsuit Against Transferee

The client may be concerned that if the transferees are sued for any reason, the assets could be lost. Such a concern can be especially valid where one or more of the transferees own their own businesses or otherwise engage in risky endeavors. Whereas an outright gift could thereby cause the assets to be lost, a properly drafted trust would shield the assets from the bankruptcy, or any lawsuit against, any transferee, even if the transferee is a trustee of the trust.

A transferee may have marital problems, and the client may be concerned that a divorce is imminent. In such a case the client is often concerned that the assets will become part of the marital estate for purposes of equitable division. The use of a trust will obviate the possibility of the assets being treated as part of the marital estate of a transferee, even if the transferee is a trustee.

(5) Possible Death of Transferee

The client may be concerned that if one of the transferees dies before the client, the assets will end up being inherited by others who would not feel morally compelled to use these assets for the benefit of the client. Due to this concern, gifts can create a need for the transferees to have their wills redrafted. The intention of such redrafted wills may not be fulfilled if the will is successfully contested or a disgruntled spouse files a waiver of it. The client could therefore be left with little or nothing back from a predeceased transferee. The use of a trust obviates this problem, and may be more economical where several transferees exist.

A further problem which could be caused by a transferee predeceasing the client is that gifted assets would be taxable in the estate of the transferee, and estate taxes may be payable out of these transferred assets. A properly drafted trust obviates this problem also.

(6) Income Taxation

Because a client who is concerned about nursing home costs is usually retired, he or she is often in a lower income tax bracket than his or her children. A gift, then, could cause the income from the transferred assets to be subject to a higher level of income taxation, as well as lose capital gains tax benefits which the client might have had upon a later sale of the home.

(7) Capital Gains Taxation on Sale of Home

Under Internal Revenue Code section 121, a homeowner can sell his or her home and pay no capital gains tax on the first $250,000.00 of appreciation. A gift to the children results in their having ownership interests that do not qualify for this capital gains exclusion, whereas a transfer of the home to a properly drafted irrevocable trust can result in the retention of the ability to use this exclusion.

Five Issues in Massachusetts Medicaid Planning

by: Brian E. Barreira, Esq.

Most Living Trusts Sold at Seminars Don’t Work for MassHealth Purposes

Often overlooked in the estate tax planning process is that a funded trust that avoids probate is often considered available by MassHealth (i.e., Medicaid) to pay for the surviving spouse’s nursing home care. Thus, funding a revocable trust for the sole purpose of avoiding probate can place a surviving spouse in a worse position than if probate avoidance had not been accomplished.

Testamentary Trusts
There is one type of trust that spouses can establish for each other that meets the criteria established under both federal law and Massachusetts regulations for being considered unavailable to a MassHealth applicant: a discretionary testamentary trust. Under a federal Medicaid law that has been in effect since 1985, an unfunded trust that was funded by the deceased spouse’s will is not considered available for payment of the nursing home care of the surviving spouse to the extent that distributions are discretionary.

Irrevocable Trusts Also Allow Capital Gains Tax Planning

Irrevocable trusts are subject to a 5-year lookback period, and can sometimes place an elderly person in a worse position when applying for MassHealth than other types of gifts. Since an irrevocable trust is effective only if its principal cannot be distributed to the person who established it, attempting to preserve the use of the principal to pay for home care or assisted living is not possible. An irrevocable trust can be drafted, however, to allow principal distributions from the trust to others who can opt to pay for the home care or assisted living. If the irrevocable trust triggers the grantor trust rules as to the trust principal, such as by the reservation of a special power of appointment, the grantor can maintain use of the $250,000.00 capital gains exclusion upon a sale by the trust.

Long-Term Care Insurance Policies Can Preserve the Home

If a person ever received any type of MassHealth benefits, a post-death estate recovery claim for reimbursement can be made against the person’s probate estate. Under current MassHealth regulations, a 2-year, $125.00 per day long-term care insurance policy can exempt the home from post-death estate recovery for MassHealth long-term care (but not community care) benefits. This regulation replaced the prior requirement of $50.00 per day, which was grandfathered for individual long-term care insurance policies issued before March 15, 1999.

