ESTATE PLANNERS CAN’T HIDE FROM MEDICAID ANY MORE: WHAT YOU NEED TO KNOW TO AVOID MALPRACTICE: PART 3

Did you ever get that pit in your stomach while attending a CLE after learning something for the first time you weren’t doing but should have been. You immediately begin to assess the number of clients it affects and strategize how you’re going to fix it. Did you ever wake up in the middle of the night in a sense of panic having realized you forgot something essential in a plan created for a client. Well, be prepared for the pit in your stomach and the night sweats if you are an estate-planning attorney who is not proficient with the Medicaid qualification rules. If you are going to practice in the estate planning area, you must have a working knowledge of the Medicaid qualification rules to properly represent your clients. Knowing the rules will enable you to be a better counselor by providing more solutions for your clients, and planning for their long-term care before they need it. Your clients will be grateful, more satisfied and pay you more and refer their friends and family.

Is learning the Medicaid rules worth it? Recent studies show 6,000 to 7,000 people a day are turning age 65. There are currently 37 million Americans over the age of 65 and it is expected to almost double to 72 million in the next twenty years. Other statistics show more than 50 percent of those over the age of 65 will spend time in a nursing home before their death. There are 103 million households, of which ninety-six percent have less than $750,000.00 of assets. Typical health-care costs for a nursing home average $75,000.00 to $90,000.00 per year, and the increases in these costs annually outpace inflation. A typical client needs $1.5 million of invested assets to generate the income needed to pay for their cost of care. If they do not have $1.5 million, they need to consider long-term care planning. Many estate-planning attorneys focus on estates of $1 million or more. While it is a desirable profile, such estates represent less than 4 percent of the American population. Most estate planning attorneys are stepping over 96 percent of clients to service the 4 percent that fit the desired profile. In working with clients in the 96 percentile, I have found they more easily identify the value provided them by protecting their assets from the threat of long-term care. They are very willing to pay for solutions to these concerns. Clients with modest estates are much more likely to pay for asset protection than those with larger estates. They also tend to be more grateful, and more likely to bring you cookies and refer their friends.

Implementation of the Deficit Reduction Act 2005 (DRA ‘05), in February, 2006, systematically eliminated the Monday morning Medicaid planning attorneys; those that attend a Friday CLE and Monday begin practicing. For those willing to learn this area of law, there is a tremendous opportunity because of the number of people needing these services. More importantly, since it impacts 96 percent of American households, it is critical you become aware of the key requirements to qualify for Medicaid in the event of your clients’ long-term care. A common fear of estate planning attorneys is that Medicaid law is “always changing” and difficult to “get your arms around.” Nothing could be further from the truth. There have only been two major changes to Medicaid Law since its inception, the Omnibus Reconciliation Act of 1993 (Obra ‘93) and DRA ‘05 and it is not difficult to get your arms around. Medicaid law is a very succinct set of rules that can be covered in less than three hours. Once you are aware of the rules and exceptions, the rest of the practice is merely applying fact pattern to those rules. It intrigues me how many practitioners warmly embrace the tax law and its several hundred thousand pages of text and are willingly to dredge through the Code to solve problems for their clients but Medicaid law instills fear.

Medicaid law is imbedded in Title XIX of the Social Security Act, specifically at 42 USC 1396-1396s. Section 1396p deals with the qualification rules for Medicaid. The regulations can be found at 42 CFR § 430 et seq. and 20 CFR § 416 et seq. While Medicaid is federal law, it is implemented 100% by the states. Each state, therefore, has the exclusive right to interpret the federal Medicaid law. To be eligible for nursing home benefits, the client must meet the medical requirements and be a U.S. citizen or resident alien. If these conditions are met, the client must also meet certain income and asset qualifying limits. The amount of income an applicant may retain and still be eligible for benefits is referred to as the personal needs allowance (PNA). For single applicants, the PNA is less than $75.00 per month. All income in excess must be contributed toward the applicant’s cost of care. If the applicant is married, the community spouse is entitled to a minimum monthly maintenance needs allowance (MMMNA) to ensure they are not impoverished. The federal law permits each state to set a MMMNA, but it must be within a range set by the federal government. In 2007 the minimum MMMNA must be between $1,650.00 and $2,541.00 per month. Most states use the federal maximum as their minimum. The amount of assets (resources) an applicant can have and still be eligible is also set by the federal law. If the applicant is single, they are entitled to a small amount of assets. Most states utilize the federal SSI amount of $2,000.00. Other states permit more. New York permits the most at $4,200. If the applicant is married, the federal law allows more assets be retained to prevent impoverishment of the community spouse. This is referred to as the community spouse resource allowance (CSRA). The federal law provides the minimum CSRA not be less than $20,238.00 nor more than $101,640.00. A majority of states utilize the federal maximum as their State minimum CSRA.

