| | When family members provide in their estate plans for individuals with disabilities, a bequest to a stand-alone special needs trust or to a special needs trust included in the will or revocable living trust is the usual vehicle of choice, especially when there is a need to protect eligibility for public benefits. However, there are times when an individual special needs trust (SNT) is impractical. The cost to administer the trust or problems in finding a suitable trustee can be daunting. Utilizing a pooled trust in some cases may be a better option. This article will explore the whys and hows of using a pooled trust as part of the estate planning process. What Is a Pooled Trust? In 1993 Congress enacted the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) which authorized the use of two types of SNTs to preserve the assets of a person with a disability, while at the same time permitting that person to preserve eligibility for public benefits such as Supplemental Security Income (SSI) and Medicaid. The first and most common type of SNT is commonly known as an individual or (d)(4)(A) SNT. This trust must be established by the parent or grandparent of the beneficiary (the person with the disability) or by that person's court-appointed guardian (or conservator) or by a court order. The second type of SNT that was authorized by OBRA '93 is commonly known as a pooled special needs trust or (d)(4)(C) SNT. Pooled SNTs are significantly different from (d)(4)(A) trusts in that:
Distinction Between a Beneficiary's Assets and the Donor's Assets The statutory authority in OBRA '93 for an individual SNT or a pooled SNT refers to a trust containing the individual beneficiary's assets, not assets belonging to a third party. Even so, a pooled SNT in many cases can be a vehicle for receiving assets from a third party such as a parent or grandparent. There is no restriction in OBRA ‘93 on pooled SNTs accepting third-party funds. Unless the pooled SNT's own rules prohibit donations from third parties, parents and grandparents should be able to make bequests to an existing pooled trust account as long as the account was established under the federal law requirements discussed above. In fact, many pooled trusts welcome funds from third parties so long as the beneficiary qualifies as a beneficiary with a disability. Some pooled SNT nonprofit organizations have created a companion trust specifically to accept donations from third parties. The trust is administered as a pooled trust, but the third-party trust does not accept any funds owned by the beneficiaries with disabilities. For that reason, the third-party pooled SNT does not have to require that funds remaining in the trust at the beneficiary's death be retained by the nonprofit that set up the pooled trust or be repaid to the state Medicaid agency. Advantages of Using a Pooled Trust in the Estate Plan An advantage of leaving a bequest to a pooled SNT is that the trust is already in existence and presumably has a track record for how it administers assets for beneficiaries with disabilities. Two of the biggest stumbling blocks that families face in establishing a SNT for a loved one with a disability are (1) the economics of trust administration and (2) the stability of ongoing administration. One of the key decisions in drafting any special needs trust is selecting a trustee. For any number of reasons, having a family member serve as the trustee is not necessarily a good idea. There may be actual conflicts of interest (for example, the beneficiary's sibling who is named as trustee is also a remainder beneficiary of the trust) or there may be a well-founded desire not to burden another family member with the ongoing responsibility of the trusteeship. If government benefit issues are complicated, family members may lack the needed expertise and make unintentional but costly mistakes that affect eligibility for benefits. In some cases, the family may turn to a professional trustee such as a bank or trust company for assistance. Unfortunately, most professional trustees will not accept a trust that has less than a certain minimum value, often as high as $500,000 or $1,000,000. The requirement of a high minimum trust balance rules out a professional trustee for a significant number of families. A pooled SNT can fill this gap. Most pooled SNTs will permit creation of accounts for any sum of money, regardless of how small. Pooled SNTs can also provide stability of ongoing administration. The nonprofit agency administering the pooled SNT should endure beyond the lifetime of any one individual trustee. Trustees of pooled SNTs have expertise in SNT issues, including government benefit eligibility rules and services available in the community for individuals with disabilities. So what is the disadvantage of a pooled SNT versus an individual third-party SNT? The primary one is that, as noted above, most pooled SNTs must provide for retention of the remaining trust assets when the trust beneficiary dies. Depending upon the state and the trust, any funds remaining in the beneficiary's sub-account must be paid over to the charity for its general charitable purposes, paid to the state Medicaid agency for Medicaid benefits the beneficiary received during his or her lifetime, or some combination of those two retention requirements. Where these purposes coincide with the charitable desires of the donors, this may not be a problem. However, where the donors want any remainder to go to other family members, problems can arise. It is prudent for the professional advisor or family member to check with the trustee of the pooled SNT before the account is established if this is important. If the pooled SNT has a companion SNT specifically designated to receive funds exclusively from third parties, it may be possible to leave any trust balance to other family members and avoid the requirement that the trust balance be retained by the charity or repaid to the state Medicaid agency. Opening a Pooled Trust Account It is very simple to set up a pooled SNT account. The master trust is already in existence so it is simply necessary to complete enrollment forms to open up a new account for the beneficiary. Enrollment forms may be available from the pooled SNT's website. The account must be set up initially by the beneficiary, a parent or grandparent, a guardian or conservator, or the court. Sometimes the pooled SNT requires that the person opening the account first consult with an attorney. The enrollment forms usually ask for information about the beneficiary's needs and individuals who can be consulted regarding distributions on behalf of the beneficiary. Most pooled SNTs charge an initial enrollment fee and an annual maintenance fee. This of course varies from trust to trust. Some pooled SNTs use a sliding scale based on the value of the account, and some trusts may waive the fees altogether if the balance in the account is small. Even if the primary contribution to the pooled SNT is going to occur upon the death of the donor, it may be prudent to establish the account during the donor's lifetime, funding it with a relatively small amount initially. In addition to funding a pooled SNT account through a will, a pooled SNT account could also be the designated beneficiary of a life insurance policy. Once a pooled SNT account is opened and funded, the trustee should administer the account like any other special needs trust. Requests to the trustee for distributions may be made by the beneficiary or by individuals designated in the enrollment forms to make requests on behalf of the beneficiary. It will be up to the discretion of the trustee to determine if a requested distribution is appropriate. If the beneficiary is unable to make distribution requests on his or her own behalf and if there are no designated friends or family members to do so, it may be necessary for the trustee to assign a case manager to determine how the trust can benefit the beneficiary. Conclusion When providing for loved ones with disabilities, a bequest to a pooled SNT, whether a (d)(4)(C) or a companion third-party type, may be an appropriate alternative to establishing a stand-alone third-party SNT or a special needs trust as a sub-trust in one's will or revocable living trust. Family members should consult with an attorney familiar with special needs trusts to compare the options and then decide which type of trust will best meet their needs. Source: Special Needs Alliance |
Friday, January 13, 2012
Using Pooled Trusts in Estate Planning
Thursday, November 17, 2011
The CLASS Act
On October 14, 2011, the Department of Health and Human Services announced that it would not implement the portion of the Health Care Reform Act that was intended to provide voluntary long term care benefits for working Americans. The program known as the Community Living Assistance Services and Supports Act (CLASS Act) was designed to create a voluntary government program under which employees would pay a monthly premium and would be eligible for modest benefits for their long term care needs after five years of paying premiums. The program was open to anyone who met certain work requirements - regardless of their health.
