Tag Archives: Medicaid

What Is the Excess Shelter Allowance When Filing a MassHealth Application?

March 9, 2012 – 8:50 am

by: Brian E. Barreira, Esq.

When applying for MassHealth, the at-home spouse, known as the community spouse, is allowed to keep all of the community spouse’s own income, no matter how much that is.  If the community spouse’s own income is below $1,838, the community spouse is allowed to divert income from the institutionalized spouse to get up to the $1,838 requirement of the current law.  (Note:  the $1,838 minimum monthly maintenance needs allowance —MMMNA— will increase to $1,891 on July 1, 2012, and remain at that higher figure through June 30, 2013.)

The $1,838 in income currently allowed for the community spouse can be increased if the community spouse’s housing expenses are high.  That increase is known as the Excess Shelter Allowance.   If the community spouse’s housing expenses are more than 30% of the MMMNA, (i.e., 30% of $1838, which comes to $551), then the additional income needed is referred to as the Excess Shelter Allowance, and ends up being an additional income allowance for the community spouse.  For some spouses, the increased income allowance can mean an increase in the community spouse resource allowance, which is the total amount of assets that the at-home spouse is allowed to keep.

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By Brian E. Barreira | Posted in MassHealth Application Process, Preserving Assets & Income for the Spouse | Also tagged , , , | Comments (0)

A Primer on Nursing Home Residents Rights under Medicaid Law

August 8, 2011 – 3:44 pm

by: Brian E. Barreira, Esq.

Approximately 20% of all persons who die every year are residents of nursing homes.  Since a nursing home is the last place of residence for such a large percentage of our population, it is very important that all of the rights of nursing home residents be upheld.

A person who lives is a nursing home is known as a “resident,” not a patient, and it is important to note that the resident is in a nursing “home,” not a nursing “institution.”  Federal law requires that a nursing facility provide “services and activities to attain or maintain the highest practicable physical, mental, and psychosocial well-being of each resident.”  Federal law also requires that a facility must ensure that a resident’s “abilities in activities of daily living do not diminish unless circumstances of the individual’s clinical condition demonstrate that diminution was unavoidable.”  Thus, maintaining a condition, or moderating the rate of decline, should always be a goal of therapy services, even if the resident is not making progress.

Federal Medicaid law requires that a nursing facility “must establish and maintain identical policies and practices regarding transfer, discharge, and the provision of services required under the state plan for all individuals regardless of source of payment.”  Thus, a resident should never be denied the continuation of physical therapy based on the excuse that Medicare will no longer cover it.

Nursing facility residents often are susceptible to transfer trauma in being moved from place to place.  Federal law gives every resident the right to veto any intra-facility transfer.  Medicare certification of a room does not prevent that room from being used for the care of a resident who pays privately or has payment through the MassHealth (i.e., Medicaid) program.

Immediate family or other relatives are not subject to visiting hour limitations or other restrictions unless imposed by the resident.  Federal law requires that a resident’s “immediate family or other relatives” have the right to visit at any time if the resident consents to the visit.  Under federal law, non-family visitors must also be granted “immediate access” to the resident.

Federal law requires that a nursing facility must care for its residents in such a manner and in such an environment as will promote maintenance or enhancement of the quality of life of each resident.”  Federal law also requires that a resident has the right “to reside and receive services with reasonable accommodation of individual needs and preferences, except where the health or safety of the individual or other residents would be endangered.”  A resident has the right to choose activities, schedules, and health care consistent with his or her interests, assessments, and plans of care.

By Brian E. Barreira | Posted in Nursing Home Residents Rights | Also tagged , , , , , | Comments (6)

In Medicaid Planning, Some Trusts Can Put Elderly Persons in a Worse Position Than If They Had Taken No Action At All

March 7, 2011 – 7:22 am

by: Brian E. Barreira, Esq.

In trust law, there is no such thing as “one-size-fits-all.”  Trusts must be designed to meet the particular concerns of the person whose assets will be placed there.  Two of the major non-tax concerns of many elderly persons in Massachusetts are probate avoidance and Medicaid (known in Massachusetts as MassHealth).  It is important to note that probate avoidance is not the same as MassHealth planning, and if assets can be given back to or taken back by the original owner, the assets of a trust are not protected for MassHealth purposes if a nursing home stay becomes necessary.

Revocable Trusts

Although the assets of just about any revocable trust will avoid probate, the assets of these trusts are never preserved for Medicaid purposes if a nursing home stay eventually becomes necessary and a MassHealth (i.e., Medicaid) application is filed.  All of the assets of a revocable trust are deemed countable, which in MassHealth jargon means the assets must be spent for the care of the nursing home resident.