Other important terms relevant to Medicaid planning are the look-back period and penalty period. These are the most misunderstood and misinterpreted terms in all of Medicaid law. The look-back period, is merely the period of time Medicaid can look back at your client’s financial records when applying for benefits. It has no relevance to eligibility. It is merely the period of time Medicaid can look at financial records to determine if any transfers were made in the 36 to 60 months previous to applying for benefits. The objective is to ensure people don’t transfer away their assets and then ask for Medicaid to pay for their care. When reviewing the applicant’s financial records, Medicaid will request support for withdrawals to identify whether the transfer was compensated or uncompensated. A transfer is “compensated” if, after the transfer, something of equal value is received in return. Transferring $120,000.00 to purchase a home of that value is a “compensated” transfer. An “uncompensated” transfer occurs if a transfer of assets is made and something of less than the value given or of no value is received. Any shortfall in value received is an “uncompensated” transfer. An uncompensated transfer may render the applicant ineligible for benefits depending upon the amount of the transfer and when it was made. There is no rule that provides an uncompensated transfer made during the look-back period renders the applicant is ineligible. The look-back period is just the period of time Medicaid will look at the records to identify uncompensated transfers. Once identified, a penalty period will be calculated based on the amount of the uncompensated transfer. If an uncompensated transfer occurred prior to the look-back period, it will not be identified and no penalty will occur. For transfers inside the look-back period, the penalty period must be exhausted prior to being eligible for benefits.

To be continued...

ESTATE PLANNERS CAN’T HIDE FROM MEDICAID ANY MORE: WHAT YOU NEED TO KNOW TO AVOID MALPRACTICE: PART 2

Many attorneys believe Medicaid Law is challenging because it is constantly changing. If that scares you, I remind you many areas of law change often (i.e., tax law).  Medicaid law on the other hand, has only changed twice in over 25 years.  The first change came in 1993 with the passage of the Omnibus Reconciliation Act of 1993 (OBRA-93). There was not another change in the law until February, 2006 when the Deficit Reduction Act of 2005 (DRA-05) was put into law. DRA-05 attempted to close many loopholes and has created many obstacles for lawyers dabbling in this area.  I believe, to the contrary, DRA-05 created the greatest opportunity we have seen in estate planning in more than 20 years.  In 2006, my practice exceeded its greatest year by 40 percent, and I attribute it totally to the implementation of DRA-05.  The question is, who is going to handle these complex issues for clients?  Those willing to commit to learn the rules and implement them in a way to make it easier for clients to navigate, will undoubtedly be the winners. I have seen it in my own practice.

Clients today need leadership and options. They need to be able to get answers to their questions and solutions to eliminate their fears. I have yet to meet a senior-aged client, whether wealthy, of moderate means or poor, who is not concerned about “losing everything they have” to a nursing home.  Estate planning today is no longer just about taxes or avoiding probate.  It has become much more comprehensive due to the changing dynamics of our health care system which forces you to be either rich enough to pay for it all or so poor you’re not able to pay for anything.  It provides nothing for those in between (which is a majority of estate planning clients).  It also discriminates against the types of care needed.  For example, Medicare will pay all costs associated with heart surgery (often $300,000 to $400,000), but pays little, if any, costs associated with care for Alzheimer’s ($60,000 to $90,000 per year).

Estate planning today requires a broad range of knowledge in several areas of the law. Obviously, you need confidence in how to draft wills, health care proxies, living wills, powers of attorney, and trusts.  Now, you must also become familiar with Medicaid Asset Protection Trusts (MAP Trusts™).  If you are going to practice in estate planning you must become familiar with the Medicaid qualifying rules and the trust and non-trust options to provide clients.  You must also commit to a comprehensive approach to get a working knowledge of this area of the law.  The good news is, it is a finite world, much less finite than tax law.  Many estate planning lawyers avoid discussing Medicaid because they don’t understand it.  Just because you don’t understand it, doesn’t mean you don’t have to understand it.  You can no longer avoid it!

