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When Medicaid and Tax Rules Collide

When Medicaid and Tax Rules Collide

We’re at the start of tax season again.  With that in mind, I noticed several incongruities between long-term care Medicaid rules and tax rules that every advisor should know and understand.  So before you get too busy filling out your W-2’s and 1099’s, I thought I’d recap some good ways to make sure you and your clients are ready.

3 Years of Tax Returns v 5-Year Lookback

In the last few days I’ve heard this issue twice so I thought I’d start here.

In one case I was talking to a financial accountant who does taxes and investments for her clients.  Her client needed five years of statements for the Medicaid caseworker.  “I only tell my clients to keep 3 years of statements,” she said, “because that’s what the IRS requires.”

I just shook my head.

In the second case, someone said to me, “The IRS only requires 3 years of back financials and Medicaid has a 5 year lookback.  Since the IRS is a federal program and Medicaid is run by the state, doesn’t the federal rule prevail?”

After that, I had to chuckle.

To each, I have the same basic reply:  “If you want Medicaid to pay, you’ve got to play by their rules.”  In 2006, the Deficit Reduction Act established the five-year lookback for transfers of assets.  This is used to determine if the applicant has transferred or gifted any assets for less than fair market value.

How do they look back?

They ask for bank statements or financial statements for each account owned by the applicant during the five-year period.  If you didn’t keep the statements, you’ll likely have to go to the financial institution and have them order copies.  Most financial institutions do this for free, but some charge a fee.  In one case, a bank charged $5 a statement and the client had 2 accounts.  For 120 statements, it would cost the client $600 – and the bank was unsympathetic with the client’s need for the statements.

The better solution: stop telling your clients to only keep 3 years of statements!  Instead, be a smarter advisor and understand why they need to keep 5 years of statements.

Gift Tax Exclusion v. Medicaid Divestment Penalties

One of the classic myths of Medicaid planning is that you can give away $14,000 a year per person without a penalty.  That’s just not true!

The $14,000 limit comes from the annual gift tax exclusion.  Over $14,000 you either pay a gift tax or use up part of your exclusion (discussed more fully below).  But just because the same Congress passed the tax code and the Medicaid code, don’t think that the two actually agree with each other.

Medicaid will look back 5 years and add up all gifts or transfers.  Unless they were made to an exempt transferee (e.g., a disabled child), Medicaid takes the total amount and divides it by the average cost of care per month in the applicant’s state or region to determine how many months they will be ineligible for Medicaid.

Gift and estate taxes are usually the least of most people’s true worries, but by thinking that the $14,000 exclusion many people give this gift annually thinking there will be no negative consequence.

When lecturing to a bar association’s tax section recently, I gave the example of a lady who gave her daughter $14,000 a year and ended up in a nursing home where the cost of care quickly drained her remaining resources.  She files for Medicaid and they ask her if she transferred or gave away any money and she says yes, $14,000 a year.  That totaled $70,000.

Then Medicaid does the math.  $70,000 ÷ $7,000/month = 10 months.  So in this case, the woman would be ineligible for Medicaid for nearly a full year.  Medicaid will require her to get the money back from her daughter and use it for care expenses.  If the daughter won’t or can’t cough it up, most states require that the applicant “seek all legal remedies” to get the money back before they’ll grant a hardship waiver.

What a mess!  But this mess can be avoided.  It starts with the advisor understanding and communicating the difference between the Medicaid rules and the tax code.  A good advisor should caution clients against gifting without a long-term care strategy.

Gift Tax v. Gift and Wait Strategies

For advanced planning we do a lot of gifting.  Most choose to gift and wait out the 5-year lookback.  For VA benefit planning we gift and apply for benefits where appropriate because of the lack of a penalty period for gifting.  Even in crisis cases, for single patients it is usually advantageous to gift a portion of the assets and buy an annuity or use a promissory note with the remaining assets to help pay through the penalty period.

Gifts can be $10,000 or can be $600,000.  So what about the gift tax?

In reality, the gift tax is never a bar to good gifting strategies for Medicaid because of how the gift tax works.  The gift tax was the tax code’s attempt to curb gifting to avoid the estate tax.  So the two taxes were tied together.  If you gifted more than the limit per person, the gift is subject to a tax, but the tax can be offset by using the estate tax exemption.

