LTC Bullet: No Wonder They Don't Buy LTCi
Thursday, March 4, 2004
LTC Comment: Do Medicaid estate planners really advise adult children to grab their parents' money, yank them from private-pay assisted living facilities, stick them in a nursing home on welfare, and transfer the cost to taxpayers and providers? Read an actual Medicaid planning "engagement letter" that does exactly that. After the ***news.***
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LTC BULLET: NO WONDER THEY DON'T BUY LTCI
LTC Comment: When people can ignore the risk of long-term care, avoid the premiums for private insurance, wait to see if they ever need expensive extended care, and if so, shift the cost to government programs, is it any wonder most of them do not buy private LTC insurance? That is the perverse incentive in current public policy that (1) overloads Medicaid unnecessarily with nursing home recipients who might not have needed public assistance (nor nursing home level of care), (2) undercuts the market for private-pay home and community-based services, and (3) chills demand for private LTC insurance.
That's not the only damage done, however. Most seniors do not confront catastrophic long-term care costs until they are already cognitively impaired. By then, they are no longer making their own health care and financial decisions. Such decisions are being made by adult children with powers of attorney or by guardians, who often have a financial conflict of interest. "Shall I get the best care money can buy for Mom and Dad, or follow my attorney's advice, take their money, and put them in a nursing home on Medicaid?"
That's exactly the strategy recommended in the following "engagement letter" between a Medicaid planning attorney and an adult-child client of a frail elder parent. An irate subscriber, outraged by the practice of "artificial impoverishment," sent it to us. To assure anonymity, we have removed all identifying information from the document. This includes names of the attorney and client, the state in which the attorney practices, the sex of the adult child and parent, and specific dollar amounts. For brevity, we've also excised some less relevant sections such as those covering income tax and gift tax considerations and Medicare eligibility. We've added emphasis by capitalization to help you find some of the more interesting facts and recommendations.
"Section 3: Strategy" is the most important section to read. It explains how the adult-child client can obtain his/her parent's assets by transferring him/her from his/her current living arrangement--a private-pay assisted living facility--and placing him/her in a Medicaid-financed nursing home. You will find described in this section many of the routine techniques of Medicaid estate planning. Because of the small estate being expropriated in this case, however, none of the more sophisticated legal techniques used to divest or shelter much larger amounts--such as trusts, annuities, life care contracts, etc.--come into play. To learn about those methods, used to take many hundreds of thousands of dollars away from helpless, vulnerable seniors, go to one of the many local seminars advertised by Medicaid planners or attend one of the national conferences of the National Academy of Elder Law Attorneys.
Engagement letter (Early 2003) from an elder law attorney to an adult-child
Fee charged by the attorney for the following advice: $2,000
RE: Medicaid Planning For Your [Parent]
Allow me to say it was our pleasure to meet with you recently to discuss Medicaid strategy for protecting your [parent's] assets. We appreciate the trust that you have placed in us by allowing us to assist you in this important matter.
The purpose of this letter is to review our conversations and the plan we have assembled for Medicaid eligibility. This letter reflects your [parent]'s situation as we understand it. If [his/her] situation should change, or if our information is incomplete, then the plan we have discussed may need to be amended. You should not hesitate to contact us if you have questions, or if [his/her] situation changes. . . .
Your [parent] currently resides at the "____________" Assisted Living Center. While [he/she] is doing fairly well, you do anticipate that [he/she] will require more care over time and will likely need to move to a traditional nursing center. Your [parent] shows some physical and cognitive impairment, as would be expected in [his/her] advancing years, but is aware of [his/her] surroundings. [He/she] is capable of participating in decision making about [his/her] estate only to the extent that [he/she] has trusted you for many years and relies on you to care for [his/her].
[He/she] is a [widow/er] with 3 children. Because of your close relationship, [he/she] has relied upon you for assistance in managing [his/her] affairs.
You have decided to engage in Medicaid planning in hopes of preserving some of [his/her] assets in order to assure that [he/she] will always receive the best care possible, regardless of [his/her] financial situation. WE HAVE DISCUSSED, AND YOU HAVE APPROVED, A PLAN OF GIFTING TO HASTEN THE ELIGIBILITY DATE FOR MEDICAID BENEFITS FOR [HIM/HER] WHILE PROTECTING A PORTION OF [HIS/HER] ASSETS FOR POSSIBLE LATER USE. [Emphasis added.]
