Elder Law Section Seminar: Addressing Medicaid Issues in ...€¦ · lawyers role as an advisor...

Elder Law Section Seminar: Addressing Medicaid Issues

in Probate

Nick Halbur, Elder Law of Omaha, PC LLO

Catherine Swiniarski Elder Law of Omaha, PC LLO

Wednesday, October 17, 2018

Embassy Suites Hotel – La Vista Conference Center

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Elder Law Section Seminar

Addressing Medicaid Issues in Probate Catherine Swiniarski, Elder Law of Omaha, PC LLO


Table of Contents Ethics of Medicaid page 1

Rule 2.1 of the Model Rules of Professional Conduct

Common Objections

Becoming Medicaid Eligible page 3

What is eligibility?

Major Types of cases page 4

Spousal

Single

Both In

Staying Medicaid Eligible page 5

Change in Finances: What can be done if a recipient receives assets

Trusts

Asset transfers resulting in a penalty period

Loans and promissory notes

Change in Health Status: Medicaid planning after diminished capacity

Guardianship and Conservatorship

Continued Challenges of Medicaid in Probate Proceedings page 10

Community spouse passes first

Incapacity and the personal nature of the right to elect

Conflict between agent and individual making petition for elective share

After Eligibility: Limiting Exposure to Estate Recovery page 11

Nebraska Medicaid Recovery Statute

LB268

Case Review of Estate Recovery

Estate of Francis E. Barg (2008)

Estate of Melby (2014)

Estate of Melvin Peterson (2014)

Five Year Statute of Limitations (not lookback) page 16

Guardianship Powers for Facilities page 16

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Elder Law Section Seminar

Addressing Medicaid Issues in Probate Catherine Swiniarski, Elder Law of Omaha, PC LLO


“The DHHS has an attorney, the nursing home has an attorney, and the applicant has -- family

and friends that don’t have a clue.”

I. Ethics of Medicaid Planning

A. It is not only ethical but it may be required for an attorney to advise a client about

Medicaid Planning

1. Rule 2.1 of the Model Rules of Professional Conduct distinguish the

lawyer’s role as an advisor from her role as an advocate. Model Rules of

Professional Conduct R. 2.1 (2002). During the process of Medicaid planning a

lawyer acts as an advisor. The Rules clearly state that in the role as an advisor “a

lawyer may refer not only to law but to other considerations such as moral,

economic, social and political factors that may be relevant to the client's

situation.”

a. An attorney must also provide competent advice within the bounds of

the law and applicable ethical canons.

2. High healthcare costs threaten to deplete an elder’s estate both in life and

after death

a. Being old in America means taking the leftovers from a healthcare

system that caters to the young. Medicare only pays for approximately

40% of all medical bills of its recipients, and the proportion is rapidly

declining, while people over 65 make up 28% of the medical costs for

the nation.

b. Healthcare is a commodity in the US. To obtain excellent care, the elder

must pay a higher price, including long-term care, which may become

a necessity, but finances may limit access to exceptional care.

c. The federal government’s stated goal is 100% access to health care.

The Centers for Medicare & Medicaid Services (CMS) are the largest

health care purchaser.

3. Common Objections

a. Using Medicaid to preserve an inheritance for the children is unethical

or Medicaid planning is the moral equivalent of elder financial abuse

to preserve assets for inheritance.

i. The child(ren) of an elderly person are very often unpaid

caregivers to the elderly individual. That unpaid caregiving

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decreases the cost to the government during the time they are

able to provide care. While it is impossible to account, dollar-

for-dollar, the costs not reimbursed, saved or expended, it

would be fair and just to allow those caregivers to receive an

inheritance. Further, it provided a societal incentive to continue

to provide care to elderly parents instead of placing them in

care to meet all of their needs.

b. The myth of the millionaire on Medicaid

a. Medicaid is a public service that the vast majority of people

have paid into all their lives.

b. Congress has placed penalty periods on the transfer of assets.

c. Many states have made estate recovery mandatory.

d. The vast majority of Medicaid recipients are lower or middle

class. Higher income elders tend to self-insure.

