Ask Our Law Firm to Identify Errors Advisors are Making

Ask Our Law Firm to Identify Errors Advisors are Making: Long Term Care and Medicaid Asset Protection Solutions Still Exist But Are Now More Complex

The Deficit Reduction Act (“DRA”) severely impacts the ability of your clients to qualify for long term care Medicaid assistance. The new law was signed by President Bush on February 8, 2006. The DRA creates a number of problems for financial advisors, as well as legal counsel. The challenge is to understand where these problems lie in administering your services to your clients. The State of Illinois has not yet adopted the federal law, but may do so during 2007.

The following are some errors that we see financial professionals make with clients of moderate and substantial wealth. These errors can disqualify clients from the benefits they are entitled to, thus making them and their families unhappy:

  1. Recommending gifts or transfers to family members that violate the “new” onerous asset transfer rules.
    For example, under prior law if your client  gifted away $10,000 for college education your client created a 2 month penalty period and the penalty period would expire in two months. Now, if the same gift is made after February 8, 2006, you still create a two month penalty period, but the penalty period does not begin until after the client is in the nursing home and has otherwise spent down their assets to zero. This means that the penalty period does not begin until the client has no assets.

    Query: how does the client pay the nursing home during the 2 month penalty period without assets and without yet being qualified for Medicaid? Thus, advisors themselves must seek advice regarding gifting under the new law.

  2. Recommending to clients non-compliant Medicaid annuities.  Under the DRA, annuities need to be actuarially structured pursuant to the DRA in order for them to qualify for Medicaid.   In some cases the State of Illinois must be primary beneficiary on the death of the annuitant or ill spouse. This may unsettle a lot of existing estate and retirement planning. Seek advice on the proper annuity contract structure.
  3. Not recommending long term care insurance early enough.  A good way to finance long term care, if obtainable.

Under the DRA, there are still plenty of opportunities to protect clients from a nursing home spend down, but you need to know where to look for the opportunities.

Our office will continue to work with advisors who would like to protect their clients from an asset spend down and thus help them to keep their clients’ assets under management as the client requests.

If my office can ever assist you as your clients weave through the maze of opportunities and trap doors that exist under the DRA, please do not hesitate to contact us. If you would like to chat about this, please contact me at (847)292-1220. I enjoy speaking with other professionals about the impact of these massive law changes. ABF

**This document is for discussion purposes only and is not intended to be construed as legal advice. You should never attempt estate planning without the advice of competent legal counsel. Please feel free to contact our offices if we may assist you.**

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Copyright 2006 THE LAW OFFICES OF ANTHONY B. FERRARO, Rosemont, Il.