The following is Part II of a three part article first appearing on February 9, 2012 summarizing the implementation by the Illinois Department of Health and Family Services (Department) of the Federal Deficit Reduction Act of 2005 (DRA). Much has been written about these rules over the last several years by various members of the Elder Law Section Council and also other Section Councils. This article will deal mainly with the final rules as adopted in the State of Illinois (ILDRA).
This article will be issued in three parts, which will be found in three issues of the Section Council newsletter.
The first part dealt with the scope of the federal changes and five specific areas of Illinois law that have been impacted by the new Illinois rules. This second installment deals with six more areas in Illinois law that have been changed. The third and final installment will deal with the last three areas of Illinois law that have been changed by the adoption of these new rules.
The author struggled with the choice of either making this article a short, cursory discussion of the DRA or a long version discussing the DRA and related rules in greater detail. Through discussion with the newsletter staff, we opted for the longer discussion. The reason for this decision is that a short discussion would not address the numerous issues and nuances found in the new provisions and, thus, be rather useless to a practitioner. The longer version, while more time-consuming to digest and use, will hopefully provide a way of reading the new law that is, perhaps, slightly more convenient than reading the statue itself, while not glossing over or missing any of the nuances and issues on which our clients’ cases often turn. This was our intention.
Further, it should be noted that much of this article deals with changes that were not part of the DRA. However, because the practitioner reading this article is presumably interested in the Illinois Administrative Rules dealing with long-term care cases and how they are impacted by DRA, a discussion of some of the provisions not mandated by DRA, but nevertheless inserted into this rule change by the state of Illinois, will also be discussed for a more for complete discussion that is relevant for the practitioner.
Section 120.347- Treatment of Trusts and Annuities.
This Section deals with the treatment of trusts established on or after August 11, 1993.
This Section provides that a trust is any arrangement which a grantor transfers property to a trustee or trustees with the intent that it be held and managed or administered by the trustee for the benefit of the grantor or designated beneficiaries. This seems to focus on self settled trusts. The Section indicates a trust also includes any legal instrument or device that is similar to a trust, including an annuity.
This Section states that a person shall be considered to have established a trust (and hence the trust is available resource for the person) if the resources of the person were used to form all or part of the principal of the trust and the trust is established (other than by Will) by any of the following:
- the person,
- the person’s spouse; or
- any other person, including a court or administrative body with legal authority to act on behalf of or at the direction of the person or the person’s spouse.
Before describing the exceptions to this general rule, it should be noted that the other than by will exception would exclude bypass wills and pour back trusts.
This Section provides certain exceptions as to when this section does not apply to certain trusts.
- Two exceptions are what is commonly referred to as (d)(4(A) irrevocable trusts and (d)(4)(C) irrevocable trusts. These trusts are the self settled OBRA trusts that are created by an individual for their own benefit.
The section then goes on to describe that for revocable trusts, the Department shall treat as an available resource the amount of the trust from which payment to or for the benefit of the person could be made.
This Section provides that subsections f and g that follow below apply to the portion of the trust attributable to the person and without regard to:
- the purpose of the trust,
- whether the trustee has or exercises any discretion under the trust; or
- whether there are any restrictions on distributions or use of distributions from the trust.
This Section deals with revocable trusts and indicates that the Department shall:
- treat the principal as of an available resource
- treat as income payments from the trust that are made to or for the benefit of the person, and
- treat any payments from the trust is transfers of assets by the person (subject to the provisions of Section 120.387 or 120.388).
This Section provides for the treatment of irrevocable trusts, and indicates that the Department shall:
- treat as an available resource the amount of the trust for which payment to or for the benefit of the person could be made,
- treat as income payments from the trusts that are made to or for the benefit of the person,
- treat any other payments from the trust is transfers of assets by the person (subject again to section 120.387 or 120.388; and
- treat as a transfer of assets by the person the amount of the trust for which no payment could be made to the person under any circumstances. The date of the transfer is the date the trust was established or, if later, the date that payment to the person was foreclosed. The amount of the trust is determined by including any payments made from the trust after the date that payment to the person was foreclosed.
This Section deals with the treatment of trust income. It indicates that for married couples, income from trusts shall be attributable to each spouse as provided in the trust unless:
- payment of income is made solely to one spouse, in which case the income shall be attributed to that spouse;
- the payment of income is made to both spouses in which case one half of the income shall be attributed to each spouse, or
- the payment of income is made to either spouse, or both, and to another person or persons, in which case the income shall be attributed to each spouse in proportion to the spouse’s interest, or if payment is made to both spouses and no such interest is specified, one half of the joint interest shall be attributed to each spouse.
