A Shift in Elder Law and Other Planning- Planning for the Long Term “Decumulation” of Assets for Nursing Home Care and the Reason to Plan Sooner for the Protection of Assets and for Peace of Mind.

For months now our colleagues have received our suggestions regarding various opportunities and pitfalls in the Deficit Reduction Act of 2005 (ADRA@). The DRA will continue to impact our clients, many of whom are often are consumers of public benefit programs- especially with regard to qualification for MEDICAID for long term nursing home stays when long term care insurance is not an option. While many advisors are intimidated by the changes found in the new law, many other advisors are seeing the opportunities, embracing the change, and using it to the advantage of clients. With this in mind, I would like to respectfully suggest to you a new shift in thinking that is required for planning now and in the future. It goes like this: Advisors have been helping their clients for years with the arrangement of their affairs so that assets will pass in the proper manner and to the proper heirs upon the client’s death. The question that was being asked by clients at that time was, “What happens with my assets when I die?” I suggest to you that the DRA requires advisors and clients to ask a new question. That is: What happens if I don’t die, but rather I become ill and live for a very long time? The answer to this last question is substantially different. Good planning for clients must consider both scenarios: death planning certainly, but also long term care asset planning. Such long term care asset planning cannot be done exclusively in crisis mode as it used to be done. Since the DRA was passed, this planning must take place years in advance (at least five years, but preferably more than five). Advisors will now start to think about this additional perspective and the shift in approach that is going to be required in order to serve clients into the post-DRA future. Please see our website for updates in this area at abferrarolaw.com. The Illinois rules of Professional Conduct require attorneys to identify unsolicited communications to prospective clients as Advertising Material. If the context requires, please consider this letter and the enclosed literature to be Advertising Materials. Any tax advice contained in this communication was not intended to be used, and cannot be used, by you (or any other taxpayer) to avoid penalties under the Internal Revenue Code.

The Myth:  All Medicaid Planning is the Same

Pre-Planning vs. Crisis Planning

Medicaid benefits can be an important part of a long term care plan. Attorney-CPA Anthony B. Ferraro can assist you with all aspects of Medicaid, from determining whether you qualify, to applying, to protecting income and assets for spouses, or single persons, to protecting the family home. He will work hard to help you get the benefits you need for a comfortable future and peace of mind. I. Medicaid Pre-Planning: Medicaid pre-planning is the process of creating estate planning documents, such as Wills, Trusts, and Powers of Attorney, in a way that allows your assets to be protected and used for you, not just at the time of your death, but in the event that you do not die and require a long term nursing home stay. Pre-planning enables you to be proactive to take advantage of asset protection strategies that will ultimately provide you with comfort and peace of mind. Through asset protection strategies, such as asset conversion or spend down, we can help you plan to qualify for Medicaid. We sometimes incorporate trusts, such as special needs trusts or other trusts, as part of our strategies. II. Medicaid Crisis Planning: Medicaid Crisis Planning occurs when someone is already in a nursing home or is about to enter a nursing home. Since the average cost of a nursing home in the State of Illinois may be in the range of $6,500 per month, Medicaid crisis planning requires a certain level of knowledge in order to represent and advocate the position that our client is eligible for Medicaid.  The first step in the Medicaid asset protection planning process is determining whether you qualify. The guidelines to receive benefits require a certain low level of assets and income. If your assets and income currently put you outside of the guidelines, we can assist you in developing a strategy to protect your assets and income in a way that allows you to receive the benefits you need. Only after all crisis planning opportunities are exhausted do we apply for Medicaid qualification for the applicant. To find out how we can help you with Medicaid Asset Protection Planning, contact us at 847.563.4887. We are available to help clients throughout the Chicago metropolitan area, including Rosemont, Schaumburg, and Cook County, Illinois. Contact our office today for a consultation and you will receive a reservation for a complimentary 10 minute phone consultation with Mr. Ferraro. If you call, Mr. Ferraro, an Attorney-CPA, our office will be happy to discuss your issues, and help you determine whether or not you need to hire a lawyer to assist you.