c. Medicaid planning will bankrupt an already strained system

a. Medicaid planning keeps a healthy spouse off government

assistance by preventing impoverishment of the family unit to

pay for the care of the ill spouse.

b. Medicaid does not pay for “quality of life” items or care that

makes aging and long-term care (LTC) more tolerable. It only

pays for minimal necessary care to preserve life.

c. Medicaid (like its companion, Medicare) is not a health care

delivery system. It is a health care financing system that

addresses interests in the market place. No one intends to get

sick and it’s simply not fair to “reward” the elders that get acute

illness, such as a heart attack, that allows Medicare to pay the

bill but chronic illness, which requires LTC are “punished” with

years of diminishing assets and LTC costs.

d. Medicaid planning discourages people from purchasing long-term care

insurance or saving to pay for long-term care

a. Long term care insurance can still be used and will decrease the

cost to the government and the individual.

b. The cost of long-term care insurance can be prohibitive at any

age and can become impossible to obtain at some ages and in

some circumstances.

c. The U.S. healthcare system functions as a market, so the U.S.

government has the option to make healthcare more

affordable by capping prices and they have chosen not to do so

it is up to the citizen to take advantage of the programs offered

to sustain life and healthcare.

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4. Properly preserving assets through Medicaid planning allows an elder to

continue to access care that Medicaid does not pay for (“not medically necessary”

or otherwise), such as dental care or companion care, which results in improving

the Medicaid recipient’s health and enhancing his or her quality of life and

lifespan.

II. Becoming Medicaid Eligible

A. Eligibility

1. The need for Medicaid is determined on a case-by-case basis, using

eligibility criteria that initially divide recipients into three groups: (i) mandatory

categorically needy; (ii) optional categorically needy; and (iii) medically needy.

2. “Sick and Poor”- To become eligible for Medicaid nursing-home benefits,

the applicant demonstrates categorical eligibility by showing that he or she is:

(i) aged sixty-five years or older;

(ii) a United States citizen, a lawfully admitted alien, or an alien

permanently residing in the United States under color of law;

(iii) a resident of the state where the Medicaid application is filed;

(iv) confined continuously to a medical institution for thirty days

prior to attaining Medicaid eligibility. In addition, the applicant

must be financially eligible.

a. Resources are divided into two categories: countable and excluded.

i. Excluded assets are the home, household goods, a car, a burial

plot and irrevocable prepaid burial contract, a nominal life

insurance policy, and very little else. See Appendix A for a more

complete list.

ii. Countable assets—essentially, whatever is left—must be

“spent down” to Medicaid’s resource limit ($4000 in Nebraska).

i. Voluntary Impoverishment invokes 42 USC 1396(p)

which places limits on voluntary impoverishment for

the purpose of becoming Medicaid eligible.

ii. See Medicaid Desk Reference Appendix B.

iii. Section 1396p(c)(1) requires that states impose periods

of ineligibility for asset transfers made either without

consideration or for less than fair market value during a

pre-application time called the “look back period” of 5

years. *Congress has created several exceptions to this

rule.

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3. Three Major Types of Cases for Medicaid Planning

a) Spousal- one spouse needs long term care utilizing Medicaid, the

other spouse will be staying home (community spouse).

b) Single- Single or widowed individual needs long term care utilizing

Medicaid.

c) Both In- two spouses need long term care utilizing Medicaid.

4. Case Strategies- How each case is assessed and strategies presented

depends on the type of case.

a. Spousal- The program used is commonly called Spousal

Impoverishment. It perhaps should be more properly called spousal

enrichment as it identifies assets that can be kept.

a. Process:

i. Assessment of Resources (one time only).

ii. Divide Resources- Community spouse retains ½ of

countable assets up to $123,600 (for 2018) and

Medicaid spouse retains up to $4000 in countable

assets. If countable assets total $24,720 or less,

Medicaid spouse keeps all countable assets.

