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Presenting a live 90-minute webinar with interactive Q&A

Medicaid Planning Techniques:

Trusts, Private Annuities, Spousal

Transfers, Caregiver Agreements

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, NOVEMBER 8, 2017

David A. Cutner, Lamson & Cutner, New York

Kyla G. Kelim, Esq., Aging in Alabama, Fairhope, Ala.

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Agenda

I. Asset protection and pooled income trusts

Presented by Kyla Kelim

II. Private annuities and promissory notes

Presented by David Cutner

III. Spousal transfers and spousal refusals

Presented by Kyla Kelim

IV. Caregiver agreements

Presented by David Cutner

6

Medicaid Planning Techniques: Trusts, Private

Annuities, Spousal Transfers, Caregiver

Agreements

Kyla G. Kelim, Esq.

AGING IN ALABAMA

Fairhope, AL

ASSET PROTECTION AND

POOLED INCOME TRUSTS

PROTECTING ASSETS ON

NURSING HOME ADMISSION

7

Qualifying for Medicaid - single

• Must have less than $2205.00 per month

income

• Must have less than $2000.00 in assets

• May also have home with intent to return

home

• May also have one vehicle

• May also have funeral benefits – will vary

slightly state to state

8

Five Year Lookback Period

• Deficit Reduction Act of 2005 imposed a 5 year lookback

period (effective for most states 2/8/2006)

• Restrictions on transfers of assets

• Established penalty period for transfers for less than fair

market value

• Penalty Period is UNLIMITED

• Changed beginning point of penalty period

• This will affect nursing home benefits/Medicaid waiver

• SSI recipients not in need of those services will have 24

month benefit interruption

9

Penalty Period

• Will be imposed for transfers for less than fair market

value after 2/8/2006

• Will not start running until applicant otherwise qualifies

for Medicaid benefits

--in a covered long term care facility

--spent down financially

--income qualified

• UNLIMITED

10

How the penalty is calculated

• Penalty may be imposed for even minimal

transfers

• The amount of the penalty is calculated by

adding up the transferred amounts and dividing

by the average cost of nursing home care in the

area or state as determined by the jurisdiction

• Can vary wildly by state

11

Cost of long term care relating to

Penalty • Can vary by state: may affect placement:

-- Mom transfers her home worth $100,000 to

daughter in July 2013. She falls, hits her head, and enters

a nursing home for long term care in July 2016. She

spends her savings and is under $2000 and eligible in

October, 2017. In Alabama, divisor is $5900 or 17 months,

so penalty period ends March 2019 and in Florida, divisor

is $8365 so penalty period is 12 months, she would be

eligible in October, 2018, saving about 5 months of nursing

home care

• PS: No long term care costs as little as $5900.00 in

Alabama

• In this scenario: higher income would dictate transferring

12

Cost of long term care relating to

Penalty

• If you said apply in August 2018 in AL, you win!!

• Remember the 5 year lookback, if you wait to

apply until August 2018, then the 5 years has

run…

• NO PENALTY

• If you apply in July of 2018, call your insurance

carrier

• THE PROBLEM: Most nursing homes have

your client sign a Medicaid application on

admission and routinely file them

13

Exempt purchases

• Funeral/Burial

• House

• Car

• Pay debt (mortgage, minimize debt

for community spouse)

14

Exempt transfers

• To spouse (but if spouse is sick…)

• To disabled child (everything)

• To caretaker child (house)

• To sibling with an equity interest (house)

• To minor child (house)

• To special needs trust (for disabled child

or self settled if under age 65)

• To special needs trust (pooled for over

age 65) 15

Fancier stuff

• Set up an irrevocable trust and wait 5

years to admit

• Set up an irrevocable trust or transfer to

others directly and then incur the transfer

penalty, pay it (smaller amounts)

• Reset the snapshot date if you need to

pay bills

• Use an annuity or promissory note

16

POOLED TRUSTS

PROTECTING ASSETS ON

NURSING HOME ADMISSION

17

Special Needs Trust Overview

• Special needs trust is established pursuant to 42 U.S.C.

Section 1396p(d)(4)(A) or (C)

• Authorized by Congress to protect the income and

medical benefits of a disabled individual

• The trust must strictly comply with the law to protect the

beneficiary

• There are several types of special needs trusts

• The law controls depending on circumstance and age

18

Types of Special Needs Trusts

• 1st party trust

• 3rd party trust

• Pooled Trust

• Supplemental Trust

• Support Trust

19

First party trust

• Most common type, and also known as “self-settled”, this

trust is funded by the beneficiary’s own funds or funds to

which the beneficiary is entitled

• Must be established by a parent, grandparent, guardian

or Court

• Now, after Special Needs Fairness Act, competent

beneficiary may establish

• If incapacitated and no parent, grandparent, or guardian

available, then you must request the Court to approve

• Medicaid and Social Security must also approve

• Commonly funded with personal injury settlements,

inheritance 20

Third party trust

• Established with assets that do not belong

to beneficiary

• No “payback provision” is required

• Must abide by same rules otherwise

21

Pooled trust

• Each state has one or more company that

provides pooled trust services

• The trust is established through a more

streamlined process and the “trustee” is really a

co-trustee, at best, with the trust administrator

• Must use a pooled trust for those over 64 years

of age

• Must have a payback provision

22

Supplemental vs. Support Trust

• Supplemental Trust “supplements” the

beneficiary’s lifestyle

• Can pay for cable, cell phone, furniture,

electronics, vacation, car, car insurance, funeral

arrangements, etc.