1.2 Income and Resources
You indicated that [he/she] receives an income of approximately [under $1500] a month. Of this, [most] comes from Social Security and [over $200] from a pension. This income is not currently sufficient to cover [his/her] care needs which are approximately [over $3,000] a month.
We understand [he/she] has the following assets:
Proceeds from sale of house $____
Money Market $____
Certificate of Deposit $____
Checking Account $____
[Total was approximately $100,000]
1.3 Prior Transfers
We understand that your [parent] has not made any gifts in excess of $3,000 to any person or persons during the last 36 months or to or from any trust during the last 60 months. If there have been any other gifts, it is important that you contact me. Depending on the value and time of the gift, [he/she] may already be in a penalty period.
It is understood that [he/she] is a U.S. citizen and a [state] resident and that the care [he/she] receives is considered medically necessary.
SECTION 2 THE LAW
Resource and Income Rules
Medicaid is a state and federal program which provides medical assistance to those persons who meet income and resource eligibility guidelines. A recipient, in your case your [parent], may not have countable resources in excess of $2,000. 42 USC d 1382 (a)(3)(B). Under Medicaid regulations, certain resources are not countable. For example, a home is not counted toward Medicaid eligibility. Additionally, one automobile, household and personal effects, irrevocable burial arrangements, and resources which are legally unavailable are not counted toward eligibility. 42 USC d 1382; 20 CFR d 416.1216 et seq.
Prior to Medicaid eligibility you are free to use your [parent]'s monthly income for [his/her] expenses as you see fit. Once [he/she] has established resource eligibility, then Medicaid will permit [him/her] to keep $30 a month from [his/her] income for [his/her] personal needs, and up to $2,000 in non-exempt assets plus any other exempt assets.
The other major Medicaid rules you need to be concerned about involve transfers or gifts. Medicaid looks in the thirty-six (36) months prior to an application for any transfers to individuals. A look back of sixty (60) months applies to transfers to or from trusts. This means that when an application is made for Medicaid, one question asked is whether there have been any transfers to individuals within the previous 36 months or to or from trusts within the previous 60 months. Any such transfers must be disclosed. Failure to do so would constitute Medicaid fraud. HCFA Transmittal 64 d 3258.4 E.
When resources have been transferred, Medicaid imposes a penalty period of ineligibility for Medicaid. The penalty is calculated by dividing the value of the uncompensated transfer by the statewide monthly average for long-term care. HCFA Transmittal 64 d 3258.4 E. [State] uses the figure of $3,000 per month. . . .
SECTION 3 STRATEGY
This section addresses the strategy for obtaining Medicaid eligibility for your [parent].
At this time, your [parent]'s assets make [him/her] ineligible for Medicaid. You may want to consider spending down [his/her] assets by paying any outstanding bill for which [he/she] is legally obligated. You do not incur any penalty for paying bills or purchasing items. Checks must be written for these payments. This will provide us with a paper trail as to what has happened to [his/her] resources. Along with paying [his/her] outstanding bills, payments for services count toward [his/her] spend down period. THE $2,000 LEGAL FEES PAID TO THIS LAW OFFICE SHOULD BE PAID AS PART OF THE SPEND DOWN. [Emphasis added.]
You can also consider purchasing additional exempt resources for your [parent]. This would include items like clothing or a new television, subscriptions to magazines, telephone, or any other item which would make [his/her] stay in the care facility more comfortable. [HE/SHE] IS ALSO PERMITTED ONE CAR WITHOUT LIMITATION TO VALUE. IF [HE/SHE] DOES NOT HAVE AN AUTOMOBILE, YOU MAY WANT TO CONSIDER PURCHASING ONE FOR [HIM/HER]. MEDICAID HAS NO REQUIREMENT THAT [HE/SHE] ACTUALLY BE ABLE TO DRIVE THE CAR OR EVER EVEN RIDE IN THE CAR. [Emphasis added.] Also, money spent on a prepaid funeral plan and placed in an irrevocable funeral trust is not countable as a resource. If your [parent] does not have a complete funeral plan, we would encourage you to purchase that as part of [his/her] spend down. You will want to be careful to inform the funeral home that the plan will need to be irrevocable.
