1 Making Medicaid Planning a Profitable Part of Your Practice Presented by: Valerie L. Peterson,...

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Making Medicaid Planning Making Medicaid Planning a Profitable Part of Your a Profitable Part of Your

Practice Practice

Presented by:

Valerie L. Peterson, J.D. &

Matthew E. Zagula, A.I.F.

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Who is Appropriate for this type of Who is Appropriate for this type of Planning?Planning?

Clients who are concerned about depleting Clients who are concerned about depleting their savings should a catastrophic illness their savings should a catastrophic illness occuroccur

Clients who have recently been diagnosed Clients who have recently been diagnosed with an illness that will require significant with an illness that will require significant long-term carelong-term care

Clients who are already receiving long-term Clients who are already receiving long-term care at home or in a facility care at home or in a facility

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Who is Appropriate for this type of Who is Appropriate for this type of Planning?Planning?

Determining minimum net worth required to fund Determining minimum net worth required to fund long-term carelong-term care

Gross monthly income from all sourcesGross monthly income from all sources Less monthly expensesLess monthly expenses Consider cost of nursing home or ALFConsider cost of nursing home or ALF Given monthly income available, how much Given monthly income available, how much

principal is needed to generate enough income principal is needed to generate enough income to cover the facility expense?to cover the facility expense?

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Determining Minimum Net Worth Determining Minimum Net Worth Needed to Fund Long-Term CareNeeded to Fund Long-Term Care

Monthly Income Monthly Income $3000$3000 Monthly ExpensesMonthly Expenses $2500$2500

Cost of nursing home care:Cost of nursing home care: $5500$5500

Assets needed to generate Assets needed to generate $5000/month=$1,200,000 (assuming 5% $5000/month=$1,200,000 (assuming 5% rate of return)rate of return)

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Medicaid – Where to Find Medicaid – Where to Find the Rulesthe Rules

42 USC 1396p (as amended by DRA 42 USC 1396p (as amended by DRA 05)05)

42 CFR 430 and 20 CFR 41642 CFR 430 and 20 CFR 416 Your Local State Medicaid ManualYour Local State Medicaid Manual Your State Administrative Your State Administrative

RegulationsRegulations

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Medicaid – The BasicsMedicaid – The Basics

Income – Determined by each StateIncome – Determined by each State Assets Assets

Between $999 and $4,150 for a Single Between $999 and $4,150 for a Single applicantapplicant

Married couples with 1 applying - Married couples with 1 applying - $101,640 (increases January 1)$101,640 (increases January 1)

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Medicaid – the BasicsMedicaid – the Basics

Countable Assets Countable Assets All bank accountsAll bank accounts Life Insurance cash value or face value Life Insurance cash value or face value

(Federal rules say $1500 or less is ok)(Federal rules say $1500 or less is ok) All investment accountsAll investment accounts IRAs (State specific)IRAs (State specific)

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Medicaid – The BasicsMedicaid – The Basics

Non-CountableNon-Countable Home (limited equity - DRA 2005)Home (limited equity - DRA 2005) VehicleVehicle Prepaid Funeral/Burial (may have to be Prepaid Funeral/Burial (may have to be

an irrevocable contract)an irrevocable contract) Life Insurance with face value of $1500 Life Insurance with face value of $1500

or less (State may allow more)or less (State may allow more) IRA?IRA? Income Producing PropertyIncome Producing Property

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Planning StrategiesPlanning Strategies

Goal: Reduce countable assets to Goal: Reduce countable assets to amount allowed as soon as possible amount allowed as soon as possible with the shortest penalty possible.with the shortest penalty possible.

Penalty period: Period of months an Penalty period: Period of months an applicant must wait if assets are applicant must wait if assets are gifted away or transferred for less gifted away or transferred for less than full market value.than full market value.

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Understanding the Penalty PeriodUnderstanding the Penalty Period

When a gift or uncompensated transfer When a gift or uncompensated transfer is made, a period of ineligibility occurs.is made, a period of ineligibility occurs.

How a penalty is calculated:How a penalty is calculated: Amount of the transfer divided by the Amount of the transfer divided by the

monthly divisor amount (set by each monthly divisor amount (set by each state) = number of months of ineligibility.state) = number of months of ineligibility.

Example: Gift of $50,000 is made in a Example: Gift of $50,000 is made in a state which uses a divisor of $5,000. Gift state which uses a divisor of $5,000. Gift results in a 10 month penalty.results in a 10 month penalty.

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When does the penalty start?When does the penalty start? Depends on whether State has Depends on whether State has

adopted DRA 2005.adopted DRA 2005. Pre-DRA 2005: Penalty starts the Pre-DRA 2005: Penalty starts the

month the transfer is made. $50,000 month the transfer is made. $50,000 gift made June 25, 2007 – penalty gift made June 25, 2007 – penalty starts the month of June.starts the month of June.

