Beware of HMS

Medicaid estate recovery is now the law in Michigan, as previously discussed in “Medicaid Estate Recovery Mystification” in this blog. “.” The families of deceased Medicaid recipients should consult an attorney before opening a probate estate or responding to the demand for information from HMS, Michigan Medicaid’s estate recovery contractor.

When a government hires a for-profit company to handle tasks that would otherwise be handled by its own bureaucracy, protection of the rights of citizens and quality of performance are often ignored in the interest of profits for the government contractor. For example, this is seen with private operation of prisons and private security operators in public places such as courthouses and office buildings. Private companies hired by state Medicaid agencies to pursue estate recovery are typical of government contractors in this respect.

A client died about a year ago, survived by his wife, and with no probate estate. HMS sent their questionnaire and I responded with a letter informing HMS as follows:

I am informed that there are no probate assets and no probate estate will be opened. Under the estate recovery statute and the Estates and Protected Individuals Code, the personal representative is obligated to notify the Medicaid agency if an estate is opened. On opening an estate, the personal representative will provide the statutory notice to the Estate Recovery Program. You should be aware from the Medicaid file that the decedent is survived by his spouse. Therefore, the state is not entitled to pursue estate recovery.

HMS sent another letter demanding that I fill out their “voluntary” questionnaire and provide a copy of the death certificate, which I answered by telling to read my previous letter. Now they are calling and demanding the “voluntary” questionnaire and a copy of the death certificate.

I realize that the course of least resistance is to fill out the questionnaire and return it with the death certificate. However, they have no legal basis for their demand. I am concerned that HMS will harass the families of deceased Medicaid recipients and talk them into payments they are not legally required to make. If these pests are not ashamed to make ultra vires demands of attorneys, what will they tell family members?

Monday’s New York Times had a front-page article about hospitals, including nonprofits, that pursue uninsured patients in violation of their legal obligations not to do so. The hospitals receive millions from the state for indigent care, despite flagrant failure to allow uninsured patients to apply for compassionate exemptions. The hospitals and their attorneys routinely sue impoverished patients by the thousands. They take judgments on the chance that the patients might come into money or get jobs and the judgments will pay off. When there is money to be collected from vulnerable individuals and families, those in collection tend to take what they can get. That is disturbing when the collection agent is acting on behalf of a government or charitable entity required to play by its own rules.

HMS’s questionnaire is signed as an affidavit, so the person who fills it out is putting himself or herself on the line. If it is provided by an unwitting family member, there might be incorrect information, either including assets that are not liable for estate recovery or failing to identify assets that are liable. Both circumstances give rise to problems for individuals who are not obligated to sign any questionnaire. Michigan probate law directs the personal representative to notify the state when a probate estate is opened. It is the personal representative who has the duty to provide information, not miscellaneous family members.

HMS is a for-profit health-care management company that gets a percentage of whatever it pinches from the families of deceased Medicaid recipients. Its motivation is purely rapacious: The more it collects, the more it makes, just like any other collection agency. Lawyers should resist HMS’s illegal demands and direct clients not to “voluntarily” fill out and file the questionnaires unless they decide – after legal consultation – that it is in their best interest because they want to request the elusive and rare hardship exemption.

I filled out and filed two questionnaires indicating that the family was entitled to a hardship exemption. Instead of providing the form to substantiate the hardship, HMS turned the AG’s office loose to pursue the claim. I am litigating those at this time. It appears that HMS and the Michigan Attorney General will be no more respectful of individual rights than collectors working for payday lenders. Beware of Medicaid estate recovery and the private contractors engaged to bag the money.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Trust Tricks for Estate Planning Professionals

Most trusts for estate planning are revocable. Usually, individuals and families put their assets into a revocable trust to avoid probate and to make their estates easier to manage. For some purposes, such as to protect assets from creditors or to avoid giving beneficiaries control of the assets, an irrevocable trust is preferred. Irrevocable trusts must be carefully drawn up to create the tax treatment the grantor desires for the assets in the trust and the income generated by the assets. This post may guide an estate planner to the various tax laws that allow control over tax treatment of the trust or give an individual considering a trust for estate planning an overview of the choices being made by the trust drafter.