Under the terms of the CLASS Act, the program would go into effect only if it were economically viable. Secretary of Health and Human Services Kathleen Sebelius stated that she “did not see a viable path forward for CLASS implementation at this time." The report cited actuarial and solvency impediments as the reason why they had not found a way to make the program work. Premiums were projected to be too high and few healthy people were projected to enroll.
The problem that the CLASS Act was intended to address – aging population and paying for the high cost of long term care assistance - remains a pressing issue. The current cost for a nursing home in New York is $140,000 a year. The cost for home health care is $250 per day for 24/7 care and the cost of assisted living is $3,000-$6,000 per month. These costs are expected to continue to rise.
Enrollment in private long term care insurance, subject to underwriting, can secure a policy for an individual that will provide the benefits needed for the future - be it staying at home with an aid or moving to a nursing home or an assisted living residence. As one grows older, the cost of long term care insurance rises substantially and it may simply be unavailable should one become ill. As a New York resident, one may be eligible for a program called the New York State Partnership for Long Term Care Insurance (NYSPLTC). This allows residents to protect their assets while applying for Medicaid Extended Coverage if their long term care needs exceed the period covered by their qualified NYSPLTC insurance policy.
Long term care insurance is a benefit offered by employers to their employees and/or key people. Employers, self-employed, LLC members, Sub C owners and partners in a partnership are eligible to receive income tax advantages as it relates to long term care insurance premiums. In addition, New York State offers a 20% tax credit. Because long term care insurance is not considered an ERISA benefit, employers can offer it to employees on a select basis. Insurers often offer simplified underwriting and/or discounts to a block of people from a company or an association buying long term care insurance.
Attached is a link to an article from The New York Times that details the ending of the CLASS program: http://www.nytimes.com/2011/10/15/health/policy/15health.html.
Source: Robert S. Israel, CLU, Long Island Planning Group
Friday, September 23, 2011
It's Happened!
After many years of speculation, warnings and minor revisions, it has finally happened:
New York State has imposed new regulations stating that the use of LIFE ESTATE interests in real property are no longer an effective strategy for families trying to protect 100% of their property from the high cost of long term care.
If you or anyone you know, utilized a LIFE ESTATE within an estate plan in order to protect the interests of a family home, please be sure to call us immediately to schedule a consultation. Don’t wait until it’s too late to do anything about it. We cannot help you restructure your plan if you do not contact us.
Call us at 631-234-3030 to arrange to come in to discuss alternate options while they still exist.
New York State has imposed new regulations stating that the use of LIFE ESTATE interests in real property are no longer an effective strategy for families trying to protect 100% of their property from the high cost of long term care.
If you or anyone you know, utilized a LIFE ESTATE within an estate plan in order to protect the interests of a family home, please be sure to call us immediately to schedule a consultation. Don’t wait until it’s too late to do anything about it. We cannot help you restructure your plan if you do not contact us.
Call us at 631-234-3030 to arrange to come in to discuss alternate options while they still exist.
Friday, July 22, 2011
Most Baby Boomers Lack a Plan to Care for Parents
A majority of Baby Boomers say they are likely to become caregivers for their parents, but only half can name any medications their parents take, a new survey shows.
The survey of 600 adults ages 45 to 65, conducted for the Home Instead Senior Care network, also found:
31% don't know how many medications their parents take.
34% don't know whether their parents have a safe deposit box or where the key is.
36% don't know where their parents' financial information is located.
"The majority of caregivers we work with have done no advance planning,'' says Jeff Huber, president of Home Instead Senior Care, a company that provides non-medical care services. "It is not important until it's urgent. So much stress and uncertainty down the road can be prevented."
Lack of planning can lead to serious complications when decisions need to be made quickly, says palliative care nurse practitioner Mimi Mahon, an associate professor at George Mason University in Virginia. "It's vitally important to plan ahead and have these conversations with parents, or families can act out of fear and make mistakes when emergencies arise."
Prescription drugs are of particular concern. In the survey, 49% couldn't name a single drug their parents took. Ask parents about their medications and, if necessary, do research, experts say. Find out the dose, what it's for, who prescribed it and why. People 65 and older account for about a third of all medications prescribed in the U.S., according to the National Institutes of Health, and older patients are more likely to have long-term and multiple prescriptions, which could lead to unintentional misuse.
"It's kind of a never-ending process for caregivers," says Sandy Markwood, head of the National Association of Area Agencies on Aging, part of the Department of Health and Human Services. "It gets further complicated when there is more than the family practitioner. A parent might have several specialists. It's a lot for a caretaker to keep up."