So how much can you really gift? In the last few years, Congress increased the estate tax exemption to $5.34 million!  That’s a lot of gifting.  And practically speaking, if you have $5 million to gift, you probably aren’t too worried about needing long-term care Medicaid.

The other issue is that recipients think their receipt of a gift is taxable to them.  Most people don’t understand that gifts – even if they were taxable – are taxable to the giver not to the receiver.

Gifting v. Income

There are times when you want to pay tax on transfers between a parent and a child so that it won’t look like a gift.  This mostly arises when using a personal caregiver agreement to pay a child or close family member for care.

Medicaid assumes that if a family member is providing care they’re doing it out of love and affection.  If a person pays the family member for care, Medicaid – by default – will presume that the payment is a gift and add those gifts up to determine a period of ineligibility for Medicaid.

To avoid those payments being treated as a gift, Medicaid has a complex set of rules that vary from state to state.  For the most part, they require that a valid caregiver agreement be set up between the family members and that the payment is reasonable based on what it would cost for the same services in the local area.

But what happens when grandma pays the granddaughter $700 a week to care for her? Most forget to write up a contract.  And even if they do, grandma writes a check for $700 each week to the granddaughter.  The granddaughter conveniently forgets to report the pay on her tax return each year because she hasn’t kept any money back to pay taxes.  It’s usually not a big problem, because the funds look like a gift and gifts aren’t taxable to the recipient.

Where the problem comes in is when Grandma goes on Medicaid.  If there’s any question about whether or not they have a valid care agreement, whether the caregiver reports the income as taxable or not makes a big difference.  When establishing that the payment is not a gift, one of the easiest ways to prove it wasn’t is to see if the recipient reported it as income.  When the caregiver granddaughter puts the income on her tax return and treats it as income – even if grandma was overpaying her to bleed down estate resources – Medicaid is likely to exclude the payments from the transfer penalty calculation because they were treated as payments and income by both parties to the caregiver agreement.

Where this is exceptionally helpful is when the person needing care is a veteran.  The VA accepts caregiver agreements and paid family caregivers as valid care expenses towards eligibility for the VA Aid & Attendance enhanced pension.  By paying a family member, the caregiver expenses could trigger a benefit as much as $2,149 in 2015 for a married couple.  That money comes in tax free, but the caregiver has to pay tax on the care payments.  Even so, the net plus to the family is in the tens of thousands each year.

Where many VA benefit planners get it wrong is they advise payment for care but fail to follow through with advice on how to make those payments compliant with the future need for long-term care Medicaid and the IRS.

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Free Medicaid Download: 2015 Spousal Impoverishment Desk Reference

CMS Releases New 2015 Medicaid Numbers

To download the Free 2015 Spousal Impoverishment summary in PDF, click on the following link:

https://medicaidplanning.org/wp-content/uploads/2014/12/2015-Medicaid-Spousal-Impoverishment.pdf

The Centers for Medicare and Medicaid Services (CMS) has released the new annual spousal impoverishment figures for 2015. The full numbers are contained in the 2015 Medicaid Spousal Impoverishment Desk Reference, which you can download for free by clicking the link at the bottom of this article.

Here is a quick recap of the new figures and what they mean:

2015 ASSET LIMITS

The New minimum Community Spousal Resource Allowance (CSRA) is $23,844.00. The new maximum CSRA is $119,220.00.

Reminder, in the straight deduction states the Max CSRA is the asset cap. Any asset amount below that is sufficient to qualify for long-term care Medicaid. For example, if a couple has $100,000 in countable assets, then in the straight deduction states they do not need to spend down any further. Also, in straight deduction states the minimum CSRA never comes into play.

In the one-half deduction states, the minimum and maximums are both used. For example, take the couple with the $100,000 in resources on the “snapshot” date (i.e., the date of admission to the nursing home or the hospital for a stay preceding the nursing home stay). In a one-half deduction state, the CSRA calculation would assess one-half of the total countable resources as the CSRA. Take the total countable resources of $100,000 and divide by 2 to yield the CSRA of $50,000.

Where the maximum is used in a one-half deduction state is when the countable resources exceed twice the maximum. For instance, a couple with $300,000 would only be able to set aside $119,220 for the CSRA. The remaining assets would be exposed to the Medicaid spenddown.

The minimum CSRA is a floor and only factors in when one-half of the total amount of countable assets falls below the minimum threshold. For example, if a couple has $40,000, then the CSRA would not be $20,000 because that’s below the minimum. The CSRA in that case would default to the new minimum $23,448.

