Many veterans are unaware of the Aid and Attendance Pension that is available to help them with their medical expenses, which include the cost of assisted living. Some veterans are simply unaware of this benefit. Others have been told that they do not qualify based on “having too much money.” It is important to understand the scope of the Aid and Attendance pension as a starting point. It is also important to realize that veterans who meet the service requirement and who have significant, reoccurring medical expenses can be eligible for this valuable and well-deserved benefit with proper estate planning.

The aid and attendance pension is available to veterans who served during a time of war. It is not necessary to have participated in combat, but simply to have been in the military during a time of war. In addition to the service requirement, it is also necessary to be medically eligible and to meet the income and asset test.

Medical eligibility generally means that the veteran needs assistance with activities of daily living, such as grooming or eating. This requirement is often fairly easily met.

Finally, there are the income and asset tests. The income and asset tests can be the most difficult barrier to qualification for the aid and attendance pension. Among other things, the successful applicant will need to show that reoccurring medical expenses along with standard expenses of daily living exceed monthly income. Regarding assets, there are no hard and fast rules, but having more than $80,000.00 in cash or readily available assets is likely to disqualify a married applicant.

An elder law attorney can accelerate qualification for an otherwise eligible veteran who exceeds the asset or income thresholds. The asset test can be satisfied by use of an asset protection trust. This will allow assets to be preserved for future needs without interfering with qualification for benefits. Moreover, a plan of this kind will facilitate qualification for Medicaid in the future in case nursing home care is required.

Successful applicants for the Aid and Attendance Pension can receive more than $1,800.00 per month in assistance. This money, when combined with the social security and perhaps a pension, is often enough to pay for assisted living and to prolong assets almost indefinitely.

The Michigan Department of Human Services has enacted several changes to the Medicaid eligibility rules recently that impact qualification for long-term care Medicaid.

Perhaps the most important change relates to divested assets (gifts) and the calculation of penalty periods. Generally speaking, the gifting of assets results in a period of ineligibility for Medicaid long-term care. Under previous policy, returning some of the gifted assets would result in a partial cancellation of the penalty period. For example, if a long-term care Medicaid applicant had given away $61,910.00, she would ineligible for Medicaid for 10 months ($61,910.00/$6,191.00=10 months). But if that same person returned $30,955.00 ($6,191.00 x 5), the penalty would be reduced to 5 months. This former policy was known as a “partial cure” of a penalty.

Under the new policy initiated on July 1, 2008, partial cures are no longer permitted. Instead, the penalty period will only be recalculated in those instances where all gifted assets are returned to the Medicaid applicant or full value is paid for the gifted assets.

This new policy is extremely harsh to Medicaid applicants who may have transferred assets, especially if it is impossible to return the entire amount given away because the money has been spent. These issues are extremely fact-sensitive, but a smooth transition to Medicaid assistance may still be possible. This is because some of the more sophisticated gifting techniques still remain viable under the new law.

Another consideration is whether Michigan has overstepped the boundaries of Federal law with this new rule.

The Federal law on point, namely 42 USC 1396p(c)(2)(C)(iii), reads as follows:

(c) Taking into account certain transfers of assets

(2) An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that—

(C) a satisfactory showing is made to the State (in accordance with regulations promulgated by the Secretary) that

(iii) all assets transferred for less than fair market value have been returned to the individual; or

I have clipped the appropriate sections above in order to make a complete sentence and placed the key phrases in bold. The question is whether “to the extent that” controls the phrase “all assets”. If so, the federal law requires states to allow partial cures of divestment penalties. On the other hand, if “all assets” is allowed to stand on its own, then the Michigan Department of Community Health has reasonably construed the federal statute. As a general rule of statutory construction, no interpretation that renders any phrase meaningless is a proper reading of a statute. Michigan’s interpretation of this rule that ignores the phrase “to the extent that” would generally be considered an improper reading of the law.

Michigan is in the minority of states to adopt the second, less favorable interpretation of this statute. Notes provided along with the amendment indicate that the policy change is in order to “bring the eligibility manual into compliance with the Federal regulations.” But as noted above, the federal statute on point is at least unclear and more reasonably read to require partial cures.

Medicaid applicants caught in the trap of having divested assets within the look back period that have now been spent or are otherwise unavailable will either have to find a way to cover the difference, seek a hardship waiver, which is extremely rare, or seek to challenge the state’s interpretation of the federal law. With regard to the first option, seeking a way to cover the difference, there are several planning opportunities that would, in a sense, stretch assets to cover the penalty period. But timely action and the proper timing of a Medicaid application would be necessary for these strategies to work.