Markwood says the Administration on Aging, also under HHS, has been encouraging better record-keeping by seniors and stronger communication between seniors and caretakers since Hurricane Katrina. "Then you had a situation when seniors were evacuated without their medications and no one knew what medications they were on," Markwood says. "Doctors had to start from scratch."
One must-have answer for caretakers: What drugs can parents go without and which ones must be taken on schedule. For instance, blood pressure and anti-depressant medications cannot be missed, Mahon says.
The bottom line, she says, is being a staunch advocate for your parents' health care starts with "having conversations and putting plans in place."
Source: www.elderlawanswers.com June 20, 2011
The survey of 600 adults ages 45 to 65, conducted for the Home Instead Senior Care network, also found:
31% don't know how many medications their parents take.
34% don't know whether their parents have a safe deposit box or where the key is.
36% don't know where their parents' financial information is located.
"The majority of caregivers we work with have done no advance planning,'' says Jeff Huber, president of Home Instead Senior Care, a company that provides non-medical care services. "It is not important until it's urgent. So much stress and uncertainty down the road can be prevented."
Lack of planning can lead to serious complications when decisions need to be made quickly, says palliative care nurse practitioner Mimi Mahon, an associate professor at George Mason University in Virginia. "It's vitally important to plan ahead and have these conversations with parents, or families can act out of fear and make mistakes when emergencies arise."
Prescription drugs are of particular concern. In the survey, 49% couldn't name a single drug their parents took. Ask parents about their medications and, if necessary, do research, experts say. Find out the dose, what it's for, who prescribed it and why. People 65 and older account for about a third of all medications prescribed in the U.S., according to the National Institutes of Health, and older patients are more likely to have long-term and multiple prescriptions, which could lead to unintentional misuse.
"It's kind of a never-ending process for caregivers," says Sandy Markwood, head of the National Association of Area Agencies on Aging, part of the Department of Health and Human Services. "It gets further complicated when there is more than the family practitioner. A parent might have several specialists. It's a lot for a caretaker to keep up."
Markwood says the Administration on Aging, also under HHS, has been encouraging better record-keeping by seniors and stronger communication between seniors and caretakers since Hurricane Katrina. "Then you had a situation when seniors were evacuated without their medications and no one knew what medications they were on," Markwood says. "Doctors had to start from scratch."
One must-have answer for caretakers: What drugs can parents go without and which ones must be taken on schedule. For instance, blood pressure and anti-depressant medications cannot be missed, Mahon says.
The bottom line, she says, is being a staunch advocate for your parents' health care starts with "having conversations and putting plans in place."
Source: www.elderlawanswers.com June 20, 2011
Friday, June 24, 2011
Expanded Medicaid Estate Recovery Is Coming To New York
The federal government passed a law in 1993 (2) which contained a mandate that each state must have a Medicaid law containing an estate recovery provision, but left to the states the choice of either limited or expanded recovery. In 1994, New York accepted this mandate and chose to limit estate recovery to the probate or intestate estate of a Medicaid recipient. (3) Recently, New York expanded estate recovery beyond the probate and intestate estate to "any other property in which the individual has any legal title or interest at the time of death, including jointly held property, retained life estates, and interests in trusts, to the extent of such interests." (4) Is this the end of Medicaid planning as we know it?
The answer is we don't know anything for sure right now. What we do know is that while the law has passed with an effective date of April 1, 2011, the law will not be implemented until regulations are adopted by the Commissioner of the New York State Department of Health. (5) The Elder Law Sections of our state and county bar associations, the New York NAELA (6) chapter, and many other interest groups advocating for the rights of people with disabilities and the elderly, are hard at work to help shape these regulations, which may be forthcoming within weeks or possibly years. When finally promulgated, which I expect to be sooner rather than later, such regulations will hopefully clear the way to our understanding of the law and permit the continued use of some planning techniques. For now, we have more questions than answers. If a person has already undertaken Medicaid planning, they should do nothing until such regulations are issued.
Let's break down the new law a little further. First, the new law targets all property in which the Medicaid recipient had a legal title or interest at the time of death. It appears that the reference to "legal title" focuses the law on what is owned at the time of death. Frankly, this seems fair and straightforward. The question we ponder now is whether the term "legal interest" is a concept that goes beyond title or ownership. Is the mere right to income from an asset a "legal interest" subjecting the underlying asset to estate recovery? If the answer is yes, does the answer change if there is no right to income but rather only the right to mere possession of the asset? What about a retained power in a trust document, such as a power of appointment to change trustees or beneficiaries? In other words, to what extent are certain rights and powers going to be considered a legal interest subjecting the whole or part of any asset to estate recovery? Also, does it matter whether the right or power was retained in a transfer or created by a third party? We do not know the answers to these questions.
What is clear is that business as usual is now over in New York. In the past, estate recovery was simply something that we did not have to worry about. We all knew that each county was hanging out in its Surrogate's Court and matching its records against all estates that passed through its doors. Therefore, all we had to do to escape estate recovery was to stay out of Surrogate's Court, that is, to simply avoid probate. Avoiding probate was accomplished easily by having a beneficiary on an account , or by creating joint accounts (7) with right of survivorship, life estates, or revocable and irrevocable trusts. These techniques are all now in question as the new law specifically mentions joint ownership, life estates and trusts. We just do not know as to what extent their usefulness is lost.
Let us turn our attention now to jointly held property. As a practical matter, property owned jointly with the Medicaid applicant would be small, as such property would be available to pay for care, rendering the joint owner ineligible for Medicaid. However, this would not be true for any amounts equal to or less than the personal exemption of $13,800. Therefore, the new law would permit recovery from such exempt accounts. I believe that this will certainly be fair game within the new forthcoming regulations.
