Should You Prepare a Medicaid Application Yourself?

Navigating the Medicaid application process can be complicated, especially if you are applying for long-term care benefits. Hiring an attorney to help you through the process can be extremely helpful.

Whether you should prepare and file a Medicaid application by yourself or should hire help depends on answers to the following questions:

  • How old is the applicant?
  • How complicated is the applicant’s financial situation?
  • Is the individual applying for community or nursing home benefits?
  • How much time do you have available?
  • How organized are you?

Medicaid is the health care program for individuals who do not have another form of insurance or whose insurance does not cover what they need, such as long-term care. Many people rely on Medicaid for assistance in paying for care at home or in nursing homes.

For people under age 65 and not in need of long-term care, eligibility is based largely on income and the application process is not very complicated. Most people can apply on their own without assistance.

Matters get a bit more complicated for applicants age 65 and above and especially for those of any age who need nursing home or other long-term care coverage. In these cases, availing yourself of the services of an attorney is practically essential.

Medicaid applicants over age 65 are limited to $2,000 in countable assets (in most states). It’s possible to transfer assets over this amount in order to become eligible, but seniors need to be careful in doing so because they may need the funds in the future and if they move to a nursing home, the transfer could make them ineligible for benefits for five years. Professional advice is also crucial because there is a confusing array of different Medicaid programs that may be of assistance in providing home care, each with its own rules.

All of that said, the application process itself is not as complicated for community benefits (care that takes place outside of an institutional setting, such as in the beneficiary’s home). In short, those over 65 may need to consult with an elder law attorney for planning purposes, but they or their families may be able to prepare and submit the Medicaid application themselves.

But submitting an application for nursing home benefits without an attorney’s help is not a good idea. This is because Medicaid officials subject such applications to enhanced scrutiny, requiring up to five years of financial records and documentation of every fact. Any unexplained expense may be treated as a disqualifying transfer of assets, and many planning steps — such as trusts, transfers to family members, and family care agreements — are viewed as suspect unless properly explained. Finally, the process generally takes several months as Medicaid keeps asking questions and demanding further documentation for the answers provided.

Many elder law attorneys offer assistance with Medicaid applications as part of their services. This has several advantages, including expert advice on how best to qualify for benefits as early as possible, experience in dealing with the more difficult eligibility questions that often arise, and a high level of service through a long, grueling process. The one drawback of using an attorney rather than a lay service is that the fee is typically substantially higher. However, given the high cost of nursing homes, if the law firm’s assistance can accelerate eligibility by even one month that will generally cover the fee. In addition, the payments to the attorney are generally with funds that would otherwise be paid to the nursing home — in other words, the funds will have to be spent in any event, whether for nursing home or for legal fees.

Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Medicaid’s “Snapshot” Date and Its Crucial Impact on a Couple’s Financial Picture

When a married couple applies for Medicaid, the Medicaid agency must analyze the couple’s income and assets as of a particular date to determine eligibility. The date that the agency chooses for this analysis is called the “snapshot” date and it can have a major impact on a couple’s financial future.

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets (the figure may be somewhat higher in some states). Medicaid law also provides special protections for the spouses of Medicaid applicants to make sure they  have the minimum support needed to continue living in the community while their husband or wife is receiving long-term care benefits.

In general, the community spouse may keep one-half of the couple’s total “countable” assets up to a maximum of $137,400 (in 2022). This is the community spouse resource allowance (CSRA), the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is $27,480 (in 2022). Some states are more generous to the community spouse. In these states, the community spouse may keep up to $137,400 (in 2022), regardless of whether or not this represents half the couple’s assets.

Medicaid agencies must pick a date to use to analyze the applicant’s assets. The date that the agency chooses can affect how much money the applicant must spend down before qualifying for benefits and how much a spouse is able to keep. It is called the “snapshot” date because Medicaid is taking a picture of the applicant’s assets as of this date.

The snapshot date is usually the date of “institutionalization,” the day on which the Medicaid applicant enters either a hospital or a long-term care facility in which he or she then stays for at least 30 consecutive days. States use as the snapshot date either the first day of the month the applicant entered the facility or the actual date of entry. If the applicant enters a hospital or nursing home, stays for 30 days, goes home, and then reenters a hospital or nursing home, the snapshot date is the date the applicant entered the hospital or nursing home for the first stay.

Not all Medicaid long-term care applicants are in an institution. If the applicant is applying for Medicaid home care through a waiver program, the snapshot date is usually either the date of the application or the date the applicant is determined to need a nursing home level of care.

