LTC Bullet--They're Baaack, Part VI: "Medicaid for the Upper Crust"
Tuesday, January 28, 2003
Las Vegas, NV--
LTC Comment: What have the Medicaid estate planning attorneys been up to lately? Read about it after the ***news***.
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LTC BULLET--THEY'RE BAAACK, PART VI: "MEDICAID FOR THE UPPER CRUST"
It's been over a year since we published the last Bullet in our "They're Baaack" series. The purpose of this series is to document the resurgence of bold, uninhibited Medicaid estate planning. We introduced "They're Baaack" in April 2001 with this comment:
"It's clear today that HCFA [since renamed CMS] and the State Medicaid programs are not aggressively enforcing the eligibility restrictions and estate recoveries mandated in the Omnibus Budget Reconciliation Act of 1993. Congress repealed the provision in the Health Insurance Portability and Accountability Act of 1996 that made it a crime punishable by a fine and imprisonment to transfer assets for the purpose of qualifying for Medicaid nursing home benefits. Even the criminal penalty in the Balanced Budget Act of 1997 against financial advisers who recommend Medicaid planning for a fee has been emasculated by the Reno Justice Department's (justifiable) refusal to enforce it as unconstitutional. Bottom line: with all of the obstacles out of their way, the Medicaid planners want to make hay while the sun shines before responsible public officials can rain on their parade again."
Given the current desperate fiscal condition of the state and federal governments and the draconian cuts being made in Medicaid to stanch the red ink, the time has come for legislators, policy makers, and Medicaid administrators to get serious again about putting an end to Medicaid planning abuses. We hope this time, public officials will adopt a more workable and responsible approach. We recommend "LTC Choice" as described in the Center for Long-Term Care Financing's report titled "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at http://www.centerltc.com/pubs/CLTCFReport.pdf . As the opportunities arise, please refer your state and federal legislators, other public officials, and your local media to the Center for Long-Term Care Financing. Our contact information is available at http://www.centerltc.org/ . We will work with them to target Medicaid to the genuinely needy and to create strong positive incentives for everyone else to save, invest and insure for the risk of long-term care.
You can find the first five "They're Baaack" Bullets in the "Archives by Subject," under "Medicaid Planning," on the Center's website at: http://www.centerltc.com/bullets/subject.htm . Just click on the link, scroll down to the "Medicaid Planning" link and click, then scroll down to each of the "They're Baaack" Bullets.
To read Jane Bryant Quinn's most recent broadside at Medicaid planning, "Shame of the Rich: Making Themselves Poor," Washington Post, Sunday, June 3, 2001, go to http://www.washingtonpost.com/ac2/wp-dyn/A13425-2001Jun2?language=printer .
Now, here's the latest. We made a visit to the law library recently to see what the Medicaid planners have been saying in print lately. For a couple years, during the time when Medicaid planning was criminalized, Medicaid planners were much more careful and reserved in their public writings and pronouncements. That's ancient history now. They're back in full bluster as the following article excerpts show.
(Note: NAELA or the National Academy of Elder Law Attorneys is the trade association of the Medicaid planning attorneys. Its membership exceeds 4,000 and its annual budget is over $1 million. Medicaid planning easily generates six-figure incomes and seven-figure firm revenues for practitioners. The average attorney's fee to impoverish an infirm senior for purposes of Medicaid qualification equals approximately the cost of one month of private-pay nursing home care. Obviously, Medicaid planning is a much more lucrative business than long-term care insurance sales or long-term care service delivery. Yet, the LTC insurance and provider industries do very little to fight Medicaid planning abuse.)
Clifton B. Kruse, Jr. [past President of NAELA], "Medicaid Considerations for Lawyers Representing the Upper Crust," 33rd Annual Miami School of Law Philip E. Heckerling Institute on Estate Planning, Publication 755, June 1999, Mathew Bender, pps. 7-1 to 7-44.
"Upper crust, colloquial for the aristocracy, society's upper class, doesn't fully define the categories of clients that we serve who are possibly interested in medical aid from which the term Medicaid arises. Medicaid is a form of public benefit created by government for those among us who are truly impecunious, dependent upon the contributions of others to survive, including funds from the emperor's privy purse. The program has been arranged for the underbelly of our communities.
"'Upper crust' in the context of this paper means all others and, in particular, our middle class clients, those just above and in some cases way above the poverty line who see themselves as indigerei, in need.
