Have you really taken a vacation?

I just returned from a one week beach vacation with my family at Schroon Lake, an exciting resort community nestled in the Adirondack Mountains. This has been a family tradition the 1st week of August for many, many years. We all start getting real excited about it….in February when the snow and cold are “getting old” in Central NY. We start talking and dreaming about unplugging and “doing nothing” except rest, rejuvenation and connection with the ones we love the most. The beauty of this “remote” vacation is there was no cellular service so I am truly unable to take calls or access the internet via my air card. Wow, what an experience. At first, it felt somewhat paralyzing, not being connected to the outside world. Don’t get me wrong, Cell service was available if I drove a mile or two towards town, which we did a handful of times throughout the week, but I am please to find at those times I had absolutely no interest in looking at my phone or email messages on my blackberry.

Interestingly though, when discussing vacations and time off with attorneys over the last ten years, it is sad to learn most all of us fail to have a real vacation. How is a real vacation defined? Well, it’s being present with the people you are vacationing with; whether it’s your family, loved ones, or friends. You see, running to your Blackberry, cell phone, or internet becomes a place of comfort, but what’s at risk is really far more than what you may be missing when you shut them down. What’s at risk is the relationship you have with the people closest to you. Your disregard for them in favor of a business has an impact, makes them feel less worthy of you than your co‑workers, clients, and worse yet, the dreaded list serves we feel compelled to reply to. There is no greater danger to us as individuals than the loss of the respect of our families and ones we love.

So, when you go on vacation are you taking calls? How often are you on the internet? I must admit, this past vacation I learned there was wireless internet in the house. I couldn’t resist and found myself replying to email. After 2 hours I shook myself and realized what a wasted opportunity of time I could have been with my family. The computer went off and did not turn on again.

So, as you take your next vacation, or better yet, when you leave the office at the end of the day, consider the possibility, the office leaves you and you are able to be present to the people important in your life. The truth is, too many times people important to us are gone because of divorce, death, or some other catastrophe or worse yet, they are still there but they are hurt, wounded, and sad at their loss of real connection with us. So, I welcome you to have a real vacation with the people you love the most, and you may discover a full, new appreciation, and believe it or not, in my experience, you will be more effective at work when you do return. When you are relaxed and free from stress you are more focused and more creative. Focus and creativity are key components to success. One of the best ways to regain your balance, focus and get excited about your practice again is to take a real vacation. So if you haven’t yet taken a vacation this summer, I encourage you to get something on the books for the Fall before all the holiday and year end planning “rush” starts. Take pleasure and happy vacationing!

ESTATE PLANNERS CAN’T HIDE FROM MEDICAID ANY MORE: WHAT YOU NEED TO KNOW TO AVOID MALPRACTICE: PART 4

The penalty period is the period of time an applicant is ineligible for benefits because of an uncompensated transfer. The penalty is calculated by dividing the amount of the uncompensated transfer by the average cost of one month’s nursing home care in the region of the applicant. The federal law requires states to annually establish the average one-month private paid cost of nursing homes in their states. This is commonly referred to as the “monthly divisor.” The penalty period begins at different times, depending upon when the uncompensated transfer occurred. If the transfer occurred prior to DRA ‘05, the penalty begins in the month of the transfer. If a client applied for benefits today and had made a $100,000 uncompensated transfer 20 months ago he is eligible for benefits upon application as long as the monthly divisor was $5,000 or more ($100,000 ÷ 5,000 = 20 months). Since the transfer was made prior to DRA ‘05, the penalty begins in the month of transfer and the 20-month penalty will have expired immediately prior to the application. DRA ‘05 however changed the start date of any penalty period on uncompensated transfers. The penalty period on all transfers after February 8, 2006, no longer begins at the date of the gift, but rather on the date the applicant becomes “otherwise eligible.” To be otherwise eligible, the applicant must meet the medical needs for care and the Medicaid income and asset qualifying levels, but for the application of any penalty period for a uncompensated transfer. Therefore, the penalty no longer begins when you make the transfer, but rather, not until you are in the nursing home and financially qualify. The anomaly is that while you financially qualify and are eligible, you will not receive any benefits until the penalty period has expired. While this seems complicated, there are already proven strategies to get your clients qualified similarly to what was available prior to DRA ‘05.

