Implementation by the Illinois Department of Health and Family Services of the Federal Deficit Reduction Act of 2005 (DRA) © 2011 – Part II
I. Introduction 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. Subsection a) This Section deals with the treatment of trusts established on or after August 11, 1993. Subsection b) 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. Subsection c) 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.
- 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 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.
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.