"Individuals and families who need not rely on the fisc for assistance are, nevertheless, sometimes intrigued by the idea of having their long term care expenses paid by the government, and as middle class and even wealthy parents age and the reality of assisted care is anticipated, the possibility of government provided care becomes a fascination. The children of some aging adults become irresistibly attracted to the notion -- a call to the lawyer is made to determine how this can be arranged." (pps. 7-6 to 7-7)
"Medicaid strategies do, from time to time, consider divorce for the purpose of Medicaid eligibility. In L.M v. State, the author of a comment published in the August 1995 Matrimonial Strategist, wrote, 'In what may be the first case in the country in which a patient was divorced after he had initially been denied benefits, the New Jersey Supreme Court held that where a nursing home patient was denied Medicaid because his income was too high, he could divorce his wife, give her his pension as a property settlement, and then qualify on the basis that once ownership of the pension passed to the wife, the money was no longer available to him for Medicaid purposes.' Peter Strauss, principal author of Aging and the Law, includes a lengthy chapter entitled, 'Divorce with Spousal Protection Motivation,' which is a worthwhile resource.
"Medicaid is of interest to our wealthy clients, or, at least should be." (p. 7-41)
Michael Gilfix [founding member of NAELA], "Emergent Issues in Elder Law Affecting High Income Individuals and Their Families," Proceedings of the Fifty-Eighth Institute on Taxation, Volume 2, New York University, 2000, pps.23-1 to 23-19.
"Even objectively large estates can face serous erosion after years of long-term care. Many suggest that paying the cost of care in old age is a primary purpose of acquiring wealth. Many others feel resentment and a desire to protect assets." (p. 23-2)
"In most states, nursing home providers receive substantially less monthly income for Medicaid recipients than for those who pay the private rate. The difference can be as much as $1,000 per month." (p. 23-5)
"Once admitted to the facility, and assuming that it is a Medicaid certified facility, the individual may be neither discharged nor transferred because of Medicaid coverage. Payment at Medicaid rates is considered full payment and cannot be the basis of discharge for non-payment." (23-6)
"A nursing home may not require the applicant to waive Medicaid benefits, nor ask for an assurance of non-eligibility or that the applicant will not apply for Medicaid benefits. It is often wise to enter a facility on a private pay basis even if Medicaid coverage is inevitable because of individual circumstances." (23-6)
"A plethora of planning options exist when an individual enters a nursing home, regardless of whether that individual is married or single. Delineated below are most planning options that most obviously present themselves." (23-11)
"There is no prohibition against spending money." (23-11)
"The most obvious example of converting unprotected, non-exempt assets into an exempt form is the purchase of a residence. If a residence is already owned, it can be improved or repaired. Mortgages can be fully satisfied. A modest residence can be sold and a new residence purchased." (p. 23-12)
"Federal Medicaid law provides that an institutional spouse shall not be penalized when the community spouse simply refuses to spend money on nursing home bills and other needs of the spouse in the nursing home." (p. 23-12)
"Why consider a transfer of the residence or other exempt assets? Virtually every state has a state recovery plan, whereby action is taken upon the death of a Medicaid recipient, to recover the full value of benefits paid. If a residence is in the individual's estate, an estate claim will be asserted. If it was lawfully transferred out of the estate before death, the estate claim is typically avoided." (p. 23-13)
"While enormous gifts are objectively unwise if Medicaid eligibility is the only objective, some individuals effect major transfers to allow for eligibility after the period of ineligibility runs its course." (p. 23-13)
"[HCFA Transmittal No. 64] stated, in effect, that the purchase of annuities will not be treated as a 'transfer,' and will not have any impact on Medicaid eligibility as long as the annuity is actuarially sound." (23-14)
"[S]ome states disallow Medicaid coverage when an individual's fixed income exceeds a state-established income cap. In such states, one planning option is use of a trust, often referred to as a 'Millet Trust,' that receives all income that would otherwise go to the institutionalized individual. The trust pays the individual beneficiary an amount of income that is under the income cap figure. Retained income becomes a trust asset and its use is restricted under terms of the trust." (p. 23-16)
"Medicaid planning is an integral part of the traditional estate planning process. Its impact can dwarf the benefits of simple reliance on revocable trusts. Its approach to asset preservation is of relevance to most older individuals and their families in our nation." (p. 23-19)