WIXLIB

This strategy resulted in an additional 40,000 in protected assets for theCommunity Spouse.51

Transfer home to Community SpouseTransfer all other assets to CommunitySpouseDraft new Last Will and Testament forCommunity Spouse that includes a SpecialNeeds Trust for the Institutionalized Spouse(VA- elective share requirement)52

Community spouse is permitted to keep 100% of his/herincome, and will not have to use his/her income to supportthe institutionalized spouse.Community Spouse is also entitled to a share of theinstitutionalized spouse’s income if his/her own income fallsbelow the Minimum Monthly Maintenance Needs Allowance(MMMNA).Community Spouse may be able to keep an additional shareof the institutionalized spouse’s income if they have excessshelter expenses (certain calculations apply).53

Community Spouse Income Allowance Minimum Monthly Maintenance Needs Allowance 1,938 Maximum Income Allowance 2,931Institutionalized Spouse Personal Needs Allowance(if available after patient pay deductions) Waiver Recipients- 1,186Skilled Nursing Facility Residents- 4054

PurchasePurchasePurchasePurchasePurchasePurchaseor upgrade principal residenceor upgrade vehiclehousehold furnishingsirrevocable funeral plan & burial plotlife estate (12 month residency required in VA)savings bonds (up to 20,000/yr per person)55

Purchase Medicaid-qualifying annuity in thename of the Community SpousePurchase Medicaid-qualifying promissorynote in the name of the Community Spouse56

Thank you for your time and attention!Joley L. EasonThompsonMcMullan100 Shockoe SlipRichmond, VA 2319(804) 698-5934jeason@t-mlaw.com57

Medicaid Crisis PlanningDavid GoldfarbGoldfarb Abrandt Salzman & Kutzin LLP350 Fifth Ave. Suite 4310New York, NY 10118www.seniorlaw.comgoldfarb@seniorlaw.comV. Deficit Reduction Act qualifiedpromissory notesVI. Medicaid qualified annuities

Medicaid Crisis PlanningDeficit Reduction Act qualifiedpromissory notes59

Transfer of Asset Rules The Social Security Act was amended regardingtransfers of assets effective February 8, 2006, bythe Deficit Reduction Act of 2005 (DRA '05) andthe Tax Relief and Health Care Act of 2006. The federal provisions for liens, adjustments andrecoveries, and transfers of assets are codified at42 USC § 1396p. Most state’s rules did not change until enablinglegislation or regulations were enacted.60

Transfer of Asset Rules Federal law requires a state plan to impose a transfer of assetspenalty for institutionalized individuals, but the state has anoption to impose a penalty on non-institutionalizedindividuals. 42 USC § 1396p(c)(1)(A). Usually, a transfer of asset penalty will not apply to care,services, and supplies provided as part of a waivered programunder Section 1915(c) of the Social Security Act. Transfers between spouses are exempt and no penaltyperiod is imposed. Prior to the application for Medicaid coverage of nursingfacility services, nonexempt transfers by either spouse tothird parties are attributed to the Medicaid applicant, who issubject to any resulting penalty periods.61

Transfer of Assets & MAGI Medicaid CMS has concluded that the transfer rules doapply to MAGI individuals who meet thedefinition of "institutionalized individuals.“ CMSState Medicaid Director Letter 14-001(02/21/2014) ownloads/SMD-14-001.pdf. Since MAGI individuals do not include personsdisabled or 65 years of age and over, it will berare cases where MAGI individuals qualify asinstitutionalized individuals.62

Transfer of Assets & Look Back When a person transfers assets and then receivesor applies for Medicaid-covered nursing facilityservices, the local agency "looks back" atfinancial transactions made within a certainperiod of time from the first date on which theperson was institutionalized and applied forMedicaid coverage that includes nursing facilityservices. Under DRA '05, the look back is 60 months forany disposal of assets made on or after the dateof enactment (February 8, 2006).63

Transfer Penalty A penalty period of ineligibility will beimposed on transfers that are not exempt. The formula for calculating the penalty periodis simple: divide the total amount of assetstransferred for less than fair market value bythe average monthly private pay rate of anursing home in the area where the client isreceiving nursing facility services.64

When Transfer Penalty Begins Under DRA '05, the penalty period for transfers madeon or after February 08, 2006, begins– the first day of the first month during or after which assetshave been transferred,– or the date on which the individual is eligible forMedicaid and would otherwise be receiving institutionalcare based on an approved application but for theapplication of the penalty period,– whichever is later,– and which does not occur in any other period ofineligibility. 42 USC § 1396p(c)(1)(D)(ii)65

When Transfer Penalty Begins Penalties for transfers made after February 8, 2006,don't begin to run until the applicant/recipient is– in a nursing home,– has exhausted all non exempt resources,– and is "otherwise" Medicaid eligible. In other words, if a transfer has been made within thefive year look back, the applicant who has made atransfer will under usual circumstances face a penaltybased on that transfer once she has exhausted nontransferred funds.66

Transfer of Assets & Promissory Notes The transfer of assets under DRA '05 includesfunds used to purchase a promissory note, loanor mortgage UNLESS the note, loan or mortgage:– (1) has a repayment term that is actuarially sound;– (2) has equal repayments during the term of theloan, with no deferral or balloon payments;– (3) prohibits cancellation upon death of the lender. 42 USC § 1396p(c)(1)(I).67

Actuarially Sound Actuarially sound will be determined inaccordance with actuarial publications of theOffice of the Chief Actuary of the SocialSecurity Administration.68

Rule of Halves after DRA ‘05 After DRA ’05 an But, a similar planningindividual can no longertechnique is availabletransfer assets and useunder DRA 2005, byother funds to wait outcombining a transfera penalty periodwith an actuariallybecause he would notsound annuity or loan.be "otherwise" eligible,by virtue of the retainedfunds.69

