What is Elder Law and How Can an Elder Law Attorney Help?
Elder Law is a practice area devoted to servicing the needs of the growing aging population. An Elder Law Attorney must be knowledgeable in many areas of the law, including guardianships, long-term care planning, advance health care directives, powers of attorney, estate planning, probate and trust administration, asset protection, special needs trusts and planning, and elder abuse. An Elder Law attorney takes a holistic approach to addressing clients’ concerns by focusing on the problem to be solved and not one particular area of law.
What is Medicaid and How can an Elder Law Attorney assist with the Medicaid Process?
The cost of long-term care can quickly impoverish individuals. Medicare and Medicare Supplement insurance do not cover long term care to any significant extent. As such, people typically turn to Medicaid help pay for this care.
Medicaid is a “means tested” government “entitlement.” In New York, in order to qualify, a person must be a New York resident and have no more than $15,750 in resources (the “exemption” amount”). A resident can also have no more than $895 in monthly income. An elder law attorney can help identify common ways to make an individual eligible for Medicaid.
Certain property is exempt (not countable) in determining an individual’s eligibility, including:
- the applicant’s primary residence (as long as the applicant, his/her spouse, or disabled child reside in the home and as long as the equity value in the home is within permissible limits ($893,000),
- an automobile;
- a burial account or a pre-paid funeral trust; and
- essential personal property.
Note also that funds in a retirement account or qualified deferred compensation plan are not countable as a resource if the owner is in “pay-out” status. An elder law attorney can review your retirement accounts and qualified compensation plans to advise whether they are countable or not.
Click Here for a list of assets that can be considered exempt for purposes of applying for Medicaid.
Click Here for a list of income exemptions.
An elder law attorney will advise you that one of the most common ways to make an individual Medicaid eligible is by giving away assets to a spouse, a trust, or another individual. There are strict rules regarding the eligibility of persons who transfer their assets by way of gift. In New York, these rules are more disconcerting when applying for nursing home, or, institutional Medicaid coverage.
How can an Elder Law Attorney Help You Understand the Penalty Periods?
An elder law attorney will tell you that in New York, there is presently no penalty on transfers of assets for a person applying for Community, or “at-home” Medicaid. This is Medicaid for a person seeking a home health aide to assist that person with performing their activities of daily living at home. However, please be advised that in April 2020, the Governor signed into law a change that, effective October 1, 2020, implements a 30-month look-back requirement for Medicaid applications. This 30 month look back will be phased in between October 1, 2020 and April 2023. For applications filed as of January 2021, the look back will be 3 months (October 1 2020 to January 1 2021); for applications filed February 2021, the look back will be 4 months, increasing each month until the full 30 month look back is reached in April 2023. Subsequently, Governor Cuomo announced that the penalty will not take effect until April 1, 2021. This is a moving target. Regardless, if you are considering long term care planning, you should act now to start the planning process in order to not run afoul of subsequent eligibility rules.
For Medicaid coverage of institutional, or Nursing Home care, assets transferred (or gifted) by the applicant within 60 months of filing a Medicaid application (the “look-back period”) may cause the Medicaid applicant to be ineligible for Medicaid for some time. This period of ineligibility (known as the “penalty period”) begins when (1) the applicant enters a nursing home, (2) makes an application for Medicaid and (3) and would be otherwise eligible (meaning would be eligible but for the transfers that were made during the 60 month look-back period).
The “penalty period” is determined by dividing the (i) value of the gifts made within the 60 month period preceding the application by (ii) the average cost factor, as determined by New York State Department of Health, of nursing home care in the area in which the Medicaid applicant resides. The average cost factor is adjusted annually. In New York, the average cost factor also varies between regions. Some of the 2019 regional rates are.
|New York City (5 Boroughs)||$13,037|
|Long Island (Nassau/Suffolk)||$13,834|
|Northern Metropolitan (includes Westchester)||$13,206|
Click Here for the full list of rates for 2021. An elder law attorney can help you calculate the penalty period and identify ways to mitigate/avoid it.