On the snapshot date, the Medicaid agency counts up all of an applicant’s and his or her spouse’s assets, excluding the couple’s house. Then depending on the state’s CSRA, the agency determines how much the community spouse can keep. If any assets above $2,000 remain, then that money must be spent down before the applicant will qualify for benefits.

Example: If a couple has $100,000 in countable assets on the snapshot date and the state allows the spouse to keep half the couple’s assets up to the maximum CSRA, the Medicaid applicant will be eligible for Medicaid once the couple’s assets have been reduced to a combined figure of $52,000 — $2,000 for the applicant and $50,000 for the community spouse. If the state allows the spouse to keep the entire amount of the maximum CSRA, then the community spouse could keep the entire amount and the applicant would not be required to spend down assets.

Proper planning can help a couple determine when the best time to apply for benefits based on the snapshot date and maximize the assets the couple can keep.  Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Biden Proposes Major Nursing Home Reforms, Most Extensive “In Decades”

The Biden administration has announced far-reaching nursing home reforms, targeting staffing and accountability at facilities with deficient care. Advocates are calling the proposals, which include the first-ever federal minimum staffing levels, the most significant reforms in decades.

Nursing homes have been plagued by chronic understaffing and high turnover rates for years, a problem only exacerbated by the COVID-19 pandemic. Studies have revealed that nursing home staffing levels are often inadequate and inaccurately reported and recent research found that increasing staffing by just 20 minutes a day led to fewer COVID cases and deaths. Meanwhile, there is evidence that most nursing homes have inadequate infection control measures in place.

Currently there are no minimum staffing levels for nurse’s aides, who provide most of the day-to-day care. Instead, nursing homes are required “to provide sufficient staff and services to attain or maintain the highest possible level of physical, mental, and psychosocial well-being of each resident.”

Recognizing these issues, President Biden announced new measures aimed at improving the safety and quality of care in nursing homes. The Biden administration’s proposals include taking the following actions:

  • The Centers for Medicare and Medicaid Services (CMS), which regulates nursing homes, will study the level and type of staffing needed to ensure safe and quality care and propose minimum staffing levels within a year.
  • CMS will explore ways to phase out multi-occupancy rooms and promote single-occupancy rooms.
  • The administration will call on Congress to provide $500 million for health and safety inspections, a 25 percent increase.
  • CMS will increase enforcement actions against poor-performing facilities. After reversing a Trump era change that imposed a one-time fine for nursing home deficiencies, CMS will explore making per-day penalties the default penalty.
  • In an effort to increase transparency of nursing home ownership, CMS will create a database to track nursing home owners and operators across states. In addition, the government will investigate the role private equity firms play in buying and selling nursing homes.

The Consumer Voice,  an advocacy group for long-term care issues, calls the proposals the “most significant reforms in nursing homes in decades.” Terry Fulmer,  president of the nonprofit John A. Hartford Foundation, which works to improve long-term care, calls the plan “a major step forward for quality and safety in our nation’s nursing homes.”

CMS had previously announced that it will add data on staff turnover rates and weekend staffing levels to its Care Compare website, giving consumers another tool when choosing a nursing home.

To read the announcement from the administration, click here.

For more information about the reforms from Kaiser Health News, click here.

Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

When to Avoid Naming a Trust as Beneficiary of Your Retirement Plan

Naming a trust as a beneficiary of your retirement plan can be a good idea in some circumstances, but it can be dangerous if you are worried about creditors coming after your estate.

There are a lot of good reasons to name a trust as beneficiary of a retirement plan, whether it is a 401(k), a 403(b), or an IRA. If the IRA beneficiaries are young, disabled, or for other reasons shouldn’t be managing the asset themselves, the trust provides that management. People in a second marriage or relationship may want their spouse or partner to benefit from the funds, but not be able to deplete them entirely, and trusts provide protection from the beneficiary’s creditors. However, the trust may not protect your retirement funds from your own creditors.

Creditor Protection for Retirement Plans
IRAs enjoy substantial creditor protection during your life. If you get sued, your IRA will be subject to claim, but you can protect it by declaring bankruptcy. Under the federal bankruptcy code, the first $1,362,800 of retirement assets are protected from having to be paid to creditors. Most cases settle, so you can generally get this protection without having to go through the bankruptcy process, but it’s there if necessary.

But Only During Life
However, that protection ends at death. It does not apply to inherited IRAs, those you leave to others or that you have inherited from others. Inherited IRAs are subject to creditor claims. However, your heirs are not liable for your debts. So, if your retirement plans pass directly to them, the plan assets will be protected from your debts.