In addition to the rules for qualification, several exemptions are available, including a home or a life estate in a home, car, prepaid funeral, personal belongings, life insurance up to $1,500.00 of face value, and other assets needed to generate income to bring the community spouse up to her MMMNA. There are a lot of planning opportunities with the use of these exemptions and exceptions. If after applying all the exemptions, the applicant still has “excess resources” (more assets than the limit is), the applicant must “spend down” any excess. A spend-down is the systematic spending or transferring of assets to get the applicant to the Medicaid qualifying asset limit. In most circumstances, the spend-down involves uncompensated transfers in which a penalty period will apply.

When Medicaid planning, penalty periods are common and planned for to ensure sufficient assets are available to pay for care during any penalty period. There are several Medicaid spend-down planning strategies available. Typically, a Medicaid spend down involves an uncompensated transfers to an individual or a trust. If a client is not willing to transfer assets, other options include purchasing a long-term care insurance policy, an immediate annuity, or use of a promissory note.

Prior to DRA ‘05 it was common to transfer assets to children or others because there was not significant risk to do so. A small transfer would have a short penalty period and most people were confident they could stay healthy through it. DRA ’05 makes outright transfers to individuals no longer viable because they are now subject to a 60-month look-back and the penalty no longer begins at the date of the transfer. If an uncompensated transfer occurs within sixty months of applying for benefits, the penalty will not begin until after the client applies and otherwise qualifies. Therefore, post DRA ‘05 transfers can make an individual ineligible for 60 months or more. The only viable technique remaining is to utilize Medicaid Asset Protection Trusts (MAP-Trusts™). MAP-Trusts™ are specifically designed with provisions friendly to the Medicaid qualifying rules. Typical MAP-Trusts™ provide income to the grantor during their lifetime but not principal. Medicaid law specifically prohibits the applicant or their spouse from having any benefits available to the them from a self-settled trust. Any discretion to the Trustee to distribute to the Grantor or spouse is considered an available resource when determining eligibility. Therefore, it is critical the trust not permit any right to distribute principal to the Grantor or spouse. This is why most family trusts fail Medicaid eligibility requirements.

Working with MAP-Trusts™ is intellectually challenging and dynamic. As tax professionals, we go to great length to educate ourselves and create trusts to minimized income taxes and preserve the clients estate tax exemption. MAP-Trusts™ work totally different. In fact, they ensure all income on the assets are taxed to the grantor and all assets are included in the grantor’s estate for estate tax purposes. The typical Medicaid planning client does not have a taxable estate so the benefit of using a “pure grantor” trust is favorable for the client. It also ensures a full step up in basis occurs at their death. Also typical in a MAP-Trust™ is enabling the grantor to be the sole trustee of the trust, which is preferred by clients.

If a client is unwilling to use a MAP-Trust™, they can purchase long-term care insurance to subsidize the cost of care. While DRA ’05 has restricted the use of annuities, they still play an important role in post DRA ’05 planning strategies. DRA ’05 also permits clients to transfer their excess assets in exchange for a promissory note, provided it is paid back over the client’s life expectancy, in equal payments, without delay, with no cancellation at death. While DRA ’05 specifically provides promissory notes are considered compensated, many states consider it an available resource, to the extent it could be sold. The sale value of the note is treated as an asset and included in the computation of the CSRA for the community spouse or the individual resource allowance for single applicants.

There are many opportunities for those willing to learn the Medicaid qualifying rules. Medicaid planning, while seeming complicated, is really a very finite set of rules that can be learned with a little effort. The truth is, if you are providing estate planning services, you must be aware of the Medicaid qualifying rules to properly represent your clients. It applies to 96% of potential clients. If you are not comfortable with the Medicaid qualifying rules or if they appear to be complicated or comprehensive, you must commit to learning them and implementing them into your practice. If you are willing to, you will be able to provide more solutions for your clients, you will create a much greater relationship and appreciation from your clients and they will pay higher fees. But must importantly, you will avoid the pits in your stomach or waking up with night sweats from not knowing the law.