For those now planning for their future needs, it is imperative to seek the advice of an elder law attorney well-versed in these issues.

Michael Keenan at The Connecticut Elder Law Blog has developed an interesting spend down technique using grocery store gift cards. Apparently grocery stores will accept gift cards purchases in almost any amount. He has successfully used four figure gift cards for Medicaid qualification.

I like the idea for several reasons. First, with inflation and food costs being what they are, using a couple’s assets for future grocery purchases just makes sense. Second, the idea is simple. Anyone can purchase a gift card. Finally, there is a good case to be made that it is a proper spend down method. The purchaser cannot receive cash back once the gift card has been purchased, but the purchaser will receive the full value of the money spent on the gift card.

On the down side, there are several concerns. It seems to me that a gift card would be assignable and as such, have a cash value, even if the value is more theoretical than actual. Moreover, the money is not yet spent on groceries. It has only been designated for grocery purchases. Under Michigan law, it seems arguable that the gift card would be an available asset.

Yours Truly scored a victory for community spouses of Pennsylvania nursing home patients on Tuesday, May 29, 2008. On that day the Pennsylvania Supreme Court sent the Department of Public Welfare packing. It denied DPW’s appeal from the decision of the Commonwealth Court that DPW could not refuse to grant Medicaid based on a proper, Medicaid-compliant, immediate annuity purchased by the community spouse.

To start at the beginning, on February 5, 2003, Pauline Ross entered a nursing home. On April 8,
2005, Pauline’s community spouse, Leonard Ross, transferred $418,026.66 in marital assets into a Fidelity & Guarantee “Medicaid Qualified, Single Premium,Immediate Annuity.” Under the annuity contract, F&G pays Leonard $10,211.83 per month from May 15, 2005, to September 15, 2008. Leonard established the F&G Annuity so that Pauline would be eligible for Medical Assistance-Nursing Home Care benefits and to pass the marital assets on to the next generation. Leonard is the owner and sole annuitant of the F&G Annuity, and Leonard’s three children are the beneficiaries if Leonard dies before September 15, 2008. Pauline had no monetary interest in the F&G Annuity, and, after Leonard transferred the marital assets into the F&G Annuity, Pauline had no assets with which to pay for her nursing home care.

Pennsylvania refused to approve Medicaid for Pauline, claiming that the annuity could be sold to J.G. Wentworth at a 40% discount, an immediate payment of $250,000. Pauline, according to the Commonwealth, had that much in available assets.

There were several problems with DPW’s case. First of all this would be a loan, not a sale, and loan proceeds are not considered an asset under Medicaid law. Secondly, there was solid testimony proving that F & G would not permit J.G. Wentworth to purchase the annuity. Finally, federal Medicaid law clearly permits exactly this sort of transaction. Pennsylvania and only four other states try to deny Medicaid in such cases.

An administrative law judge–a DPW employee, of course–ruled against Ms. Ross. She said Mr. Ross would have to dump the annuity on J.G. Wentworth and lost 40% of his investment. On appeal, the Pennsylvania Commonwealth Court pummeled the Department. It ruled that Mr. Ross was within his rights to invest in an annuity and his wife is entitled to Medicaid. Tuesday’s ruling by the supreme court was the final smackdown. Pennsylvania’s highest state court told DPW it could not deny Medicaid based on a properly amortized Medicaid-friendly annuity purchased by the community spouse.

Tuesday’s ruling also completed the tri-fecta. Two federal district courts had already told DPW it was acting illegally. Those cases were Mertz, ex rel. Mertz v. Houstoun, 155 F. Supp. 2d 415 (E.D. Pa., 2001), and James ex rel. James v. Richman, 465 F. Supp. 2d 395 (M.D. Pa., 2006). DPW appealed the James ruling to the federal court of appeals, but has little chance of winning.

This decision means that if your spouse is in a nursing home, you can preserve a substantial amount of money through an annuity, in addition to the 50% or $104,400 the DPW says you can keep. This annuity purchase is done after your spouse is in a nursing home. If an annuity sales person tells you to put your money into an annuity now, in case you or your spouse needs to go into a nursing home, run–do not walk–away. However, if your spouse is in a nursing home in Pennsylvania and your assets, apart from your house and one care, are higher than $25,000, we can help you save the excess. Call us for a consultation.