By way of example, let’s assume an individual dies owing $400,000 to various creditors, with a total estate of $500,000 divided between a house with a market value of $250,000, savings of $100,000, and retirement plans holding $150,000. If the retirement plans are paid directly to this individual’s heirs, they will not be subject to the person’s debts. The rest of the assets will have to go to pay off debts, leaving nothing in the estate for the heirs, but also leaving the creditors short $50,000.

Revocable Trusts Subject to Claim
But what if the IRAs were payable to the individual’s revocable trust? Then they very well may be subject to claim. If there are not enough funds in the decedent’s probate estate to pay his or her debts, states often allow the creditors to go after a revocable trust. In at least one case in Kansas, which like 34 other states and the District of Columbia has adopted the Uniform Trust Code, the court ruled that this right of creditors to go after the decedent’s revocable trust applied to an IRA payable to the trust. There’s no reason to think that other courts would not come to a similar conclusion.

Conclusion
So, if your debts exceed your non-retirement plan assets, don’t make your retirement plan payable to your revocable trust. Either make it payable directly to beneficiaries or, if a trust is necessary, to an irrevocable trust. If your assets far exceed your debts, or possible lawsuit claims against you or your estate, then don’t worry about any of the above.

Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

If You Don’t Want an IRA Distribution, You Can Donate It to Charity

Not everyone wants to take the required minimum distributions from their retirement accounts right away. If you don’t want your distribution, one option is to donate it to charity and get a tax deduction.

You are required to begin taking distributions from your tax-deferred IRA when you reach age 72 (70 ½ if you turned 70 ½ in 2019 or before) even if you don’t need the money. The distributions are added to your income and taxed at your highest marginal rate, perhaps even at a higher rate than your other income if you’re right at the threshold between two rates. You’re more likely to have to pay a higher rate on this income if you are still working.

If you don’t want the distribution, you may want to consider donating the distribution directly to charity through a qualified charitable donation. By donating your required minimum distribution, the distribution won’t be included in your gross income, which means lower taxes overall.

A qualified charitable donation can also be a good way to get a tax deduction since after the 2017 tax law doubled the standard deduction, it makes sense for many fewer people to itemize. If your charitable contributions along with any other itemized deductions are less than $12,950 a year (in 2022), you will no longer get a deduction for your contributions to charity (which can be a disincentive to donate to charity). However, substituting a qualified charitable donation for your RMD is a way to make a donation and receive a tax benefit from it.

In order for the donation to count as a required minimum distribution, the donation must be made directly from the IRA to the charity. Funds distributed directly to you do not count. The charity must be approved by the IRS, and different IRAs have different rules about how to make the distributions. If you make a qualified charitable donation, you cannot also itemize the deduction. The maximum amount you can donate is $100,000. If you donate less than your required minimum distribution, you will need to take the remainder as a distribution.

For more information from the IRS about distributions, click here.

Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Things to Remember at Tax Time

Tax day, which is Tuesday, April 19 in 2022, is approaching and it is time to begin crossing T’s and dotting I’s in preparation for paying taxes. As tax time draws near, you want to make sure you file all the proper forms and take all deductions you’re entitled to.

Following are some things to keep in mind as you prepare your tax form.

  • Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $15,000 in 2021, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however.
  • Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 7.5 percent of your adjusted gross income. This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
  • Parental Deduction. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to claim the $500 tax credit for any non-child depedents.
  • Long-Term Care Insurance Premiums. Premiums for “qualified” long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents.
  • Social Security Benefits. Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your “combined income,” including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax.
  • Home Sale Exclusion. Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold no more than two years after the spouse’s death.
  • Elderly or Disabled Tax Credit. Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits. For more information, click here.
  • Earned Income Tax Credit. Previously primarily available to people with young children, for 2021 working seniors without dependents may qualify for this important credit.  For more, click here.
  • Tax Refunds. Getting a federal tax refund should not affect your Medicaid or Social Security benefits. For a year after recieving a tax refund from the federal government, the refund will not be considered income or resources for SSI or Medicaid purposes. You can also transfer the refund within a year without incurring a penalty.

The IRS’s Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older. For more information, click here. The IRS also publishes a Tax Guide For Seniors.

Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

What Documents Are Required for a Medicaid Application?

Medicaid applicants must prove that they have limited income and assets in order to be eligible for long-term care services. Before beginning the application process, it is helpful to understand what information you will be required to provide to prove your eligibility.

Medicaid is a state-run program, so the rules can vary from state to state, but in general applicants are not eligible for Medicaid benefits if the applicant’s income exceeds $2,523 a month (for 2022). Applicants can also have no more than $2,000 in assets in most states.