1. Excess resources over the $123,600 can be

preserved by the community spouse using a

variety of techniques.

iii. Designate resources.

iv. No income limitations (in Nebraska) - Each spouse takes

their own income unless the community spouse’s

income is less than $2030.

b. Single- single person entering a nursing facility.

a. Process

i. Assessment of resources.

ii. Single person may keep at most $4000 in countable

resources.

iii. All income (less personal allowance) will be contributed

to the nursing home. Medicaid will pay the difference at

the Medicaid rate.

b. Waiver Process –Single person applying for waiver in Assisted

Living Facility.

i. Assessment of Resources.

ii. Individual may keep at most $4000 in countable assets.

iii. Individual receives $64 for a personal needs allowance

(PNA), must apply $671 of income.

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iv. Room and board, Medicaid budgets to cover remaining

costs at Medicaid rate.

v. Income above $735 will be required for share of cost or

other allowed expenses.

c. Both In- A married couple both entering a nursing home.

a. Process- Same as single person process but both individuals

may keep $4000 in countable resources = $8000 total.

III. Staying Eligible for Medicaid- once a Medicaid recipient is on Medicaid, it is not a

guarantee they will remain on Medicaid for the duration of their life.

A. Change in Finances: A Medicaid recipient must stay within the approved asset

parameters for the duration of their use of Medicaid.

1. What is the process if a recipient receives assets (inheritance, settlement,

gift, etc.) while also receiving Medicaid to avoid the recipient from losing their

Medicaid benefits?

a. Trusts

a. Third Party Trusts

i. Funded with the assets of another.

ii. Must have language in the trust to protect beneficiary

who may need Medicaid assistance.

iii. Protects the applicant beneficiary but may not prevent

countability of trust assets if grantor or grantor’s spouse

applies for benefits unless trust is irrevocable, no

grantor retained rights, and lookback period satisfied.

b. First Party/ Self-settled Trust

i. First-party SNT, or Self-Settled SNTs, are funded with

assets already owned or entitled to a special needs

beneficiary.

ii. Established for the sole benefit of the applicant by a

parent, grandparent, legal guardian, court.

iii. New legislation allows a Medicaid recipient to set up

their own first party SNT (See Appendix C and Appendix

D).

iv. Must have Medicaid payback provision in accordance

with 42 USC Section 1396p(d)(4)(A)- upon the death of

a beneficiary of a first-party SNT, medical assistance

providers (Medicaid) shall be reimbursed up to the total

amount of medical assistance benefits paid on the

behalf of the beneficiary during his lifetime.

v. POMS SI 01120.203.D.l sets forth a "checklist" of

requirements for a self-settled (d)(4)(A) SNT if the

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Beneficiary is also receiving Supplemental Security

Income.

c. Special Needs Trusts (SNTs)

i. Trust containing the assets of an applicant age 64 or

younger who is disabled.

ii. Established for the sole benefit of the applicant by a

parent, grandparent, legal guardian, or court.

iii. Funded with the applicant’s own excess assets at any

time prior to age 65.

iv. Payback clause required.

v. Distribution criteria.

vi. Court approval – use of temporary or permanent

guardianship process.

d. Pooled SNT- NAC 23-001.05A6b(6)(b)(ii)

i. Medicaid is not only for older people. Some provisions

of Medicaid planning are more applicable to younger

clients. An example of this is Medicaid planning with the

use of trusts. An applicant over the age of 65 may only

qualify for a pooled trust which may not be a viable

asset preservation tool but applicants 64 years and

younger have more options when it comes to Medicaid

planning with the use of trusts.

ii. Special Needs trust for individuals over the age of 65

iii. "Pooled" SNT, established and managed by a non-profit

entity, is useful for a person who is disabled (as defined

in 42 U.S.C. Section 1382c(a)(3)) whose assets are

sufficient to disqualify him for means-tested benefits

but insufficient to warrant the expense of establishing

an individual (d)(4)(A) trust

iv. May be first or third party

v. 42 U.S.C. Section 1396p(d)(4)(C)- Pooled Trusts must

also have a payback provision or the pooled trust may

elect to retain the assets in the Beneficiary’s account at

death for the benefit of the other account beneficiaries

e. Transfers Not Considered Deprivation 477 NAC 23-001.04H: (5)

A resource was transferred to a special needs trust established

solely for the benefit of an individual sixty-four (64) years old or

younger who is disabled (receiving or eligible to receive SSI,

RSDI, or ABD).