John B. Payne, Attorney

Dearborn, Michigan & Pittsburgh, Pennsylvania

(800) 220 7200

FAX (313) 562 3340

©2008 John B. Payne, Attorney

www.law-business.com

Sue Schiebel has written an excellent article on Medicaid Planning. While her article concerns MassHealth, which is the Massachusetts Medicaid program, the rules and ideas explained are the same in Michigan. She writes:

A lot of middle-aged people don’t realize Medicare, the federal health insurance program, pays for a very limited amount of skilled nursing home care. As we live longer, that means more of us will have to spend our own money for long-term care or must rely on MassHealth, the state health insurance for low income people. Many people wind up doing both — first using up many of their own assets to “spend down” to Medicaid limits so they are financially eligible for state help.

Medicaid qualification is a complex area of the law. To highlight just one counter-intuitive aspect, consider that donations to a church or charity are treated as gifts under the law. One making such a gift is technically creating a period of ineligibility for Medicaid. Strictly speaking, a person making significant donations to a church could be ineligible for Medicaid for several months after all other assets have been spent down. An elder law attorney helps families cope with these bizarre rules and avoid such unfortunate results.

Retirement assets (401ks, IRAs, etc) are considered available assets for purposes of Medicaid qualification in Michigan. In simple terms, that means that those funds have to be spent down until the threshold for asset eligibility is met. In the case of a single person, asset eligibility is generally about $2,000.00, with some additional allowances for the homestead, modest life insurance and funeral expenses. In the case of a married person, the threshold is higher, and will be between $20,880.00 and $104,400.00, depending on the couple’s assets before entering the nursing home. For more details, see The Basics of Medicaid Qualification, below.

In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Retirement assets present some of the most difficult problems in elder law, but there are solutions. With some intricate planning, one can use a solely for the benefit of trust, for example to preserve the tax-deferred funds and obtain qualification. This is an important alternative for families to consider so that retirement assets are not unnecessarily depleted by the cost of long-term care or restricted to minimal returns and subjected to estate recovery.

The process is of applying for Medicaid long term care assistance can be somewhat difficult. The documentation requirements can be voluminous and the process will typically take at least 45 days. I have seen several recent cases take as long 4 months to be approved.

Various Medicaid Applications can be found here. Even a brief glance at this page will show the breadth and complexity of the many programs and types of assistance available.

If you are looking for the application for a patient in a nursing home, it is DHS-4574. If a married person is applying on behalf of his or her institutionalized spouse, it is also necessary to file an Asset Declaration, which is form DHS-4574B.

It is important to recognize that the Asset Declaration is used by the Department of Human Services to look at assets as of the first day the institutionalized spouse entered the hospital or nursing home. This date is called the “snap shot date.” It is the baseline used to determine how much the non-institutionalized spouse will be able to keep. For example, a couple with $150,000.00 in countable assets as of the snap shot date will qualify for Medicaid when their combined assets are reduced to $75,000.00. An elder law attorney will help the couple to reduce the countable assets as quickly as possible while preserving the value of those assets. In many cases, the entire amount over the limit can be preserved for the benefit of the spouse at home with proper advice.

An astounding thing happened during the fall of 2007. Michigan changed its Medicaid policy with respect to annuities and implemented those changes with retroactive effect.

The new policy requires annuities to have several features in order to avoid being considered a divestment. Among the requirements is a rule that the state of Michigan must be named a remainder beneficiary to the extent of Medicaid benefits received. This law applies to all annuities purchased or altered after February 8th, 2006, the day President Bush signed the Deficit Reduction Act into law.

This policy change is troubling is several respects. First, it certainly defeats a common sense understanding of justice and fair play to change the rules retroactively, particularly where the financial consequences can be so significant. The law changed in October of 2007, but it applies to all annuities purchased or changed more than a year and half before the new policy was announced. Annuities not in compliance with the new policy can be considered a divestment–just as though the money used to purchase the annuity had been given away. So, for example, a $60,000.00 annuity could result in more than 10 months of ineligibility for Medicaid and under the new law, this penalty time would not begin to run until the purchaser was otherwise out of money and in the nursing home.

Second, this policy change–with all of its harsh consequences–is not necessarily understood by those selling and recommending annuities. Even today, annuities are still being sold with the idea that they will help one to qualify for nursing home care. But for many annuities, just the opposite is true. How many annuities are likely to be sold with Michigan as a remainder beneficiary? Would you invest your money that way? Many annuities will actually prevent qualification and it may be extremely difficult or impossible to undo the transaction. With nursing home costs averaging $6,500.00 per month or more, the problem is widespread and troubling.

