Medicaid Laws Impact Asset Preservation Planning

Back in 2007, Medicaid laws changed pursuant to Federal Deficit Reduction Act of 2005 (ORA 2005). The law revised treatment and use of Medicaid or MassHealth planning tools. The most often asked question after the new Medicaid laws went into effect is “So what planning tools are left for us to consider?” Medicaid laws are still designed so the middle class can qualify for Medicaid to pay for a nursing home and still retain access to assets that Medicaid does not count. Below are a few of the more popular Medicaid planning tools still available.
• Clients should look to use the planning tools in conjunction with each other to optimize, or stretch the use of the family dollars to obtain the maximum benefits while getting the highest and best use of the remaining family financial portfolio.
• These planning tools should all be considered and can be utilized in varying combinations and properly mixed and matched
based upon the applicant/family’s financial budget and portfolio.

1. For married couples

• The healthy spouse (non-applicant spouse) can still retain what Medicaid refers to as the community spouse resource allowance (CSRA) ($119,220 in 2016) in liquid countable assets.

2. Unlimited transfers

• Transfers between spouses, disabled children are still allowable.

• Traps in the law include improper timing and improper flow of transferred funds between the applicant and recipient
• Not properly documenting where disability of family member funds were transferred to.

3. Spend down of current levels of assets

• An applicant can pay legal fees, accountants, financial advisors, caregivers, out-of-pocket medical bills, purchase a prepaid funeral plan, purchase burial plots for the immediate family µnit, update or renovate the homestead of the applicant.
• There are many other options for spend down, however, one

should consult with an attorney whose practice is truly dedicated to submitting and doing asset protection for clients seeking Medicaid eligibility.
• One trap in the law is related to prepayment of future expenses.

One must proceed with caution when considering spending down current assets on future expenses.

4. Personal Service Contracts

• Still viable under the Medicaid amendments, however, the Department requires all personal service contracts be considered for review by Medicaid district legal counsel’s office.
• Personal Service contracts cannot be offered by or prepared by a social worker or non-lawyer as Medicaid planning tool. To be drafted properly to pass Medicaid District Counsel review the terms and conditions must be specifically tailored to the applicant and providers agreed to terms.
• Most common traps in use of the personal services contract include: Insufficient terms drafted into the contract that are ambiguous or not properly supported, not being able to document provider time, inadequately accounting for’provider time, applying improper hourly

rates to contract, entering into contracts with providers who live out of state.
• Careful preparation and thought are required to properly draft a Personal Service contract. It is a legal contract that an applicant should retain a lawyer to draft and assist.
• Personal Service Contracts are coming under increased scrutiny by Medicaid general counsels’ office in the past several years.
5. Spousal Refusal

• Very popular and an excellent tool for married couples.

• Timing of transfers as between the spouses and how and when the spousal refusal is executed become critical elements of ensuring a successful used of this Medicaid planning tool.
• Massachusetts is one of the few states to accept the use of “spousal refusal” in Medicaid planning.
• This planning tool is available for couples where lifelong savings are essential to keep a healthy spouse from becoming impoverished during his/her lifespan. The Department of Children and Families and certain legislators rely on unpublished cases where

“millionaires” are rumored to have applied to Medicaid nursing home benefits.
• The author does not recommend using this tool unless an elder law attorney whose practice is truly dedicated to doing Medicaid planning and the tool is used in the appropriate circumstances taking into consideration the public policy purpose of why the law exists as it does.
• Massachusetts legislators and the Massachusetts Department of Children and Families policymakers have recently raised concerns again about “millionaires” trying to apply for Medicaid. Medicaid is not for “millionaires”. The Medicaid laws as currently written allowing for some planning opportunities for families faced with high long-term care related costs. Our state lawmakers have a very specific public policy purpose for these laws, to prevent both husband and wife from becoming wards of the state’s public coffers due to having spent all their life savings on nursing home care before they both die and provide for the highest quality of life possible while faced with long term care related illnesses.

6. Annuities for married couples

• This is a very viable tool for married couples.

• Note, there are many non-lawyer Medicaid planners who are financial planners who earn a substantial commission on selling a Medicaid applicant and his or her spouse annuities as a planning tool.
• The community spouse (healthy spouse) can purchase an actuarially sound, level pay annuity with a lump sum payout in the end (Balloon type annuity), so long as the State is named primary beneficiary. This specific type of annuity can be purchased by the healthy spouse. It can mature any time period that is less than the actuarially life of the healthy spouse. Thus, a short term annuity owned by the healthy spouse, paying out to the healthy spouse is a very viable consideration. Cash flow projections and careful financial planning is necessary to properly implement this planning tool.

7. Use of a Pooled Special Needs Trust

• This is an excellent planning tool for single individuals to consider.
• In 2016, Massachusetts remained one of the few states that

still allowed a person over 65 to contribute to and establish this type of trust.
• With this option, the assets placed in the pooled trust are set aside in an account for the individual. The funds can be used for anything other than what Medicaid pays for, but must be used and spent for the sole benefit of the individual.
• Upon the individual passing away, anything Medicaid paid for must be reimbursed to the State where services were
received (remember, Medicaid pays out much less for the same services than we would be paying if we were private paying for the same services. Medicaid pays approximately $.20 less for every $1.00 we private pay for the same services). This is where careful planning to choose the right Pooled Special Needs Trust company is critical.
• Caution must be exercised when selecting a Pooled Trust. There are many entities (Special Needs Trust companies) popping up in recent years who are offering the pooled special needs trust. Careful selection is essential to ensuring the trust company is providing optimal
service, accessibility to funds, and treatment of the funds during the life of the Medicaid recipient. Many of these entities are retaining all of, if not a majority of the funds remaining at the death of the Medicaid recipient after paying Medicaid back for the services rendered during the life of the deceased Medicaid recipient. Other Special Needs Trust companies are keeping a much smaller percentage of assets remaining in the Special Needs Trust account after paying Medicaid and offering the remaining balance back to the family or named beneficiaries of the deceased Medicaid recipient. Choose carefully, interview the trust company before you buy. Remember they work for you. This is a complex planning tool that should be utilized as part of a Medicaid financial cash flow projection and used and selected with the help and oversight of an elder law attorney who specializes in Medicaid planning.

8. Annuities for single applicants

• A Medicaid applicant can purchase an actuarial sound, level pay annuity, however the monthly payout will be considered income to the applicant. All income of the Medicaid recipient is paid towards Medicaid patient responsibility.

9. Purchase or retain income producing property

• This is still considered exempt. However, net income is still considered part of the applicant’s income (if the asset is still in the applicant’s name). Now the applicant can transfer his/her interest to the healthy spouse and the income of the healthy spouse does not adversely impact the applicant’s eligibility for Medicaid benefits.

10. Hardship Waiver

• Criteria for a hardship waiver was revised under the DRA 2005.

• The new law states that “undue hardship” exists when the application of the transfer of assets provisions of the rule would deprive the applicant of medical care in a manner which would endanger or deprive the applicant of food clothing, shelter or·other necessities of life. Historically arguments s to undue hardship has not been successful.
• It is yet to be seen exactly how effective a hardship waiver argument will be under the new revised laws and just how the Commonwealth of Massachusetts will implement/adopt such laws.
NOTE: The above information is for informational purposes and should not

be used without the appropriate legal advice. An elder law attorney whose practice focuses on Medicaid asset protection and benefits planning should be consulted to assist with selection of the appropriate mix of the above planning tools to implement. The Medicaid laws have become too complex to rely upon non-lawyers to create an appropriate well-crafted Medicaid plan.

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