Bullet: Rural Hijinks--Buy Cattle,
Hide $737,960, Get Medicaid
Thursday, December 15, 2005
LTC Comment: Did you think the Medicaid planning tricks AARP spends mega-bucks to defend are only big-city boondoggles? Think again . . . after the ***news.*** [omitted]
LTC Comment: First,
let's clear one thing up right away. Contrary
to AARP's assertions in local attack ads targeting responsible Congressmen who
are trying to do the right thing about Medicaid planning abuses . . . SENIORS
WHO MAKE ASSET TRANSFERS FOR A NON-MEDICAID PURPOSE DO NOT AND WILL NOT FACE AN
ELIGIBILITY PENALTY. We can't shout
that fact loudly enough.
Nor will their access to Medicaid be affected in any way by
policies passed by the House and under consideration in conference with the
Senate. Moreover, even if the senior cannot document the non-Medicaid
purpose of an asset transfer, for whatever reason, the House bill codifies
existing hardship standards and procedures so no one is denied vital care.
Thus, AARP's favorite example--of a grandmother who helps
with a grandchild's tuition--will not be penalized. She simply cannot be
denied care, even if there is no record of the non-Medicaid purpose for the
transfer, upon showing of a demonstrated hardship. AARP refuses to accept
this reality and continues to insist that innocent seniors will be harmed.
One can only surmise that frightening its members and
misleading Congress must have a purpose for AARP other than pursuit of good
Medicaid policy. Could it be that the adult children on the receiving end
of abusive asset transfers are AARP members also?
NOW TO THE SUBJECT OF TODAY'S BULLET.
In case you thought Medicaid planning abuse is limited to bi-coastal
metropolises like San Francisco, Los Angeles, Boston, and New York, consider
this. A massive loophole in
Medicaid eligibility rules allows huge sums to pass unencumbered from one
generation to the next in the form of tax-payer financed long-term care welfare
benefits for upper class people. This
rule makes Medicaid a sieve, not a safety net.
It constitutes free "inheritance insurance" for boomer heirs
who ought to be planning responsibly for their own and their parents' long-term
care needs. It invites abuse by
egregious Medicaid planners not only on the left and right coasts but especially
in America's Heartland, Midwest and South as well.
Here's the story.
allows an exemption for one business, including the capital and cash flow of
unlimited value. This is the
applicable rule: "Property
essential to self-support used in a trade or business is excluded from resources
regardless of value or rate of return effective May 1, 1990."
Look it up and examine the details at Social Security Administration,
Program Operations Manual System (POMS), http://policy.ssa.gov/poms.nsf/lnx/0501130501.
How is this well-intentioned protection abused by Medicaid planners to
dodge LTC expenses for their affluent clients, thus diverting enormous costs to
Medicaid? Here are some examples:
new amendment to the Social Security Act allows an exemption for the family
business, farm or ranch from countable assets for Medicaid eligibility. The
advocate should take maximum advantage of this exemption to achieve immediate or
very rapid eligibility for clients in need of Medicaid assistance.
A considerable amount of resources can be excluded including the value of
land and buildings, equipment, livestock, inventory, vehicles, and liquid
resources used in the business. The
attorney should also counsel his clients on the best method of transferring the
business, farm or ranch to avoid the imposition of liens and recovery from the
estate for amounts spent for Medicaid."
Robert E. Hales and Rebecca L. Shandrick, "Advanced Planning for the
Family Business," 1992 Symposium Manual, National Academy of Elder Law
Attorneys, Tucson, AZ, 1992, p. 15.
farm and ranch families, the Medicaid planning strategy may consist of
transferring the farm to the children in full with the children then renting the
farm back to the parents. The parents would then act as tenants under a lease
with the children. . . . The appropriate Medicaid planning strategy for a client
who is the holder of closely held stock in a family owned corporation may be to
work the potential Medicaid applicant into a minority position by making a
series of gifts during life outside of the applicable look-back period until the
applicant is in a minority position. Then,
the strategist should argue that the applicant is no longer able to sell the
stock and therefore should be immediately eligible for Medicaid benefits.
This strategy allows the practitioner to preserve the asset in question
for the applicant and the applicant's family."
