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Update on Long-Term Care and the Recently Enacted Medicaid Regulations, Summer 2009

Trust & Estate Planning

Posted in on March 13, 2014

As history has shown, Medicaid expenditures are becoming a larger share of the budget each year. In response to this issue Congress signed the Deficit Reduction Act of 2005, which was enacted on February 8, 2006. It has been more than three years since the enactment and now is an appropriate time to review the impact of the law. A primary goal of the new laws is to eliminate so-called “eleventh hour” options. The new laws are intended to make it more difficult to qualify for Medicaid benefits in the event long-term care in a nursing home is required. The practical consequence of the new laws is that one must engage in proper planning at an earlier stage in life. The following are examples of the Medicaid transfer rules contained in the Deficit Reduction Act of 2005, which apply to transfers after February 8, 2006:

  • The “look-back period” for transfers to individuals is extended to five (5) years and remains five (5) years for transfers to trusts.
  • The starting date for the penalty period for assets transferred for less than fair market value has changed from the date of transfer to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for MassHealth long-term care benefits. In order to be eligible for such benefits the countable assets must be spent down to $2,000.00 for an individual and $109,560.00 for a community spouse according to current limits.
  • Annuities must be immediate and can still be used to convert countable assets into an income stream for the community spouse as such income is not attributable to the institutionalized spouse. The annuity must be:
    • Irrevocable annuitant can only take monthly payments out of the annuity
    • Non-transferable
    • Actuarially sound the payment cannot be longer than the annuitant’s life expectancy and the total of the anticipated payments must be equal to the purchase price of the annuity
    • The Commonwealth of Massachusetts must be named as a remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant. If the annuitant is married or has a minor or disabled child, the Commonwealth must be named as a secondary beneficiary.
  • An individual’s Continuing Care Retirement Community entrance fee is considered an available resource. For example, deposits at an assisted living facility are now at risk.
  • The purchase of a life estate will be included in the definition of “assets” unless the purchaser resides in the home for at least one year after the date of purchase.
  • Funds to purchase a promissory note, loan or mortgage will be included among assets unless the repayment terms are actuarially sound, provide for equal payments and prohibit the cancellation of the balance upon the death of the lender.
  • The equity in a principle residence becomes countable to the extent it exceeds $750,000.00, which puts the house and the equity at risk.

As a reminder, the current minimum coverage requirements for long-term care insurance are as follows:

  • Scope of Benefits
    The policy must cover nursing and custodial care in a nursing facility licensed by the Department of Public Health.
  • Daily Dollar Benefits
    The policy must have available benefits of at least $125.00 per coverage day in a nursing facility, except where the actual expense incurred is less, regardless of whether accrued benefits are measured in terms of days or dollar amount.
  • Nursing Facility Coverage Days: Lifetime Benefit Period
    The policy must have benefits available sufficient to cover at least 730 days in a nursing facility.
  • Elimination Period
    No policy may have an elimination period (days on which services are provided to an insured before the policy begins to pay benefits) longer than 365 days in a nursing facility. The application of more than one elimination period is not allowed unless the insured has received no benefits for a period of at least 180 consecutive days. In lieu of an elimination period, the policy may have a deductible of no more than $54,750.00.

These changes effectively delay the ability to qualified for long-term care benefits under Medicaid. As a result families are forced to deplete more personal assets paying for long-term care prior to qualifying for Medicaid assistance. Another unfortunate consequence is that the new rules limit certain assets from being inherited due to estate recovery rules.

Nevertheless, there are still planning opportunities for the elderly to benefit from in order to ensure optimum care and the chance to leave assets to their children. Remember that planning for long-term care must be done in conjunction with proper tax planning, disability, probate and a myriad of other issues as an act in one direction may have an adverse effect on other goals.

In the event you would like future updates sent to you via email, then please click on the link below. It is time to plan for these changes.

Attorney Christopher J. Sullivan routinely advises clients at both the advanced planning and crisis planning stages of long term care financing. The numbers contained in this update are subject to frequent change and therefore you should consult with an attorney as to the current state of the law and for legal advice with respect to any specific matter.