So remember the ad, “This is not your father’s Oldsmobile.”  The rest of the story is many experts  believe that single ad campaign led to the downfall and dissolution of the 103-year-old company. Estate planning is the same.  It is not what it used to be.  You must commit to learning the Medicaid laws and rules to accomplish the goals and objectives of your clients or you may suffer the same fate as Oldsmobile.  Many attorneys I work with in this area report a more rewarding practice because of the good they are able to do for their clients.  For those willing to dive in and participate in this exciting multi-faceted area of the law, you will create significant value to your clients and more opportunity for profit in your own practice.

[In part three and four of this article, we will cover the key Medicaid rules for you to be aware of.]

ESTATE PLANNERS CAN’T HIDE FROM MEDICAID ANY MORE: WHAT YOU NEED TO KNOW TO AVOID MALPRACTICE: PART I

Do you remember the ad in the 80s, “This is not your father’s Oldsmobile?” It was used to win over a new demographic of car-buyers. Previously, the car maker had been popular with adults over 50 and was looking to attract a much younger market. While recently teaching a two-day Medicaid boot camp to 50 lawyers, this ad resonated in my mind as I watched the transformation of these traditional estate planning attorneys as they became enlightened to the relevance of Medicaid Laws to their practice. It became clear to me, like Oldsmobile, estate planning is not like it used to be! If you are going to practice estate planning, you must obtain a working knowledge of the Medicaid qualifying and disqualifying rules and how they impact clients and the estate plans you create for them. If you are willing to commit to this, you will not only avoid malpractice, but will create added value for clients, and new opportunities and profit for your practice.

Most estate planning attorneys agree, the need for long-term care is the greatest concern among the majority of their clients. Many attorneys unfamiliar with the application of Medicaid Laws, fluff it off and say, “You have too much money to qualify for Medicaid.“ The net worth of clients rarely alleviate their fear. Often, the typical “millionaire” has a home and $500,000 in marketable securities and/or cash. This millionaire does not feel rich and often is a typical Medicaid-planning client. For those with less, it is even more important. Recent demographics indicate there are 101 million households in the United States. Thirty-two million have $100,000.00 to $500,000.00, and Martindale-Hubbell statistic indicates of the more than one million lawyers in America, roughly 8,000 classify themselves as practicing “elder law.” If you do the math, there is one elder law attorney per 3,750 households. Assuming a planning fee of one month’s nursing home cost and an average monthly nursing home cost of $5,000, the market potential per elder law attorney practice is $18,750,000.

Recent statistics also indicate more than 6,000 men and women in the United States turn 60 every day. The aging population is putting increasing demands on our health care system. In the “old days” things were simple - you lived, then you died. The typical concern of an estate planning client was estate taxes and most concerns were resolved by drafting a Will. Today, with the proliferation of nursing homes and other long-term care facilities, and the enactment of estate Tax Reform under the Bush Administration, clients’ “worry” has shifted from taxes to long-term care. Estate planning has become more focused on clients’ lives (creating the need for trust planning) rather than their deaths (traditional Will plans). Eight out of ten individuals who come into our offices indicate loss of assets if they need nursing home care, as their number one concern. While estate planning dynamics have not changed, including clients’ need to control their property and to provide a legacy for those they leave behind, the threat to these goals has become far greater by the possibility of long-term care taking all they have worked so hard for. Estate planning today must address and resolve clients concerns regarding the need for long-term care. You cannot hide from it any more!


Medicaid Laws impact virtually every aspect of estate planning. Similar to tax law, simple things lawyers do pursuant to common law or contract law, which have been done for centuries, may, unbeknownst to the attorney, create adverse consequences in the Medicaid planning context. For example, individuals often transfer their home to their children to “protect it” from the nursing home. The truth is, in most all cases the home is exempt when determining Medicaid eligibility, but that simple transfer can create unintended adverse tax and Medicaid consequences. If the house is transferred without reserving a life estate, there is a loss in a “step-up” in basis at the client’s death and a completed gift has occurred. If it is transferred with a reserved life estate, a gift of the remainder interest has occurred without the ability to utilize the annual gift tax exemption because it is not a present-interest gift. Other adverse results include the property becoming owned by unintended beneficiaries like the spouse of a deceased child, the property being listed in a bankruptcy petition of a child or being liened by a judgment creditor of a child. While it appears to be simple on its face, the mere transfer of a home has multiple legal implications. The transfer also has significant Medicaid qualifying implications; it can disqualify an individual from Medicaid for 60 months or more.

