New Medicaid Restrictions On Transfers Of Homes

Recent case calls into doubt certain Medicaid planning strategies. Medicaid  applicants may face unexpected Penalty periods for transfers to disabled children.  If you have transferred a home to a trust for the benefit of a disabled child, please consult an attorney as soon as possible.

A recent NY decision severely curtails exemptions for uncompensated transfers of a homestead other than as expressly allowed in one section of NY law.  This ruling goes against accepted rules of statutory construction and could severely impact transfers made in trust to disabled children.

The law provides four distinct categories of exempt transfers:

1. Transfer of certain disregarded assets other than a home.
2. Transfers of home to certain people.
3. Transfers to disabled children or any disabled person under 65, either outright or in a trust for the sole benefit of the disabled child or disabled person under 65. 
4. Catchall  transfers where there was an attempt to dispose of the asset at fmv, or where the asset has since been returned.

A plain reading of this statute would mean that if a transfer falls under  any one of the four enumerated categories that the transfer should be considered exempt and not result in a Medicaid penalty period.

But a recent decision in July 2011 by a NY administrative law judge in Nassau County has held otherwise and created major uncertainty in the area of homestead transfers.  There may also be wider repercussions if this ruling stands.

In this case, the Medicaid applicant transferred the shares of her cooperative apartment into a supplemental needs trust for the benefit of her disabled child and applied for Medicaid to pay for her nursing home.  The value of the uncompensated transfer was $169,534.84 and a penalty period of 15.62 months of care was imposed.   (This is calculated by dividing the total uncompensated transfer amount by the regional rate of $10,852.). Initially, the court held that the transfer qualified for exemption 3 above and was an exempt transfer. Medicaid appealed and the prior ruling was voided and the court declared that for homesteads, the ONLY exempt transfers are those listed in the homestead section of the statute and that the other exemptions are not available for transfers that involve homesteads.

This interpretation is an outrageous narrowing of exemption of a transfer to or for the benefit of a disabled person.  It is judicial activism at its worst, involving a judge rewriting the law in a way that injures seniors' rights and leaves disabled persons vulnerable. Please consult an attorney if you or a family member have previously transferred some in trust for the benefit of a disable person. Laidlaw Firm offers free initial consultations.

New York Expands Estate Recovery For Reimbursement of Medicaid Benefits

Federal law has always allowed states broad recovery against the Medicaid recipient’s estate for the reimbursement of paid Medicaid benefits. The U.S. Code of Laws defines an “estate” for the adjustment or recovery of medical assistance correctly paid under a State plan as all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law. States also have an option to include any other real and personal property and other assets in which the decedent had any legal title or interest in at the time of death such as assets conveyed to a survivor, heir or assign of the deceased through joint tenancy, tenancy-in-common, life estate, living trust or other arrangement.

But historically, NY laws, regulations and practice limited recovery of Medicaid payments to a recipient’s probate estate.  However, with the budget deficit and Governor Cuomo’s voter mandate for fiscal reform, the New York legislature has adopted recommendations made by Governor Cuomo’s Medicaid Redesign Team.   This team issued its recommendations on February 24, 2011 and the law was revised on April 11, 2011 and the implementing regulations issued from the Department of Health on September 8, 2011. 

See figure 1 below for a clear definition of probate estate assets.

FIGURE 1. 

Probate Assets	Non-Probate Assets
Only “probate” assets will pass in accordance with the terms  of your Will, such as: Bank Accounts titled only to the decedent or held as tenants-in-common Real Property titled only to the decedent or held as tenants-in-common Personal Property Business Interests (though contract terms may dictate valuation and transfer of title)	IRAs Defined Benefit Plans Life Insurance Annuities Certain Bank Accounts Joint Tenants Certain Real Property Tenants by the Entirety Joint Any other assets with a “Designated Beneficiary Form” Retained Life Estates

This is major cause for concern in the realm of elder law. Whether you already have an asset protection plan in place or are seeking to create one, it is important to understand the impact of the changes on asset recovery.

Due to a massive budget deficit and laws that restrict reducing services, New York has acted to change its laws and regulations to allow for the fullest estate recovery allowed by federal law. On April 1, 2011 a change occurred in the New York Codes Rules and Regulations where paragraphs were added to current law defining  an “estate” in Section 360-7.11(b) pertaining to Medical assistance liens and recoveries. The new paragraphs expanded the definition of “estate” to include any property in which the individual has any legal title or benefit interest at the time of death, including jointly held property, retained life estate, beneficial interest in a trust to the extent of such interest.