In addition, recovery is also permitted from the estate of the surviving spouse, in amounts that can far exceed the personal exemption of $13, 800 allowed the Medicaid recipient. This could involve hundreds of thousands of dollars jointly held between the surviving spouse and the children. Again, I believe that this will be fair game within the new forthcoming regulations. This will prompt spouses to transfer assets out of their names prior to death to avoid estate recovery, a decision which may not be in their best interest or even good public policy. Of course the ethical consideration would depend on the circumstances of each case.
The new law also targets life estates. A common, although often ill-advised, plan is to protect real estate by transferring it to family with the grantor retaining a life estate. Such real estate would not be considered a countable asset for Medicaid eligibility purposes, subject to a five year look back. The new law potentially makes these life estate plans vulnerable to estate recovery as well. At this point, we do not know the extent of this estate recovery. Would the recovery be allowed against the entire property, or perhaps only a fraction equal to the value of the life estate interest at the age of the life tenant at the time of her death? An argument can also be technically made that the value of a life estate at the time of someone's death is zero. Indeed, the new estate recovery statute references the value of the interest at the time of death, not the moment prior to death, so litigation may be necessary to define the extent of the statute's reach. New Jersey, a state which has had such expanded estate recovery for years, chose to recognize the technical problems with such a statute and elected to not apply the law to life estates.
In any event, it is also interesting to note that the law does not distinguish between life estates created by a Medicaid recipient and life estates created by third parties. For example, suppose that upon a father's death, he creates a life estate in the family home for his daughter with disabilities, which then passes to the grandchildren on her death. If such daughter needs Medicaid, will New York have a right of recovery against the home? I would think not, but the potential exists.
Lastly, the law specifically targets "interests in trusts". Recovery now from revocable trusts seems to be a given because of the full control retained by the Settlor. However, it is with irrevocable trusts that suspense exists. Irrevocable trusts have been the most effective planning tool for people trying to protect their assets because it facilitates a full transfer of the assets for Medicaid purposes while allowing the Settlor to retain certain rights and powers and tax favorable outcomes. A typical trust could include the right to retain the income or possession of a transferred asset, or the power to change trustees, change beneficiaries or block the sale of an asset. These extra rights and powers give people the confidence to transfer their assets which might not be there if they were transferring their assets directly to their children. In addition, these rights and powers provide powerful tax benefits, including triggering the Grantor Trust Rules. The Grantor Trust Rules allow us to control (i) who will be taxed on trust income and (ii) who, if any one, will be entitled to deductions, exemptions and exclusions, such as the $250,000 capital gain exclusion on the sale of a principal residence. (8)
Furthermore, retaining the right to the use and occupancy of a personal residence held in an irrevocable trust allows us to keep all the property tax exemptions, including the STAR, Enhanced STAR, Senior and Veterans exemptions. The right to occupancy alone is insufficient to keep these exemptions; the right to "use" is essential and "use"includes the concept of income. Therefore, to retain these property tax exemptions on a principal residence, one must retain the right to the income from such residence, even though such income rarely exists. However, the new law may be interpreted to mean that estate recovery may be had against any asset in which the Settlor retained a right to income. This is the New Jersey experience with estate recovery. Therefore, if the estate recovery law goes this far, a choice will have to be made whether or not to lose the property tax exemptions. Many working and middle class families may not be able to afford such a loss.
Alarmingly, there is no grand fathering of life estates or irrevocable trusts created prior to the new law, unless the regulations will so provide. As such, people who may have created life estates or irrevocable trusts twenty years ago may still see their homes and other assets fall to estate recovery in the future.
So how does one plan today prior to the issuance of regulations? First, stay away from life estates. Life estates are usually a bad idea anyway because of the negative tax and Medicaid consequences that follow a sale of the property during life. (9) Irrevocable trusts still remain the best planning technique for now, but care must be taken to retain the least amount of rights and powers possible. Some clients will insist on retaining certain rights and powers, opting to attempt to eliminate them at some time in the future, such as when the new law comes down, or when they apply for Medicaid, or at least prior to their death. Remember, the law seeks estate recovery to the extent of the interest at the time of death.
One last technical point about the new law is that it also provides that New York can collect against an asset in the hands of the beneficiary. This makes sense, otherwise the law would have no teeth. Therefore, upon the death of the owner, joint owner, life tenant or trust Settlor, estate recovery will be made against an asset in the hands of the person or persons who next own the asset, but only from such asset and only to the extent that the Medicaid recipient held legal title or interest in such asset.
In conclusion, we have a new estate recovery law in New York but we do not know how it will be implemented. Personally, I think this could be a good law if narrowly tailored. We are in difficult economic times and simply avoiding probate makes it too easy to skirt reasonable estate recovery laws. However, if the law is pushed to eliminate the use of life estates and irrevocable trusts, then this law goes too far. People who engage in Medicaid planning are generally working and middle class people who are trying to save their home and modest amounts of assets. If time honored planning techniques are taken away, people will turn to more drastic measures such as (i) outright transfers with the consequent complete loss of control, (ii) divorce or (iii) moving out of New York. Also, there is an inherent unfairness to the law if applied retroactively. Hopefully, the Commissioner of the Department of Health will issue regulations with temperance.
1. Certified Elder Law Attorney by the National Elder Law Foundation (NELF). NELF is not affiliated with any governmental authority. Certification is not a requirement for the practice of law in the State of New York and does not necessarily indicate greater competence than other attorneys experienced in this field of law."
2. "OBRA 93"
3. See Subdivision 6 of section 369 of the Social Services Law, as added by Chapter 170 of the laws of 1994.
4. See Section 53 of Part H of Bill Number S2809.
5. Since we have an effective date of April 1, 2011, it would appear that once we have regulations, the law will be implemented retroactive to April 1, 2011; however, it is possible that the regulations will be prospective in nature.