Annuities are treated similar to trusts. What the Department apparently means by this is the following:
- revocable and assignable annuities are considered available resources
- any portion of an annuity for which payment to or for the benefit of the person or the persons house could be made is an available resource. Also, an annuity that may be surrendered to its issuing entity for a refund or payment of a specified amount or provides for a lump sum payment settlement option is an available resource valued at the amount of any such refund, surrender or settlement.
- Income received from an annuity by an institutionalized person is considered non-exempt income. Income received by the community spouse of an institutionalized person is treated as available to the community spouse for purposes of determining the community spouse income allowance under 120.379(e).
- An annuity that fails to name the State of Illinois as a remainder beneficiary as required under 120.385(b) shall result in denial or termination of eligibility for long-term care services.
This Section indicates that the principal of a trust established under the self-sufficiency trust fund program (set forth under 20 I LCS 1705/21.1) is an exempt resource .
See the further discussion and annuities later in this article when we discuss when the transfer of assets in exchange for a and other assets such as an annuity or promissory note is considered to be a transfer for fair market value and hence not a penalizable uncompensated transfer.
Section 120.379- Provisions for the Prevention of Spousal Impoverishment.
Subsection a) indicates that this Section applies only to an institutionalized person whose spouse resides in the community. For purposes of this paragraph, institutionalized individuals or persons are defined in section 120.388(c). Section 120.380(c) defines institutionalized persons as persons residing in long-term care facilities, including those who were residing in the community at the time a transfer of assets was made or persons who but for the provision of home and community based waiver services would require the level of care in a long-term care facility, including those persons receiving home and community based waiver services were not receiving the services at the time the transfer was made.
Income. This subsection describes the treatment of income in determining the financial eligibility of an institutionalized spouse The Section provides that in determining the financial eligibility of an institutionalized spouse, only non-exempt income attributed to the institutionalized spouse shall be considered available. The Section goes on to describe how income is allocated between spouses based on certain rebuttable presumptions dealing with:
- if payment is made solely in the name of one spouse , the income will be considered available only to that spouse,
- if payment of income is made in the name of both spouses, one half of the income shall be considered available to each spouse,
- if payment of income is made in the names of either spouse, or both, and to another person or persons, income shall be considered available to each spouse in proportion to the spouse is interest or if payment is made to both spouses and no other interest is specified then one half of the joint interest shall be considered available to each spouse
- if payment of income is made from a trust income shall be considered to each spouse as provided under 120.340 7H
- if there is no trust or instrument establishing ownership, one half of the income shall be considered available to institutionalized spouse and one half the community spouse.
Subsection c) Resources.
In determining the financial eligibility of an institutionalized spouse, the following rules apply:
- At the beginning of a continuous period of institutionalization, and the total value of resources owned by either or both spouses shall be computed.
- The Department, at the beginning of a continuous period of institutionalization and at the request of the institutionalized spouse, community spouse, or a representative of either, shall conduct an assessment of the couple’s resources for purposes of determining the combined amount of non-exempt resources in which either spouse has an ownership interest area person requesting the assessment shall be responsible for providing documentation and verification. For purposes of this subsection a continuous period of institutionalization is defined as at least 30 days of continuous institutional care. The Section goes on to describe for how long that initial assessment remains effective if there are discharges from a long-term care facility, hospitalization etc.
- For purposes of this subsection (c) a continuous, a continuous period of institutionalization is defined as at least 30 days of continuous institutional care. An initial assessment remains effective during that period if:
a. a resident of a long-term facility is discharged for a period of less than 30 days and then re-enters the facility;
b. a resident of a long-term care facility enters a hospital and then returns to the facility from the hospital;
c. a person discontinues receiving home and community case-based services for a period of less than 30 days; or
d. a person discontinues receiving home and community-based services due to hospitalization and then is
discharged to receive home and community-based services. .
4. At the time of the institutionalized spouse’s application for medical assistance, all non-exempt resources held by either the institutionalized person, the community spouse or both are considered available to the institutionalized spouse. From this amount may be deducted and transferred to the community spouse the Community Spouse Resource Allowance ( CSRA). This means that at all assets of both spouses are added up, and then $109,560 is allocated to the community spouse, and the rest is considered an available resource to the institutionalized spouse.
Subsection d) Transfer of resources to the community spouse.
