Elder Law Update – June 2008 (Financial Advisors Edition)

1. The New Medicaid Rules Brought by the “Deficit Reduction Act” (DRA)

As you know from prior Elder Law updates, the “Deficit Reduction Act” (DRA) was signed by President Bush on February 8th of 2006. (In Illinois these rule are somewhat on hold until the State of Illinois adopts the “Deficit Reduction Act” in the implementation of Illinois’ Medicaid rules. This has not happened as of this writing).

The first big change deals with the fact that the look back period for review by the state was now increased from 3 years to 5 years.

The second big change deals with gifting. Specifically, for all gifts made on or after February 8th of 2006, the penalty period does not begin until the individual has spent down to $2,000 and is receiving an institutional level of care (i.e. in a nursing home).

The third major change deals with the treatment of annuities. When used as a Medicaid planning technique, the state must be named the primary beneficiary of the annuity so that at the death of the nursing home resident, the state will then have the ability to obtain proceeds equal to the cost that the state has advanced on behalf of the nursing home resident.

The fourth change deals with the fact that even though the personal residence may be exempt for Medicaid purposes, the maximum amount of equity in the residence that will be sheltered is $500,000.

2. Five Mistakes Financial Advisors are Making about Long Term Nursing Home Care and the New Medicaid Rules

So what are the mistakes that financial advisors are making with regard to the new rules? They are as follows:

1. Not realizing that any gifting that occurs after February 8th of 2006 can now cause a Medicaid penalty

2. Not making sure that annuities are structured exactly right in order to make sure they qualify for Medicaid. However, these types of annuities are very technical and have to meet guidelines set up by Centers for Medicare and Medicaid Services (CMS) (Formerly HCFA) in its transmittals to the public.

3. Not planning far enough ahead. Under the old rules it was easy to plan in a crisis situation. Under the new rules crisis planning will not yield as much in the way of asset protection.

4. Not being alert to determine whether or not Estate Planning documents are setup properly. For example, one of the greatest mistakes people make is that they continue what we call “Sweetheart Wills and Trusts”. That is, husband leaves everything to the wife and the wife leaves everything to the husband. That’s all well and good when long term disability is not in view. However, if there is a possibility of long term disability, then leaving everything on your death to a spouse who is about to enter a nursing home is not good planning.

5. Assuming that any power of attorney is adequate for Medicaid planning and other planning. This is not true.

3. Is This the End of Pooled Payback Trusts?

A note of concern is that CMS, the agency that sets out rules for all of the states to follow in the implementation of Medicaid eligibility, has recently issued a letter on May 12, 2008 indicating that Pooled Trusts for disabled individuals aged 65 or older, may be subject to penalty as a transfer of assets for less than fair market value. A Pooled Trust has been a great tool to allow disabled seniors to qualify for Medicaid for vital and basic medical services while at the same time maintaining a source of funds to supplement the minimal care benefits provided by the public benefits system. It appears that the ability to have a Pooled Trust and Medicaid at the same time for persons 65 years or older may no longer be possible. We will keep our readership apprised of the status of this recent change.

4. Trusts with Incentives and Asset Protection for a Change

Recently our practice has seen a proliferation in requests by clients to continue to draft trusts, but with two new focal points:

1. Incentive Trust provisions that are designed to award beneficiaries who work hard, invest wisely or accomplish allowable goals.

2. Asset Protection Trusts for Beneficiaries. Fully discretionary third party trusts can protect an inheritance from claims brought against the beneficiaries’ creditors (divorcing spouses, creditors of a lawsuit, creditors of a failed business) if properly drafted. This type of trust drafting will increase in the future.

5. Caregiver Contracts Again!

As stated in prior issues of the Elder Law Update, please be aware that monies paid to children in exchange for the services they provide to parents should be transacted under a written caregiver agreement. Without a written agreement setting forth the terms of the compensation, the transfers from the parent to the child will often be deemed to be gifts instead of transfers in exchange for services. It is our strong recommendation that any advisors that see children receiving compensation should seek the advice of an Elder Law attorney in order to establish a written contract between parent and child setting forth the terms of the compensation and supplementation with contemporaneous timesheets filled out by the children as they render the services for which they are being paid. Anything less than this could result in substantial ineligibility periods for the parent at the time they enter a nursing home. This can be disastrous for the parent if the money is no longer available to be repaid back to the parent.

P.S. Teleseminar for Advisors

Call our offices at 847.563.4887 to learn about the specifically tailored upcoming teleseminars we offer only to advisors that discuss Medicaid pre-planning and crisis planning solutions and tools. Join us as Mr. Ferraro dissects the new law and shows you how you can still help your clients even under the new DRA rules. Call to reserve your space. This will fill up quickly!

You don’t want to miss this teleseminar!

The “3 Phase” Lawyers

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

  • – Maturing Years
  • – Senior Years
  • – Post Death Years

P.S. On May 15, 2008, I conducted a public workshop regarding VA benefits in Stone Park, Illinois. The response was strong. If you would like to make reservations for future VA workshops, please contact our office at (847) 563-4887.

Also, don’t miss our other workshop open to the public: “5 Step Plan – Legally Protect Your Assets from Nursing Home Costs” set for the following dates. Please contact our office at (847) 563-4887 to register.

Thursday, June 26th 7:00 pm

Wednesday, July 9th 7:00 pm

“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.