Also note: In most states the new CSRA limits apply to snapshot dates in 2015 only. Typically, if an applicant’s snapshot date is 2013 but they apply in 2015, the CSRA amount will be based on the CSRA for snapshot date in 2013 and not the application date of 2015.

2015 INCOME LIMITS

The Minimum Monthly Maintenance Needs Allowance (MMMNA) is $1,966.25 (for all states except Alaska and Hawaii). The new maximum amount is $2,980.50. The Maintenance Needs Allowances are set mid-year and these numbers remain in effect until July 1, 2015. This figure is used to determine how much of the patient’s income a community spouse can keep.

The new Community Spouse Monthly Housing Allowance is $589.88 (for all states except Alaska and Hawaii). This figure is part of the formula to determine if excess shelter expenses can be used to boost the MMMNA.   Like the MMMNA, this number also changes mid-year and remains in effect until July 1, 2015.

2015 HOME EQUITY LIMITS

The new minimum Home Equity Limit is $552,000. In the handful of states that have adopted an upper limit, that amount is $828,000 for 2015. As we have seen a significant recovery in the housing market, this equity limit – once again – has become a serious factor for long-term care patients. NOTE: This limit does not apply if the patient is married; but if the community spouse dies and the home automatically becomes owned by the patient spouse as a result of joint ownership on the deed, it could cause the patient to become ineligible for Medicaid.

ADDITIONAL INFORMATION

If you want more information on how to calculate the CSRA or how to maximize the conversion of excess assets to income you should consider purchasing the Medicaid Planning Guidebook or taking the Medicaid Planning course. We provide a full range of support for advisors of all varieties to assist with their Medicaid Planning cases, including advisor mentoring and case design services. We also offer a full range of Medicaid Compliant Annuities and other valuable planning tools to assist with solving the most difficult of Medicaid Planning issues. You can make 2015 a more profitable year by learning how to help people navigate long-term care Medicaid eligibility and asset protection!

FREE DOWNLOAD

To get your FREE 2015 Medicaid Spousal Impoverishment Desk Reference, click here.

 

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Four Ways VA Benefits Can Boost Your Medicaid Planning

Every year I look forward to my annual Veterans Day article because it’s a chance to focus on helping advisors properly serve those who have served our country.  In this issue I cover four little-known, but very important VA-related topics than can help you better understand how VA benefits and Medicaid planning can better work together.

Issue 1:  What’s all the fuss over $90?

One of the first things that most advisors don’t understand is how the VA benefit and Medicaid directly interrelate.

The VA Aid and Attendance benefit does not arise to pay for care.  That’s a huge misunderstanding.

I see advisors – even accredited VA agents – frequently get this wrong.

Once a person has depleted assets below a threshold, eligibility is established only after care expenses have already eaten away a veteran’s ordinary income.  The same applies to the spouse or widow of the veteran.  The full VA benefit accrues when income is totally “eclipsed” by the cost of care.  In fact, a benefit maxes out only after the income is eclipsed by over 5%.  For example, the veterans’ ordinary income is $2,000 a month; allowable medical expenses must exceed $2,100 to get the full benefit.  The VA pension benefit is considered the money to live on AFTER the veteran’s regular income has been wiped out by care costs.

What is the full benefit?  For a married veteran, it’s $2,085 per month.  For a single veteran, it’s $1,795.  And for a widow of a veteran, it’s $1,030.

However, the full benefit changes when the claimant becomes eligible for long-term care Medicaid in a facility.  It drops down to $90 a month!

So what’s all the fuss over a $90 benefit?  There are a number of issues to contemplate when balancing VA and Medicaid Planning.

The VA benefit can be applied to before an eligible claimant goes into a nursing home.  It can be used for home care or to pay for assisted living and would slow the depletion rate of resources.  In a skilled nursing home, it can be used to private pay longer.  This may delay the veterans’ transition to a semi-private bed from a private room.

The benefit amount only decreases when the claimant becomes eligible for long-term care Medicaid in a skilled facility.  Many states offer intermediary care through home and community based service (HCBS) waivers.  If the person is eligible for Medicaid assistance, the VA benefit does not drop down to $90. Why would this matter if Medicaid picks up the difference between income and care costs?  Mostly it matters because of estate recovery.  VA benefits do not have to be repaid, while long-term care Medicaid and HCBS Medicaid benefits must be recovered through estate recovery.  For a single veteran wanting to get care at home, this would be $1,795 of benefits each month that wouldn’t have to be recovered – meaning that Medicaid pays less and recovers less if there is an asset, such as a home, subject to estate recovery.