“LEGALLY AND EFFECTIVELY PROTECTING YOUR ASSETS FROM A LONG TERM NURSING HOME STAY”

Elder Law News 1.     Some experts are stating that the greatest threat to the financial security of middle-Americans is the cost of long-term nursing home care. 2.    VA Benefits Discovered.  Millions of wartime veterans (even those not wounded while serving) and their spouses may be eligible for special monthly pension benefits solely because they are over 65 years of age and are homebound, in assisted/supportive living, or in a nursing home.  Many veterans don’t know that they qualify. 3.     Long term care insurance is useful, even though recently a player in the long term care insurance industry raised its premiums for existing householders.  Many industry observers believe that there will be further industry repricing in the future.  However, make no mistake about it, long term care insurance, if you can qualify for it and afford it, is an important component in providing for asset protection for future long term nursing home care. Be sure to compare apples to apples. 4.     North Carolina has joined the long list of states that have issued another draft of rules regulating the transfer of assets provisions in the Deficit Reduction Act of 2005. 5.     With the Estate Tax set to expire in 2010 for one year and then revert back to a $1 million exemption amount in 2011, a new bipartisan bill has been introduced in the House that would increase the estate tax exemption by $250,000 every year from 2009 to 2015, and create two separate estate tax rates.  Here we go again. 6.     Certain studies have shown that pre-retirees significantly underestimatetheir life expectancy and long term care needs. 7.     Should you sign a nursing home admission agreement?  If you are putting someone into a nursing home, it can be a very stressful situation.  When signing an agreement on behalf of an incapacitated resident, you should sign only as the resident’s agent.  Do not sign the agreement as a responsible party. Nursing homes are prohibited from requiring third parties to guarantee paymenton nursing home bills.  Always have qualified counsel review this application first. 8.     More seniors are seen to have mortgage payments into retirement. 9.     The first boomer will become eligible for Social Security in 2008. Elder Law Cases 1.     A Pennsylvania court recently affirmed the denial of Medicaid benefits, finding that the full value of US Savings Bonds that the applicant owned jointly with her children were an available resource for Medicaid purposes.  The court alsorejected the resident’s argument that US Treasury regulations require thatonly 50% of the value of the bonds should be attributable to the applicant as co-owner.  It is not always as it seems for Medicaid purposes. 2.    A New York trial court found that funds transferred from a guardian to a spouse for Medicaid planning purposes created a constructive trust for the benefit of the incapacitated person.  When the guardian transferred the resident’s assets to her husband’s name, the court felt that it was with the understanding that the husband agreed to pay for the resident’s one on one care with the transferred assets.  Because the husband did not do so, the guardian petitioned the court to transfer the assets back to the resident nursing home wife.  The Supreme Court of New York held for the guardian and ordered that the assets be transferred back to the resident spouse, holding that the funds transferred to the healthy spouse created a constructive trust for the benefit of the incapacitated spouse.  Do your long term care planning and your Medicaid asset protection planning so that you don’t need a guardian. 3.     Recently the Eleventh Circuit Court found that a provision in a long term care policy is ambiguous enough so that the policy had to be construed against the insurer.  Have your policy reviewed. Mission Statement Our firm is dedicated to the legal and effective protection of our clients’ assets from taxation, as well as planning for Medicaid asset protectiondue to a long term nursing home stay.

“Educate to Motivate”

Anthony B. Ferraro Attorney-CPA 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com abferrarolaw.com Note:  Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate Planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