Roger A. McEowen, "Estate Planning for Farm and Ranch Families
Facing Long-Term Health Care," Nebraska Law Review 73, no. 1 (1994):
Or how about this? At
the 1999 National Academy of Elder Law Attorneys (NAELA) Symposium "Elder
Law Litigation: The Next
Frontier" in San Diego, CA, Medicaid planner Rebecca Shandrick of Denver,
Colorado delivered a presentation titled "Using the Family Business as an
Exempt Resource." The
following extended verbatim transcript of excerpts from her presentation speaks
"I'd like to talk about using the family business as
an exempt resource for Medicaid eligibility.
Now we have some new regulations...which really help to exempt the family
business from being a countable asset for Medicaid eligibility.
Currently, you can exempt the entire family business plus other related
assets and these assets will not be counted to Medicaid eligibility...
"The new [Social Security] amendments took effect May
1, 1990 and they totally discontinued the limitation on the value of property
used in a trade or business for a countable resource. So now there is an unlimited exemption for property used in a
trade or business.... We don't have
any limit so it really doesn't matter about the value of the property.
It's exempt. We find the instructions for how to define this property in
what we call the POMS or the Program Operations Manual System, which is put out
by the Social Security Administration...
"The POMS lists categories of property that are
excluded from countable resources in accordance with the regulations.
Income producing property used in a trade or business is excluded
regardless of its value or its rate of return.
There is no limit on this...
"For a family farm or family ranch, things that can be
excluded: well, obviously the
property; obviously, the land; also, buildings, if you have farm buildings, you
have barns, you have storage facilities, sheds, those can be excluded; if you
have vehicles, trucks, things like that as long as they're used in the business,
doesn't have to be exclusively used in the business, you can exclude those.
All inventory can be excluded. If
you have an inventory of crops, the value of those crops can be excluded.
If you have livestock such as cattle, sheep, whatever, the entire value
of the cattle and sheep, livestock is excluded.
If you have a retail business, obviously the structure and the land is
going to be exempt. Also your
inventory and your equipment used in that retail business.
If you have a warehouse or an additional facility, that can be excluded
also. The only criterion is that
all this property be in current use. If
it's not in current use at the time, there must be a reasonable explanation and
assurances that the use will resume...
"There is an unlimited exemption for liquid resources
used in a business. It can be very,
very significant, especially if you have a seasonal business...a farm or ranch
where your crops are harvested only certain times of the year or you only sell
livestock for a certain time in the year. So
you have to--as of necessity-- have a lot of cash on hand, because you are not
in a retail business where you are selling stuff every day...
"Now as I told you, there is no monetary limit on the
liquid resources. There is no
amount of money that above that you cannot exempt...
"[The business] is supposed to be intended for a
profit, but it does not have to show a profit...
"Property that is used by an individual as an employee
is exempt... Now anything you use
as an employee can be exempt. You
have a computer. You have any type
of equipment. It may not be
required by your employer, but if you use it for your business, it's exempt.
So it's a lot less restrictive and you can exclude a lot more property
that way. Again, we do have the
current use criterion that the property does have to be in current use.
If not in current use, you can have a twelve month grace period in which
to put the property back in current use and this can be extended for another
twelve months if the problem is that the person is under a disability and that
is why the property is not in current use...
"I'd like to go to a hypothetical case study...and
basically this is based on an actual case that I did in Colorado...
H is institutionalized in a nursing facility and W is living at home in
the community. The home is located
in the city and is not part of the farm or ranch property.
But H and W do jointly own a cattle ranch with 800 acres with a value of
$450,000. Buildings are on
the ranch plus fencing, equipment, water pumps and wells with a value of
$10,000. Livestock on the ranch is
valued at $50,000.... Liquid assets
of $200,000 are in joint tenancy between H and W....
H's income is $600 of Social Security, $83 income from leased land.
W's income is $200 Social Security and $83 from leased land.
What I've done is list all the exempt assets which is a good way to sort
of begin for your clients, you know, to put down everything that is exempt.
The home obviously is exempt under a different exemption.
The ranch land, all improvements and all equipment, valued at
$480,000.... Lease land, argue that
it is part of the business and thusly it should be under the unlimited
exemption. Liquid resources
$27,000...add that to the CSRA [community spouse resource allowance] and you get
$149,960. Now I have calculated the CSRA. You
want to argue that the entire $200,000 in liquid resources should be used as an
aggregate. In Colorado, we can give
the community spouse the maximum. We
don't have to split the resources in half and we do allow the maximum of
$81,960. Then you need to add on to
that the $27,000 for operating expenses. This
would be a total of $108,960 in exempt liquid assets.