A revocable trust created by a taxpayer is transparent for tax purposes. The grantor or settler continues to pay tax on the trust income on his, her or their personal Form 1040 as if the trust assets still individually owned. However, that is not the case for all trusts.

When the grantor of a revocable trust dies, the situation changes. The trust will probably become an irrevocable trust that will have to file a trust income tax return, Form 1041. Trusts that are created as irrevocable trusts may be required to file a Form 1041 as soon as they are executed and funded.

An irrevocable trust may shift the tax burden for the income away from the grantor so that it falls on the beneficiaries. It may also avoid the federal estate tax (FET) gross estate, so that the assets pass to the beneficiaries without being subject to FET. There are advantages to having the income remain on the grantor’s tax return and advantages to keeping the assets in the grantor’s FET estate. By carefully including certain provisions in an irrevocable trust it is possible to control who pays the tax on the income and whether the assets are in or out of the grantor’s FET estate. The following is a checklist of Internal Revenue Code provisions that can be used to turn on or off inclusion of the trust corpus in the FET gross estate and to turn on or off grantor-trust status for income tax. This may help an estate planner sort out the alternatives.

To keep property out of grantor’s FET gross estate, the transfer must be irrevocable and the grantor may not retain benefits, rights or powers described in:

IRC § 2035 (gift within three years of death)
§ 2036 (retained life estate or beneficial use)
§ 2037 (transfer on death or reversionary interest)
§ 2038 (revocable transfers and powers of appointment)
§ 2039 (annuities)
§ 2040 (JTWROS)
§ 2041 (general power of appointment)
§ 2042 (life insurance owned by decedent)

The same provisions may be used to create inclusion of trust corpus in the gross estate in for basis step-up purposes, to avoid capital gains tax after death.

The grantor will be taxed on income if he or she retains one of these powers:

§ 673 (reversion)
§ 674 (power to control beneficial enjoyment)
§ 675 (administrative powers)
§ 676 (power of revocation)
§ 677 (income for benefit of grantor)

Including one or more of the above powers in an otherwise irrevocable trust may avoid tax on the trust, itself, and keep the tax on the grantor. “Administrative powers,” in particular may have very little effect on the trusts functioning or objectives. These powers may include a power retained by the grantor or the grantor’s spouse to borrow against the trust income or corpus without adequate interest or security or to substitute property of equivalent value. The grantor does not have to exercise the above powers, but including them in the trust document results in the preferred tax treatment. Such a trust may be referred to as an intentionally-defective grantor trust, or IDGT, the trust being “defective” because the income falls back on the grantor for tax purposes.

This being the election season, there will be candidates braying about the need to simplify the tax code. Much of the call for simplification is election rhetoric – bovine manure, in plain language. As the grantor-trust rules show, there is no simple way to tax income or estates in the real world. There are ways that the tax code may be improved, but flat-taxers, like flat-earthers, are not in touch with reality. Until we have a flat tax, it is important to draw up estate plans with tax effects in mind. With careful drafting, taxpayers can have an estate plan that minimizes the tax that they and their beneficiaries have to pay.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 313.583.3020

Risky Business

This is the fifth of five columns describing strategies to protect the financial security of married persons whose spouses are in nursing care. This final column explains the pros and cons of investing in a small business, how it works, and in what states it is available.

We have been exploring alternatives for a couple named Sam and Hazel. Sam recently became a nursing home resident and will not be returning home. His monthly nursing home bill is $8,000, far above their combined income. They have a homestead worth $200,000 (even at today’s depressed home values) and $200,000 in savings. This puts Sam and Hazel well above median household net worth of around $180,000, but spending $8,000 a month just for Sam’s care will deplete their investments rapidly.