“LEGALLY AND EFFECTIVELY PROTECTING YOUR ASSETS FROM A LONG TERM NURSING HOME STAY“

1.     Amounts Spouses of Nursing Home Medicaid Recipients may keep are modestly increased.  The Centers for Medicare and Medicaid (CMS) has released the 2008 federal guidelines for how much spouses of institutionalized Medicaid recipients can keep. In 2008, the spouse of a Medicaid recipient living in a nursing home (called the “community spouse”) may keep as much as $104,900 without jeopardizing the Medicaid eligibility of the spouse who is receiving long term care, before further petition. Meanwhile, the maximum monthly maintenance needs allowance for 2008 will be $2,610.  This is the most income that a community spouse is allowed, before further petition. * * * * * 2.     Ruminations on Top Seven Financial Planning Tips:  Here are some of our favorites: – Have a Durable Power of Attorney for Property that enables someone to make financial decisions for you, and engage in Medicaid asset protection planning for you.  Remember, when you are out of money, you are out of options. – Have an updated Will. – Have a Power of Attorney for Healthcare that enables someone to make healthcare decisions for you, and in this document indicate your end of life wishes so that someone else does not have to make that decision for you.  Remember Terry Schiavo! – Have long term care coverage as part of your health insurance. – Participate fully in 401(k) or SEP- type plans. – Have an idea of what your projected income at retirement will be from Social Security, pensions, etc. – Have enough liquidity as an emergency fund for at least three to six months of cash flow. * * * * * 3.     The Wisconsin Court of Appeals found that a Community Spouse whose wife was in a nursing home was not liable for his wife’s nursing home costs because the court interpreted the legislature’s intent as to protect the Community Spouse from being impoverished by Medicaid requirements for coverage of nursing home care. This should be distinguished from a recent case in Illinois, where the Illinois Appeals Court indicated that federal law did not preempt a state law that required Community Spouses to contribute all income in excess of their Minimum Monthly Needs Allowance ($2,541.00) for the support of their institutionalized spouse. * * * * * 4.     Continuing Care Retirement Communities (CCRCs) are gaining in popularity in the United States.  These CCRCs offer a wide continuum of care, from independent living all the way to skilled care nursing facilities. Contract for these facilities vary, but most contracts can be life contracts or fee-for-service contracts, which is more of a pay-as-you-go arrangement.  The choices are confusing.  You should have a qualified lawyer review these contracts before signing them. * * * * * 5.     Recently a U.S. District Court held that requiring a Medicaid applicant toreside in-state for a period of time before state Medicaid benefits are determinedis a violation of the fundamental constitutional right to interstate travel guaranteed under the U.S. Constitution. * * * * * 6.     Long term care coverage is an important part of financial planning. The flexibility of long term care coverage and the options that you can obtain greatly vary.    The elements of coverage that will affect the cost of these policies is as follows: – Your age and health. – The  amount of benefit you select. – The length of period for which you wish to have benefits (for example, 3 years, 5 years, lifetime). – The waiting period (or elimination period) before the benefits pay out. – Inflation protection. – Whether the contract has a shared or joint feature, where one policy may be available for two spouses. * * * * * 7.  Tax Implications of Tax Qualified Policies.  In general, there are two types of long term care policies that are available: tax qualified policies and non-tax qualified policies.  In 1996, the IRS began treating tax qualified long term care insurance policies as deductible medical expenses under the Internal Revenue Code. * * * * * 8.  Self-employed individuals may deduct 100% of the eligible premium for a qualified long term care insurance policy if the business pays the premium and the individual is not covered by a long term care insurance policy maintained by the individual or spouse’s employer. Mission Statement Our firm is dedicated to the legal and effective protection of our clients’ assets from taxation, as well as planning for Medicaid asset protectiondue to a long term nursing home stay. “Educate to Motivate” Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com abferrarolaw.com Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice.  You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

1.     Change is Upon Us- So Legally and Effectively Protect Your Home and Savings Now.  It is believed by observers that in the near future Illinois will adopt the Deficit Reduction Act of 2005, which may have the effect of reducing the availability of Medicaid funds for the nursing home bound Illinois resident. With that in mind, you should begin shopping for your long term care insurance now. While there will always be some asset protection planning that we can do, the first line of defense for long term care is long term care insurance.

* * * * * 2.     Election Year Stuff.  One Presidential candidate has unveiled a plan to lower long term care costs by: 1) providing a $3,000 per year caregiving tax credit to help seniors, 2) making long term care insurance cheaper, and 3) improving the quality of care in nursing homes. * * * * * 3.     Bad Nursing Homes.  in certain advocacy groups recently asked the Bush administration to make it easier for consumers to identify poorly performing nursing homes. Apparently the administration has agreed and the Centers for Medicare & Medicaid Services will be listing the allegedly suspect homes on its website. * * * * * 4.     Medicaid Spousal Impoverishment Figures. For 2008, the CSRA (Community Spouse Resource Allowance) is $104,400. This means that this is the maximum amount of assets that a Medicaid applicant can transfer to the well spouse if the ill spouse is living in a nursing home and seeks Medicaid reimbursement for long term care. The MMNA (Monthly Maintenance Needs Allowance) is $2,610. This is the maximum amount of monthly income that a Community Spouse can have if their ill spouse is living in a nursing home and wishes to obtain Medicaid reimbursement for long term care. * * * * * 5.     Be Careful with Powers of Attorney.  Under Illinois law, the establishment of a joint checking account created prior to the execution of the Power of Attorney creates a presumption of donative intent. Also, the transfer of funds from a joint account by an agent for the agent’s own use creates a presumption of fraud, absent a gift-giving power in the Power of Attorney. Illinois courts have held that where these two presumptions exist, and where the agent actively uses his or her position to create the joint tenancies, the presumptions do not cancel, rather, the controlling presumption is the presumption of fraud, which requires strong evidence to rebut. * * * * * 6.     Creating Liquidity for the Elderly with “Private Reverse Mortgages”.   Consider private” reverse mortgages recorded against the residence in order to pay for care when there is no liquidity. This can eliminate the large fee that many reserve mortgage providers impose. However, you may lose some of the fluidity and automation that the good lenders provide so well. Also, keep in mind regulatory restrictions on home mortgages. * * * * * 7.     Move Assets to Caregivers Legally with Personal Care Agreements.  In Illinois and some other states, the law presumes that a person who furnishes services to a family member is presumed to do so gratuitously and not for pay. This presumption can be overcome, but the cases require that parties enter into express or implied contracts at the time of service. Hence, personal care agreements are useful. These are written contracts describing services that family members or friends will provide for the elderly at pre-established fair market value rates. Accounting and bookkeeping are required, as is tax withholding and contemporaneous timesheets. For someone who is assisting an elderly person, there is no reason why a transfer of assets from the elderly to the caregiver cannot be made at fair market value, and thus keep the elderly person at home for a longer period of time and shelter some of the elderly person’s assets in the process. These must be legitimate pay for services arrangements. When done properly, they serve a useful purpose. Mission Statement Our firm is dedicated to the legal and effective protection of our clients’ assets from taxation, as well as planning for Medicaid asset protectiondue to a long term nursing home stay.