The home of a MassHealth applicant is usually considered noncountable, but if it is in a revocable trust, in Massachusetts it is treated the same as any other asset.  The home of a MassHealth applicant that is in a revocable trust must be sold and the proceeds spent on the care of the nursing home resident.  Any exemptions that the home might have received, such as for the MassHealth applicant’s spouse and certain children or siblings, is lost by having the home in a revocable trust.

Many elderly persons go to free living trust seminars, and are “sold” the benefits of probate avoidance. In my opinion, what goes on at those seminars (and the free hour with the lawyer afterwards) is nothing more than a sale.  The sale is often a reddish binder that contains documents that include a revocable trust. In my recent experience, both spouses are co-Trustees of each other’s revocable trusts. The problem is that if one of them becomes mentally incapacitated, we’re stuck with 2 trusts that each have an incompetent co-Trustee, and have to go through extensive steps to get the incompetent Trustee removed from the position.  In my experience, the married couple was not informed during the “sale” process about what would happen if one of the spouses eventually needed nursing home care.

The bottom line is that revocable “living” trusts are easy sales to be made to elderly persons by inept, one-size-fits-all planners or online document banks, but often do not meet the MassHealth concerns of the elderly persons who cannot afford or qualify for long-term care insurance.

Irrevocable Trusts

Although the assets of just about any irrevocable trust will avoid probate, the assets of these trusts are often not preserved for MassHealth purposes in Massachusetts if a nursing home stay eventually becomes necessary and a MassHealth application is filed.

Since April 1, 1990, MassHealth regulations have provided that if a Trustee of an irrevocable trust can give assets back to the original owner, and if a MassHealth application is filed by or on behalf of the original owner, the assets of the trust are deemed available to the nursing home resident, and render the elderly person ineligible for MassHealth. This law applies retroactively to irrevocable trusts created before the Massachusetts regulation was adopted. The impact of this law on irrevocable trusts means that many older irrevocable trusts do not meet the MassHealth concerns of the elderly persons who cannot afford or qualify for long-term care insurance.

Fixing Bad Trusts

In attempting to fix any MassHealth problem caused by a trust, a transfer of the assets causes a 5-year MassHealth lookback period unless the transfer of the assets goes back to the original owner.  It can be fairly simple to fix the problem if a revocable trust is the cause of MassHealth ineligibility, since the original owner can revoke the trust and get the assets placed back into his/her name, but if the original owner is mentally incapacitated at that time, revoking the trust might not be so easy.

It is often difficult to fix the problem if an irrevocable trust is the cause of MassHealth ineligibility. The MassHealth problem caused by any irrevocable trust is completely dependent on the provisions of the trust, and the method of fixing the problem varies from trust to trust. Usually the elderly person is not the sole Trustee, and neither the Trustee nor the elderly person has the power to get the assets placed back into the elderly person’s name. In many cases, a Massachusetts Probate Court proceeding known as a trust reformation is needed, and in other cases, a Probate Court petition to terminate the trust due to frustration of purpose is the better procedural move.

By Brian E. Barreira | Posted in Irrevocable Trusts, Long-Term Care Insurance, MassHealth Application Process, Permissible Transfers, Preserving Assets & Income for the Spouse, Protecting the Home, Revocable Trusts | Also tagged , , , , | Comments (1)

Applying and Appealing to Receive Retroactive Medicaid Benefits in Massachusetts

February 19, 2011 – 9:27 pm

by: Brian E. Barreira, Esq.

In Massachusetts, Medicaid coverage of nursing home costs is obtained by filing a MassHealth long-term care application.

Any MassHealth application can be retroactive to the first day of the third month prior to the application. Based on the date that MassHealth is needed, in many cases you must keep the original application alive. If an applicant receives a denial due to missing verifications and mails in missing verifications within thirty (30) days after the denial, that action is treated as a new application, causing a new application date, which affects the maximum time period that MassHealth can be retroactive. A later application date can also cause the date of payments of medical or nursing home bills to become important to whether retroactive MassHealth benefits will be allowed.

For example, suppose Jane applies for MassHealth on December 19, needing coverage as of September 20. Under this application, MassHealth can be retroactive to as early as September 1. Only the original application, however, will obtain the needed retroactivity. If Jane receives a denial on February 5 due to missing verifications and submits one or more of them during February, a new application is deemed to exist, and its maximum retroactive date would be November 1.