I've calculated that a monthly income allowance for the community spouse,
using the $1,357 minimum, it calculated a shelter allowance of $359.90 or $360,
you need to add that to the minimum and you get a total of $1,770, minus their
income, you get $750 that W needs additionally to get her MIA of $1,770.
So what I've done is increase the CSRA to give W her allowable MIA and
what I've done is use $41,000 of liquid assets at an interest rate of 6% a year
and added that on to give the total liquid asset exemption as $149,960.
And I totaled up the total exempt assets and in this example it's
$737,960 [presenter giggled at this point] of exempt assets.
So this can really help you out if you have a client who has especially a
ranch or farm with a lot of land that is worth quite a bit of money but not a
lot of income. People who are
resource rich, income poor. It
helps a lot. What you want to do
after you've successfully completed the Medicaid application, gotten the
institutionalized spouse on Medicaid is to work with this property so that it is
always exempt. Now there is no
current prohibition on the transfer of exempt resources... So you want to think about that.
You want to think about transferring this business because it is exempt
and there is no prohibition against doing that. You also want to think about capital gains taxes.
If you do an outright gift with highly appreciated property such as real
estate, you may have some problems. You
may not want to do that. What I've
suggested is a joint tenancy which would help somewhat with capital gains or a
life estate.... You might also look
into a trust, transferring property that way.
But, as long as you don't do an outright gift, I think you will not run
contrary to the intent of the exemption and you'll be all right...
HERE'S ANOTHER EXAMPLE FROM ANOTHER NAELA CONFERENCE.
What follows, word for word, are excerpts from a presentation titled
"Planning for the Small Business or Family Farm," presented at the
2001 Symposium on Elder Law in Vancouver, British Columbia on April 20, 2001.
According to the conference agenda, "This session will outline
strategies, which preserve the family business or family farm when either the
owner or the owner's spouse requires long term care."
The presenter is Certified Elder Law Attorney Lee Holmes of Oklahoma.
"And now the issue is, well, what can we do from a
Medicaid perspective, long-term care perspective, when one of them has to go
into a nursing home? Well there is
some good news from an exemption perspective and that is that we can now exempt,
we can always exempt, a family business or a family farm.
And there is no limit on the value of that although the value is usually
not a big issue. . . .
"One of my clients had some property right at the edge
of town and fortunately, they had been operating, they had two pieces of
property, one, they had a family farm that the wife had inherited and she's
operating this family farm and she has cattle there and she was filing a
Schedule F because she had the cattle out there. The husband had his own business and was drawing a salary.
The wife was working in the business, also drawing a salary.
And both the family farm was exempt as farm and the family business was
exempt because the wife was drawing a salary out of it. . . .
"So you need to look carefully at what comes in your
office to see if you can qualify as exemptions. If you can't, then you need to see if some planning can be
done to exempt assets by getting them into the business. We had a client a couple years ago that the husband was
operating the farm and he also had a small business with a partner and we got to
looking at it and we were able to exempt his small business that he had with a
partner because he had income from that. We
exempted the bank accounts that the partnership had. We exempted the farm because he was farming.
We exempted all of the equipment. His
wife went into the nursing home and was qualified for Medicaid. . . .
"Now in doing your planning . . . With your planning
aspects, you want to be sure that if you're going to need to exempt assets,
remember they could buy cattle, they can consume assets, exempt assets, by
buying cattle as an example, if they already have a farm operation."
LTC Comment: There
you have it. The easy way to get
Medicaid without selling or even encumbering your lucrative business.
As Jane Bryant Quinn once titled her nationally syndicated column:
"Do only the suckers pay?" for long-term care.
Suffice it to say: we
wonder how the long-term care insurance industry can be expected to sell its
critical product to an aging public that desperately needs it when Medicaid
planners throughout the United States are promoting Medicaid planning techniques
like these. Pity the prosperous
business owners who end up dying in nursing homes on welfare instead of
purchasing quality care at the appropriate level in the private market place
with the proceeds of their lives' work.
How can the government let this happen?
How can AARP attack members of Congress for trying to stop such abuses?
How will Medicaid provide for the poor if it is stolen by wealthy
business owners, their greedy advisors, and double-talking lobbyists?
Where's the outrage?