“Educate to Motivate”

Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com https://abferrarolaw.com/ Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

1.  Medicaid and VA Benefits Workshops As a notice to our readership, please be aware of the following upcoming workshop dates: January 24, 2008 at 7:00 pm January 31, 2008 at 7:00 pm February 21, 2008 at 7:00 pm February 28, 2008 at 7:00 pm March 13, 2008 at 7:00 pm April 3, 2008 at 7:00 pm Again, the workshops will deal with Medicaid Asset Protection Planning and VA benefits.  Both of these areas of discussion will be couched in the context of estate planning essentials. * * * * * 2.     A Trust is not a trust… A Connecticut trial court found that the principal of a trust was an available asset under Connecticut Medicaid laws, even though the trustee refused to pay for nursing home care. What this means is that, as a matter of general Medicaid law, if a trustee has the ability to make assets available to a Medicaid applicant, then the Medicaid administrative agency will take the position that the trust is a general support trust, and because the beneficiary of the general support trust can compel the distribution of funds, the trust principal is an available asset. Trusts need to be drafted properly if they are to avoid being available assets in a Medicaid context. * * * * * 3.   Long Term Care Planning Redux.  There are several commentators that have indicated that long term care planning can be divided into four general areas of: 1)creating a plan and choosing a coordinator for the plan; 2) using long term care professional to structure a plan; 3) understanding the funding alternatives for long term care; and 4) understanding the settings and programs in which care is available. * * * * * 4.     Statistics indicate that in the United States that people who care for the elderly on the average suffer their own annual out of pocket expenses of about $5,500. This represents, in part, loss of their salaries. * * * * * 5.     Prepaid Funerals versus Prepaid Funeral Trusts.  Be careful of funeral trusts versus prepaid funeral plans. Irrevocable funeral trusts are irrevocable as the name implies, and are usually funded with a single premium life insurance policy with a death benefit of $10,000-$15,000. A prepaid funeral arrangementwith a local funeral home may be a better way to go, because: 1) it is preferable as a method of spend down of assets that will need to be used later on; and 2) there is no insurance that needs to be purchased, rather you only purchase services such as funeral arrangements, caskets, headstones, etc. * * * * * 6.     Financial Abuse of Elderly on the Rise.  Studies are indicating that the incidence of financial abuse against the elderly is growing in epidemic proportions. Because many elderly are frail and in poor health with cognitive disorders, they are more susceptible to becoming victims. Attorneys, CPAs and financial advisors are in a good position, as trusted advisors for families, to protect elderly clients from financial abuse. Financial abuse can be something as simple as giving a child a power of attorney who uses it to take funds and use them for the child’s own purposes. Financial abuse can also consist of inappropriate purchases made through unscrupulous telemarketer telephone calls. If a professional suspects elder abuse, they should contact the State or local community protective service agency, or the long term care omnibudsman or the local police department. * * * * * 7.     VA benefits versus Medicaid benefits.  Assets may be gifted in order to qualify for Veteran’s Administration benefits. While this may good practice for Veterans and benefits, it can be a disaster for later Medicaid benefits for which a Veteran may wish to apply. Bottom line: get help with both Veteran’s benefits and Medicaid benefits at the same time. * * * * * 8.     A recent report by former lawmakers Bob Kerry and Newt Gingrich indicates that the US needs to do more to make long term care good and affordable. Stay tuned…. * * * * * 9.     Long term care insurance is… The National Association of Insurance Commissioners (NAIC) in their shopper’s guide indicates that while long term care insurance is something that is useful, they point out some cases in which the purchase of long term care insurance is not cost effective. The NAIC suggests that one should not buy long term care insurance if the purchaser does not have at least $35,000 in financial assets, or the premiums will account for more than 7% of the purchaser’s income. If a senior is unable to purchase long term care insurancebecause of pre-existing health conditions, or is substantially concerned with leaving a financial legacy to their heirs, then these two groups of seniors need to engage in Medicaid asset protection planning. Since this type of planning has become more difficult with the passage of the Deficit Reduction Act (“DRA”) of 2005, planning should take place earlier. * * * * * 10.     Baby boomers face bleak retirement prospects.  Due to sloppy portfolio allocation, underfunded 401(k)s and retirement savings plans, and expected low rates of return, many boomers believe that they are going to have to work longer than they currently expect in order to make ends meet, according to some commentators.