The treatment of previously-paid expenses can be affected by the timing of the MassHealth application. Medical and nursing home expenses that are less than ninety (90) days in the past are allowed as part of the spenddown process whenever they are paid, but if those expenses precede the MassHealth application by more than ninety (90) days, then a different rule can apply. If we also suppose in the example in the previous paragraph that Jane sold stock and received the proceeds on December 3 and immediately paid the nursing home at its private pay rate for the September 1-September 20 period, that action would have no impact on the effective retroactive date of MassHealth coverage for the original application. The result would be difficult if the denial of the original application were not appealed. Under a new application, that action could change the maximum retroactive date of the later application to December 3.

There is a MassHealth regulation which allows a successful appeal of a denial to keep the original application alive. If Jane appeals the denial instead of just sending in the missing verifications, a new application would not be deemed to exist, and the original application would be preserved, thereby allowing MassHealth coverage retroactive to the earliest possible date.

When these procedures are not followed, the result can be that the nursing home will not be paid far enough retroactively by MassHealth and the MassHealth applicant will be responsible for the unpaid amount. As a last resort, the only possible way to cover the shortfall could be to make a request to MassHealth that the unpaid nursing home bill be paid over time via deductions from Jane’s monthly income. Although MassHealth would have been required to cover the bill if the appeal process had been correctly followed, there would be no guarantee that MassHealth would help Jane and the nursing home on previously-disallowed nursing home bills.

By Brian E. Barreira | Posted in MassHealth Application Process, MassHealth Denials and Appeals | Also tagged , , | Comments (2)

Are You Personally Responsible for Your Spouse’s Nursing Home Bills in Massachusetts?

February 7, 2011 – 11:25 am

by: Brian E. Barreira, Esq.

It may come as a surprise to some people, but you can be held personally responsible for your spouse’s bills if they are for payment of necessaries.  In the case of East Longmeadow Management Systems v. Wilson, the nursing home resident’s wife, Judith Wilson, was successfully sued for $45,243.24 in unpaid nursing home bills of her husband, Robert Wilson.  This case serves as a stern warning to older married persons that they need to obtain legal advice from an elder law attorney when their spouse enters a nursing home.  If she had done so, all of her husband’s nursing home bills could have been covered.

Even though Robert had no assets and even though Judith had not signed any contract or agreement accepting financial responsibility for his nursing home bills, she was successfully sued because she did not file for and obtain MassHealth (i.e. Medicaid) benefits for him on a timely basis.  On a motion for summary judgment, the Court found that under Massachusetts General Laws, Chapter 209, Section 1, she was liable as his wife for the full cost of necessaries furnished to Robert during his life.

This case highlights why anybody concerned about the costs of nursing home care should be sure to obtain legal advice about MassHealth.  If Judith had obtained legal advice from a Certified Elder Law Attorney promptly after Robert entered a nursing home, she would have learned how to apply for MassHealth for him on a timely basis.  MassHealth coverage could have been applied for as long as three months after his health insurance had stopped paying for his care.

For some basic information about the at-home spouse’s ability to retain assets under MassHealth (i.e., Medicaid) law, see http://elderlawblog.info/2010/04/05/preserving-all-assets-and-maximum-income-for-the-community-spouse-when-the-other-spouse-enters-a-nursing-home/

By Brian E. Barreira | Posted in MassHealth Application Process, Preserving Assets & Income for the Spouse | Also tagged , , , , , , , | Comments (0)

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

January 26, 2011 – 9:32 pm

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.

By Brian E. Barreira | Posted in Annuities, MassHealth Application Process, Preserving Assets & Income for the Spouse | Also tagged , , , , , , | Comments (0)

Last-Minute Medicaid Planning in Massachusetts

January 11, 2011 – 9:24 pm

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.

By Brian E. Barreira | Posted in Annuities, Gifts & Disqualifying Transfers, Long-Term Care Insurance, MassHealth Application Process, Permissible Transfers, Preserving Assets & Income for the Spouse, Protecting the Home | Also tagged , , , | Comments (0)

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

December 27, 2010 – 5:30 pm

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.

By Brian E. Barreira | Posted in Gifts & Disqualifying Transfers, Irrevocable Trusts, MassHealth Application Process | Also tagged , , , , , , , | Comments (0)

Problems with Outright Gifts in the Medicaid Planning Context

December 16, 2010 – 8:56 pm

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.

By Brian E. Barreira | Posted in Gifts & Disqualifying Transfers, Irrevocable Trusts, Protecting the Home, Tax Issues | Also tagged , , , , , , , | Comments (0)

Five Issues in Massachusetts Medicaid Planning

December 11, 2010 – 8:40 am

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.

By Brian E. Barreira | Posted in Annuities, Irrevocable Trusts, Long-Term Care Insurance, Preserving Assets & Income for the Spouse, Protecting the Home, Revocable Trusts, Tax Issues, Testamentary Trusts | Also tagged , , , | Comments (1)