Transfers of assets by the spouse of a Medicaid applicant made within 60 months of the Medicaid application will also disqualify the applicant spouse for the appropriate penalty period. Further, the spouse of a Medicaid applicant who sets up a trust of his or her assets within 60 months of the Medicaid application may well be making a transfer that could result in a period of ineligibility for the applicant.
Caution: A person who makes transfers, receives Community Medicaid, and subsequently enters a nursing home could face a penalty period. Therefore, it is extremely important to keep your elder law attorney apprised of your prognosis and consult with them, as soon as practicable, prior to making the decision to enter a nursing home.
Exceptions to the State Transfer of Asset Rules
As an elder law attorney will advise you, there are certain recognized exceptions to the “transfer of asset” penalty rules.
Transfers to a Spouse. Transfers, regardless of amount, to or for the sole benefit of a spouse will not result in a denial of Medicaid.
Transfer to Blind or Disabled Children. Gifts, regardless of amount, to or for the sole benefit of a spouse or a blind or disabled child, will not result in a denial of Medicaid.
Transfers of the Homestead. Transferring the applicant’s interest in his/her homestead to the applicant’s (1) spouse; or (2) child who is under twenty-one, blind or disabled; or (3) a sibling with an equity interest who had resided in the home for one year immediately prior to the applicant’s admission to a long term care facility; or (4) child of the individual who had lived in the home for two years prior to the institutionalization of the applicant and who has cared for the applicant, enabling the parent to remain at home, will not result in a denial of Medicaid.
Protections for the Community Spouse
What happens when the sick spouse who has to go to the nursing home is the spouse who brings in all or most of the couple’s income? How is the well spouse to continue to pay the monthly bills? An elder law attorney will advise you that the Federal Government dealt with this problem by requiring states to establish a monthly income allowance (the “Minimum Monthly Maintenance Needs Allowance” or “MMNA”) and a resource allowance (the “Community Spouse resource Allowance,” or the “CSRA”) for the community spouse of a nursing home patient. The MMNA and the CSRA fluctuate annually.
The MMNA Allowance
For 2020 the “minimum monthly maintenance needs allowance” (sometimes referred to as the MMMNA”) is $3,216. In some instances it may be possible to increase this monthly allowance by bringing a “support suit.”
The CSRA Allowance
The resource allowance adopted for 2020 in New York is an amount equal to the greater of the following amounts:
2. The amount of the spousal share, which is equal to one-half of the married couple’s resources as of the date of the first continuous period of institutionalization, on or after September 30, 1989, up to $128,640;
3. The amount established pursuant to a Fair Hearing; or
4. The amount established pursuant to a court order.
The amount of the CSRA is indexed to cover future inflation and may increase each year. It is possible to obtain a higher resource allowance by decision after an administrative fair hearing or court proceeding on several grounds, most importantly, where the CSRA does not generate sufficient income to give the spouse the state’s Minimum Monthly Maintenance Needs Allowance.
What Techniques Can be Used to Protect the Community Spouse and how can an Elder Law Attorney assist?
What happens however, when the well spouse holds resources in excess of the CSRA and the ill spouse has been institutionalized? What strategies can be adopted to protect a community spouse with excess resources from support suits?
- Convert her “excess resources” into “income” by purchasing an annuity. There is no penalizing “transfer” because the spouse who buys an annuity has received full and fair consideration for amount paid for the annuity. The state must generally be named first beneficiary. However, in cases where there is a surviving spouse or minor or blind of disabled child, the state must be designated second beneficiary. Click here for a discussion of factors that should be considered when converting excess resources into income.
- Convert an “excess resource” to an “exempt resource.” Another technique to protect the community spouse who has “excess resources” is to invest the excess in a home (an exempt resource). If the spouse already owns a home, this may be the time to make capital improvements. Where the community spouse remains in the primary residence, paying off an existing mortgage also “converts” an excess resource to an exempt resource.