“Educate to Motivate”

Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com https://abferrarolaw.com/ Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

1.     Do you know any Seniors who are paying their children to care for them? seniors can be losing years of financial assistance for nursing home care because such payments to the children will be viewed as “disqualifying gifts by the state unless properly documented. GULP! * * * * * 2.  What the Sandwich Generation Needs to Know about Nursing Homes and Asset Protection Planning. An Easy to Use Family Checklist for Seniors and Those Who Love Them a) It’s Not Too Late. Medicaid Planning can begin anytime, even if your loved one is already living in a skilled care facility. But the sooner you plan, the more options you will have to protect what’s important to you. b) Keep Your Home. If you are married, and you or your spouse needs to go into a nursing home for a while, your home is exempt from Medicaid’s calculation of what your contribution to the cost of care should be. If you are widowed and you plan to go into a nursing home, your house may be exempt if you follow certain procedures. But planning is key to preserving your home. c) Don’t Give Away Assets. Since major changes to laws in 2006, “gifting” away your assets creates unforeseen circumstances for years. Far from protecting yourself, you will be undermining your own security. d) Use Those Safe Harbors. Congress has created a number of “safe harbor” provisions for protecting your assets. These exempt certain assets and allow transfers to children or siblings who meet certain eligibility requirements. e) Know When to Apply. Applying too early can mean a longer wait for Medicaid qualification than necessary, while applying too late can mean having to pay for months of care you may not have had to. f) Veterans: Be Sure to Look into “Hidden” VA Benefits. There are some VA benefits that will allow veterans and their spouse to remain at home longer without going into a nursing home. g) Get the Right Help. Medicaid planning is a complex matter. You need qualified assistance to keep your assets safe. Be sure to find legal counsel who practices in this area- someone with proven capability in Medicaid law. h) Rule of Thumb: Do not apply for Medicaid without a plan to ensure you qualify. * * * * * 3.     Types of Nursing Home Asset Protection Planning: Planning to become eligible for Medicaid generally takes place in one of two circumstances: Pre planning First, Medicaid Pre-planning is done when an individual or couplewho are not in a nursing home are planning in advance for the possibility that they may need long-term care in the future and wish to preserve assets. We recommend that you plan far in advance of needing care (i.e. at least 5-10 years). This is the best approach. Crisis Planning Second, Medicaid Crisis planning is done when you or a family member is already in a nursing home or is about to enter a nursing home and are seeking to preserve assets. * * * * * 4.     Next Step. If you or a family member is facing the high costs of long-term care, then you probably have not taken any planning steps. But whether or not you have planned ahead, generally there’s a lot you can do to legally protect at least some of your savings, even at the last minute. But in all cases, never apply for Medicaid without consulting with a qualified attorney first, as once you have applied you may have cut off planning opportunities. * * * * * 5.     Feds Finally Release Complete List of Deficient Nursing Homes. The federal Centers for Medicare and Medicaid Services (CMS) has released the complete list of U.S. nursing homes that have failed to meet safety and quality standards for care. * * * * * 6.     Come to Our Free Nursing Home and Medicaid Asset Protection Workshop! “How to Protect Your Home and Savings from Nursing Home Care”. Covering the things you need to know in 2008 about planning for incapacity and how to protect your home and savings from the expense of future nursing home care. Seating is limited, so call 847-563-4887 to reserve your place today at one of the following workshops, to be held at Columbia Center I, 5600 N. River Road, Rosemont, Illinois:

February 28, 2008 7:00 pm

March 13, 2008 7:00 pm

April 3, 2008 7:00 pm

Mission Statement Our firm is dedicated to the legal and effective protection of our clients’ assets from taxation, as well as planning for Medicaid asset protectiondue to a long term nursing home stay.