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DRA 2005: Penalty starts “the first DRA 2005: Penalty starts “the first day of a month during or after which day of a month during or after which assets have been transferred . . . Or assets have been transferred . . . Or the date on which the individual is the date on which the individual is eligible for Medicaid assistance under eligible for Medicaid assistance under the state plan and would otherwise the state plan and would otherwise be receiving institutional level care . . be receiving institutional level care . . But for the application of the penalty But for the application of the penalty period, whichever is later.”period, whichever is later.”

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$50,000 gift on June 27, 2007: $50,000 gift on June 27, 2007: Penalty will not start until the Penalty will not start until the applicant is financially eligible and is applicant is financially eligible and is in a nursing home or eligible to in a nursing home or eligible to receive nursing home level care.receive nursing home level care.

Look back period under DRA 2005 is Look back period under DRA 2005 is 5 years. The gift will be reportable 5 years. The gift will be reportable during the 5 year period.during the 5 year period.

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Pre-Crisis v. Crisis (already receiving care)Pre-Crisis v. Crisis (already receiving care)

Pre-Crisis cases often times come in as Pre-Crisis cases often times come in as estate planning clients. It is important to estate planning clients. It is important to have the conversation about how to pay have the conversation about how to pay for long-term care with them and analyze for long-term care with them and analyze the minimum net worth needed for them the minimum net worth needed for them to finance their own care. to finance their own care.

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Case StudiesCase Studies

Single or Married CoupleSingle or Married CoupleHealth Situation & BackgroundHealth Situation & BackgroundFinancial Fact PatternFinancial Fact PatternStrategyStrategyResultResult

What you need to consider:

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Pre-Crisis PlanningPre-Crisis Planning

Pre-Crisis – Roger and Judy JonesPre-Crisis – Roger and Judy Jones Roger and Judy are age 67. Roger has Roger and Judy are age 67. Roger has

high cholesterol, but Judy is in good high cholesterol, but Judy is in good health.health.

Countable assets include an investment Countable assets include an investment portfolio worth $300,000 and a second portfolio worth $300,000 and a second home in a different state worth $225,000.home in a different state worth $225,000.

Their income is meeting their expenses Their income is meeting their expenses but they are concerned about preserving but they are concerned about preserving their assets should one of them become ill.their assets should one of them become ill.

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Planning Strategies – Pre-CrisisPlanning Strategies – Pre-Crisis

One possible solution:One possible solution:

1) Place $250,000 plus the second home 1) Place $250,000 plus the second home into a Irrevocable Medicaid Trust.into a Irrevocable Medicaid Trust. Result: $475,000/$5000=95 month penalty.Result: $475,000/$5000=95 month penalty.

2) Purchase a long-term care policy for one 2) Purchase a long-term care policy for one or both of them with a 5 year benefit or both of them with a 5 year benefit period.period.

Result: All assets protected with no risk.Result: All assets protected with no risk.

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All Parties BenefitAll Parties Benefit Assets are managed by the referring Assets are managed by the referring

advisor in the Irrevocable Medicaid Trust.advisor in the Irrevocable Medicaid Trust.

Sale of Long-Term Care Insurance is made Sale of Long-Term Care Insurance is made (and maybe life insurance).(and maybe life insurance).

If all assets were not held by the referring If all assets were not held by the referring advisor, should be transferred to him/her.advisor, should be transferred to him/her.

CPA is needed for tax return for the Trust, CPA is needed for tax return for the Trust, income tax advice, and capital gains income tax advice, and capital gains advice.advice.

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Crisis Case #1 – Craig & Ruth SmalleyCrisis Case #1 – Craig & Ruth Smalley

Immediate Nursing Home Need Immediate Nursing Home Need

• Ruth is 77 years old and has Alzheimers and needs to go into a nursing home. She is now known as the institutionalized spouse.

• Craig is 78 years old and is now known as the community spouse.

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Craig & Ruth SmalleyCraig & Ruth Smalley

They have countable assets totaling They have countable assets totaling $300,000$300,000

Since they are a married couple, the Medicaid system divides their total assets by two (in most states), so that each of them has a resource of $150,000.

Since Ruth is now an institutionalized spouse, her $150,000 needs to be spent down to $2,000. Which means she has $148,000 at risk.

Craig as the Community spouse is allowed to keep only $101,640*, which means that he has $48,360 at risk.

*$101,460 (increases Jan. 1)

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In a crisis planning situation, you must consider the amount of money at risk and systematically go through the exemptions:

• Do they need home improvements?

• Does the client need a new car?

• Should they prepay their funerals?

• What is the income loss in the event of the death of one spouse?

Any of their at-risk dollars can be used to improve their home, buy a Any of their at-risk dollars can be used to improve their home, buy a car or to pre-pay funerals. They could actually go out and buy a more car or to pre-pay funerals. They could actually go out and buy a more expensive home, but the value of the new home would be subject to expensive home, but the value of the new home would be subject to certain limitations under the DRA.certain limitations under the DRA.