Another significant impact Medicaid has on estate planning is its impact on trust or gift planning. Many clients believe revocable living trusts protect their assets from Medicaid. A simple rule I teach clients is “whatever you can get, Medicaid can get.“ Therefore, all assets in a revocable living trust are considered an available resource when determining Medicaid eligibility. More importantly, traditional estate planning lawyers often create an irrevocable trust granting the trustee ascertainable standards to distribute income or principal for the benefit of the grantor or spouse. While this may work for typical asset protection, there is an absolute exception in the Federal Medicaid law that treats all assets in discretionary trusts created by the applicant or spouse, an available resource when determining Medicaid eligibility. Most revocable living trusts convert to a family trust at the Grantor’s death, permitting income or principal to the spouse or other beneficiaries pursuant to ascertainable standards. This is also considered an available resource in determining the spouse’s Medicaid eligibility. Gifting also has significant ramifications. A simple gift to a child, grandchild for college, or to your church to build a new hall, can lead to disqualification for Medicaid for up to five years or more. These consequences are unlikely to be the intention of your client. The question is, are you aware of them? How can an estate planning attorney guide clients on transferring assets, creating trusts or giving gifts without being familiar with its impact on Medicaid eligibility.

-to be continued...

THE MISSING COMPETENCY

As lawyers, we have been trained well in the law and how to seek out answers. In fact, I might even suggest we have been trained to become contrarians. Imagine being married to us? Law school taught us using the traditional Socratic Method to think critically and analyze situations to get a result for clients. In fact, every lawyer in the world can take either side of any issue, just ask us. But, as I coach attorneys on running their law practice, I have identified a missing “core” competency to be a successful attorney, I note a common theme. Inconsistent cash flow, frustration, overwhelmed, and worst of all, no money. While we have been trained exceptionally in the law and how to think critically and analytically for any issue put before us, I realize few of us have the competency on how to run a business. Knowing how to run a business is a core competency most lawyers are missing, but unfortunately cannot succeed without.

Fortunately for me, prior to law school, I was a Certified Public Accountant. I was born and raised in a family business and our Sunday afternoon dinner was the "board meeting." My parents did not permit me positions of authority until they were earned. I started in the warehouse then graduated to the truck driver. Eventually, I was brought into the office to learn the accounting, public relations, and other elements of running a successful business. My parents were able to increase their business 37 fold in the 25 years they owned it before selling it to the third generation in 1991. That's when I left and completed law school. So, as I entered law school, I entered from the perspective of an entrepreneur who was raised in a family business and then, while working as a Certified Public Accountant for a Price Waterhouse, got to audit the books of other businesses to see how they operated, efficiently or not.

So, how do you teach someone the core competency of learning a business? It could take years but, when a system is created, it may only require months. For example, if you do not know how to cook hamburgers but are able to buy a McDonald's, Wendy's, or Burger King Franchise, they would have all the systems, structure, marketing, and support necessary for your success. The same is true with the law. Unfortunately, since the law does not permit "franchises", you must seek out successful business models proven in the industry and help create a meaningful result for clients. I have been fortunate in creating those systems to run a successful estate and elder law practice, and it is my absolute passion in life to share them with every attorney I have the ability to interact with. Many are available for free as part of my passion to help people succeed. But, what if you choose to do it on your own? Then, you have to define how you will get there. To have a successful business, the most critical element is distinguishing and tracking revenues and expenses. You must control your fixed expenses and have as many "variable” expenses as possible. Variable expenses are important because do not exist unless there is revenue associated it; whereas, fixed expenses are there whether you generate income or not. So, if you minimize your fixed expenses and maximize your variable expenses you should be able to maintain and operate profitably. You must also ensure you have the minimum amount of sales you need to pay fixed expenses, variable expenses and YOU! You must have a sales program in place to identify how you're going to generate the necessary leads for you show clients value so they actually hire you. And finally, after using your marketing to generate leads, and showing the value, you must be able to keep your promises made and get the client the result they paid you for. If you do, they will speak well of you to their friends; the greatest form of marketing. This creates a harmonious cycle of referrals from clients. In my recent analysis of my own business, I realized more than 20 percent of the referrals into our office where coming from clients. That cannot occur unless you have a systematic approach on how to deal with clients so you, and each of your team members, can be consistent.

So, are you comfortable knowing the law alone? Don't be. Knowing the law in and of itself will not help you have a successful business. Seek out your solution on how to run a business and go. That combined with your legally technical competency is a winning combination. Receive a free 90 minute exercise “The Revenue Focuser” to see how you can begin profitability in as little as 30 days.