“Educate to Motivate”

Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com https://abferrarolaw.com/ Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

 

“How to Use Medicaid Qualified Annuities in Medicaid Eligibility Planning

and

How to Serve Your Clients Even in the ‘Decumulation’ Phase of Their Lives“

As you have no doubt read in our recent Elder Law Updates, the Deficit Reduction Act of 2005 (“DRA”) has substantially changed the elder law area so thoroughly that some lawyers have left the field. Not us. Certainly the changing laws in the area of Medicaid Eligibility and healthcare in general have created certain inconsistencies and lack of understanding. There are however still many reliable tools that are being relied on by elder law and Medicaid attorneys that are actively representing the elderly and disabled persons. At our office we remain absolutely optimistic that our practices and strategies will continue to preserve our clients’ dignity while still protecting assets. New Rules One of the major changes brought in by DRA was change in the law that deals with what we call uncompensated asset transfers and gifting. Under the old rules, pre February 8, 2006, if someone made a gift there was a penalty for Medicaid qualification purposes, but the penalty started at the time the gift was made. However, if that gift was made after February 8, 2006, a whole new set of rules apply under the DRA. The new rules state that if the gift is made, you still have the same penalty period, however, the penalty period does not begin to run from the time the gift was made. Rather, the penalty period starts when the person is in the nursing home and spent down to minimal assets for Medicaid eligibility purposes. This stretches out your ineligibility for a longer period of time. Example Using Annuities Let’s discuss how a Medicaid qualified annuity might work when faced with these rules. For example, let’s assume we have a married couple, Mr. and Mrs. Example, with approximate assets of $204,000, comprised of CDs and other investments. In addition, they also have a home. Mr. Example is 75 years old, and Mrs. Example is 74 years old. Mrs. Example’s life expectancy for Medicaid qualified annuity purposes is 12.68 years. Let’s assume that Mr. Example has been informed by his doctor that he will need skilled custodial nursing home care and cannot return back home. Mrs. Example now becomes worried about her ability to live at home with dignity and resources. Assume there is no long term care insurance available. Mrs. Example engages the services of an Elder Law Attorney, who understands her desire to protect her future income and understands her goal to stay and live comfortably in the community while her husband enters a nursing home and qualifies for Medicaid. Problem: We start by identifying that Mrs. Example can keep an amount equal to $104,400. The goal in this case can be to preserve the full $204,000. The remaining $99,600 assets ($204,000-$104,400) need to be spent down or transferred to Mrs. Example. But how? Solution: One method of spend down could be a Medicaid Qualified Annuity (MCA) for Mrs. Example. She can take the remaining $99,600 and purchase a 12 year MCA that is irrevocable, unassignable, with no cash value, paying her approximately $705.00 per month. But be careful and consult with the client’s Elder Law Attorney on this annuity because this area can be a minefield. Result: Mrs. Example keeps the house and $104,400 plus the income stream from the annuity. This annuity would have to be considered actuarially sound for Medicaid purposes. The result is that now Mr. Example is immediately qualified for Medicaid assistance. Upon his death, Mrs. Example will take his Social Security and replace it for hers. The annuity income will increase her income to help make up for the loss of Mr. Example’s Social Security. It is a win-win situation all around. Mr. and Mrs. Example are secure, he on Medicaid in a skilled care facility, she in her own home with most of all her assets.The Financial Advisor has procured the annuity for the couple, and the Elder Law Attorney has designed a plan that will result in Medicaid eligibility upon the Elder Law Attorney’s preparation of the Medicaid application. This is a simplified example, but it gives you the idea of the crucial role the Financial Advisors can play in the support of their clients in obtaining Medicaid eligibility for long term nursing home stays. We have other scenarios where the Financial Advisor teams up with the Elder Law attorney and client to bring peace and security to the worried client. And are not most of our clients worried? Let’s bring them peace of mind. Workshop for Advisors Please call our offices at 847.563.4887 to learn about the specifically tailored upcoming workshop, offered only to advisors, that discusses Medicaid preplanning and crisis planning solutions and tools. Please call to reserve your space at this important workshop. What’s the benefit to you? Simply put…knowledge. And as you know, knowledge is power. It makes you a better advisor. And a more secure advisor. One who can charge the premium fees you deserve. One whose clients won’t run every time the wind changes direction. We educate to motivate. You don’t want to miss this workshop!