It is clear from these modifications to the definition of “estate” for recovery purposes that many elders assets could be vulnerable to Medicaid recovery or loss of services. Consultations with an elder law attorney will ensure qualifying for Medicaid and prevent assets from unnecessarily being subject to Medicaid recovery.  At Laidlaw Firm, we offer free initial consultations.  Please feel free to call (914) 767-0646 or email us at cgriffin@laidlawfirm.com to schedule an appointment.

Related Links:

• New York State Department of Health; Redesigning the Medicaid Program: http://www.health.ny.gov/health_care/medicaid/redesign/
• U.S. Code of Laws: http://www.law.cornell.edu/uscode/42/1396p.html
• Redesigning New York’s Medicaid Program: http://www.health.ny.gov/health_care/medicaid/redesign/
• Governor Cuomo Issues Executive Order Creating Medicaid Redesign Team: http://www.governor.ny.gov/press/01052011medicaid
• Governor Cuomo Accepts Recommendations from the Medicaid Redesign Team: http://www.governor.ny.gov/press/022411cuomoaccepts_medicaidredesignteam
• Cuomo’s Budget Strategy, Getting Adversaries to Suggest Cuts, Is Paying Off: http://www.nytimes.com/2011/02/28/nyregion/28cuomo.html
• New York Medicaid Panel Backs Cuts: http://www.nytimes.com/2011/02/25/nyregion/25medicaid.html?_r=1&scp=3&sq=cuomo%20medicaid%20&st=cse
• State Proposal Would Limit Annual Medicaid Rise: http://www.nytimes.com/2011/02/24/nyregion/24medicaid.html?scp=3&sq=Cuomo%20and%20Medicaid&st=cse
• Governor Cuomo Announces On-Time Passage of Historic, Transformational 2011-12 New York State Budget: http://www.budget.ny.gov/pubs/press/2011/pressRelease11_OnTimePassageofHistoricTRANSFORMATIONAL2011_12NYSBUDGET.html
• State Panel Approves Medicaid Cuts, Forwards to Cuomo: http://www.wnyc.org/blogs/wnyc-news-blog/2011/feb/24/state-panel-approves-forwards-medicaid-cuts-cuomo/
• See our previous article on exempt Medicaid assets as a reference point.
• Medicaid Estate Definition, Effective date: 9/8/11: http://www.health.state.ny.us/regulations/emergency/docs/2011-09-08_medicaid_estate_definition.pdf

Learning to Utilize Exempt Assets to Qualify Immediately for Medicaid

Medicaid is a means-based federal assistance program.  Medicaid will pay for home care or nursing home care, while Medicare has major limits to covering either of those needs. 

As a single person over the age of 65, you will not qualify for Medicaid if your assets exceed $13,800.  For a two-person household, your assets must be under $20,100.   If you are married, but your spouse executes a “Spousal Refusal,” your assets must be under $13,800. 

HOWEVER, certain assets are exempt for Medicaid qualification purposes.  They include the following:

• House (increased to maximum of $758,000 value as of 2011)
• Car (unlimited value – within reason)
• Contents of Household (unlimited value – within reason)
• IRAs as long as in pay-out status (i.e., Minimum Required Distribution taken yearly)
• Funeral/Burial Exemptions
  • Prepaid funeral trust (no limit, but should not be overfunded as unused portion must be returned to Medicaid)
  • Burial plot/vault exempt
  • Burial account funded with no more than $1,500.  Account must be separate and specifically designated as a burial allowance OR first $1,500 of cash value of an insurance policy is disregarded.

Caveat: Although these are exempt assets for determining eligibility, they may still be vulnerable to an estate claim by NY State unless further asset protection planning is performed.

To learn how you can utilize exempt assets to qualify immediately for Medicaid, contact attorney Moira Laidlaw at (914) 767-0646 or email Moira at mlaidlaw@laidlawfirm.com.  