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b. Asset Transfers resulting in Penalty Periods – an applicant may choose

to transfer wealth or assets out of their possession so they will not be

countable resources for the purpose of applying for Medicaid.

a. Medicaid has held that an applicant cannot deprive themselves

of resources to meet the financial criteria.

i. Deprivation of resources- any action taken by the

applicant or another party on the applicant’s behalf that

reduces or eliminates the applicant’s or his/her

spouse’s recorded ownership or control of an asset for

less than fair market value.

1. Examples:

a. Gifts.

b. Failure to elect the spousal share of the

augmented estate.

c. Any transfer above the protected

spousal reserved amount to community

spouse.

d. Any transfer of community spouse’s

assets to a third party.

e. Sales for less than fair market value.

f. Promissory notes that do not comport

with Medicaid rules.

ii. Voluntary deprivation of resources in the previous 60

months (5 years) prior to a Medicaid applicants will

result in a penalty period – benefits will be withheld for

the period of time the transferred assets would paid for

the applicants care.

iii. A penalty period begins once the financial criteria is met

and the applicant would have been “otherwise eligible”

for Medicaid “but for” the asset transfer.

b. Exceptions to the penalty period:

i. The denial of Medicaid assistance would cause undue

hardship (deprivation of necessary medical care

resulting in endangerment of the individual’s health/

life).

1. A hardship waiver will be denied if the individual

or his/her spouse participated in the transfer of

assets.

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ii. It is determined that a transfer was made for less than

FMV but individual can verify intention to dispose of the

asset for FMV or other valuable consideration;

iii. Hardship waivers are rare as they are extremely difficult

to obtain.

c. Not all transfers are considered deprivation of resources.

i. Nominal traditional gifts supported with a history of

similar gift giving (Ex; Christmas and birthday gifts).

ii. Funeral Planning.

iii. Home improvement and vehicle upgrades.

iv. Personal property upgrades (ex: purchase of new eye

glasses, lift chair, accessibility equipment, etc.).

d. Medicaid Complaint Annuities–annuities are excluded assets if:

i. The State is the remainder beneficiary in the primary

position for at least the total amount of Medicaid

benefits or in the second position behind a spouse or a

minor or disabled child;

ii. The annuity is irrevocable;

iii. The annuity is nonassignable;

iv. The annuity is actuarially sound; and

v. The annuity provides equal payments during the term

with no deferral or balloon payments.

c. Loans and Promissory Notes- may be allowed for a small transfer of

assets ($30,000 or below).

B. Change in Health Status: Medicaid Planning with a guardianship or

conservatorship.

1. Long term care may become a necessity after an individual has lost

capacity to apply for Medicaid his or herself. Even if an individual already has

powers of attorney, the documents may not explicitly allow the agent to make the

application for the individual on their behalf. In these situations there is still the

option of a limited or full guardianship in order to complete the application.

Nebraska has emphasized a preference of a limited guardianship over a full

guardianship:

a. Neb. Rev. Stat. 30- 2620- Appointment of a Guardian: If the

court finds that a guardianship should be created, the

guardianship shall be a limited guardianship unless the court

finds by clear and convincing evidence that a full guardianship

is necessary.

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b. Neb. Rev. Stat. 30- 2601.02- Legislative Intent: Intent is to

encourage least restrictive alternative and use of limited

guardianships.

c. Neb. Rev. Stat 30-2601(8)- Limited Guardianship Defined:

Limited guardianship means any guardianship which is not a full

guardianship;

2. “Petition for Medical Planning under Guardianship” (Appendix E)

3. A one transaction conservatorship may also be used. See Neb. Rev. Stat.

§30-2630, §30-2638. (Appendix F and Appendix G)

a. Examples of such transactions may be to sign a house deed, the

title of a motor vehicle or asset transfers necessary to establish

eligibility in the absence of a sufficient POA document when the

principal is too incapacitated to execute new POAs in

conformance with the Uniform Powers of Attorney Act.