The ” 3 Phase” Lawyers

Legal Counsel Assisting You in the 3 Phases of Your Life:

•- Maturing Years

•- Senior Years

•- Post Death Years

Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com https://abferrarolaw.com/ Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

1. Not Covered? A U.S. Court of Appeals recently ruled that an assisted living facility was not considered to be covered under a long term care insurance policy. Stay tuned for more discussion on this. 2. Build a Strong Foundation for Care Planning. Special estate planning documents need to be put into place for the aging population. Durable powers of attorney need to be created, and they should contain provisions that enable the agent to take steps to protect assets and qualify the client for programs such as Medicaid. The preparation of a revocable living trust and advanced healthcare directives are necessary. Irrevocable trusts are sometimes useful in protecting assets. Finally, a letter of wishes from the elderly describing wishes for care addressed to caregivers and family can be useful. This kind of letter can go into matters such as activities, types of foods and entertainment that the elderly wishes to have if under the care of caregivers in or out of a nursing home. 3. Examination of Care Needs. In doing estate planning for clients that need long term care several areas need to be examined: A. The type of care – will it be home care? Will it be nursing home care? Assisted living? B. Paying for the care – an examination has to be made regarding the role of long term care insurance and paying as you go. Also looking into home equity loans and reverse mortgages, as well as life care and personal care contracts with family and friends, are all part of the mix. C. Lastly, looking for public benefits and community services is mandatory. 4. Homecare Helps. Recent study suggests Medicaid sponsored homecare reduces nursing home use. A recent study indicates that when seniors have the ability to access homecare, their nursing home stays are more limited to cases of acute care and are also for a shorter duration at the end of life. 5. Capital Gains News. New law helps surviving spouses. A new tax law provides that surviving spouses have two years to sell their house and receive the full $500,000 capital gains exclusion that married couples are entitled to instead of the $250,000 exclusion that is available to singles. 6. Medicare Advocacy. Some attorneys are incorporating Medicare advocacy into their practice. Medicare advocacy can begin as soon as a client is admitted to the hospital. The attorney can be sure that the client is properly admitted under Medicaid Part A. If not, they can appeal the decision. Hospital discharge can also be subject to controversy. This can be appealed. Next you have availability of coverage for home healthcare under Part B. You can argue for hospice care under Part A. Finally, you have the Medicare prescriptiondrug benefit under Part D. 7. Capacity Issues. Attorneys are often required to look into legal capacity of elderly clients. Mental capacity is broadly defined as the “mental ability to understand the nature and effects of one’s act”. When dealing in the field of elder law, mental capacity breaks down into several relevant functions: A. Testamentary capacity, which is the capacity to make a Will; B. Donative capacity, which is the capacity to make a gift or conveyance; C. Contractual capacity, which involves whether or not the person possesses sufficient mental capacity to understand the nature of the transaction and to agree to its provisions. In some states, the capacity to execute a durable power of attorney is the same required for contractual capacity. In other states, the capacity standard required to form a trust is more akin to that of testamentary capacity than contractual capacity. In appropriate circumstances, lawyers will seek guidance from appropriate diagnosticians. 8. Estate Tax Update. Senate affirmed support for $3.5 million estate tax exemption. Senators rendered a vote in the Senate Finance Committee on a bill that is sponsored by Senator Max Baucss (D-Montana) to keep the estate tax at the exemption level of $3.5 million, which is the level that the estate tax currently scheduled to move to in 2009. 9. Son Is Liable. The U.S. Court of Appeals found that son of a Medicaid recipient was personally liable to return benefits paid. The court held that the son was personally liable to repay the state. The son’s role in dealing with his parents’ assets and applying for benefits, and personally benefiting from those assets, while at the same time ineligible benefits were provided for the benefit of the parents, triggered the son’s personal liability for repayment.