• Does not pay for “support” items like food,

shelter, medical care

23

Interested parties in SNT

• Settlor

• Trustee

• Beneficiary

• Guardian

• Court

• Social Security Administration

• Medicaid Agency

24

PUBLIC BENEFITS

CONSIDERATIONS

• Goal in most is not to lose means tested

benefits

• SSI vs. SSDI

• Medicaid benefits

• Lookback period

• Penalty

• Termination of benefits

• Payback and estate recovery

25

SSI vs. SSDI

• SSDI is not means tested benefits

• Caution! Those on SSDI may qualify for

substantial discounts or Medicaid waiver

or nursing home and will lose it if assets,

income, rise

• SSDI otherwise does not need 1st party

trust, use 3rd party trust

• All SSI must have 1st party trust

• All Medicaid must have 1st party trust

26

Medicaid benefits

• Caution! Those on SSDI may qualify for

substantial discounts or Medicaid waiver

or nursing home and will lose it if assets,

income, rise

• There are many many different types of

Medicaid so important to find out if the

beneficiary receives any of them

• Ex: caregivers at home, QMB, SNP,

Sobra, CHIP

27

Payback provision and estate

recovery

• A first party or pooled trust must have payback

provision to reimburse Medicaid at death

• The moment of death, the payback kicks in (if

you are going to pay for funeral…pay for it now!)

• After death, if Medicaid is owed anything, they

will come after estate assets

28

David A. Cutner

Attorney at Law

9 East 40th Street 84 Calvert Street New York, NY 10016 Harrison, NY 10528

Phone: (212) 447-8690 (914) 732-3636 Fax: (212) 447-8691 (212) 447-8691

Email: dcutner@lamson-cutner.com Website: www.lamson-cutner.com

29

Cost of Nursing Home Care

Example: NYC Metro Area

Approximate cost is $400 – 700 / day =

$12,000 – 21,000 / mo =

$144,000 – 252,000 / year

30

Medicaid Eligibility Requirements for Nursing Home Care

Resources – no more than $14,850

Income – keep $50 per month, pay medical insurance premiums, balance to nursing home (subject to spouse’s right to receive up to $3,022.50 per month)

31

“Look Back” Period

“Look Back” Period = the 5 years preceding the month you apply for Medicaid benefits in the nursing home

Medicaid is looking for transfers of money or property that would disqualify you from receiving benefits in the nursing home

32

“Penalty Period” • If a disqualifying transfer of money or property has

occurred during the “look back” period, a “penalty period” will be established. The penalty period is the length of time that Medicaid will not pay for the cost of your nursing home care.

• Length of the penalty period = amount or value of the disqualifying transfers divided by Medicaid’s monthly regional rate for nursing home care

• Medicaid regional rate for nursing home care varies by state or geographic region (e.g., New York has 7 regional rates)

33

Example of Penalty Calculation

• Client lives in NYC where regional rate is $12,157

• Client needs nursing home care, but has $214,850 in savings

• Client transfers $200,000 in order to become Medicaid eligible

• $200,000 divided by $12,157 =

16.5 month penalty period

34

When does the Penalty Period commence?

You are in the nursing home

You have applied for Medicaid

You are eligible for Medicaid “but for” the transfer of assets in the “look back” period

35

Private Annuities & Promissory Notes

What ?

Why ?

When ?

How ? 36

What ?

• Private Annuities & Promissory Notes are legal instruments used in Medicaid Planning to convert countable resources into streams of income.

• In order to be effective for this purpose, they must comply with Federal and State Law.

• Deficit Reduction Act of 2005, 42 U.S.C. §1396p(c)(1)

37

Why ?

• The goal is to reduce the penalty period and thereby protect a portion of the client’s assets.

• If the Private Annuity or Promissory Note is properly drafted, the amount paid for it is not a disqualifying transfer.

• The income stream can then used to pay the nursing home during the penalty period resulting from a gift or transfer.

38

When? - Example of Use of Private Annuity or Promissory Note

• Client needs nursing home care but has $214,850 in savings. $200,000 must be transferred or spent.

• Transfer $100,000 to a child or friend, resulting in 8 month penalty period. This amount will be saved.

• Purchase $100,000 Private Annuity, which produces income stream of $12,500 per month for 8 months.

• Pay privately at nursing home for 8 months, using Private Annuity income, plus Social Security, etc.

• After 8 months, Medicaid starts to pay for nursing home. The initial transfer of $100,000 is protected.