6. National Academy of Elder Law Attorneys
7. This will include, but may not be limited to in-trust-for bank accounts at banks, TOD or POD accounts, life insurance and annuity accounts with named beneficiaries and may even include IRAs and other retirement accounts with designated beneficiaries (although unlikely due to creditor protection laws for retirement accounts).
8. See IRS Code Section 121.
9. Sale of property with a retained life estate subjects the life estate portion to Medicaid lien recovery or the need to retransfer the property with a new look back. The remainder value will be subject to capital gains.
The answer is we don't know anything for sure right now. What we do know is that while the law has passed with an effective date of April 1, 2011, the law will not be implemented until regulations are adopted by the Commissioner of the New York State Department of Health. (5) The Elder Law Sections of our state and county bar associations, the New York NAELA (6) chapter, and many other interest groups advocating for the rights of people with disabilities and the elderly, are hard at work to help shape these regulations, which may be forthcoming within weeks or possibly years. When finally promulgated, which I expect to be sooner rather than later, such regulations will hopefully clear the way to our understanding of the law and permit the continued use of some planning techniques. For now, we have more questions than answers. If a person has already undertaken Medicaid planning, they should do nothing until such regulations are issued.
Let's break down the new law a little further. First, the new law targets all property in which the Medicaid recipient had a legal title or interest at the time of death. It appears that the reference to "legal title" focuses the law on what is owned at the time of death. Frankly, this seems fair and straightforward. The question we ponder now is whether the term "legal interest" is a concept that goes beyond title or ownership. Is the mere right to income from an asset a "legal interest" subjecting the underlying asset to estate recovery? If the answer is yes, does the answer change if there is no right to income but rather only the right to mere possession of the asset? What about a retained power in a trust document, such as a power of appointment to change trustees or beneficiaries? In other words, to what extent are certain rights and powers going to be considered a legal interest subjecting the whole or part of any asset to estate recovery? Also, does it matter whether the right or power was retained in a transfer or created by a third party? We do not know the answers to these questions.
What is clear is that business as usual is now over in New York. In the past, estate recovery was simply something that we did not have to worry about. We all knew that each county was hanging out in its Surrogate's Court and matching its records against all estates that passed through its doors. Therefore, all we had to do to escape estate recovery was to stay out of Surrogate's Court, that is, to simply avoid probate. Avoiding probate was accomplished easily by having a beneficiary on an account , or by creating joint accounts (7) with right of survivorship, life estates, or revocable and irrevocable trusts. These techniques are all now in question as the new law specifically mentions joint ownership, life estates and trusts. We just do not know as to what extent their usefulness is lost.
Let us turn our attention now to jointly held property. As a practical matter, property owned jointly with the Medicaid applicant would be small, as such property would be available to pay for care, rendering the joint owner ineligible for Medicaid. However, this would not be true for any amounts equal to or less than the personal exemption of $13,800. Therefore, the new law would permit recovery from such exempt accounts. I believe that this will certainly be fair game within the new forthcoming regulations.
In addition, recovery is also permitted from the estate of the surviving spouse, in amounts that can far exceed the personal exemption of $13, 800 allowed the Medicaid recipient. This could involve hundreds of thousands of dollars jointly held between the surviving spouse and the children. Again, I believe that this will be fair game within the new forthcoming regulations. This will prompt spouses to transfer assets out of their names prior to death to avoid estate recovery, a decision which may not be in their best interest or even good public policy. Of course the ethical consideration would depend on the circumstances of each case.
The new law also targets life estates. A common, although often ill-advised, plan is to protect real estate by transferring it to family with the grantor retaining a life estate. Such real estate would not be considered a countable asset for Medicaid eligibility purposes, subject to a five year look back. The new law potentially makes these life estate plans vulnerable to estate recovery as well. At this point, we do not know the extent of this estate recovery. Would the recovery be allowed against the entire property, or perhaps only a fraction equal to the value of the life estate interest at the age of the life tenant at the time of her death? An argument can also be technically made that the value of a life estate at the time of someone's death is zero. Indeed, the new estate recovery statute references the value of the interest at the time of death, not the moment prior to death, so litigation may be necessary to define the extent of the statute's reach. New Jersey, a state which has had such expanded estate recovery for years, chose to recognize the technical problems with such a statute and elected to not apply the law to life estates.
In any event, it is also interesting to note that the law does not distinguish between life estates created by a Medicaid recipient and life estates created by third parties. For example, suppose that upon a father's death, he creates a life estate in the family home for his daughter with disabilities, which then passes to the grandchildren on her death. If such daughter needs Medicaid, will New York have a right of recovery against the home? I would think not, but the potential exists.
Lastly, the law specifically targets "interests in trusts". Recovery now from revocable trusts seems to be a given because of the full control retained by the Settlor. However, it is with irrevocable trusts that suspense exists. Irrevocable trusts have been the most effective planning tool for people trying to protect their assets because it facilitates a full transfer of the assets for Medicaid purposes while allowing the Settlor to retain certain rights and powers and tax favorable outcomes. A typical trust could include the right to retain the income or possession of a transferred asset, or the power to change trustees, change beneficiaries or block the sale of an asset. These extra rights and powers give people the confidence to transfer their assets which might not be there if they were transferring their assets directly to their children. In addition, these rights and powers provide powerful tax benefits, including triggering the Grantor Trust Rules. The Grantor Trust Rules allow us to control (i) who will be taxed on trust income and (ii) who, if any one, will be entitled to deductions, exemptions and exclusions, such as the $250,000 capital gain exclusion on the sale of a principal residence. (8)
Furthermore, retaining the right to the use and occupancy of a personal residence held in an irrevocable trust allows us to keep all the property tax exemptions, including the STAR, Enhanced STAR, Senior and Veterans exemptions. The right to occupancy alone is insufficient to keep these exemptions; the right to "use" is essential and "use"includes the concept of income. Therefore, to retain these property tax exemptions on a principal residence, one must retain the right to the income from such residence, even though such income rarely exists. However, the new law may be interpreted to mean that estate recovery may be had against any asset in which the Settlor retained a right to income. This is the New Jersey experience with estate recovery. Therefore, if the estate recovery law goes this far, a choice will have to be made whether or not to lose the property tax exemptions. Many working and middle class families may not be able to afford such a loss.
