“Don’t let Medicaid Take You”

                Does this sound like a harsh statement?  In fact, many Americans do not understand the new devastating rules passed by Congress in OBRA 1993.  Title 42 is the section of this tax act that affects you and your estate.  Now HIPAA (Kennedy-Kassebaum Act) has been made law on January 1997 that now makes Medicaid Fraud a felony punishable by $10,000 and one year in jail.  This report is crucial to your future!

OBRA 1993

Medicaid is an impoverishment program (similar to welfare) and is designed to provide for the truly indigent in our society.  Unfortunately, we are watching one million seniors entering poverty each year through forced “spend down” of late term illness.  OBRA extended the look-back period from a standard thirty months to thirty-six months for gifts made to individuals (other than spouse) and sixty months for gifts made to trust. 

OBRA also mandated that every state impose a “Recovery Program” that would retrieve assets from the patient who was under Medicaid’s care.  This recovery took the form of the ability of Medicaid to place a lien on your real estate and then to recover the property as a creditor in probate.   Now the patient would lose their financial assets in the spend down and their real property in the recovery program.

Ineligibility periods are imposed for any improper gifts made during the 36-60 month period.  This is a civil kind of penalty rather than a criminal concern until the introduction of Kennedy-Kassebaum Act in 1996.  Previous to HIPAA, the maximum ineligibility was 120 months.  After HIPAA these is no limit to ineligible periods.

HIPAA 1996

                Also known as the Kennedy-Kassebaum Act, this new law came into effect on January 1st., 1997.  All the rules of OBRA Title 42 stayed in place, but a new wrinkle was now added.  While termed a rehabilitation law, HIPAA now made it a federal crime (felony) to defraud the Medicaid system by artificial impoverishment of the Medicaid spend down within the 36 and 60 month look-back period.

        Many advisors now shy away from preparing seniors for this crucial period of life.  However, if you design your plan well in advance and for reasons other than the defrauding of Medicaid, favorable court rulings have allowed the prudent senior to have the best of both worlds by providing fairness to patient and government.  The result is that neither party is injured by onerous expenses to achieve maximum results.  There is one extremely important constraint to accomplish this level of success.  You must act now!   Without exception, those who wait too long will find themselves on the wrong side of the law.  This can mean loss of your wealth in a period when you’ve already lost your health.  Criminal infractions add greater threat.

Living Trusts

                I advocate the use of Living Trusts, but the Title 42 rules have now made most Living Trusts ineffective against Medicaid.  Don’t be disappointed, your Living Trust still protects against Probate, Federal Estate Tax and court supervised guardianship.  In most cases, the adding of an additional feature called FACT (Family Asset Conservation Trust) will resolve the new OBRA and HIPAA rules but you will be working with a friendly form of irrevocable trust.

                FACT is a special form of trust that allows a measure of enjoyment of your financial resources without the jeopardy of total loss.  Gifting away of assets through traditional means of funding a trust is the very reason they fail to protect you from Medicaid invasions.  FACT allows you to transfer your assets to trust and not violate the time restraints and demands of Medicaid spend down.

                A third form of trust called Preservation Plus is for small estates and allows you to divide your estate into two components.  The real property and personal property are positioned in structures that provide simple methods to protect your modest wealth.

                There are three methods to pay for nursing home care:

1)       Pay with cash from family and relative funds

2)       Do a reverse mortgage on your home and sell assets

3)       Go broke and let Medicare pay for the Nursing Home bill

Frankly none of these options are acceptable.   We do not wish to see you stripped of assets nor do we want to make you a ward of the state via Medicaid and further drain the public coffers.  There are  programs that provide you with proper protection, while addressing the government’s concern about the financial burden of long term care.

Your Certified Estate Plannerä can help you plan a strategy that will not melt when you find yourself in the heat of the battle.  Those who plan today will neither abuse the government nor be abused.    Your wealth can be positioned wealth in the optimum manner to protect your future.

Countable Assets in Medicaid’s Spend Down

                Many seniors do not realize that many of their ordinary assets are subject to Medicaid’s mandates.  In fact, the traditional investments of most seniors are easily stripped away because they are vulnerable to Medicaid’s definition.

                These assets are described as follows:

                * Bank Accounts                 * CDs                     * Money Market Accounts

                * Stocks                                 * Bonds                 * Deferred Annuities

                * Mutual Funds                   * Bullion                * Non-residential property

                * Vehicles/Boats                  * Jewelry               * Cash Value Insurance

                If you possess more than $2000 in any or all of the above, Medicaid declares you Ineligible from its care while other people who never saved a dime get to walk in and receive immediate benefits.  This is not  fair to those who have assembled some wealth by hard work and faithful savings.  Nonetheless that is how the system works and those that plan will improve their options.