Lump Sum Transfers
One technique would be for your [parent] to transfer a lump sum to you. As discussed above, Medicaid looks in the 36 months prior to the Medicaid application for any transfers of money. Medicaid would take the amount of the lump sum transfer, divide it by $3,000, and that would determine the number of months of ineligibility for Medicaid running from the date of the gift.
For example, if your [parent] were to transfer $30,000 to you, $30,000 divided by $3,000 equals 10. [He/she] would be ineligible for Medicaid for the 10 months following the transfer. During this time you would need to be prepared to privately pay for [his/her] care needs.
AN ALTERNATIVE TO A LUMP SUM TRANSFER WOULD BE TO MAKE MONTHLY TRANSFERS OF LESS THAN $3,000. IF YOU TRANSFER LESS THAN $3,000 PER MONTH, YOU DO NOT INCUR A TRANSFER PENALTY FOR THAT MONTH. THE CHECK WOULD BE WRITTEN EACH MONTH AND ALSO DEPOSITED INTO AN ACCOUNT SOLELY IN YOUR NAME. THESE TRANSFERS WOULD CONTINUE UNTIL [HIS/HER] ASSETS ARE SPENT DOWN TO $2,000. [Emphasis added.]
With either strategy, you must be very careful to not make any additional transfers to anyone else within one calendar month. If the total assets transferred in a calendar month equal or exceed $3,000, then you will have incurred a penalty period.
Will and Trust Beneficiary
[He/she] has a will which [he/she] executed in [approximately 10 years ago]. However, you believe that your [parent] has established pay on death beneficiary designation for all of [his/her] accounts. Please review [his/her] accounts to make sure this is the case. With these beneficiary designations in place, a will is not necessary.
Powers of Attorney
We reviewed your [parent]'s powers of attorney also executed [approximately 10 years ago]. We suggested and [he/she] has now executed a new financial power of attorney. THIS DOCUMENT GIVES YOU ALL THE AUTHORITY NECESSARY TO CARRY OUT THIS MEDICAID PLAN AND TO APPLY FOR MEDICAID FOR YOUR [PARENT]. [Emphasis added.]
SECTION 4 VARIABLES
We have estimated the cost for [his/her] current level of care to be approximately $3,000 per month. The cost of [his/her] care is a variable which we cannot control. We do not know for certain that the cost for care will remain fixed. THE MORE MONEY SPENT ON [HIS/HER] CARE THE LESS WILL BE AVAILABLE FOR TRANSFERS TO YOU. [Emphasis added.]
WE ALSO DO NOT KNOW WHAT TIME [HE/SHE] WILL NEED TO MOVE TO NURSING FACILITY. YOU UNDERSTAND THAT THE "__________" ASSISTED LIVING FACILITY DOES NOT ACCEPT MEDICAID AND THAT IN ORDER TO BE ELIGIBLE FOR MEDICAID, YOUR [PARENT] WILL NEED TO MOVE TO A MEDICAID FACILITY. IT IS OFTEN EASIER TO MAKE THIS MOVE WHILE T[HIS/HER]E ARE ASSETS TO PAY THAN TO WAIT UNTIL MEDICAID ELIGIBILITY TO MOVE. NURSING FACILITIES ARE FREE TO DISCRIMINATE AT THE TIME OF ADMISSION BASED UPON PAYMENT SOURCE. WE, THEREFORE, ADVISE THAT YOU MOVE [HIM/HER] TO A MEDICAID FACILITY WELL BEFORE REACHING MEDICAID ELIGIBILITY. [Emphasis added.]
SECTION 5 ADDITIONAL CONSIDERATIONS
This plan is based upon current federal and state law. Public benefit laws, particularly Medicaid, are subject to change. Any changes may affect your plan. In such case, we will change your plan to comply with any changes in the law. YOU MAY HAVE AN OPPORTUNITY NOW TO TAKE ADVANTAGE OF ANY EXISTING PLANNING OPPORTUNITIES AND BE GRANDFATHERED IN. [Emphasis added.]