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Strategies

The goal is to reduce and protect your client’s assets.

If the previous strategies do not work for the client, in whole or in part, then the healthy spouse may be able to buy a Medicaid qualifying annuity in favor of the community spouse. The annuity must be irrevocable, unassignable, and have no tabular cash value. In essence, under the Medicaid rules and regulations, this money disappears as an asset and becomes an income stream payable to the community spouse.

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Strategies

Some states have add-on rules to the DRA that do not allow for Medicaid qualifying annuities. In those states, you may be able to use what’s called a Medicaid qualifying note, which is very similar to a Medicaid qualifying annuity, but instead of shifting the financial responsibility off to a third-party insurance company, the family retains the responsibility through the note structure.

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Strategies

• Utilize all available spend-downs.

• Purchase a MQA/MQN for Craig, the community spouse, based on his life expectancy of 7yrs / 9 months.

Result

• Immediate Medicaid Qualification

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Crisis Case #2 – Sally BookCrisis Case #2 – Sally Book


• Sally is a 71 year old widow. Her life expectancy for Medicaid purposes is 14 years / 7 months.

• She is in a nursing home in West Virginia at the skilled care level with monthly costs of $4,350.

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Case Study – Sally BookCase Study – Sally BookFinancial Fact Pattern – Income / ExpensesFinancial Fact Pattern – Income / Expenses

Social SecuritySocial Security $1,100$1,100

Widow’s PensionWidow’s Pension $ 139$ 139

Total Monthly IncomeTotal Monthly Income $1,239$1,239

Monthly - Source of Income

Medicare premium & Suppl. Medicare premium & Suppl. Ins.Ins.

$ 230$ 230

Monthly Expenses excluding nursing home care

*Based on the above scenario her income for Medicaid planning purposes is $959.

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Case Study – Sally BookCase Study – Sally Book

Financial Fact Pattern – AssetsFinancial Fact Pattern – Assets

List of Assets

CD’s CD’s $ 50,000$ 50,000

Savings AccountSavings Account $ 26,000$ 26,000

Checking AccountChecking Account $ 4,539$ 4,539

Brokerage AccountBrokerage Account $ 25,000$ 25,000

Total Asset BaseTotal Asset Base $105,539$105,539

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Case Study – Sally BookCase Study – Sally Book

Sally is permitted to keep $2,000 of her assets and she owes one full month of nursing home care prior to implementing this strategy. Therefore, her remaining assets that are subject to spend-down are $99,189.

Total AssetsTotal Assets $105,539$105,539

Less 1 month careLess 1 month care $ (4,350)$ (4,350)

Less Allowable Asset Less Allowable Asset AmountAmount

$ (2,000)$ (2,000)

Spend-down AmountSpend-down Amount $ 99,189$ 99,189

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Case Study – Sally BookCase Study – Sally BookStrategy

Create an otherwise eligible for Medicaid scenario by:

• Gifting $61,044 to children/family, and

• Placing $38,145 into a MQN payable over 12 months @ $3,178.75/month

Result• Sally’s income including the Note for 12 months is $4,137.75. The cost of care is $4,350.00. The monthly shortfall is $212.25, which should be paid by her children/family.

• Medicaid qualification in 12 months.

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Planning StrategiesPlanning Strategies Crisis Case #3 – Ralph & Alice KramerCrisis Case #3 – Ralph & Alice Kramer


• Alice just suffered a stroke and has become totally incapacitated and needs care at the skilled-care level.

• Ralph is a healthy 74 year old who worked and saved every month so that he could live comfortably during his retirement.

• The Kramers reside in Illinois

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Case Study – The KramersCase Study – The Kramers

Financial Fact Pattern – Income / ExpensesFinancial Fact Pattern – Income / Expenses

Social Security:Social Security: $1,100$1,100 $ 450$ 450

Pension:Pension: $ 400 $ 400

Total Household IncomeTotal Household Income $1,950$1,950

Monthly - Source of Income Ralph Alice

Monthly Expense

Nursing Home care: $5,000 per month.

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Financial Fact Pattern – AssetsFinancial Fact Pattern – Assets

List of Assets

CD’s CD’s $ 45,000$ 45,000

Savings AccountSavings Account $ 15,000$ 15,000

Checking AccountChecking Account $ 3,000$ 3,000

Money Market AccountMoney Market Account $ 37,000$ 37,000

Total Asset Base Total Asset Base (not including (not including residence)residence)

$100,000$100,000

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Strategy

• File IL Medicaid Application.

• Identify $100,000 as Ralph’s CSRA

Result

• Immediate Medicaid Qualification

1 Making Medicaid Planning a Profitable Part of Your Practice Presented by: Valerie L. Peterson,...

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