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...
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