- Gift “excess resources.” After Medicaid for the institutionalized spouse has been approved, the well spouse can consider gifting her excess resources. While the gift is still considered a transfer, post-eligibility transfers should not affect eligibility. However, there are indications that Medicaid may attack such a gift as being a “fraudulent conveyance.” You should consult with your attorney prior to engaging in any post eligibility transfers.
Use of Trusts in Medicaid Planning and How can Elder Law Attorney can Assist.
The Medicaid applicant can transfer their assets to self-settled trusts or “income-only trusts”. Such a transfer is subject to a five-year look-back period.
The trust should be irrevocable. The applicant may not serve as trustee. The trustee can distribute income from the trust to or for the benefit of the applicant. The trustee may not distribute principal to or for the applicant as principal will then be attributed to the applicant for Medicaid eligibility purposes. The applicant should not be able to compel payments from the trust.
The Medicaid applicant can also establish a third party supplemental trust for the benefit of a disabled child. Such a trust is not subject to a five-year look back period.
Consult an attorney prior to creating any trusts.
How can Elder Law attorney assist with Estate Planning with your Home?
For many seniors their home is the most valuable asset. There are several ways that the home can be protected.
Use of Revocable Trust to Protect Home of a Medicaid Recipient
As noted earlier, a primary residence is exempt for purposes of Medicaid eligibility. The exemption remains in effect even if a person moves to a nursing home (either because the sick spouse signs a document known as an “intent to return home” or because a spouse, blind, disabled or minor child continues to reside there. When the Medicaid recipient dies, however, there is a right of recovery by Medicaid. To avoid subjecting the home to a right of recovery, we often recommend that the Medicaid applicant place the home in a revocable trust, thereby rendering the home a non-probate asset. Since the trust is revocable, no “transfer” takes place and no penalty period results. And, at the time of the Medicaid recipient’s death there is no state right of recovery because the home passes to the trust beneficiaries as a non-probate asset.
Outright Transfers to Protect the Home of a Medicaid Recipient
A “Homestead” can be transferred without penalty to:
- a spouse;
- a minor or disabled child;
- an adult child who has resided with the parent for at least two years prior to the transfer and has been a caregiver; or
- a brother or sister of the owner who has lived with the owner for at least one year prior to the transfer and who has an “equity interest” in the home. Equity interest has been defined as owning at least 20% of the home.
Use of Life Estate to Reduce Taxes
One planning alternative is for you to transfer your residence to your children subject to your retaining a life estate. A “life estate” gives you the right to live in the residence for your lifetime.
Although you will have made a gift of the “remainder interest” and may need to report this gift on a gift tax return, at your death, your children will receive a full step up in basis as to the value of the home because of your life estate. Basis is the purchase price plus any capital improvements. Obtaining a full step up in basis is especially important if you have owned your home for a number of years and the value has significantly appreciated.
For example: lets say you purchased a property in 1980 in Park Slope, Brooklyn for a price of $80,000. You have made $20,000 worth of improvements in the home. The total basis in the home is therefore $100,000. Now, in 2017, your property is worth $800,000. If you make an outright transfer, then, when your children sell the home, they will be subject to capital gains tax on the difference between your original purchase price plus cost of capital improvements ($100,000) and the sales price (lets say its $800,000). The combined state/federal capital gains tax is approximately 23%. If, however, you retain a life estate and your children sell the home after you die, then the basis in your children’s hands is stepped up to the fair market value of the parcel, or $800,000. Now when the children sell the home after you die, they will mitigate, if not altogether eliminate the capital gains tax.
Please note that an unrestricted life estate will not adversely affect your continuing eligibility for the Veteran’s exemption, but a restricted life estate would. As to the Senior Citizen’s reduction or School Tax Relief (STAR) exemption, the transfer may adversely affect your continuing eligibility for this reduction.
Consult an elder law attorney to identify the appropriate strategy for your home.
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