The Medicaid agency tells Hazel that their home is not counted and Sam could be eligible for Medicaid when half of their savings has been expended on his care. Hazel would like to know if there is an alternative plan that would allow her to keep more of their savings.

The objective is to make the excess assets, here approximately $100,000, non-countable or exempt. Giving the money away is a possibility, but tricky. Medicaid would make Sam ineligible for Medicaid nursing care payments for a period determined by dividing the gift by the average cost of nursing care, as determined by the state. This period of ineligibility would not start until Sam is in need of Medicaid because he is in a nursing facility and financially eligible. These gift strategies are complicated and difficult to implement. Fortunately, there are ways that make the excess assets unavailable while Sam qualifies for Medicaid, without permanently depriving Hazel of the financial security those assets represent. We have previously considered investment in the home, immediate annuities and sole-benefit trusts. The fourth strategy involves investment in a small business.

We have previously considered ways to incorporate countable funds in an excempt investment, such as the home, or to convert an asset into an income stream as an irrevocable trust or an immediate annuity. Small business investment is a way to make funds unavailable because the investor cannot easily take the money back.

Publicly-traded stocks are easily bought and sold. Putting money into the stock market provides no advantage in trying to qualify for Medicaid assistance with nursing home bills. However, investing in what are called close or small corporations may make the money unavailable because the stock is unmarketable or legally nontransferable.

Buying into a small corporation, partnership or limited liability company can be difficult. There are many regulatory hurdles to public sales of securities. Small, nonpublic offerings have many restrictions to protect the investing public. An investor usually must know the entrepreneur personally to learn about an investing opportunity.

The principals or major shareholders of a small business must work closely together. They may worry about one of the owners selling out to a competitor or undesirable business associate. Ojai Foods in the recent television series “Brothers and Sisters” provides a case study of why small business owners need to be wary of who becomes an owner. Nora Walker and her family are saddled with the mistress of Nora’s late husband, Holly Harper, as an owner and executive. The conflict that this causes is one of the continuing plot themes. Small business owners often place limits on when their interests can be sold and who can buy into the company to avoid this type of conflict. These limits are called buy-sell agreements.

Investments in small businesses are generally considered risky. For this reason, the liquidation value of $100,000 sunk into a small business might be $50,000 or less, even without a buy-sell agreement or other limitation on stock transfers. This immediate shrinkage of the value of the capital contribution is not a gift. Although this is the natural result of buying into a company, the expectation is that the investment will become greater or will generate in an income stream as the business prospers. Business investments are riskier than putting money in CDs or T-bills, but they have the potential to be much more profitable.

When Sam goes into a nursing home, Hazel could tie her excess assets up by investing in a small business. This would be a possibility if she has a trusted friend or family member with a business that could use an influx of cash.

Protecting assets by tying them up in a small business investment is not simple or easy. The interest in the business could not have a liquidation value that would allow it to be a countable asset for Medicaid purposes. At the same time, Hazel will have to show the Medicaid agency that the interest was worth what she paid for it. Furthermore, the agency will be predisposed to classify the investment as a disguised gift to other owners of the business. Despite the difficulties, such a business investment might be the only realistic alternative in some states.

Federal Medicaid law permits Medicaid applicants and recipients to purchase investments at fair market value at any time, even if the transaction converts a countable asset into one that is noncountable. Furthermore, most states have Medicaid rules that exempt assets used in a trade or business. The difficulty is in convincing the local Medicaid office that a asset-protection strategy they have not seen before is consistent with Medicaid rules.

For more information about these Medicaid devices, or for a referral to an Elder Law attorney in your state, please call either of the numbers below or visit my website and click on the “contact” button.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Trust Me, But Not in the Third Circuit

This is the fourth of five columns describing strategies to protect the financial security of married persons whose spouses are in nursing care.  This column and the other three each explain the pros and cons of one plan, how it works, and in what states it is available. This column discusses irrevocable sole-benefit trusts.