Immediate Annuities As a Last-Minute Option for the At-Home Spouse

The purchase of an immediate annuity can place a community spouse in a worse financial position than going through the MassHealth appeal process. In cases where the MassHealth appeal process would not preserve all assets, an immediate annuity can help, but the MassHealth appeal process is financially preferable because it can preserve not only all assets but also some or all of the institutionalized spouse’s income for the benefit of the community spouse. The payout period of the annuity cannot exceed MassHealth’s determination of the life expectancy of the community spouse. Under the immediate annuity route, however, MassHealth eligibility is not effective until the date the annuity is irrevocably purchased, so it is important that a qualified elder law attorney make a determination of which is the better route as early in the planning process as possible.

Fitting Medicaid Issues and Long-Term Care Insurance into Estate and Gift Tax Planning

by: Brian E. Barreira, Esq.

Proper estate planning should not ignore long-term care issues, such as the following:

(1)  Any gifts or other transfers for less than full value, including $13,000.00 gifts and other annual exclusion gifts, are considered to be disqualifying transfers for Medicaid purposes.

(2)  The average current cost of a semi-private room in a Massachusetts nursing home is now roughly $300-320 per day, which amounts to $9,000-9,600.00 per month or $108,000-115,000 per year. Persons with Alzheimer’s disease who can no longer remain at home run the risk of an extended nursing home stay, reputedly averaging 8-9 years. With a potential long-term care cost of roughly $864,000-1,035,000, how can intelligent estate and gift tax planning be done without factoring long-term care insurance into the process? It is difficult for an estate planner to recommend making large gifts if the remaining assets will possibly be insufficient to meet the client’s foreseeable needs.

(3)  Often overlooked in the estate and gift tax planning process is how a revocable trust established by a now-deceased spouse is viewed if the surviving spouse applies for Medicaid. A funded trust that avoided probate is often considered completely available for the surviving spouse’s care, so funding a revocable trust for the sole purpose of avoiding probate can place a surviving spouse in a worse position than if probate avoidance had not been accomplished.

(4)  There is one type of trust that spouses can establish for each other that meets the criteria established under both federal law and Massachusetts regulations for being considered unavailable to a Medicaid applicant: a discretionary testamentary trust. Under a peculiar federal Medicaid law, an unfunded trust that was funded by the deceased spouse’s Last Will and Testament is not considered available for payment of the nursing home care of the surviving spouse to the extent that distributions are discretionary. In essence, a bypass or credit shelter trust can be established under the decedent’s Last Will and Testament that has only the surviving spouse as a beneficiary, with no required distributions of income or principal. The surviving spouse should not be given a general power of appointment over the trust or any other power to make withdrawals.

Minimum Monthly Maintenance Needs Allowance for Nursing Home Resident’s Spouse Stays Unchanged through June 30, 2011

by: Brian E. Barreira, Esq.

When one spouse is living in a nursing home and the other spouse is living anywhere else, the spouse who is not living in the nursing home (known under Medicaid and MassHealth law as the “community spouse”) is allowed by Medicaid or MassHealth to keep some or all of the nursing home resident’s income through an income allowance known as the Minimum Monthly Maintenance Needs Allowance (MMMNA).  Every July 1st, this figure is supposed to change based on federal poverty level guidelines, but the U.S. Department of Health and Human Services did not revise the guidelines this year, so the MMMNA will remain $1,821 through June 30, 2011.

If certain basic household expenses are more than 30% of the MMMNA, the community spouse is entitled to keep extra income, known as the Excess Shelter Amount (“ESA”).  Between the MMMNA and the ESA, the community spouse can now be entitled to as keep as much as $2,739 of the married couple’s total income.  If even more income is needed, such as where the community spouse is living in an assisted living facility, the community spouse can request a fair hearing and attempt to prove the need for more than $2,739 of the married couple’s total income.  All of these figures remain unchanged through June 30, 2011.

Another option to retain greater income for the community spouse is a Probate Court procedure known as separate support.  Since both spouses need legal representation in court, it is important that the institutionalized spouse have a durable power of attorney that allows the appointed person to hire a lawyer.

Utilizing the MMMNA provisions in Medicaid/MassHealth law is always better than purchasing an immediate annuity, since all payments from the annuity are treated as income, and taking that step ends up reducing the amount of the married couple’s retirement income that the community spouse could otherwise keep.  Unfortunately, due to the asset rules under Medicaid/MassHealth, in many situations the community spouse has no choice but to purchase an immediate annuity with excess assets.  See Preserving Assets and Maximum Income for the Healthier Spouse When the Other Spouse Enters a Nursing Home.