                As a final note, FACT is a choice that may be employed by seniors.   However, none of these plans work AFTER you have a problem.  All good planning is done before you have a problem.  Sympathy for those that are unprepared equals the chances you have when arriving late for a plane.

         Many of the investments that people treasure most are also most vulnerable to the Medicaid spend down.  You see, if you have access to the investments, so does Medicaid.  While investing is a diverse and personal matter, preservation of assets should become more important than yield in our senior years.

At some point in life,

Accumulation is not as Important as Preservation

Will Rogers was quoted to have said, “I am more interested in the return of my money than the return on my money.”   Think about it.  The “Accumulation Years” of your youth need to give way to the “Preservation Strategy” of your senior years.

While the FACT requires that you release ownership over to the trust, every plan that will insulate your Medicaid liabilities from your health condition requires a change of ownership.  Fact is a powerful concept that exceeds the limited protection of a Living Trust.  Fact is not for everyone and some may be uncomfortable with the concept of divesting assets into a trust.

The Best form of Long Term Care

                “Necessity is the Mother of Invention.”  This is true when it comes to our current era.  Many seniors have paid $1000 to $3000 annually to have Long Term Care insurance.  This is a good idea but it may not be the best idea.

                For those with a block of money to invest, you may want to consider a special form of policy called an SPWL with a Long Term Care rider.  Not very many policies offer this unique provision, but it is worth investigating.

This form of policy allows a single premium input.  In most cases, the policy has a positive interest rate and grows interest immediately on a tax deferred basis.  The sheer cash return can exceed a typical CD at the bank when you factor in taxes.  In this fashion, you do not sacrifice precious dollars to get coverage and quality of care.

The second powerful feature is the creation of a larger estate by multiplication of life insurance death benefits.  For example, a 68 year old may deposit $50,000 and receive $80,000 in guaranteed death benefits.  This can be a significant benefit to your estate, your spouse, or your children.

The final feature of this policy is a Long Term Care rider that is packaged into the program.  In our example, the policy will systematically pay out the death benefit (not just the cash value) in the event you go into a nursing home and offer tax advantaged income in most cases.

                Nothing is for free and the LTC rider does add to the internal cost of the policy.  However, a well designed policy will have the basic effect of providing what may be viewed as free long term care coverage.  The policies are referred to as a SPWL and may carry a LTC rider against the death benefit.

Don’t want anymore insurance?  That is not uncommon, but these kind of policies must be viewed for their economic value.  The ability to obtain a SPWL with LTC coverage gives you a threefold benefit: Interest Build-Up, Higher Death Benefit, and an extraordinary deal for Nursing Home Coverage.  The single premium is small in comparison to the multiple benefits you may access.

                Short term benefits?  Let’s assume a worst case scenario.  You can usually get your money plus interest back in short term.  If you become ill you have a greater access to needed funds through the LTC provision of the policy.  In either case you are dollars ahead with no lasting liabilities. 

At Least Structure Your Finances

                Perhaps, you are not prepared to do a FACT or are unable to get the coverage suggested on the previous page.  There is one way to protect yourself and your money at no cost to you.  You may structure your financial affairs in such a fashion that your nominal wealth is out of the reach of Medicaid.

                We are told that four out of seven married couples will have one of the two requiring nursing home care.  We are told that 500,000 seniors are impoverished by nursing home costs every year, and the average cost of a single person in a nursing home is well over $25,000 per year.  We are not being told what options we have if we prepare for the distinct possibility of a long term illness.

                I encourage everyone to do good and effective estate planning particularly when it comes to Medicaid.  And yet I realize that one concept will not work for everyone.  Therefore, I will offer one more concept that will not cost you a penny[1]. 

SPDA/SPIA

                By correctly designing an ANNUITY for your lifestyle, you reserve an option that can stop Medicaid’s spend down and look back.  One of the great features of this annuity is that it can be done shortly before you incur the liability of nursing home care.  There is no look back for the establishment of this form of annuity and you cannot be declared ineligible for setting one up.

                When it becomes apparent that nursing home care is in the not too distant future, you trigger the annuitization of the policy which then generates a monthly, quarterly, or annual distribution.  If death ensues, the full remaining benefits of the annuity will flow to your spouse or heirs with no probate.  Therefore, you retain the benefits by protecting the assets in the annuity setup.

                Long Term Care policies are perhaps the most straightforward solution to nursing home needs.  These policies require medical underwriting and the serious ability to pay premiums for an extended period of time.  LTC policies are very effective, but one of the most difficult programs to maintain.  If you fail to pay your policy as premiums come due, you could lose your coverage, and be unable to qualify for the insurance thereafter.