Alarmingly, there is no grand fathering of life estates or irrevocable trusts created prior to the new law, unless the regulations will so provide. As such, people who may have created life estates or irrevocable trusts twenty years ago may still see their homes and other assets fall to estate recovery in the future.
So how does one plan today prior to the issuance of regulations? First, stay away from life estates. Life estates are usually a bad idea anyway because of the negative tax and Medicaid consequences that follow a sale of the property during life. (9) Irrevocable trusts still remain the best planning technique for now, but care must be taken to retain the least amount of rights and powers possible. Some clients will insist on retaining certain rights and powers, opting to attempt to eliminate them at some time in the future, such as when the new law comes down, or when they apply for Medicaid, or at least prior to their death. Remember, the law seeks estate recovery to the extent of the interest at the time of death.
One last technical point about the new law is that it also provides that New York can collect against an asset in the hands of the beneficiary. This makes sense, otherwise the law would have no teeth. Therefore, upon the death of the owner, joint owner, life tenant or trust Settlor, estate recovery will be made against an asset in the hands of the person or persons who next own the asset, but only from such asset and only to the extent that the Medicaid recipient held legal title or interest in such asset.
In conclusion, we have a new estate recovery law in New York but we do not know how it will be implemented. Personally, I think this could be a good law if narrowly tailored. We are in difficult economic times and simply avoiding probate makes it too easy to skirt reasonable estate recovery laws. However, if the law is pushed to eliminate the use of life estates and irrevocable trusts, then this law goes too far. People who engage in Medicaid planning are generally working and middle class people who are trying to save their home and modest amounts of assets. If time honored planning techniques are taken away, people will turn to more drastic measures such as (i) outright transfers with the consequent complete loss of control, (ii) divorce or (iii) moving out of New York. Also, there is an inherent unfairness to the law if applied retroactively. Hopefully, the Commissioner of the Department of Health will issue regulations with temperance.
1. Certified Elder Law Attorney by the National Elder Law Foundation (NELF). NELF is not affiliated with any governmental authority. Certification is not a requirement for the practice of law in the State of New York and does not necessarily indicate greater competence than other attorneys experienced in this field of law."
2. "OBRA 93"
3. See Subdivision 6 of section 369 of the Social Services Law, as added by Chapter 170 of the laws of 1994.
4. See Section 53 of Part H of Bill Number S2809.
5. Since we have an effective date of April 1, 2011, it would appear that once we have regulations, the law will be implemented retroactive to April 1, 2011; however, it is possible that the regulations will be prospective in nature.
6. National Academy of Elder Law Attorneys
7. This will include, but may not be limited to in-trust-for bank accounts at banks, TOD or POD accounts, life insurance and annuity accounts with named beneficiaries and may even include IRAs and other retirement accounts with designated beneficiaries (although unlikely due to creditor protection laws for retirement accounts).
8. See IRS Code Section 121.
9. Sale of property with a retained life estate subjects the life estate portion to Medicaid lien recovery or the need to retransfer the property with a new look back. The remainder value will be subject to capital gains.
Wednesday, April 13, 2011
The Pre-Existing Condition Insurance Plans (PCIP) Under 2010's Health Care Reform Law
The 2010 health care reform law, now referred to as the "ACA" (Affordable Care Act), is much like a jigsaw puzzle. To create comprehensive reform, a number of pieces must be in place. One of the most important pieces prohibits private insurance companies from denying coverage to individuals based upon the fact that they have a pre-existing condition. Until the ACA, most persons covered under a group health insurance plan could be covered even when a pre-existing condition was present. However, individuals with pre-existing conditions but lacking group coverage found health insurance to be either unavailable or prohibitively expensive. Therefore, a critical component of the ACA is that, beginning in 2014, insurers will no longer be able to deny coverage to any individual on the basis that he or she has a pre-existing condition.
While this is an encouraging development, proponents of health care reform understood that tens of thousands of Americans with pre-existing conditions would remain uncovered until 2014. Individuals who are already ill would continue to go without coverage and without treatment, become more seriously ill and as a result would need care in a more expensive environment such as a hospital or emergency room. Some would die without necessary medical attention. To avoid the human tragedy and economic loss that results from non-coverage, the ACA included a provision known as "Pre-Existing Coverage Insurance Plans," or "PCIPs."
In November, 2010, the Centers for Disease Control reported that more adults between the ages of 18 and 64 went without health care between 2008 and 2010 than ever before. (See http://www.cdc.gov/vitalsigns/healthcareAccess/LatestFindings.html for this and most of the following data.) Between January and March, 2010, as many as 30 million Americans had been uninsured for more than 12 months. Of the more than 46 million adults in the 18-64 age group, 30% have a disability. The 30% with a disability had gone for more than 12 months without health care. Persons with disabilities were shown to be about twice as likely to skip or delay medical care.
The elimination of pre-existing condition exclusions was a key element of the ACA and provides new planning opportunities for persons with disabilities. The federal government set aside five billion dollars in funding for the program until the 2014 plans come into existence. The programs are completely federally funded and states are not required to participate financially. Twenty-three states and the District of Columbia have chosen to have the federal government administer the program; the remaining states are self-administering the PCIPs under their own rules within the parameters of the ACA.