The “3 Phase” Lawyers

Legal Counsel Assisting You in the 3 Phases of Your Life:

• – Maturing Years

• – Senior Years

• – Post Death Years

“Educate to Motivate”

Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road, Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com https://abferrarolaw.com/ Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.

 

NINE STEPS TO PROTECT YOURSELF AS PART OF THE AGING POPULATION

1. Family Care Agreements: Create these with family and friends, but they are tricky. Caregiver agreements are useful tools to use as part of an asset protection plan. They are best done far in advance of a nursing home stay. These are contracts that need to be tied to the actual fair market value of services rendered and need to be actuarially sound and based on the expected life expectancy of the service recipient. Be careful with these agreements. 2. 2008 Thresholds for VA Aid and Attendance: If you are a VA Vet, try to qualify. The VA Aid and Attendance rules provide that a married veteran and his spouse can receive as much as $1,842 per month. A single veteran can receive as much as $1,554 per month, and the surviving spouse of a wartime veteran can receive as much as $998 per month. These payments from the VA can be used for home health in home, assisted living, nursing home expenses, and other medical expenses. Don’t try to do this without the assistance of an elder law attorney however, because some of the steps you take for VA Aid & Attendance qualification are contrary to the steps that will allow you to obtain Medicaid assistance for a nursing home stay. 3. Boomers Underestimate Their Risk of Long Term Disability: Don’t make this mistake. Some reports indicate that baby boomers are underestimating their chances of suffering disability or injury causing them to lose work. Some reports indicate that a worker has a 30% chance of suffering a disabling injury or illness that causes them to miss work for months at a time. 4. 10 Million Boomers Will Develop Alzheimer’s, Report Predicts: Sad, but be proactive. One report indicates that Alzheimer’s Disease will strike 10 million baby boomers. As of this time, there is no cure for the disease. Many Alzheimer’s victims end up needing nursing home or assisted living assistance. What we should all glean from this is that we start to need working on our long term care plan now. For those who can afford and qualify for long term care insurance, this is wise step. For those that cannot afford or qualify for long term care insurance, you need to consult with an elder care attorney to start working on a long term care plan. 5. Medicaid Cuts: If you live in Illinois- prepare now. In the State of Florida, the legislature has proposed $500 million in cuts, which include reductions in Medicaid. The concern of many is that this might create a diminished level of care for residents of the state, especially those receiving Medicaid benefits. 6. Reverse Mortgage Update: Shop Carefully. Some studies are indicating that seniors need to weight their options more carefully before relying on reverse mortgages to tap into home equity. The terms of reverse mortgages can otherwise destroy what could be retirement security. Reverse mortgages can play a useful role in much long term care planning, but you need to shop carefully and work with qualified agents. 7. Intentional Financial Exploitation of a Senior a Crime: Keep an eye out for our elderly. SB 1259 in California would make the intentional exploitation of a senior citizen’s physical, mental, or psychological state in order to take possession of his or her assets a criminal offense. 8. Special Needs Trusts and Inherited IRAs: Get the right legal talent for this. Attorneys who work in the area of special needs and retirement planning need to understand that there is substantial amount of interplay as between both of these strategies. The Internal Revenue Service (IRS) recently found that the IRA of a deceased taxpayer that was transferred to his disabled child’s supplemental needs trust was not a recognized transfer for gift and estate tax purposes. Also, the required minimum distributions in that IRA could be based on the disabled child’s life expectancy, rather than that of the parent. 9. Seniors Need to File Tax Return to Get Rebate Check: File now. Seniors can benefit from the economic stimulus law enacted on February 13, 2008, but they need to file an income tax return. P.S. Our Special Workshops. As a notice to our readership, please be aware of the following upcoming dates for our workshop entitled “How to Legally & Effectively Protect Your Assets From A Long Term Nursing Home Stay”:

April 3, 2008 at 7:00 pm

April 23, 2008 at 7:00 pm

May 7, 2008 at 7:00 pm

May 21, 2008 at 7:00 pm

• – Call to make a reservation in our training room.

• – You don’t want to miss this workshop!

The “3 Phase” Lawyers

Legal Counsel Assisting You in the 3 Phases of Your Life:

• – Maturing Years

• – Senior Years

• – Post Death Years

“Educate to Motivate”

Anthony B. Ferraro Attorney-CPA The Law Offices of Anthony B. Ferraro, LLC 5600 N River Road,Suite 764 Rosemont, IL 60018 PH(847)292-1220 abferrarolaw@abferrarolaw.com https://abferrarolaw.com/ Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.