The lesson here is that Medicaid policy is potentially an issue for almost everyone at or approaching retirement age. It is important to consult with an elder law attorney before making any long term decisions on annuities or other financial products. The impact on Medicaid qualification may surprise you.

Under previous Medicaid policy, applicants for long term care were given the benefit of a doubt most of the time. In some cases, a demonstrated intent to complete asset conversion, which is the process of converting non-exempt assets into exempt or excluded assets and is the heart of Medicaid planning, would be enough to pass scrutiny.

Today, one should expect to have every aspect of a Medicaid application scrutinized and one should be prepared to provide timely and extensive documentation of all assets and recent transactions. Michigan is still fairly mild in its requirements alongside states like New York, which according to some reports requires a full five years of bank records and an explanation of all transactions over $1,000.00. But Michigan has tightened requirements considerably.

You should expect to have to provide third party documentation (statements from financial institutions and the like) for all significant assets. If asset conversion is being employed, expect to have to show what the asset was both before and after the conversion.

The trick here is that financial institutions move slowly and often with indifference to the fact that time is money–$6,500.00 a month or more in most cases. Sometimes it makes sense to cash in small insurance policies before long term care is an issue, just to avoid having a life insurance policy with a cash value of $2,400.00 put the nursing home patient over the asset limit and prevent qualification for Medicaid for a month or more.

Furthermore, an elder law attorney can often earn his keep just by knowing how to move quickly when a nursing home crisis strikes.

Pre-planning for long term care or nursing home care is always best. It is at that point that assets can be consolidated to allow for nimble reactions to changing circumstances.

But above all, gather your documents now. Birth certificates (to prove citizenship), a marriage license, discharge papers, deeds to real estate, etc. You will need all of these things for a Medicaid application and you will need them when you have many more important things to worry about. See this page for a complete list.

The durable power of attorney is an extremely valuable estate plan document. It allows one person to designate an agent to conduct all financial affairs. These documents are typically durable meaning that the power continues through the disability of the principal (the person naming an agent). Alternatively, there can be springing powers of attorney, which only come into effect when the principal is incapacitated. Springing powers of attorney can be attractive in many ways since the principal’s assets remain untouchable while they can still be used and enjoyed by the principal. But many financial institutions will not honor a springing power of attorney. The apparent rationale goes like this: “You didn’t trust him while you were able to watch over your own affairs. Why should we trust him now?”

The durable power of attorney is clearly susceptible to abuse. When another can act with full authority on your behalf, it is entirely possible that the power will be used to make self-interested transactions or even unauthorized gifts to the agent.

But if a trustworthy agent can be found, the power of attorney can save countless hours of worry, avoid dissipation of an estate (what would happen if no one paid your heating bill over the winter?) and, most importantly, avoid the need for probate court orders to handle your affairs. The durable power of attorney is worth the modest fee charged by most attorneys but, for what it is worth, here is a blank durable power of attorney form for free.

You should understand that a free form is not a substitute for an attorneys advice. Moreover, a typical form will not allow some of the more nuanced maneuvers that are necessary for accelerated Medicaid qualification. Also, you should understand that estate recovery avoidance techniques will typically require some form of planning for after one’s death.

Nonetheless, this form will work to appoint someone to pay your electric bill when you are not able to and that is certainly worth something. You should read the warnings very carefully on the linked page and understand that reading a blog and printing out a form is no sense a substitute for consulting with an attorney. Moreover, please understand that I have posted this link to be helpful. You and I are not entering into an attorney-client relationship at this time. See the disclaimer below.

A negative inheritance is a net loss of assets arising from the cost of caring for elderly members of one’s family. The cost of care is increasing rapidly, but that is simply a measure of the time and labor intensive nature of caring for the elderly. For some families, particularly those most devoted to the care of their aging parents, the time and expense of caring for oldest generation will outstrip the assets that are passed to the caregivers.

The decision to provide such care is not simply or even primarily a financial one. Indeed, as this columnist observes:

[A]s taxing as caring for declining parents can be — both to the pocketbook, and also the caregiver’s emotional health — a supermajority 91 percent of boomers report being “generally pleased to be helping their parents,” according to a survey by Putnam Investments, a unit of Power Corp. of Canada.