A PCIP is an insurance plan that does not exclude persons with pre-existing conditions and that has affordable premiums in comparison to the individual plans currently on the market. The ACA defines a pre-existing condition as a condition, disability or illness (physical or mental) which you have before enrolling in a health plan. To qualify to participate in a PCIP, an applicant must (1) be a U.S. Citizen or in the country legally; (2) have a pre-existing condition; and (3) have been without insurance coverage of any kind (including but not limited to Medicaid or COBRA coverage) for at least the preceding six months. Documentation regarding the lack of insurance is required in most states, and may include either a denial by an insurance company, a letter from your doctor, or both. There is no age limitation for applicants to the PCIP coverage.
A PCIP is not a free pool or plan. Premiums vary by state, and, within the states, by age and plan chosen. A visit to www.healthcare.gov or www.pcip.gov will lead you to a map of states and updated information about rates and plans. As an example, the Texas PCIP is federally administered and has premiums varying from $261 to $749 per month. In addition, there are deductibles ranging from $1,000 to $3,000 depending upon the plan chosen. Co-payments also apply; however, the total amount paid out by an individual cannot be higher than $5,950 annually. This is a requirement of the ACA.
The Special Needs Alliance works with individuals who have been determined to be disabled either by the Social Security Administration or through a state's disability determination process. We are keenly aware that many people do not want to make a disability application, have not recognized that a disability is present, or have a condition which, while not currently disabling, is likely to become so. It is very important to recognize that approval to be insured under a PCIP does not require that the pre-existing condition be disabling. This fact can be very important in situations where caregivers for persons with disabilities have pre-existing conditions and are without medical insurance but have chronic illnesses which might be related to or affect their ability to provide care.
The PCIP program initially began with a single option plan; however, experience rapidly showed that this single option was insufficient. The Secretary of HHS has now announced that beginning in 2011, three plan options will be available in federally administered programs. The first is the "standard" plan, with two separate deductibles - a $2,000 deductible for medical expenses and a $500 deductible for prescription drugs. Premiums are lower than they were in 2010.
The second program is the "extended" plan and has a $1,000 medical deductible and a $250 drug deductible. The premiums for this plan will be slightly higher than the 2010 single plan premiums. Finally, there is a "health savings account" option that has a $2,500 deductible but with premiums that are 16% less than the 2010 plan. Persons choosing this option will have the tax advantages that apply to any individual who is accessing an HSA.
For persons with disabilities who cannot otherwise qualify for Medicaid assistance, the PCIPs offer relief until the total prohibition against exclusion of pre-existing conditions in health insurance coverage comes into effect in 2014. At that time, the PCIPs will cease to exist and all citizens will be able to choose from individual, group and state health exchange policies without concern for their existing health status.
Success of the PCIP program has been difficult to assess. In the first months that the program was available, enrollment was scarce. However, between late 2010 and March of 2011, enrollment has doubled from 12,000 to 24,000 people. Those observing the program's growth cite an initial lack of education about the availability of PCIP coverage as the reason for the gradual acceptance of the program's benefits. However, many also recognize that, while PCIP coverage can be a literal lifesaver for many people, it remains economically unfeasible for others. Premiums and deductibles remain out of reach for many people, especially in today's economy. Currently insured individuals (including but not limited to those with Medicaid or COBRA coverage) who might consider shifting to a PCIP plan will often find it too financially risky to go without any insurance for the six months required before they can qualify for PCIP coverage.
Nonetheless, for the disability community, we know that coverage is now available to persons of all ages who have been uninsured for at least six months, and that coverage is comprehensive, providing preventive care, acute care and prescription medication benefits. In most states, applications can be made online. Further information is available at www.pcip.gov.
Source: The Voice, April 2011, Vol. 5 Issue 6, www.specialneedsalliance.com
While this is an encouraging development, proponents of health care reform understood that tens of thousands of Americans with pre-existing conditions would remain uncovered until 2014. Individuals who are already ill would continue to go without coverage and without treatment, become more seriously ill and as a result would need care in a more expensive environment such as a hospital or emergency room. Some would die without necessary medical attention. To avoid the human tragedy and economic loss that results from non-coverage, the ACA included a provision known as "Pre-Existing Coverage Insurance Plans," or "PCIPs."
In November, 2010, the Centers for Disease Control reported that more adults between the ages of 18 and 64 went without health care between 2008 and 2010 than ever before. (See http://www.cdc.gov/vitalsigns/healthcareAccess/LatestFindings.html for this and most of the following data.) Between January and March, 2010, as many as 30 million Americans had been uninsured for more than 12 months. Of the more than 46 million adults in the 18-64 age group, 30% have a disability. The 30% with a disability had gone for more than 12 months without health care. Persons with disabilities were shown to be about twice as likely to skip or delay medical care.
The elimination of pre-existing condition exclusions was a key element of the ACA and provides new planning opportunities for persons with disabilities. The federal government set aside five billion dollars in funding for the program until the 2014 plans come into existence. The programs are completely federally funded and states are not required to participate financially. Twenty-three states and the District of Columbia have chosen to have the federal government administer the program; the remaining states are self-administering the PCIPs under their own rules within the parameters of the ACA.
A PCIP is an insurance plan that does not exclude persons with pre-existing conditions and that has affordable premiums in comparison to the individual plans currently on the market. The ACA defines a pre-existing condition as a condition, disability or illness (physical or mental) which you have before enrolling in a health plan. To qualify to participate in a PCIP, an applicant must (1) be a U.S. Citizen or in the country legally; (2) have a pre-existing condition; and (3) have been without insurance coverage of any kind (including but not limited to Medicaid or COBRA coverage) for at least the preceding six months. Documentation regarding the lack of insurance is required in most states, and may include either a denial by an insurance company, a letter from your doctor, or both. There is no age limitation for applicants to the PCIP coverage.