In the first post, we met Sam and Hazel.  Sam recently became a nursing home resident and will not be returning home.  His monthly nursing home bill is $8,000, far above their combined income.  They have a homestead worth $200,000 (even at today’s depressed home values) and $200,000 in savings.  This puts Sam and Hazel well above median household net worth of around $180,000, but spending $8,000 a month just for Sam’s care will deplete their savings rapidly.

The Medicaid agency tells Hazel that their home is not counted and Sam could be eligible for Medicaid when half of their savings has been expended on his care.  Hazel would like to know if there is an alternative plan that would allow her to keep more of their savings.

A way to preserve more assets is to convert liquid assets into an income stream.  If money is put into an irrevocable trust, it may be unavailable to the person creating and funding the trust depending on the terms of the trust.  By locking the money up in a properly-drafted trust and giving the community spouse only a monthly payment, the excess assets become an income stream.  Federal Medicaid law protects the community spouse’s income, so that the excess assets become a protected income stream.

This works because of the “sole-benefit” rule.  Assets transferred to the individual’s spouse or to another – such as a trustee – for the sole benefit of the individual’s spouse do not make the institutionalized spouse ineligible for benefits.  42 USCA § 1396p(c)(2)(B).  Furthermore, the income of the community spouse is not counted as available to the spouse in the nursing home.  42 USCA § 1396r-5(b)(1).

Since sole-benefit trusts are enshrined in federal law, they can be used to protect assets in many states.  The states covered by the U.S. Third Circuit Court of Appeals are a notable exception.  According to that court, “Once the community spouse receives [irrevocable trust] payments, there is nothing preventing her or him from sharing them with the institutionalized spouse as well.”  Johnson v. Guhl, 357 F.3d 403, 408 (3d Cir. 2004).  Therefore, sole-benefit trusts cannot be used in Pennsylvania, New Jersey, Delaware and the Virgin Islands.

Surprisingly, the same court laid down contradictory law in 2008.  In James v. Richman, the court stated that requiring the community spouse to share would undermine the rule that “no income of the community spouse shall be deemed available to the institutionalized spouse.” James v. Richman, 547 F.3d 214, 219 (3rd Cir. 2008).

For more information about these Medicaid devices, or for a referral to an Elder Law attorney in your state, please call either of the numbers below or visit my website and click on the “contact” button.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

White-Water Rafting on the Income Stream

This is the third of five columns describing strategies to protect the financial security of married persons whose spouses are in nursing care. This column and the next two each explain the pros and cons of one plan, how it works, and in what states it is available. This column discusses how a community spouse may preserve $50,000 to $500,000 in excess funds by putting the money in an immediate, irrevocable annuity.

In prior posts, we met Sam and Hazel. Sam recently became a nursing home resident and will not be returning home. His monthly nursing home bill is $8,000, far above their combined income. They have a homestead worth $200,000 (even at today’s depressed home values) and $200,000 in savings. This puts Sam and Hazel well above median household net worth of around $180,000, but spending $8,000 a month just for Sam’s care will deplete their savings rapidly.

The Medicaid agency tells Hazel that their home is not counted and Sam could be eligible for Medicaid when half of their savings has been expended on his care. Hazel would like to know if there is an alternative plan that would allow her to keep more of their savings. One way would be to purchase a Medicaid-friendly immediate annuity. An immediate annuity is one which has been converted to an income stream and cannot be liquidated in a lump sum. An annuity that is not being paid out is called a deferred annuity.

Annuities, are usually “annuitized” to provide a source of income. However, they may be used to shelter assets to create Medicaid eligibility. The federal Medicaid agency devised rules to permit retirees to keep annuities purchased as part of a retirement plan but to punish those who purchase annuities that the government considers abusive. These rules were set forth in a regulation called Transmittal 64. An annuity is permitted if all required payments are equal and are expected to be received within the actuarial life expectancy of the annuitant.