The $90 benefit is still a bit of a boon to the veteran.  In a majority of states, the personal needs allowance (PNA) hovers between $30 and $60 a month.  That’s the amount that can be retained by the Medicaid patient to pay for personal things like haircuts or clothing.  When a person is dually eligible for facility Medicaid and VA benefits, some states will let the patient keep the higher of the two amounts or will let the patient keep both the PNA and the $90 VA benefit.

But why go through the hassle even if it’s only $90?  Mostly because you have to.  Something else that few people understand is that in order to be eligible for long-term care Medicaid benefit an applicant must file for any other benefit programs that he or she is entitled to.  That includes SSI for younger LTC Medicaid applicants and VA benefits for those who may qualify.

Issue 2:  Medicaid half-a-loaf on steroids

In many states, the advanced half-a-loaf strategy plays on the pre-DRA half-a-loaf strategy in which a patient gave away half of the countable assets and used the other half to pay through the penalty period for the half given away.  That worked great when the penalty started on the date of the gift; but once the DRA changed the penalty start date to the date the patient is otherwise eligible things got trickier.

The modern approach is to give away half and use a short-term Medicaid compliant annuity or promissory note to pay through the penalty period.  Since the penalty period starts after the patient is below resources, the gift causes a penalty by the transfer to the annuity or promissory note does not.

In reality, “half” is a misnomer since the formula (which can be found in my textbook) balances the cost of care and the penalty imposed based on the divisor with the income contribution during the penalty period.  In short, the higher a person’s income the less of an annuity they need and the more money they can gift.

The VA benefit only drops to $90 when the person is approved for long-term care Medicaid not when the person applies.  So when an applicant is using a modern half-a-loaf strategy to achieve Medicaid benefits, the amount of money to be gifted can be increased dramatically when the full VA benefit is used along with ordinary income and the annuity income to pay through the penalty period.

More VA income equals a lower annuity or promissory note amount needed to pay through the penalty period.  This increases gifting and can help preserve extra resources for the veteran that would have otherwise been spent down.

As a side note: once Medicaid starts paying, don’t forget to notify the VA so they can decrease the benefit amount.

Issue 3: Financing home care for indigent veterans

An issue I have seen a lot more of late is the use of the VA benefit to pay for home care.

Most states will require a person to become fully Medicaid eligible (i.e., have assets under the individual countable resource allowance which in most states is $2,000) to get HCBS home care.  For some, this is great.  But it’s hard to live at home with less than $2,000 for emergencies and some managed care programs under Medicaid won’t let the patient choose their providers.

For veterans who don’t wish to spend down to such paltry levels, the VA Aid & Attendance homebound benefit can be a way to stay at home longer with lower care costs than going into a facility.  But for indigent veterans, they are forced onto Medicaid because they can’t afford to eclipse their income with care costs to get the benefit.  It’s a Catch-22 that many find frustrating.

If a person is indigent but the state does not provide a home care program or they would like to be able to choose their provider, an indigent veteran can feel stuck.  The Aid & Attendance benefit doesn’t kick in until the veteran has completely wiped out or “eclipsed” their income with care costs.  In a nursing home, that’s easy enough to do; but while living at home, unless a veteran has deep pockets to pay for care there’s no wiggle room in the family finances to pay that much.

And it’s not like the VA pays out the benefit the moment there are care costs.  An application can take 3 to 6 months to work its way through the VA bureaucracy.  For an indigent veteran, there’s no way to directly pay those mounting care costs while they wait and most have to wait longer because they do not have access to the right kind of advice they need to expedite a claim.

The solution for this comes in a number of forms, but can be a real win-win for all involved.  There are a number of financing options out there where a veteran can seek home care of his or her choosing and use the financing option to pay for care without needing to have their own resources to pay for care.  The costs can adequately exceed the income consistent with achieving the maximum benefit.  And the financed amount can be repaid from the accrued benefit which pays retroactively from the claim date.

Issue 4 – Gift-and-wait with a boost

There are two important time frames when dealing with gifts or transfer under Medicaid:  The lookback period and the penalty period.

The lookback period is five years from the date of application for long-term care Medicaid and/or HCBS care in most states. (Note: some states do not apply transfer penalties for eligibility to their home care programs.)