                Avoid concepts that encourage secret transfers of money and gifting of assets to avoid Medicaid detection.  These programs usually blow up in your face and there is then no chance to rescue the family wealth or home.  Medicaid fraud is now serious business and can cause severe repercussions including civil and criminal penalties.

                A Certified Estate Plannerä is a specially trained professional and works with other professionals like ACEPA attorneys and tax and accounting experts.  Few people could afford to pay for this kind of training separately, but your CEP is an excellent source of estate planning insight and offers extensive solutions.

                ACEPA is the Association of Certified Estate Planning Attorneys which means that you have access to the leading legal minds in America.  More than just holding a law license, they are the vanguard of proactive planning in the area of estate planning.

What are the other Secrets?

                I have shared the four best concepts in Medicaid protection.  But we promised you a complete list of ideas that have been used to protect the estates of seniors from the Medicaid invasion.

Prepay your Mortgage: Remember, your family home is a non-countable asset in the “Spend Down.”  Therefore, you can prepay your mortgage to erode your cash and go on Medicaid once you reach less than $2000.  Be mindful, however, of  Medicaid’s Recovery Rules where a Medicaid lien is placed against all real and personal property to be recovered at Probate.

Buy Jewelry:  This is another catch-all when you understand that Medicaid will not take your personal jewelry (primarily a reference to your wedding rings).  So you are sometimes advised to buy rather expensive jewelry to exhaust your available funds.  This once again can be frustrated by the Medicaid lien taking the remainder estate in Probate.

The Rule of the Halves:  This is a provision for the well spouse who stays at home and cannot be expected to live on nothing.  Therefore, the couple expecting to have one spouse going into a nursing home will literally divide the assets equally between themselves.  The well spouse may keep one half of the assets (or a maximum of $79,500) from the “Spend Down” although the other half will be lost in the spend down.  This can be done only with the spouse and breaks any joint ownership.

Problems occur if the well spouse dies first or the second spouse needs nursing home care.  At that point the second half of the estate will also be taken in the spend down and/or the recovery rule lien policy.  Single seniors do not have this option.

 Pay off any Credit Debt:  If this is a strategy, it escapes me!  Whether you pay loans or credit cards, you have little merit or benefit other than dying with a perfect credit report.  Frankly, I look forward to letting some of these accounts fend for themselves.

Charitable Remainder Trusts:  Another form of trust may be used to divest your estate.  This is a grantor trust that funds the assets by gifts to a charity which in turn agrees to pay you a lifetime of income and purchases a life policy on the grantor to pay tax free benefits to the grantor’s children.  This is a good idea, but remember this is a grantor trust subject to the 60 month prohibition and you better plan well ahead of an illness if you intend to avoid being declared ineligible.

Spend It Away:   Here’s a novel idea.  There is no rule against you spending your money for anything you want.  You are told to go out and enjoy life and use up the money.  While I commend the spirit, I find it unlikely that a person whose illness is progressive will have the strength or desire to travel the world, buy Cadillacs, and party late into the night.

Give all Your Money to Your Kids:  While this will trigger a “Look Back” period, gifts to individuals by the parents create only a 36 month look back instead of the 60 month to trust.  Question is, can you keep them healthy for three years, and can you really feel comfortable handing all rights to your wealth to your kids with total loss of control?  If it fits, go for it ... but remember that I warned you!

Fair Market Value Exchanges:  Certain items that you might spend your money on will not cause a Medicaid violation.  These are things (as listed above) that you purchase at a normal value instead of by gift.  For this reason, the purchase of cars, clothes, jewelry, vacations, medicine, and repairs are outside of Medicaid’s demands. 

Gifts:  The very idea of fraud carries the premise of an undervalued exchange.  The idea of selling your house to the kids for $1000 is a twofold problem.  If you intend to apply for Medicaid in the foreseeable future, the transaction is fraudulent.  Secondly, such exchanges fall under the gift tax rules and will cause a gift tax to occur if the gift of real or personal property exceeds $10,000 per person.

Bottom Line:  Get a good Estate Plan and do it Right!  For all the effort to play fast and loose, nothing beats using the first four rules of protection:

1)                               Do it Now!

2)                               Do it Right!

3)                               Provide for a transfer for your heirs

4)                               Avoid any elements of fraud

Those who wish a more detailed review of their estate planning needs may obtain a personalized plan called “This is Your Life” from a member of the National Council of Certified Estate Planners.  This is valued at $1000 since it requires sizable effort to compose.  For those who respond to this report within the next 60 days, the cost of Estate Planning Proposal will be waived.

The saddest words ever heard are “It could have been!”