In a nutshell, a Medicaid-friendly annuity must meet seven requirements:

A) It is irrevocable and unassignable,
B) It has no cash value,
C) It is purchased at fair market value,
D) It is commercially available,
E) All payments are equal and there is no balloon payment at the end,
F) All required payments fall within annuitant’s actuarial life expectancy, and
G) The state must be named as beneficiary on death of annuitant to repay Medicaid.

The annuity strategy works because A) the Social Security Act does not allow the state Medicaid program to penalize transfers or gifts from one spouse to – or for the benefit of – the other, and B) it exempts the community spouse’s income from being considered available to pay for the care of the spouse in the nursing home.

Regarding the first prong, federal law specifically states as follows:

An individual shall not be ineligible for medical assistance . . . to the extent that . . . assets were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse, [or] were transferred from the individual’s spouse to another for the sole benefit of the individual’s spouse. 42 USCA § 1396p(c)(2)(B).

Concerning the other prong, it says, “No income of the community spouse shall be deemed available to the institutionalized spouse. 42 USCA § 1396r-5(b)(1).

In simple terms, federal law allows the community spouse to purchase an actuarially-sound immediate annuity to protect excess funds and the income from that annuity does not need to be used to pay for the care of the other spouse, once Medicaid kicks in.

The U.S. Third Circuit Court explained why an immediate annuity which has been used to turn an asset into an income stream is not available and the Community Spouse is neither obligated to share the distributions nor to offer the income stream for sale on a secondary market. James v. Richman, 547 F.3d 214 (3rd Cir. 2008). Counting the annuity as an asset would undermine rule that “no income of the community spouse shall be deemed available to the institutionalized spouse,” according to that decision. 547 F.3d at 219.

Not all states conform to federal law concerning the use of annuities to protect assets for the community spouse. States that place restrictions on the use of Transmittal 64-compliant annuities–generally limiting annuities to funds that are part of the community spouse’s resource allowance–include: Alabama, Arkansas, Colorado, Connecticut, Indiana, Louisiana, Minnesota, Nevada, New Jersey (although it is part of the Third Circuit and should be bound by James), North Dakota, Texas, and Wisconsin. It is likely that these non-conforming states will be challenged and forced to reform their Medicaid programs.

For more information about Medicaid annuities, or for a referral to an Elder Law attorney in your state, please call either of the numbers below or visit my website and click on the “contact” button.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Home Sweet Home Investment

This is the second of five columns describing strategies to protect the financial security of married persons whose spouses are in nursing care.  The first column explained why divorce is not a good plan for preserving assets for a spouse when the other spouse is in a nursing home.  It explained that there are four better ways to protect the “community spouse.”  This column and the next three each explain the pros and cons of one plan, how it works, and in what states it is available.  This column discusses home investment as a way to shelter assets.

My last post introduced Sam and Hazel.  Sam recently became a nursing home resident and will not be returning home.  His monthly nursing home bill is $8,000, far above their combined income.  They have a homestead worth $200,000 (even at today’s depressed home values) and $200,000 in savings.  This puts Sam and Hazel well above median household net worth of around $180,000, but spending $8,000 a month just for Sam’s care will deplete their savings rapidly.

The Medicaid agency tells Hazel that their home is not counted and Sam could be eligible for Medicaid when half of their savings has been expended on his care.  Hazel would like to know if there is an alternative plan that would allow her to keep more of their savings.

Before she came to my office, Hazel asked for advice from her usual counselors.  Her hairdresser told her to empty out all of the bank accounts and bury the cash in the yard.  The bank teller told her just to put her bank accounts in her children’s names and the Medicaid agency will never find the money.  Her income tax preparer said that there is a five-year look-back, so it is too late to do anything.  Finally, an insurance salesman at a seminar tried to get her to buy an annuity that he said would protect all of her assets against creditors, tax collectors, probate, nursing home costs, inflation, deflation, recession, depression, revolution, fire, flood, hurricane, and an asteroid strike.  Fortunately, she did not act on all of this bogus advice.