The penalty period starts when the applicant applies for Medicaid.  The penalty period is based upon the person being otherwise eligible for Medicaid (i.e., broke) and takes into account the total amount of gifts given away in the last five years.  There is no limit on the penalty period.

The concept of “gift and wait” is to gift assets and wait out the five-year lookback period.  This works well if you can wait that long, but some people can’t.  On the other hand, those who spot the need to do this kind of planning are often at the early stages of decline when they can still be cared from in less expensive settings like their own home or assisted living.

The VA currently has no penalty period on gifting of assets prior to the claim date.  While some in congress have attempted to impose one, such efforts have not been successful.

When gifting to wait out the lookback period, assets are transferred to a person or to a trust.  If the person applied for Medicaid the entire amount of the transferred assets would be used for a penalty period, but when applying for VA benefits the assets would not be included in what’s considered available for their care.

So in practical terms, when a veteran needs home care or assisted living he gifts away assets with the intent of waiting out the lookback period.  The cost of home care or assisted living care is used to qualify the veteran for the VA Aid & Attendance benefit which pays out monthly during the five years the veteran is waiting to go on Medicaid.

Care costs during the five-year wait are going to be the responsibility of the veteran or the recipient of the gift.  But with the VA benefit, less of those assets will be needed to pay for care costs while the veteran waits.  For a married veteran, five years of benefits is roughly $125,000 in tax-free money from the VA towards the cost of care during the waiting period!  That’s not chump change – it’s a huge boost.

After that, the veteran can apply for facility Medicaid or even home care Medicaid and all of the transferred funds do not count towards a penalty period because the veteran has waited out the look-back period with a little help from the VA.

Take this example:  A veteran goes into assisted living and has $425,000 in assets.  He gives away $400,000 and immediately becomes financially eligible for the VA benefit.  His assisted living costs $4,000 a month and he has social security and a small pension of $1,500.  Every month he has a $2,500 shortfall.  He applies for and receives the VA benefit of $1,759 per month retroactive to the month he went into the assisted living facility.  That brings his shortfall down to less than a grand a month.

For 60 months, he’ll use up his $25,000 and maybe another $50,000 from the gifted funds towards his care expenses if he can stay in assisted living.  After the 60-month wait, he can apply for Medicaid and the remainder of the gifted funds will not be taken into account towards his Medicaid eligibility – protecting around $350,000 of his hard-earned money.

The VA benefit helped him pay through the lookback period while he waited for Medicaid eligibility and protect an additional $105,000 to help with actual care costs while he waited out the lookback period.

Of course, real cases rarely come in the vanilla variety of this example.  There can be assets that are hard to gift like IRAs or highly appreciated assets or other complications.  This is why you need to A) learn how Medicaid Planning and VA planning work together, which I teach in my Medicaid Planning course, B) become a Certified Medicaid Planner™ like me so the public can recognize your impressive knowledge and skill-set, and C) work with a team like mine who can help you with your complex planning issues and provide you with the most advance product solutions for all aspects of Medicaid and VA benefit planning.

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Families Using Medicaid Annuities Get Big Assist From Federal Judge

Several Medicaid applicants sued the state of Ohio’s Department of Job and Family Services – the program which administers the state’s Medicaid program – over improper treatment of Medicaid-compliant annuities that led to wrongful denials of assistance for long-term care services.

In each of the three cases, the Department denied Medicaid coverage to nursing home or assisted living patients whose spouses purchased a Medicaid-compliant annuity as part of the spenddown to asset eligibility.  Under very precise federal rules, a Community Spouse can convert excess retirement assets into an income stream through an annuity that meets the requirements.  These annuities are known as being “Medicaid compliant” if they meet the strict Medicaid rules set by the Deficit Reduction Act of 2005 (DRA).

Each state was required to enact the DRA rules and states are prohibited from enacting Medicaid eligibility requirements more restrictive than the federal rules.  However, some counties in Ohio have taken it upon themselves to reject the Medicaid-compliant annuities despite their compliance with the state and federal law.  In doing so, they denied applicants for Medicaid who should have been approved.

In a bold move, lawyers on behalf of the Medicaid applicants filed suit in federal court requesting an injunction that the state either follow the rules or be disenrolled from the federal Medicaid system altogether for violating its rules.  In an even bolder move, the federal judge overseeing the case granted the injunction and gave the state until October 7, 2014 to comply with the federal and state Medicaid law concerning compliant annuities or risk having the state completely disenrolled from federal Medicaid program.