States require Medicaid applicants to provide the necessary information to prove that they are eligible for benefits. The burden of proof is on the Medicaid applicant—not on the state. In addition to needing to provide identifying information such as a birth certificate and proof of citizenship, following are some of the documents that you may have to provide to the Medicaid agency when you apply for benefits:

  • Proof of income. A copy of any pay stubs, Social Security statements, and/or pension checks; income tax returns for the past five years; and verification of any other sources of income, for example, rental income or dividends.
  • Bank records. Copies of bank statements for the past five years.
  • Property. A copy of the deed to any property owned within the past five years and a copy of the most recent property tax bill.
  • Retirement accounts. Statements for the past five years of retirement accounts.
  • Insurance. Copies of any insurance policies, including health insurance, life insurance, and/or long-term care insurance.
  • Car registration. Registration information for any cars owned by you.
  • Burial arrangements. Copies of any prepaid funeral contracts or deeds to burial plots.

The state may use an electronic database to verify some of the information. Intentionally giving false information is a serious offense.

The state looks back five years to determine whether you transferred assets for less than market value within five years of applying for Medicaid. Applicants who gave away assets may be subject to a period of ineligibility.

Not all assets will be counted against you for the purposes of Medicaid eligibility. Personal possessions, one vehicle, your principal residence, and prepaid funeral plans are “noncountable” assets. However, the state will likely still request information about these assets.

After you begin receiving benefits, you are not done. Medicaid reviews your income and assets every year to ensure that you are still eligible. This could involve electronic verification or submitting more documentation.

The Medicaid application process is complicated, and submitting an application without an attorney’s help, particularly if you are applying for nursing home benefits, is not a good idea.  The process generally takes several months as Medicaid keeps asking questions and demanding further documentation for the answers provided. Before applying, contact your attorney.

Reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.

Incentive Trusts: Ensuring That an Inheritance Will Be Well Spent

Many parents or grandparents with sizable amounts of money to pass on to their heirs are apprehensive about the effect it many have on their children or grandchildren. In some instances, they fear that the recipients will misspend the funds on drugs, fancy cars or failing businesses. In other cases, the fear is simply that their children will lose their drive to achieve and overcome barriers that may present themselves if there’s no financial necessity to do so.

At the same time, these parents and grandparents want to provide a safety net to their heirs and enhance their lives in an increasingly insecure financial system. Often, they do so by leaving funds for their descendants in a trust that distributes the funds at certain ages – say, one-third at age 25, one-third at age 30 and the rest at age 35.  But some parents set up what are known as “incentive trusts,” which get very specific in their instructions to trustees to ensure that the trust funds support what the trust’s creators view as positive behavior and discourage unproductive activities.  Such trusts may pay the costs of certain activities, like a college education or advanced degree, or provide rewards for achieving various milestones.  Others may withhold distributions when the beneficiary engages in certain negative behaviors or activities, such as drug use or excessive spending.

Here are some ways incentive trusts might be structured:

  1. Rewards for degrees. Cash amounts that descendants receive on achieving specified educational milestones.
  2. Matching earnings. The trustee would be instructed to match on a dollar-for-dollar basis the child’s earnings from employment, or, if lavish spending is the concern, the child’s savings.
  3. Paying for education. Especially with the high cost of private universities today, grandparents often set up funds to help pay for education. Some funds are more expansive than others in terms of what they will cover. Just undergraduate degrees, or also graduate programs? Only for higher education, or also for learning a craft or a trade? Will the fund pay for private school before college? Will it cover educational programs during the summer, including travel overseas? Room and board, or just tuition? Some of the answers will be determined by the size of the fund and how far it needs to stretch.
  4. Creating a charitable foundation or donor-advised fund. To encourage charitable giving among descendants, an estate plan could require heirs to give away a certain amount every year to a private foundation or to a donor-advised fund.
  5. Subsidizing public service career or Peace Corps. We live in an increasingly financially insecure world that often forces people to take or stick with careers they don’t find fulfilling or don’t feel further the public good. Parents or grandparents could fund trusts that don’t match all earnings, but just those they feel make the world a better place. This may be hard to define and will, of course, be different from fund to fund. It may include working for any not-for-profit — though some are quite well funded — or teaching or political organizing for certain causes.
  6. Distribution upon marriage or having a child.
  7. Matching the downpayment for a house.
  8. Reward for a period of time being alcohol- or drug-free.