There are several ways that Hazel could take advantage of the Medicaid homestead exemption to protect her financial security through home expansion, improvement, or purchase.  There is no limit on the homestead exemption for a community spouse.  Furthermore, all adjoining property owned by the community spouse is considered part of the homestead.

A farmer in Michigan named MacDonald was concerned because his wife Elsie went into a nursing home.  I advised him to purchase an additional 40-acre parcel adjoining his farm to use up excess funds.  As soon as he purchased that parcel, Elsie became eligible for Medicaid.

The house next door to Hazel was up for sale for $130,000.  I advised Hazel to offer $110,000 for this home as soon as Sam became a nursing home resident.  The seller was under pressure to sell, so Hazel got a bargain.  Because the two lots were adjoining, the second house became a part of Hazel’s homestead and was exempt.

After Sam became eligible for Medicaid, Hazel would be free to sell the house.  A community spouse has no asset limit after the institutionalized spouse becomes eligible for Medicaid, so the fact that the money might come back to her would not be a problem regarding Sam’s Medicaid eligibility.  Because it is based on Federal Medicaid regulations, this strategy will work in almost every state.  One notable exception is Pennsylvania, which does not exempt a second residence on homestead property.  However, even in Pennsylvania additional vacant land adjoining the home would be exempt.

A Pennsylvania client named Pansie who did not own a home used $350,000 of excess funds to buy a half interest in her daughter’s $700,000 residence, and moved in with her.  Because she lived with her daughter, her interest in the house was exempt.  Pansie’s husband Phil was approved for Medicaid without a problem.  Two years later, when Pansie wanted to move, her daughter bought back Pansie’s interest.

There are many ways that the homestead exemption can be used to protect the financial security of the community spouse.  The simplest ways are home improvement projects.  Putting a new roof on the house or updating the kitchen are ways to put excess funds to good use.  Purchasing and moving into a more expensive home can also result in a more comfortable environment, eliminating stairs and other aspects of the former home that could become problematic if the community spouse becomes less mobile and able to maintain house and yard.

As noted above, the community spouse’s homestead is an exempt asset in all 46 states, the four commonwealths, the district, and the territories. The details vary, most states exempt the home, itself, and all adjoining land owned by the Medicaid applicant or recipient.  For more information about these Medicaid devices, or for a referral to an Elder Law attorney in your state, commonwealth, district, or territory, please call either of the numbers below or visit my website and click on the “contact” button.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Divorce Will Not Help to Pay the Nursing Home

Married clients have been coming to me for long-term care (nursing home) financial planning for over 20 years. Of hundreds of couples, there was only one case where I assisted in a divorce. I do not consider divorce a viable strategy to help the healthy spouse save the couple’s assets, but many less-experienced attorneys suggest divorce. Here is why it is a bad idea: Unless the attorneys hoodwink the judge, divorce usually results in a 50/50 split of assets. In most states, an Elder Law attorney is able to preserve most or all of the combined estates for the spouse who is not in a nursing home.

The one client who divorced his wife did so because he genuinely wanted to be out of his marriage. The situation was similar to the “Harry’s Law” episode of November 2, 2011, “The Rematch.” http://www.nbc.com/harrys-law/video/no-good-deed-goes-unpunished/1365871 Katherine Helmond, playing Gloria Gold, wanted a divorce from Abe, her husband. Although Tommy, played by Christopher McDonald, offered to pay for Abe’s care at home, Gloria refused. The financial aspect was only Gloria’s excuse for divorcing her husband. She said, “For 60 years I’ve had to hear those jokes.” Gloria wanted desperately to get away from Abe and his wisecracks. Like Gloria, my client wanted a divorce even though I told him that it would be in his financial interest to remain married.

I explained to my client that a divorce, at best, would result in half the marital estate being awarded to the spouse in the nursing home. Many judges would look at the nursing home spouse’s situation and give him or her more than half. There are various reasons for this – sympathy for a vulnerable person being abandoned by a spouse, financial support due to high living expenses, or concern about the high, cost to the government of nursing care. A pre-nuptial agreement might help reduce the share awarded to the nursing home spouse, but divorce rarely results in the community spouse walking away with more than half the assets and no alimony obligation. Despite the financial disadvantages, my client went through with the divorce.