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IV. Continued challenges of Medicaid in Probate Proceedings

A. What if the Community Spouse passed before the ill spouse in care?

1. Medicaid coverage to pay for long-term care requires a division of assets

between the Medicaid Applicant Spouse and the Community Spouse. For the first

time in many years these two individuals may have very separate financial lives.

Other spousal rights persist though and one that is directly addressed by the

Medicaid regulations is the elective share rights of the Medicaid Spouse.

2. The elective share must be pursued, but is unavailable while the Probate

is pending. If the state is aware of the spouse passing they may issue of Notice of

Action ending benefits the following month. (Appendix H) That is clearly incorrect

under their own rule regarding unavailable resources. The Medicaid recipient

must be allowed time (60 days under the rule) to file their Elective Share Petition

and assert their claim. The 60 days to initiate the action is completely independent

of statutory time limitations on filing for the claim, the 60 days starts with a DHHS

Notice of Action, so it starts after DHHS becomes aware of the Community

Spouse’s death, which means it could start running before anyone files a Probate

or theoretically could run after the filing limitations have already run. Our petition

in response to the agency’s action in Appendix H was much earlier than you would

typically need to file, so we had to petition without the data typically available.

(Appendix I)

3. Failing to pursue the elective share is a gift to the heirs who do take under

the Will because the Medicaid recipient failed to petition for the elective share.

4. The elective share is referred to specifically twice in the Medicaid

regulations, but neither section was referenced in the Notice of Action of

Appendix H. 477 NAC 23-001.03A and 477 NAC 23-001.04A (Appendix J)

B. Incapacity and the personal nature of the right to elect.

1. The personal nature of the marital right – All of this assumes that you can

even get your petition considered by the court. If your elderly nursing home

resident is dependent on their Attorney-in-Fact or a Guardian for financial

transactions, then you may also need to address the personal nature of this

marital right.

2. Many practitioners would agree that the language in Neb. Rev. Stat. 30-

2315 (Appendix K) will allow an Attorney-in-Fact to make the Petition for Election,

but there are others (including some judges) who disagree with that position. If

an Attorney-in-Fact cannot assert the “personal” right to elect, then you will need

to petition for a protective proceeding (It could be appropriate for a Limited Scope

Conservatorship). Once the fiduciary is appointed by the court, then you will need

to make a motion for the determination under Neb. Rev. Stat. 30-2315. Citing to

the Medicaid regulations should be sufficiently persuasive.

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C. What if there is a conflict between the attorney-in-fact and individual making the

petition for the elective share?

1. Another issue, which could give rise to the need for a protective

proceeding, is the likelihood that the individual who serves as Attorney-in-Fact

may have interests directly contrary to the individual making the Petition for

Elective Share.

2. If the primary agent and all alternates are designated to receive under the

Will that is being elected against, then you should evaluate whether the situation

calls for a neutral party to be appointed to make the election.

D. Possible Solution: Will the Elective Share to a Testamentary Trust-Testamentary

Trusts have more potential to be excluded from resources as discussed earlier. So, it

should be an option to use a Testamentary Trust with SNT limitations on the use of the

funds to preserve eligibility. (See Appendix L for 477 NAC 23-001.05A6b(6)(b) and 477

NAC 23-001.05A6b(7))

V. AFTER ELIGIBILITY – LIMITING EXPOSURE TO ESTATE RECOVERY

A. The new Medicaid Estate Recovery Statute in Nebraska has added additional

requirements to every Estate Administration and Determination of Inheritance Tax

proceeding. The broad impact of this new legislation has been a few extra forms per

probate/trust administration, and additional delay in the administration after Nebraskans

pass away generally. All of these extra forms and procedures are aimed at capturing more

funds to fulfill Nebraska’s obligation under federal statute to have a Medicaid Estate

Recovery program.