Gift & Loan At the time of the transfer the institutionalizedperson would have to make a loan (or purchasean annuity), so that funds are not retained andshe is otherwise eligible for Medicaid. The institutionalized person's monthly income,including loan (or the annuity) repayment, wouldhave to render her Medicaid eligible, but shecould not actually receive Medicaid institutionalservices during the penalty period from thetransfer.70

Gift & Loan The shortfall for the nursing home payment couldbe made by an in-kind voluntary contributionfrom a non-legally responsible relative; or alternatively the individual's income could bebetween the Medicaid rate and the private payrate at the facility, rendering her a "certainmedicaid-eligible individual" (individuals whoare otherwise entitled to Medicaid in the facilitybut such benefits are not being paid because,their income exceeds the Medicaid level). 42 USC§ 1396r(c)(7)(A); 42 CFR § 447.20.71

Promissory Note: Possible Issues Although under the DRA the making a loan ormortgage (or purchase of an annuity) may notbe considered a transfer; nevertheless the promissory note (or annuity)may be given a value as a resource eventhough they are drafted as "non-assignable." There is some question whether a note (orannuity) can be made non-assignable undersome state laws. See UCC §§ 9-406.72

Sable v. Velez Sable v. Velez, 437 Fed. Appx. 73, 76 (3d Cir. N.J. 2011) In order to show a likelihood of success on the merits, the plaintiffsmust establish that it was improper for the agencies to consider thenotes as trust-like devices. To qualify as a "cash loan" under the SSI POMS, the instrumentmust be a "negotiable, bona fide loan agreement." §1120.220(B)(2)(a). An informal loan may be bona fide if :–––––(1) it is enforceable under state law,(2) was in effect at the time the cash proceeds were provided,(3) there is an acknowledgment of an obligation to repay,(4) there is a plan for repayment, and(5) the repayment plan is feasible. Id. § 1120.220(C).73

Sable v. Velez The POMS defines trust-like devices as instruments which involve––––(1) a grantor(2) who transfers property(3) to a person or entity with fiduciary obligations(4) with the intention that it be held, managed, or administered bythe person or entity for the benefit of the grantor or others. Id. §§ 1120.201 (B)(5) & (G)(1). “We conclude that the plaintiffs have not met the burden ofshowing that it was more likely than not that a fiduciaryrelationship did not exist between the parents and children.” “Considering that loans between parents and children generally aremade in an environment of trust and confidence, the evidencepresented did not demonstrate that the notes were createdwithout any understanding that the children would simply holdthe money for the benefit of the parents.”74

Medicaid Crisis PlanningMedicaid qualified annuities75

Annuities Use Annuities in Situations Where an Income StreamMay Be More Beneficial than Holding a Non-ExemptResource. The purchase of a single premium immediate annuitywith a guarantee pay-out period based on thepurchaser's life expectancy, will convert resources intoincome. To the extent that the anticipated return iscommensurate with the money invested, purchase ofan insurance company or private annuity is considereda compensated transfer of assets.76

Purchase of an Annuity Under DRA '05, the purchase of an annuity is treated as atransfer for less than fair market value, UNLESS the annuitymeets the following criteria:(1) it names the State as the first remainderbeneficiary for at least the total amount of medicalassistance paid on behalf of the institutionalized individualor the second remainder beneficiary after a communityspouse or minor or disabled child;(2) it is irrevocable and non-assignable;(3) it is actuarially sound;(4) it provides for equal payments during the term withno deferral or balloon payment.42 USC §§ 1396p(c)(1)(F) and (c)(1)(G)77

Annuities and Retirement Plans If annuitizing a retirement plan, make sure that itfalls under the Internal Revenue Code sectionslisted in the statute. The provisions (2) through (4) do not apply toannuitizing certain qualified retirement plans, anIRA or a Roth IRA. 42 USC §§ 1396p(c)(1)(G)(i)(I)and (c)(1)(G)(i)(II). Even so, the restrictions in (1) above--naming thestate as a remainder beneficiary--may apply, ifunder the plan there are remainder beneficiariesafter the annuitant or his spouse.78

Annuity: Income and not Resource Lopes v. Dep't of Soc. Servs., 696 F.3d 180 (2dCir. 2012). The Second Circuit Court of Appeals upheldthe District Court for the District ofConnecticut, finding that a non-assignableannuity provides an income stream whichshould be treated as income and not as aresource.79

Gift and Annuity Planning technique is available under DRA 2005, by combining atransfer with an actuarially sound annuity. At the time of the transfer the institutionalized person would haveto purchase an annuity, so that funds are not retained and she isotherwise eligible for Medicaid. The institutionalized person's monthly income, including theannuity or loan repayment, would have to render her Medicaideligible, but she could not actually receive Medicaid during thepenalty period from the transfer. The individual's income could be between the Medicaid rate andthe private pay rate at the facility, rendering her a "certainmedicaid-eligible individual" (individuals who are otherwiseentitled to Medicaid in the facility but such benefits are not beingpaid because, their income exceeds the Medicaid level). 42 USC §1396r(c)(7)(A); 42 CFR § 447.20.80

Annuities: Possible Issues Although under the DRA the purchase of an annuity,(or making a loan or mortgage) may not be considereda transfer; nevertheless the annuity (or promissory note) may begiven a value as a resource even though they aredrafted as "non-assignable." There is some question whether an annuity (or a note)can be made non-assignable under some state laws.See UCC §§ 9-406. But see James v. Richman, 547 F.3d 214 (3d Cir. 2008)which finds non-assignable annuity purchased bycommunity spouse to have no value as a resource.81

You may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35.