A PCIP is not a free pool or plan. Premiums vary by state, and, within the states, by age and plan chosen. A visit to www.healthcare.gov or www.pcip.gov will lead you to a map of states and updated information about rates and plans. As an example, the Texas PCIP is federally administered and has premiums varying from $261 to $749 per month. In addition, there are deductibles ranging from $1,000 to $3,000 depending upon the plan chosen. Co-payments also apply; however, the total amount paid out by an individual cannot be higher than $5,950 annually. This is a requirement of the ACA.
The Special Needs Alliance works with individuals who have been determined to be disabled either by the Social Security Administration or through a state's disability determination process. We are keenly aware that many people do not want to make a disability application, have not recognized that a disability is present, or have a condition which, while not currently disabling, is likely to become so. It is very important to recognize that approval to be insured under a PCIP does not require that the pre-existing condition be disabling. This fact can be very important in situations where caregivers for persons with disabilities have pre-existing conditions and are without medical insurance but have chronic illnesses which might be related to or affect their ability to provide care.
The PCIP program initially began with a single option plan; however, experience rapidly showed that this single option was insufficient. The Secretary of HHS has now announced that beginning in 2011, three plan options will be available in federally administered programs. The first is the "standard" plan, with two separate deductibles - a $2,000 deductible for medical expenses and a $500 deductible for prescription drugs. Premiums are lower than they were in 2010.
The second program is the "extended" plan and has a $1,000 medical deductible and a $250 drug deductible. The premiums for this plan will be slightly higher than the 2010 single plan premiums. Finally, there is a "health savings account" option that has a $2,500 deductible but with premiums that are 16% less than the 2010 plan. Persons choosing this option will have the tax advantages that apply to any individual who is accessing an HSA.
For persons with disabilities who cannot otherwise qualify for Medicaid assistance, the PCIPs offer relief until the total prohibition against exclusion of pre-existing conditions in health insurance coverage comes into effect in 2014. At that time, the PCIPs will cease to exist and all citizens will be able to choose from individual, group and state health exchange policies without concern for their existing health status.
Success of the PCIP program has been difficult to assess. In the first months that the program was available, enrollment was scarce. However, between late 2010 and March of 2011, enrollment has doubled from 12,000 to 24,000 people. Those observing the program's growth cite an initial lack of education about the availability of PCIP coverage as the reason for the gradual acceptance of the program's benefits. However, many also recognize that, while PCIP coverage can be a literal lifesaver for many people, it remains economically unfeasible for others. Premiums and deductibles remain out of reach for many people, especially in today's economy. Currently insured individuals (including but not limited to those with Medicaid or COBRA coverage) who might consider shifting to a PCIP plan will often find it too financially risky to go without any insurance for the six months required before they can qualify for PCIP coverage.
Nonetheless, for the disability community, we know that coverage is now available to persons of all ages who have been uninsured for at least six months, and that coverage is comprehensive, providing preventive care, acute care and prescription medication benefits. In most states, applications can be made online. Further information is available at www.pcip.gov.
Source: The Voice, April 2011, Vol. 5 Issue 6, www.specialneedsalliance.com
Friday, March 11, 2011
IRS Raises Deductibility Limits for Long Term Care Insurance
The IRS has raised the deductibility limits for long term care policies purchased in 2011. The premiums you pay for your long term care insurance are deductible as itemized medical expenses (subject to the 7.5% AGI threshold) based on your age at the end of the year. Individual taxpayers can treat premiums paid for tax-qualified long term care insurance for themselves, their spouse or any tax dependents (such as parents.)
The 2011 limits are as follows:
Age 40 or less before close of taxable year - $340
More than 40 but not more than 50 - $640
More than 50 but not more than 60 - $1270
More than 60 but not more than 70 - $3390
More than 70 - $4240
LTC insurance premiums may be paid from a Health Savings Account up to the limits shown above. In addition, a self employed individual can deduct 100% of his/her out of pocket LTC premiums up to the amounts listed above. This is an "above the line deduction" and does not require the meeting of the 7.5% AGI threshold to take the deduction.
The payment of this premium could be a great gift for those who have parents or other relatives who may benefit from this type of coverage. It's tax deductible to you and provides both you and the covered individual(s) with peace of mind that future care has been addressed. Keep in mind that it is only one part of a solid estate plan.
Source: Rosanne Roge, 2/24/11, www.rwroge.com.
Join us Thurs, April 7th at Noon at The Miller Place Inn
Learn a few simple steps that can safeguard your family from having to make painful decisions in the event of a crisis. This Elder Law and Estate Planning seminar and luncheon are FREE but reservations are required, call 631-234-3030 or email jgrisolia@davidowlaw.com today!
The 2011 limits are as follows:
Age 40 or less before close of taxable year - $340
More than 40 but not more than 50 - $640
More than 50 but not more than 60 - $1270
More than 60 but not more than 70 - $3390
More than 70 - $4240
LTC insurance premiums may be paid from a Health Savings Account up to the limits shown above. In addition, a self employed individual can deduct 100% of his/her out of pocket LTC premiums up to the amounts listed above. This is an "above the line deduction" and does not require the meeting of the 7.5% AGI threshold to take the deduction.
The payment of this premium could be a great gift for those who have parents or other relatives who may benefit from this type of coverage. It's tax deductible to you and provides both you and the covered individual(s) with peace of mind that future care has been addressed. Keep in mind that it is only one part of a solid estate plan.
Source: Rosanne Roge, 2/24/11, www.rwroge.com.
Join us Thurs, April 7th at Noon at The Miller Place Inn
Learn a few simple steps that can safeguard your family from having to make painful decisions in the event of a crisis. This Elder Law and Estate Planning seminar and luncheon are FREE but reservations are required, call 631-234-3030 or email jgrisolia@davidowlaw.com today!
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