A federal court issues an injunction when it believes that the plaintiffs in a case are likely to be successful on the merits if they make it to trial.  Since nursing unpaid care bills had been accruing to the point where the patients were at risk of being discharged or evicted for lack of payment, the court moved swiftly to bring the state into immediate compliance and approve Medicaid eligibility for those denied.

The state blinked and fully complied with the court’s decree – certifying before the federal judge that they had reversed the Medicaid denials for the plaintiffs and approved their Medicaid applications retroactive to the appropriate filing dates.

The court stopped short of making the injunction apply to all applicants in Ohio who have been denied Medicaid coverage improperly by the state; however, if there are others in a similar situation, the court’s ruling would stand as a powerful precedent for action on their part.

State overreach is, unfortunately, a common theme when dealing with Medicaid eligibility.  While states are prohibited from making it harder to get Medicaid coverage than the federal rules require, several adopt nuanced rules that have the same effect.  In many cases, local Medicaid caseworkers often insert their own judgment into cases to deny eligibility to an applicant that they feel should have to pay more for care – despite the fact that the applicant fully follows the eligibility rules.   County Medicaid departments are well known for enacting informal policies at the application level in an effort to curb Medicaid eligibility in a number of cases, as illustrated.  Applicants have no choice but to seek recourse through administrative appeals or court intervention.  Good advocacy is often out of reach for an already impoverished family.  Because Medicaid case workers are not held accountable for improper denials, these things can often go unchecked without adequate advocacy.

Medicaid compliant annuities are often used by community spouses during the spend down to convert retirement assets into an income.  These can be effective to keep a community spouse from further becoming impoverished, as the income can be used to help the community spouse live or get necessary help later on when he or she may have her own health problems.  The Medicaid rules allow for conversion of a retirement asset into an income to encourage retirement savings.  For more information on the proper use of Medicaid compliant annuities, click here.

Avoid costly mistakes. Work with a team that can help you with your Medicaid annuity issues.

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Ugly Return of the ‘Xerox Annuity’

I was recently contacted in my official capacity as Chairman of the Certified Medicaid Planner™ Governing Board (the standards board that oversees and operates the CMP™ designation) by an investigative reporter from The Clarion-Ledger who has written several in-depth articles over the past few weeks about Mississippi scam artist and former insurance producer Gina Palasini.

Palasini was arrested in Southern California for taking money from elderly clients according to an August 30, 2014 report in The Clarion-Ledger. She is in the process of being extradited to Mississippi where the charges stem; but it appears that further scams in California may take her back to the Golden State to stand for charges.

In 2006 under the guise of benefit planning, Palasini got caught selling a fraudulent annuity contract and pocketing the cash. The Mississippi Insurance Department learned of the incident and revoked her license that same year.

She continued to operate under numerous names around Mississippi, including “Medicaid Planning Specialists” in Brandon, “Veteran’s Pension Planners of America” in Indianola, and “Senior Benefits Consulting Group” in Leland.

Seven months after her insurance license was revoked, another complaint was filed against Palasini with the Insurance Department. The charge was for withholding a client’s Medicaid application and then lying about it, according to the complaint on file.

In another annuity scam, she was indicted on two counts of false pretense in January 2012 for taking client funds from a Community Spouse meant to go into a Medicaid Compliant Annuity and pocketing the money. She pleaded guilty to only one count in 2013 in exchange for a deal that required full repayment of the funds; however, the court received the first installment payment and the second payment bounced – producing a warrant for her arrest.

But instead of facing punishment, it appears that she moved to California and allegedly continued her conniving ways by pushing VA benefits and further taking more client funds directly.

My only personal knowledge of the case was that the CMP™ Governing Board had been contacted by a consumer to request information about whether Palasini was a Certified Medicaid Planner™. It’s unclear if she was attempting to pass herself off as being certified or if a potential client was attempting to verify if she had any credentials backing up her claims of expertise. According to our records she had never been certified and never sought certification. Additionally, according to the VA website she is not an accredited VA claims agent.

As I was interviewed by the reporter, she was telling me about the various activities in which Palasini was allegedly engaged. They were enough to turn my stomach. Under the guise of benefit planning, she was advising clients to place moneys in an annuity. That technique, as I told the reporter, is not uncommon. I explained the history of Medicaid Compliant Annuities as a way to convert liquid retirement funds into a pension-style income stream to the healthy spouse was a common and legal planning technique.