B. Along with the expansion of the notice requirements and the need for a waiver or

clearance of claim Nebraska has moved from the statutory minimum of seeking recovery

from the probate estate to the LB72 (2015) expansion to any “revocable trust which has

become irrevocable by reason of the death of the trustor” and then LB268 (2017)

constituted a more significant expansion of exposed funds. LB268 stated its intent to

expand Medicaid Estate Recovery “to the full extent authorized in 42 U.S.C.

1396p(b)(4)(B).” NRS 68-919(4)(b)(i)(B). The amount of the recovery is still capped at the

amount of benefits paid. Nebraska is now an expanded recovery state.

C. The language of LB268 includes many references to the limitations of federal law.

Of course the limitations of federal law would still be there without being mentioned in

our state statutes, but it hints at a preoccupation that the authors of the legislation likely

had given the variety of decisions interpreting the scope of possible recovery under 42

U.S.C. 1396p(b)(4)(B). Before advising any Personal Representative to pay the state‘s

Estate Recovery Claim an attorney should review our new state statute along with federal

law and cases in the area. You may find opportunities to minimize the estate’s exposure

to the claim and reveal potential strategies to implement when dealing with clients who

are or who anticipate applying for Medicaid benefits.

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D. 42 USC 1396p(b) sets the stage for this upcoming probate litigation topic.

(Appendix M)

E. Case Summaries

Estate of Francis E. Barg, 752 NW2d 52 (Minn. 2008)

Minnesota is not able to recover assets from the estate of the community spouse which the

predeceased Medicaid recipient spouse did not hold title to at death.

Dolores Barg, wife of Francis E. Barg, paid for her own nursing home care from October to

December of 2001 when she applied for Medicaid benefits. She was eventually approved for

Medicaid coverage back to December 2001. Dolores’ daughter and guardian transferred Dolores’

interests in two pieces of real property to Francis in July 2002 and removed Dolores’ name from

CDs leaving Francis as the sole title owner.

Dolores passed on January 1, 2004 having received over $108,000 of Medicaid benefits. At the

time of Dolores’ passing Francis owned 3 CDs and an IRA, 2 vehicles, and the homestead in

Francis’ name. The homestead was valued at $120,800. All of these assets had been jointly

owned by Dolores at some point during her life, but not at the time of her death. Francis passed

in May 2004 and the state filed a claim against Francis’ estate for the full amount of benefits paid

for Dolores. The estate allowed about $64,000 of the claim based on a theory treating Dolores’

interest in the homestead as a life estate. Francis’ estate asserted limitations on the portion of

Francis’ estate exposed to recovery based on 42 USC 1396p(b)(4)(B)’s language permitting state

to recover from “…real and personal property and other assets in which the individual had any

legal title or interest at the time of death (to the extent of such interest)…”

This case first holds that full recovery is only allowed from the estate of the “individual” on

Medicaid, not from the full estate of a Community Spouse, and only after both spouses have

passed. Under this reading a more limited recovery is available from the estate of the Community

Spouse.

“[N]o court has embraced the County’s argument that pre-1993 federal law authorized recovery

from a surviving spouse’s estate of assets that were jointly owned during the marriage but

transferred by the recipient spouse prior to her death. Indeed, of the courts that have

interpreted federal law to allow direct claims against the estate of a surviving spouse, only one

has construed that authority to extend to assets that were transferred before the death of the

Medicaid recipient…” The sole exception at that time was Estate of Wirtz, 607 NW2d 882 (ND

2000).

Any authority to recover from a source other than the Medicaid recipient’s estate can “reach

only assets in which the Medicaid recipient had an interest at the time of her death, that is, assets

which were part of the recipient’s estate as defined by traditional state probate law or included

in the estate under an expanded definition allowed by the 1993 amendments…”

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The “other arrangements” language from 1396p(b)(4) was read by the Barg court as

“arrangements other than those expressly listed that also convey assets at the time of the

Medicaid recipient’s death.”