More often, clients come to me heartsick at the thought of getting a divorce. They are greatly relieved when I tell them that I can protect all their money without putting them through a divorce. It is unfortunate that so many attorneys think divorce is necessary when Medicaid rules allow less catastrophic plans.

A competent Elder Law attorney can usually achieve a much better result. Unlike a divorce property settlement, the Medicaid asset allocation for a married couple excludes the home and one car. After that, the community spouse (the one who is not in the nursing home) is allowed to keep half of the couple’s assets up to $113,640, plus funeral agreements. Many states’ Medicaid programs also exclude a community spouse’s retirement funds. If Sam and Hazel have a $200,000 home and $200,000 in savings, a divorce judge would give each spouse half of their $400,000, but Medicaid would allow the community spouse to keep the home and half of the savings, a more comfortable $300,000.

Because Sam and Hazel have $200,000 in countable assets, Hazel would have $100,000 too much if Sam entered long-term care. This $100,000 excess can be preserved for Hazel. Getting a divorce would not improve her financial security and would probably impair it.

There are four ways that excess funds can be preserved for Hazel, the community spouse: 1) Home improvement or purchase, 2) Single premium immediate annuity, 3) Irrevocable sole-benefit trust, or 4) Small business investment. Each of these methods of protecting assets has advantages and disadvantages. Furthermore, not all four can be done in all states.

The above four techniques for protecting a community spouse of a person in a nursing home will be discussed in the next four columns:

Home Sweet Home Investment
White-Water Rafting on the Income Stream
Trust Me, But Not in the Third Circuit
Risky Business

Each column will describe one of these strategies, explaining the pros and cons, how they work, and in what states they are available. This is not a comprehensive discussion, but it will give the reader some insight into ways that an Elder Law attorney may help the spouse of a nursing home resident maintain his or her financial security. For more information about these Medicaid devices, or for a referral to an Elder Law attorney in your state, please call either of the numbers below or visit my website and click on the “contact” button.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Putting Older Michiganians through the Wringer

Over the past several years, the Michigan Department of Social Services has been ratcheting up the difficulty of applying for long-term care Medicaid. In 2007, diabolical rules about anyone over 65 who gives anything away were put in place. While some states, like Pennsylvania, allow gifts that are within certain limits, Michigan’s rules penalize holiday or birthday gifts to grandkids, church tithes, and even handouts to panhandlers. In practice, eligibility workers try to disqualify applicants who sell their homes at market price, if the sale is below the property tax assessment value. In this real estate market, listing at the assessment value and waiting for a buyer would be like sending Lindsay Lohan a 12-step brochure and waiting for her to sober up.

Earlier this year, an eligibility manual revision included rules on jointly-held property that would be farcical if they were not so unfair to vulnerable adults. Michigan DHS goes to great lengths to make it difficult to qualify and get an application approved. The Department seems to believe that the most cherished goal of anyone over 65 is to get into a nursing home and have the state pay for the care. Since it assumes that older Americans spend all their time devising ways to get rid of their money, the Department devises every trick and hurdle it can think of to thwart anyone qualifying for Medicaid.

Having stuck joint owners of property like lambs at Eid, Michigan Medicaid decided to victimize the dead. It instituted estate recovery to grab the homes of deceased Medicaid recipients. The estate-recovery program initiated this past summer was undesirable, but not unreasonable. There was an exclusion equal to half the average price of a home in the county. Now, Michigan Senator Kahn, from Saginaw, has hatched a plot to suck Medicaid recipients’ estates drier than an appellate brief in a utilities rate case. For details review “Can the Kahn Plan,” June 12, 2011.

That the state is so hostile to people in nursing homes is perplexing. The Engler Administration, from 1991 to 2002, was much more accommodating. It made sense for the state to interpret the rules liberally. While the state is now trying to cut corners, Medicaid is the wrong program to scrimp on because the state gains so much by spending Medicaid dollars.