Approaching a family relationship, particularly the care of one’s parents in their declining health, from a purely financial perspective would be a mistake. But at the same time, waiting for a crisis and assuming a financially debilitating role by default is no less of a mistake. And yet, this is precisely what often occurs:

In families that don’t address these scenarios before they arise, a robust body of work by researchers suggests the bulk of caregiving responsibilities almost invariably falls to one child; according to the Putnam survey, the buck will typically stop at the desk of an “alpha child, most often daughter.” And when the job of caring for mom and dad does fall, ad hoc, on certain siblings, the ensuing tension and resentment “can tear families apart,” says John D. Smith, a wealth manager at Balasa Dinverno & Foltz LLC.

The job of an elder law attorney is to simplify the financial questions that arise in these circumstances in order to free the family to pursue the care-giving arrangement most suitable to the circumstances. Planning ahead for not only the financial crises, but also the time commitment of caregiving can prevent or minimize stress and financial strain. When a parent reaches a health crisis, it is an overwhelmingly stressful time for the entire family. Long term care insurance or an asset protection estate plan or both can help control the financial component of the puzzle and create opportunities for more effective decision-making for the benefit of all involved.

UPDATE: The link above had expired. The link has been updated with a reference provided by Neil Hendershot. HT: PA Elder, Estate and Fiduciary Blog.

Before the Deficit Reduction Act was signed in February of 2006, it was relatively easy for an elder law attorney or a well-informed layperson to set aside money to pay for the upkeep of a nursing home patient’s homestead. A simple contract could be created and assets transferred to a responsible relative who would pay for the utilities, taxes, insurance and maintenance of the nursing home patient’s home. It also used to be possible to gift a significant amount of money each month. Therefore one could simply give assets to another to keep up the home. These techniques were necessary because a person in a nursing home can generally have only $2,000.00 in cash or equivalent non-exempt assets and all but a small portion of income will go to the cost of care. Since such a small amount of money is dwarfed by property taxes alone, the policy allowing money to be set aside for homestead maintenance made sense for several reasons.

First of all, some people do return home, even after long stays in a nursing home. Second, there are significant tax benefits to waiting until one’s passing to transfer a homestead to a relative. But with the possibility of tax foreclosure or dissipation through neglect, a sale or significant financial hardship is difficult to avoid with the owner in a nursing home. Moreover, Medicaid policy considers the transfer of a homestead a divestment subject to penalty in most cases. Third, the sale of home in financial distress is a loss to an effected family, particularly in today’s troubled real estate market.

Today the rules are more complex and the preservation of a home requires careful planning and proper asset allocation. For reasons known only to Washington and Lansing, a nursing home patient’s homestead is gravely threatened even while the nursing home patient is alive.

There are basically two ways to handle this situation: one is an asset protection pre-plan. That obviously is not an option for everyone, but for anyone at or near retirement age, this should be a consideration. The second is an advanced crisis plan. By these means, a portion of assets can be preserved to pay property taxes and utilities on the nursing home patient’s home.

When President Bush signed the Deficit Reduction Act of 2006, the states began to implement that law through a steady patchwork of regulations. Michigan issued revisions to Medicaid qualification rules on a quarterly basis throughout 2007 and there is no reason to think that this pace will slow down in 2008. I will be posting on a regular basis on the many recent changes that have been introduced here in Michigan, including those with retroactive effect and those pertaining to estate recovery.

This article highlights the reality that more changes in Medicaid law are forthcoming.

CMS has proposed new rules that would give states more latitude in designing their Medicaid programs. The rules, which address provisions of the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Act of 2006, would give states the ability to build Medicaid programs that work more like their local private health plans. CMS also has issued proposed regs, based on DRA provisions that will allow states to change premiums and cost-sharing rules.

CMS (The Center for Medicare and Medicaid Services) is a federal agency that oversees the states’ implementation of Medicare and Medicaid. For instance, Michigan has submitted its recently passed estate recovery program to CMS for approval. Whether Michigan will be allowed to use the comparatively mild form of estate recovery will depend on the opinion of CMS.

Medicare and Medicaid are hugely expensive programs and with the average cost of care in a nursing home at about $6,500.00 month in Michigan, long term care Medicaid is a particularly expensive program. It is generally encouraging that CMS is allowing states to develop programs more tailored to their particular circumstances. This may allow some states to stretch their already strained budgets a bit further. But eligibility rules for long term care Medicaid will become ever more restrictive in the near future, and, I would suggest, that if the Deficit Reduction Act is not enough to limit access to Medicaid, that further reform will be coming. This highlights the need for both pre-planning and long term care insurance.