From the amount of non-exempt resources considered available to the institutionalized spouse, a transfer of resources is allowed by the institutionalized spouse to the community spouse or to another individual for the sole benefit of the community spouse in an amount that does not exceed the CSRA i.e. $109,560. The CSRA is further defined to be the difference between the amount of resources otherwise available to the community spouse and the greater of:
- the amount established annually by the US Department of Health and Human Services, which as of January 1, 2011 was $109,560,
- the amount established through a fair hearing under subsection (f)(3)F3 of this Section, or
- the amount transferred under a court order against an institutionalized spouse for support of the community spouse.
Deductions are allowed from an institutionalized spouse’s post-eligibility income for the community spouse income allowance and family allowance as set forth in Sections 120.60 1(d) and (e).
In this Section, there is a discussion of fair hearings that either the institutionalized spouse orr the community spouse may request if there is dissatisfaction with the CSRA allowance, or if there is a request for an increase in the MMMNA (Minimum Monthly Maintenance Needs Allowance).
This Section describes the appeal of a fair hearing.
If a transfer of resources as permitted under subsection (d) is made from the institutionalized spouse to the community spouse, then such transfer shall be made as soon as practicable after the date of the initial determination of eligibility and before the first regularly scheduled redetermination of eligibility, taking into account such time as baby necessary to obtain a court order under subsection (d)(3) of this Section. If the transfer of resources has not been made by the first scheduled redetermination and no petition for an order the spousal report support is pending judicial review, the resources shall be considered available to the institutionalized spouse
This Section deals with assignment of support rights and generally deals with the concept of spousal refusal, which is very controversial in the formation of these rules. The concept of spousal refusal is grounded in federal law. There has been litigation regarding this in other states, and depending on how this provision is administered, it could be controversial here in Illinois as well.
This Section indicates that the institutionalized spouse shall not be ineligible by reason of resources determined under Section (c)(4) to be available to the cost of care when:
1. institutionalized spouse has assigned it to the state any rights to support from the community spouse,
2. the institutionalized spouse lacks the ability to execute an assignment due to physical or mental impairment but the state has a right to bring a support proceeding against the community spouse without that assignment or
3. the state determines that the denial of eligibility would work an undue hardship.
Finally, Subsection j) indicates that the Department may pursue any available legal process to enforce its right of assignment to support against the community spouse or any other responsible party pursuant to section 120.319. These procedures may include, but are not limited to, the administrative support procedures set forth under Illinois 89 Illinois admin code section 103.
Section 120.380 – Resources.
This Section indicates that unless otherwise provided that the term “resource” as defined in 42 USC 1382b, (except subsection (a)(1) of that section, which excludes the home as a resource) means cash or any other personal or real property that a person owns and has the right, authority or power to liquidate. The global nature of this Section is reminiscent of Section 61 of the Internal Revenue Code wherein Congress sought to describe gross income. No doubt here the state is trying to be as expansive as possible in the definition of resources.
Subsection b indicates that a resource is considered available to pay for the person’s own care when at the disposal of that person; when the person has a legal interest in the liquidated sum and has the legal ability to make the sum available for support, maintenance or medical care; or when the person has the lawful power to make the resource available or to cause the resource to be made available.
This Section indicates that the value of non-exempt resources shall be considered in determining eligibility for any means-tested public benefit program administered by HFS, the Department of Human Services, or the Department of Aging.
Subsection d is entitled determination of resources. This subsection is divided into three sub paragraphs:
1. The first paragraph provides that in determining financial eligibility for medical assistance, the Department will consider non-exempt and verified resources available to a person as of the date of decision on the application for medical assistance. The date of verification is referred to in Section 120.308(f), and may be prior to the date of decision. Resources applied to a spend down obligation in a retroactive month shall not be treated as available in the determination of financial eligibility. Importantly, money considered as income for a month is not considered a resource for that same month. If income for a month is added to a bank account that month, the Department will subtract the amount of income from the bank balance to determine the resource level. Any income remaining in the following month is considered a resource.
2. The second subparagraph provides that in determining financial eligibility for a retroactive month, the Department will consider the amount of income and resources available to a person as of the first day of each month of the backdated months for which eligibility is sought. A new provision provides that resources spent prior to the end of the month of application to purchase a prepaid funeral burial contract, to pay for incurred medical expenses, or to pay legal fees up to $10,000 incurred in the month of application or in any of the three months prior to the month of application that are related to the eligibility application for long-term care insisted assistance shall not be considered available.
3. The third subparagraph provides that in determining a person’s spend down obligation (see Section 120.384), the Department considers the amount of non-exempt resources available as of the date of decision in the case of initial eligibility, and the first day of the month, in the case of retroactive eligibility, that are in excess of the applicable resource disregard.