“…Dolores had no interest in assets at the time of her death that were part of a probate estate

or an expanded estate definition permissible under federal law, and therefore there is no basis

for the County’s claim against the estate.” The claim was still partially successful here on the

procedural ground that the estate did partially allow the claim initially, even though the court

ultimately ruled that the assets were not exposed to that claim.

Protection of the Community Spouse’s separated assets is relatively simple here as long as the

Community Spouse passes first. Nebraska asset allocation form to obtain spousal

impoverishment treatment for a Community Spouse, the IM-74, includes language that the

couple signing will re-title the listed assets within 90 days of eligibility.

Estate of Melby, 841 NW2d 867 (Iowa 2014)

Iowa is able to recover from the entire corpus of irrevocable trusts which provided for payment

of the trustors’ “indebtedness” after they passed.

Arnold and Vesta Melby owned a farm in Iowa. In 1991 they each put their ½ interests in the

farm into substantially identical irrevocable trusts and each made their son, Duane, trustee.

Arnold and Vesta were to receive the net income for their lives (and each gave net income to

their surviving spouse) and then upon both their deaths each trust could pay all expenses of last

illness and funeral, any indebtedness owed by the Trustor, and any estate tax, gift tax, inheritance

tax or income tax owed by the Trustor. Remaining assets were designated to the Melby’s 3

children.

Both Arnold and Vesta were able to qualify for Medicaid coverage for their long-term care while

these trusts continued to own and operate the farm and pay them the net income. First Vesta

received benefits from 2000-2002 over $50,000. Iowa DHS concluded that they could not make

any recovery at the time of Vesta’s death. Duane continued operating Vesta’s trust providing

Arnold with the net income.

Arnold was already receiving his own Medicaid benefits by the time Vesta passed and continued

to do so until Arnold’s death in 2009, those benefits totaled over $250,000. Following Arnold’s

death Iowa DHS claimed that they could recover each of their estate recovery claims against the

corresponding trust for Arnold and Vesta. The District Court limited the extent of DHS recovery

to the income interest at the time of death. The corpus of the trust was not exposed to estate

recovery according to the District Court.

Iowa has established a 3-step analysis regarding whether trust assets are exposed to estate

recovery claims. (1) Trust Classification, especially “the extent to which the assets of a trust are

actually available to a trust beneficiary.” (2) The Medicaid Recipient’s interest in the trust (here

specifically the payment of their debts after they pass and the existence of the estate recovery

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debt as payments are made by Medicaid to be satisfied after the recipient passes). (3) The

Medicaid Recipient’s interests at the time of death (again, emphasizing the availability of trust

principle to pay “any indebtedness owed” by the trustors).

Iowa has had an expansive estate recovery statute for some time and Melby examines the

preceding trust cases. When drafting trust language for long-term planning you must consider

both the possibility of the trustor qualifying for Medicaid after the look-back period has run

(which the trusts in Melby did successfully) and also consider whether the trustors have any link

to the trust that might expose the trust assets to estate recovery (which is how the Melby trust

failed to protect the family farm). This incentive to create maximum separation between the

trustors and their irrevocable asset preservation trust can be in tension with the desire to retain

estate inclusion for federal estate tax purposes and the step-up in basis.

The facts here highlight that eligibility and estate recovery rules are separate, Arnold and Vesta

were both eligible (very few assets available for care) but with significant assets exposed to estate

recovery.

Estate of Melvin Peterson, 340 P.3d 1143 (Idaho 2014)

Idaho is allowed to recover from the entire value of real estate that Melvin Peterson retained a

life estate in.

On December 6, 2001 Melvin transferred real property to his daughter retaining a life estate for

himself (older gift penalty rules applied to that deed). He later applied for Medicaid benefits and

began coverage in March of 2003. He passed March 3, 2007 having received over $170,000 of

Medicaid benefits. The daughter/PR disallowed the Idaho Dept. of Health and Welfare‘s claim

which was granted at hearing. IDHW demanded the value of Melvin’s life estate based on his

age at death and a Life Estate Remainder Table, $41,444. The PR was ordered to amend the

inventory of the estate to include the value of the life estate. She filed an amended inventory

listing the value of the life estate as zero. After hearing the magistrate and district court assigned

the value from remainder (not the life estate) according to the remainder table though neither

party advocated for that position. The lower court included the remainder (and not the life

estate) based on an Idaho statute allowing the State to file an action to void gratuitous transfers

of property made within the gifting lookback period (then 3 years).