Through these incentive trusts, parents and grandparents hope that their money will go to causes they support. On the one hand, this approach can multiply the benefit of what they pass on. On the other, it may seem to some that the deceased is trying to continue to exercise control much too long after they are gone. Often the older generations split the difference, giving some funds outright to their descendants and leaving the rest in trust.

However, an incentive trust must be carefully constructed, both to ensure that its terms are clear and that it does not violate any constitutional or public policy law or standard. For example, in one case that ended up in the courts, grandparents set up a trust that withheld funds from any grandchildren who married outside the Jewish faith. Two Illinois courts ruled that the clause disinheriting the grandchildren was invalid because it was against public policy by placing a significant limitation on the grandchildren’s freedom to marry.

If you are interested in creating an incentive trust,  reach out to the MSW team: Amy Stratton or Kristen Prull Moonan.

For two articles by WealthManagement.com that go into detail about the objectives that may be achieved with an incentive trust and the critical elements of incentive trust design, click here and here.

You Can Just Say No: Declining to Act as an Agent Under a Power of Attorney

Acting as an agent under a power of attorney is a big responsibility and it isn’t something everyone can take on. It is possible to resign or refuse the position.

There are two main types of powers of attorney – financial and medical. As the agent under a power of attorney, you act in place of the “principal” – the person executing the power of attorney — for financial or medical purposes when and if that person ever becomes incapacitated. This can be a big job, depending on the person you are representing.

With a financial power of attorney, you are responsible for taking whatever investment and spending measures the principal would take himself or herself. Unless limitations have been placed in the power of attorney document itself, you can open bank accounts, withdraw funds from bank accounts, trade stock, pay bills, and cash checks. In addition, you need to keep good records of all your dealings.

With a medical power of attorney, you must step in and make medical decisions for the principal that you believe the principal would have wanted. For example, you may have to make decisions about whether to start or stop a particular treatment, which doctors or specialists to choose, or whether to continue or stop life support.

While an agent under a power of attorney isn’t personally liable for the principal’s bills, it is still a huge responsibility that takes time and effort. Before agreeing to be an agent under a power of attorney, consider whether you are able to devote the time and energy to the job and whether you can emotionally handle making the decisions. In addition, think about if there are family issues, such as constant disagreements among siblings, that would make serving difficult.

If you do not want to serve as an agent under a power of attorney, the best thing to do is have an honest discussion with the person executing the power of attorney. You can simply tell them that you are not the best person to act in this role. If you have already been appointed and you decide you want to resign, the power of attorney document may specify the steps necessary. If these steps aren’t spelled out, the best thing to do is write a letter tendering your resignation, and send it via certified mail to the person who executed the power of attorney and any co- or successor agents.

If the person who executed the power of attorney is incapacitated already, it is a little more complicated. Ideally, the power of attorney document has named successor agents. In that case, you can refuse the job and the successor agent can take over. If there are no successor agents, a guardian may need to be appointed for the principal. An interested party — another family member or friend — could petition the court for guardianship or if no one is available to take on the job, the principal may become a ward of the state.

If you are named as agent under a power of attorney and want to refuse or resign, reach out to Amy Stratton or Kristen Prull Moonan  to find out the best way to do that in your state.

How to Give Gifts to Your Grandchildren

Gifting assets to your grandchildren can do more than help your descendants get a good start in life — it can also reduce the size of your estate and the tax that will be due upon your death.

Perhaps the simplest approach to gifting is to give the grandchild an outright gift. You may give each grandchild up to $16,000 a year (in 2022) without having to report the gifts. If you’re married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $128,000 a year with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts if they are invested will be taxed). Just remember that any gift can interfere with Medicaid eligibility.

But you may have some misgivings about making outright gifts to your grandchildren. There is no guarantee that the money will be used in the way you may have wished. Money that you hoped would be saved for educational expenses may instead be spent on a fact-finding mission to Fort Lauderdale. Fortunately, there are a number of options to protect against misuse of the funds by grandchildren:

  • You can pay for educational and medical costs for your grandchildren. There’s no limit on these gifts, meaning that you can pay these expenses in addition to making annual $16,000 (in 2022) gifts. But you have to be sure to pay the school or medical provider directly.
  • You can make gifts to a custodial account that parents can establish for a minor child.
  • You can transfer money into a trust established to benefit a grandchild.
  • You can reduce your taxable estate while earmarking funds for the higher education of a grandchild through the use of a “529 account.”
  • You can use other gift vehicles like IRAs and savings bonds.

To determine the best way to provide for your grandchildren, reach out to the MSW team: contact Amy Stratton or Kristen Prull Moonan.