We will need to carefully document the transfers. Please provide this office with verification of the December transfer. If you do make additional transfers, we will want to carefully document the dates of the transfers and the amounts transferred to you. When the transfers are made, please provide us with information on the amount transferred and the date of transfer. . . .
5.2 Estate Recovery
Medicaid is required to recover from the estate of a deceased Medicaid recipient all monies expended on behalf of the recipient during the recipient's lifetime. The mechanism is called Estate Recovery. Therefore, every effort should be made to be sure that your [parent] does not have any resources in [his/her] name other than a personal needs account. AT THE TIME OF [HIS/HER] DEATH, WE HOPE [HIS/HER] RESOURCES ARE SPENT DOWN TO THE $2,000 IN [HIS/HER] PERSONAL NEEDS ACCOUNT. THIS WILL LIMIT ANY CLAIM BY ESTATE RECOVERY, A FURTHER REASON TO MAKE TRANSFERS NOW. [Emphasis added.] . . .
SECTION 6 ACTION PLAN
6.1 Monthly Gifts
IN OUR RECENT DISCUSSION, YOU DECIDED TO PURSUE MONTHLY GIFTING. YOU UNDERSTAND THAT THE TRANSFER MUST LEAVE YOUR [PARENT]'S ACCOUNT AND BE DEPOSITED INTO YOUR ACCOUNT ALL WITHIN THE SAME MONTH. [Emphasis added.] You might consider establishing an automatic monthly transfer of $2,999 from your [parent]'s account to an account opened only in your name. This way, you will not forget to make the transfer or deposit. This will also provide us with a record of each monthly transfer. You may want to add your sister's names as a pay on death beneficiary to this account in the event of your death. You understand that you should not combine the monthly gifting with any other gifting strategy. Any month with $3,000 or more in gifts or transfers for less than fair consideration (gifts) will result in a period of ineligibility.
WE UNDERSTAND THAT YOU HAVE ALREADY MADE A TRANSFER FOR DECEMBER AND PLAN TO CONTINUE THE TRANSFERS MONTHLY UNTIL YOUR [PARENT]'S NON-EXEMPT ASSETS ARE EQUAL TO OR LESS THAN $2,000. [Emphasis added.] Please do not hesitate to contact me with any questions about transfers.
6.2 Where to get the money
The proceeds from the sale of the house will provide immediate cash for the foreseeable future. THEREAFTER, YOU WILL WANT TO LIQUIDATE THE MONEY MARKET ACCOUNT AND LASTLY, THE CERTIFICATE OF DEPOSIT SO THAT YOU CAN AVOID ANY PENALTY. [Emphasis added.] As you liquidate assets, we advise that you deposit those assets into the checking account and write checks for all expenses. In this way we will be able to provide evidence to Medicaid for the use of all of assets.
6.3 Asset spend down
Prior to reaching Medicaid eligibility you should consider purchasing things for your [parent] that might make [his/her] stay in the facility more comfortable. It would be advisable to purchase these items while you have existing assets to pay for them. AGAIN, ALLOW ME TO EMPHASIZE YOU DO NOT INCUR ANY PENALTY FOR ITEMS PURCHASED FOR YOUR [PARENT]. [Emphasis added.] . . .
6.5 Family Agreement
We have enclosed a sample Family Agreement for your review. The Family Agreement sets out how you intend to handle the money transferred to you. Please feel welcome to make whatever additions or corrections you feel are necessary.
6.6 Medicaid Application
We hope that you will not hesitate to contact us about any of these matters prior to Medicaid eligibility. In any event, please contact us approximately two months before you expect your [parent]'s assets to be down to $2,000. We can update your plan at that time and be sure that we are avoiding any penalty period. Also, enclosed is a Medicaid document checklist. These are the documents that we need for your [parent]'s Medicaid application. You may want to begin to gather these items now.
We hope this letter has been helpful to you. We hope that you will feel more comfortable with the decisions that you have made in the past and the decisions that you will need to make about future gifting. If you have questions about anything contained in the letter, then do not hesitate to contact us.
It is our pleasure to work with you and your family. We know that many items contained in this letter may be confusing. We want to assure you that we are available to provide you the support and advice necessary to make decisions in this difficult time.
Very truly yours,
[Attorney at Law]