39

How ? – Private Annuity

• The State is named as remainder beneficiary

• Irrevocable and non-assignable

• Actuarially sound (use IRS or Medicaid tables depending on local requirements)

• Provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments

40

How ? -- Promissory Note

• Repayment term that is actuarially sound

• Equal repayments during the term of the loan, with no deferral and no balloon payments

• Prohibits cancellation upon death of the lender

41

Calculation of the Monthly Payment

• Monthly payment from the Private Annuity or Promissory Note should be slightly less than the amount needed to pay the nursing home, after taking other income into account (e.g., Social Security, pension, RMD from retirement account).

• “Zero sum game” -- the smaller the amount needed to fund the Private Annuity or Promissory Note, the greater the amount saved. 42

SPOUSAL TRANSFER AND

SPOUSAL REFUSAL

PROTECTING ASSETS ON

NURSING HOME ADMISSION

43

Qualifying for Medicaid - Married

• Applicant must have less than $2205.00

per month income

• Must have less than $241,800.00 in assets

• May also have home if spouse is living in

home

• May also have one vehicle

• May also have funeral benefits for each –

will vary slightly state to state

44

Community spouse can also have

• Community spouse can keep all of their income

OR

• Income from applicant can be diverted to a total of $

2030.00 for community spouse

• In Florida, can keep up to one half of asset limit:

$120,900.00

• It does not matter whose name is on assets

• Consider annuities to max income

• If community spouse has low income, look for other

savings

• Long term care insurance can save assets

45

Can and should transfer assets to

spouse

• No lookback period or transfer

penalty

• Can put new beneficiary

• Can draft new will

• Avoid estate recovery or the

institutional spouse inheriting

46

Problems with transfer

• Stepchildren

• No authority

• Court order required

• Mandatory elective share/spousal

exemptions if community spouse dies

47

Spousal refusal

• Refuse to contribute towards

spenddown

• Many states will still come after

spouse (some won’t)

• Alternative to divorce

48

CAREGIVER AGREEMENT

• Also called a Personal Services Contract

• A formal written agreement with an adult child, other relative, friend, or professional, for companionship, paying bills, managing finances, providing transportation, managing social activities, personal care, or the like.

49

Role of Caregiver Agreements in Medicaid Planning

• Payment for services under a Caregiver Agreement is made in a lump sum, in advance.

• If the Caregiver Agreement is properly prepared, the lump sum payment will not be counted as an available resource or a penalized transfer.

50

The Medicaid Compliant Caregiver Agreement

(1) A formal written document that sets forth the duties and responsibilities of the caregiver, and the method of calculating the caregiver’s compensation.

(2) Compensation in line with cost of similar services in the same geographic area.

(3) Services do not replace or duplicate services being provided by a nursing home or home aide.

51

The Medicaid Compliant Caregiver Agreement con’t

(4) Lump sum payment is calculated with reference to the Medicaid applicant/recipient’s life expectancy. (Use IRS or Medicaid table depending on local requirements.)

(5) Repayment to Medicaid of unearned portion of lump sum if caregiver becomes unable to fulfill his or her duties under the agreement, or if Medicaid recipient dies before entire lump sum is earned.

52

The Medicaid Compliant Caregiver Agreement con’t

(6) The agreement must be irrevocable and non- assignable.

(7) Services can be on an “as needed” basis subject to a maximum number of hours to be provided each month. Caregiver should keep detailed logs of all services provided, and, as a best practice, render invoices for such services, and have the Medicaid recipient or representative sign the invoices.

53

Role of the Caregiver Agreement in the Family

(1) Caregiver may experience financial hardship as a result of reducing hours at work to care for a parent or other relative.

– Compensation helps offset the loss or diminution of income.

– The parent might have had to pay the same or more to an agency to provide the same services.

54

Role of the Caregiver Agreement in the Family (con’t)

(2) Many children feel guilty about complaining that caring for a parent is a burden, but

– Caring for an aging parent can be extremely trying, both mentally and physically.

– The Caregiver Agreement acknowledges the caregiver child’s hard work and personal sacrifice.

55

Role of the Caregiver Agreement in the Family (con’t)

(3) If siblings are unable or unwilling to help

– Caregiver may feel resentment, and relationships can become strained.

– Fair compensation to the caregiver can minimize these conflicts.

– Non-caregiving siblings may be relieved of their guilt or embarrassment when caregiver is paid.

56

David A. Cutner

Attorney at Law

9 East 40th Street 84 Calvert Street New York, NY 10016 Harrison, NY 10528

Phone: (212) 447-8690 (914) 732-3636 Fax: (212) 447-8691 (212) 447-8691

Email: dcutner@lamson-cutner.com Website: www.lamson-cutner.com

57

Kyla G. Kelim, Esq.

AGING IN ALABAMA P.O. Box 109

Fairhope, AL 36532

(855) ELD-RLAW

attorney@elderconsults.com

www.elderconsults.com

58