This Section provides that the entire equity value of jointly held resources shall be considered available in determining a person’s eligibility for this assistance unless:
- the resource is a joint income tax refund,
- when one party documents that he or she does not have access ro the resource,
- jointly held accounts, and other related accessibility issue situations.
This Section deals with determining the eligibility of a person for long-term care services whosespouse resides in the community. It indicates that all non-exempt resources owned by the institutionalized spouse, the community spouse, or both shall be considered available to the institutionalized spouse in determining his or her eligibility for medical assistance. From the total amount of such resources may be deducted the CSRA, fo example $109,560.
This Section provides that the treatment of certain trusts established prior to August 11, 1993, shall be treated as described in section 120.346.
This Section provides that the treatment of trusts established after August 11, 1993, shall be treated in a manner described in section 120.347
Subsection i describes the treatment of life estates and indicates that the value of a life estate will be determined at the time the life estate in the properties established and at the time the property is liquidated. The section goes on to describe the value of life estates. The section also refers to the value of the remainder interest and how values for these components can be determined by looking at tables located in Section 120. Table A .
This Section indicates that the value of a person’s entrance fee into a continuing care retirement community shall be considered an available resource to the extent the person has the ability to use the entrance fee to pay for care, the person is eligible for refund when they die or terminates the community care contract and leaves the community, and if the entrance fee does not confer anownership interest in the continuing care community.
This Section provides that non-homestead real property (including homestead property that is no longer exempt pursuant to Section 120.381(a)(1)) is considered an available resource unless:
- the property is exempted as income producing to the extent permitted under Section 120.381(a)(3) (limiting equity to $6,000); however the $6,000 equity limitation shall not apply to farmland property and personal property used in the income-producing operations related to farmland;
- ownership of property consists of a fractional interest of such a small value is substantial loss to the person would occur if the property were sold,
- the property has been listed for sale, in which case the property will not be counted is available for at least six months as long as the person makes a continued good effort to sell the property; or
- the homestead property that is no longer exempt is producing annual net income for the person an amount that is not less than 6% of the person’s net income. In making this calculation, the Department will recognize business expenses allowed for federal income tax purposes.
Section 120.381 – Exempt Resources
This Section lists the exempt resources n determining eligibility for medical assistance:
- homestead property;
- personal effects and household goods;
- resources (for example, land, buildings, equipment and supplies or tools) necessary for self-support up to $6,000 of the person’s equity in the income-producing property, provided the property produces a net annual income of at least 6% of the excluded equity of the value of the property;
- life insurance policies of the total face value of $1,500 or less and all term life insurance policies. If the total face value exceeds $1,500 the cash surrender value must be counted as a resource
- a description of equity value is provided.
This Section describes the treatment of burial spaces, prepaid funerals /burial contracts, and other funds that are set aside for burial expenses and a whole list of other specialized exempt resources and assets based on public policy initiatives such as certain disaster relief and payments made to our Armed Forces.
Describes the treatments of one’s monies that are set aside for burial expenses.
Deals with prepaid/burial contracts.
Subsections e) through p)
Deal with the treatment of other very specialized resources.
Section 120.382 – Resource Disregard
In this section the rule sets out the exempt resources that, in addition to those listed in Section 120.381, the cash value of certain resources shall be disregarded for AABD MANG cases:
This Section provides $2,000 for a person, and $3,000 for a person and one dependent residing together.
Provides $50 free to each additional dependent residing in the same household.
Indicates that special provisions are made for the determination of resources on behalf of a person under a qualified long-term care insurance policy.
Provides that eligibility for medical assistance or for the benefits described in Sections 120.72 and 120.73 does not exist when non-exempt resources exceed allowable disregards.
Deals with qualified Medicare beneficiaries.
Section 120.384 – Spend down of Resources
This Section provides that in determining a person’s resource spend down obligation, the Department will compare the non-exempt resources available to the person to the appropriate asset resource disregard. The amount of resources in excess of the disregard determines the amount of the spend down. The Section then goes on to describe how spend down is met.
Provides that if a person presents verification that excess resources are no longer available, the Department will make the appropriate changes the month following the month the person dispose of the resources.
Provides that persons enrolled in spend down are not eligible for payment of covered medical services until spend down is met. A resource spend down is met by presenting allowable medical bills or receipts to the Department they will be amount of the person’s non-exempt excess resources.
Provides that once excess resources have been used to meet spend down, whether or not the excess amount has actually been reduced, they are no longer considered. However, at reapplication/redetermination the Department will consider any excess non-exempt resources remaining as currently available.