Governor's New Taskforce Recommendations Slash $2+ Billion from Medicaid Budget: Act Now

New York’s new governor, Andrew Cuomo, has created a taskforce – Medicaid Redesign Team – to restructure the Medicaid program to increase efficiency and effectiveness. Over the last two months, the taskforce has held a number of meetings all over the state soliciting suggestions on how to save money. Last week Cuomo accepted the taskforce’s report with 79 recommendations that if enacted would set a global cap on state Medicaid spending of $15.109 billion – cutting $2.3 billion from the current program.

Of the proposals being considered, those with the biggest impact on Medicaid eligibility include the elimination of Spousal/Parental Refusal, the expansion of estate recovery and the definition of estate, and the implementation of a 60 month look back for non-institutional long term care (i.e. Community Care). The last proposal is the most drastic. Under current Medicaid law, eligibility to receive Community Care, such as home health aides and skilled care in your home, does not carry any penalty period for transfers. You can transfer assets today and qualify on the first day of the next month for Medicaid. Under the proposed recommendation, the same 60 month look back period that currently applies only to Medicaid Institutional Care would also apply for Community Care.

If you or a loved one wants to qualify for Medicaid Community Care, it is imperative to act immediately. This 60 month look back period would apply to new Medicaid applications if this recommendation becomes law. To avoid having these strict requirements impact your Medicaid eligibility, contact attorney Moira Laidlaw at (914) 767-0646 or email Moira at mlaidlaw@laidlawfirm.com to start your Medicaid Planning today. 

The Value of an Irrevocable Income-Only Trust

Trusts were originally the tool of the wealthy.  Now they also serve the interests of middle class Americans as well!

Imagine this: you transfer your house to your children to protect the value of your house from Medicaid.  Then one of your children gets divorced or sued in a personal injury lawsuit, and your house is considered an asset of your child’s and gets taken through that proceeding. 

How do you prevent this from happening?  Well, in a word, create a TRUST.

Clients become worried when they hear the word trust.  What is a trust?  How will it work?  It’s this esoteric thing that clients find intimidating.  They think it’s just for the rich and famous.  Not true!  Trusts are the friend of the middle class as well.  I tell clients to think of trusts as a small business.  They have their own bank account and their own operating terms, as specified in the trust agreement.  Your lawyer will help you create the trust agreement and administer it in accordance with the law.

For asset protection purposes, if you create a trust, you will be foregoing your right to withdraw the principal of the trust, but if done right, you will receive income and a right to live in the house if you transfer a house.  You will retain enough other rights to the property of the trust so that if you were to die, the beneficiaries of the trust receive a date of death value on the trust property for capital gains purposes, instead of a cost-basis value of trust property. 

If you are thinking “huh” to that last part, consider this example:

Husband and wife purchase a house in 1950 for $45,000.  They make capital improvements to the house valued at $25,000.  The present value of the house in 2011 is $700,000. 

1. If they GIFTED the house to their children for Medicaid asset protection purposes, the children would only receive a cost basis of $70,000.  If they sold the house thereafter, they would owe capital gains tax on $630,000.  At the present rate of 15%, this would result in a tax of over $65,000. 
2. In this same scenario, if the parents transferred the house to a qualified trust, at the death of the parents, the children would receive a basis in the house equal to the value of the property on the date of death of the parents.  This means that no capital gains tax would be owed if the house sold for $700,000.  Additionally, if certain rights are reserved, the house can still qualify for certain special tax exemptions, including the VA and enhanced-STAR property exemptions, during the lifetime of the parents.  This is a huge advantage over a straight asset transfer!

So there are many benefits to an irrevocable trust.  Here they are:

• Trust principal would be protected from creditors
• Immediately upon transfer, assets would not count as a resource for Community Care Medicaid
• Trust Income still available to support mom and/or dad
• Trust funds remaining at death can pass automatically to named beneficiaries, without probate!
• Date of death value of assets, instead of original cost basis

Of course, a trust is not right for every person.  There are also a few drawbacks.  They include:

• Initial burden of transferring assets into trust
• If either spouse needs Institutional Medicaid within the next five years, the trust would need to be unraveled and the entire initial principal at time of funding returned to the husband and wife
  o   Gift tax issues to children should they need to receive trust principal and transfer same
       to parents

To set up an Irrevocable Income-Only Trust to protect your or a loved one's assets, contact attorney Moira Laidlaw at (914) 767-0646 or email Moira at mlaidlaw@laidlawfirm.com.