It only costs the state about a quarter to spend a Medicaid dollar. The federal government covers about 55% of the Medicaid budget. Since medical expenses largely fund payroll and building expenses, the state gets back 10-15% of the Medicaid dollar in payroll, sales, and property taxes. In light of the federal subsidy and recovery through taxes cutting back on Medicaid spending is false economy. The state is hurting itself by being so niggardly, as well as making life difficult for some our least fortunate citizens. Lean on your state legislators to vote against the Kahn Plan, Senate Bills 404, 405, and 406, ant to urge the Department of Human Services to stop stuffing elderly citizens into the wringer.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Pennsylvania Commonwealth Bureaucracy

Pennsylvania Commonwealth bureaucracy is truly amazing. The Department of Revenue just issued a regulation on the application of realty transfer taxes found at http://www.irrc.state.pa.us//regulation_details.aspx?IRRCNo=2924. Among other changes, the regulation provides clarification that a transfer to a revocable living trust for estate-planning purposes is generally not taxed, which was essentially true before the regulation was issued. No big change, then.

The prefatory material to this 67-page regulation include the following queries and responses:

Q – If data is the basis for this regulation, please provide a description of the data.

R – No scientific data, studies or references are used to justify this regulation.

Q – Describe who and how many people will be adversely affected by the regulation.

R – No parties should be adversely affected by the regulation.

Q – List the persons, groups or entities that will be required to comply with the regulation.

R – Any entity transferring an interest in real property will be required to comply with the regulation.

Q – Approximate the number of people who will be required to comply.

R – The approximate number of people is indeterminable.

Q – Provide a specific estimate of the costs and/or savings to the regulated community associated with compliance, including any legal, accounting or consulting procedures which may be required.

R – This regulation does not increase costs or savings to the regulated community. No legal, accounting or consulting procedures are required by this regulation.

Q – Provide a specific estimate of the costs and/or savings to local governments associated with
compliance.

R – This regulation does not increase costs or savings to the local governments. No legal, accounting or consulting procedures are required by this regulation.

Q – Provide a specific estimate of the costs and/or savings to state government associated with the implementation of the regulation.

R – This regulation does not increase costs or savings to state government. No legal, accounting or consulting procedures are required by this regulation.

According to the Department of Revenue, who should know, the regulation is not based on any scientific or data analysis. It affects anyone who transfers real estate, but no one is adversely affected. It costs nothing and provides no fiscal benefit.

Assuming that all of the above is true, what is the point of promulgating the regulation? It is a lot of work to create a regulation that has no effect on anything. This is a bureaucratic masterpiece. If there were a Nobel Prize for government official self abuse, the author of this regulation would get the award.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Creditor and Attorney Burned in Asset Protection Scheme

This blog recently touched on the problems presented by asset protection promoters. Jay Adkisson describes a case where an attempt to move assets into offshore trusts blew up in the creditor’s face. http://www.forbes.com/sites/jayadkisson/2011/10/21/peter-rogan-and-attorney-fred-cuppy-indicted-for-post-claim-asset-protection-planning/ The creditor’s attorney was also burned.

The indictment breeze is blowing for Peter G. Rogan and his attorney, Frederick M. Cuppy, in the Windy City. Chicago-area U.S. Attorney, Patrick Fitzgerald–yes, the pit bull in sharkskin who persecuted the Clinton administration–lambasted Rogan and Cuppy in a 29-page indictment which can be found here: http://www.assetprotectionbook.com/casedocs/cuppyrogan/Indictment.pdf

Fitzgerald seems to have turned his attention to some actual malefactors, for a change. Rogan allegedly tried to duck a $55 million-plus Medicare fraud judgment by siphoning cash into offshore trusts for his children. Cuppy is accused of being his eager accomplice. It seems likely that both will spend substantial periods of time in federal prison.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022