Ultimately the Peterson court adopted both the analysis of the lower courts to include the

remainder along with an expansive reading of the definition of “asset” in federal statute. “The

definition of ‘asset‘ includes income and resources that an individual is entitled to but does not

receive because of his or her own actions. See 42 U.S.C. § 1396p(h)(1).“ This exposed the entire

property to estate recovery, which the state was granted despite the fact that they only

requested the value of the life estate earlier in the litigation.

Nebraska could follow this minority line of cases. Our new scope of recovery section, NRS 68-

919(4)(b)(i) starts with a restatement of the federal section and then lists out a more extensive

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list of possible assets and referring back to that section by stating “to the full extent authorized

in 42 USC 1396p(b)(4)(B)” our courts will still have to decide if the broad scope of recovery

allowed in Idaho is compatible with federal law. The best practice is to avoid life estates, or at

the very least stop using them as asset preservation tools. If the client wants the

land/house/farm kept in the family, then they should consider giving the whole thing away.

Idaho has also ruled contrary to Barg that any property that had been in both spouses’ names at

any time was exposed to estate recovery after they both pass, finding the language of 42 USC

1396p(b)(4)(B) ambiguously inclusive. Estate of Perry, 283 P.3d 785 (Idaho 2012), which followed

Estate of Wirtz, 607 NW2d 882 (ND 2000).

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F. Five year statute of limitations (not lookback)- (NRS 68-919(4)(g) Appendix N)

1. If none of the limitations of the law on recovery appear to provide realistic

protection of the estate and a claim above the value of the estate assets is

anticipated, then it may be irrational for heirs to seek appointment as PR before

this 5 year limitation on claims has passed. Five years is a long time, but it is

conceivable that a client could set aside or hold on to the day-to-day use of an

asset without updating title. They would need to avoid anyone (other heirs,

creditors, the state) filing a probate or determination of inheritance tax in that

time as those procedures cannot be concluded without notice to DHHS under

LB268. If the estate recovery claim would consume the entire value of the asset,

then waiting may still be the only financially rational option. The client should be

warned that the Inheritance Tax penalties and interest will accrue and will have to

be paid before any transaction/deed can be executed on real property.

2. The alternative is to have the client establish the Probate, gain the

appointment as PR, only to be saddled with duties that primarily benefit the state

as the primary creditor, possibly with a claim that will consume the entire estate.

Why encourage a client to take on those duties and liabilities? Many clients may

forge ahead out of necessity or a sense of duty to put their parents’ affairs to rest.

Counsel might encourage the heirs to petition for appointment of a professional

fiduciary more accustomed to taking on such liability who would at least get a

reasonable fee for their services before the estate recovery claim eats the rest of

the estate.

3. I do not believe that there is an official policy stating that DHHS will not file

to administer estates as a creditor (Minnesota and other states have done so

routinely) but the Secretary of State’s office has stated that DHHS is not to seek

appointment as PR because of the possible liability that an appointment carries.

G. Guardianship powers for facilities. NRS 68-991 (Appendix O) grants authority of

a guardian and conservator to make a Medicaid application when no one else is available.

Whether providers will take on this responsibility on a regular basis has yet to be seen.

Certainly many facilities have regularly obtained permission from residents or family

members to apply for benefits. If this is how the Medicaid recipient obtained benefits,

the estate might contest that this provision is not legal because it skips all of the due

process requirements that must be imposed before granting anyone “the authority of a

guardian and conservator”. An application completed under the authority created by this

section will likely be done with limited information about the residents’ assets, increasing

the possible scenarios where the interests of spouses and heirs are impaired by the estate

recovery claim created as a result of the facility’s application.

Elder Law Section Seminar: Addressing Medicaid Issues in ...€¦ · lawyers role as an advisor...

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