But Palasini was not licensed to sell an annuity. Instead she was photocopying someone else’s annuity contract and giving it to the client in exchange for the cash. Use of this despicable procedure in the past by scam artists had been termed a “Xerox Annuity” – a term I’m sure the folks at Xerox don’t like being used. It earned that name because insurance agents or non-agents wanting to dupe people would use photocopied contracts and change the name of the owner and the amount to make it appear the client was sold a valid contract while secretly pocketing the client’s cash themselves.

In the latest and ugliest version of the Xerox Annuity, Palasini was convicted of pocketing the cash and has allegedly continued to do the same thing in several numerous cases. According to the reporter, Palasini was having retirement accounts wired directly into her company’s bank account. I was asked whether wire transfers are common or not, to which I replied that they were but I explained that it was not the kind allegedly done by Palasini. In fact, in Medicaid planning it’s very common to have funds wired from one company to another because of the cost of delay if funds are not moved in a timely manner. But I explained that the legitimate process involves wiring money from the current retirement account directly to the insurance company’s account to fund the annuity. Failure to do so properly could have disastrous effects on the client if the source funds are qualified or tax-deferred and are not transferred to an annuity account with a similar tax status.

As I was interviewed I also posited some recommendations for the public to follow which I will repeat and expound on here for everyone’s benefit:

When doing Medicaid planning, deal with a certified professional. If a consumer is attempting to qualify for long-term care Medicaid or seek VA pension benefits, seek the advice of a Certified Medicaid Planner™ or an accredited VA claims agent. Some designations or certifications used by planners can be confusing, misleading or not worth anything because they have no backing. The designation of a planner should be backed up by experience, education, examination, and ethics requirements. The CMP™ designation is one of only six financial designations to have national accreditation according to the FINRA website; any planner who provides services in the long-term care market should seriously consider getting this certification.

Medicaid planners come from a variety of backgrounds because of the overlap between legal, financial and geriatric care/social worker professionals involved in the long-term care Medicaid planning process. Not every profession has its own disciplinary policy or ethical standards. Regardless of professional background, every Certified Medicaid Planner™ is required to abide by a uniform set of client-first ethics and be held accountable to those standards.   Both Certified Medicaid Planners™ and Certified Financial Planners® are held accountable by a disciplinary board within their certification and a public complaint process. Both designations also provide a place on their websites where a consumer can verify the status of an advisor’s credentials.

Most Medicaid planners and benefit advisors are good, solid professionals who help their clients diligently. Insurance and annuity products are used regularly to help with meeting Medicaid and/or VA planning objectives. If a person is purchasing an insurance or annuity product, they should only do so from an insurance agent licensed to sell the product. Consumers can check the state insurance commissioners’ websites to confirm whether a person is licensed or not. Additionally, if a person is making out a check to fund an insurance product, the check should be made payable to the insurance company. Similarly, if money is being wired to fund the product, the wire instructions should direct the funds straight to the insurance company’s account.

And finally, if a consumer receives a contract that they suspect might be a “Xerox Annuity,” they should contact the authorities. Palasini lost her license to sell annuities nearly 8 years ago – but that did not seem to stop her from wreaking havoc in many lives and in many communities. Only when enough people started to complain were the authorities finally alerted to bring her to justice.

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5 Common Mistakes Made Giving Away a Home to Avoid Medicaid Estate Recovery

I often get asked the question, “Can I give away my home and qualify for Medicaid?” For the majority of people, the answer is typically “no.” Transferring the home without proper consideration is usually considered an improper transfer – resulting in an ineligibility period if done within the previous five (5) years before your Medicaid application.

There are, however, a few notable exceptions carved out by federal law.

A Medicaid applicant can transfer a home – without creating a penalty – to the applicant’s:

• Spouse;
• Child under 21;
• Child who is blind or permanently disabled, regardless of age;
• Sibling who is also a partial owner of the home and resided in it for one year before the applicant entered the nursing home; or
• Child who lived in the home for (2) years before the person entered the nursing home and provided care during that 2-year period which delayed entry to the nursing home.

While these are helpful exceptions to have, the following are the top five (5) mistakes people make when trying to use them:

1. FAILING TO LOOK AT THE FINE PRINT: The child-caregiver exception isn’t well defined by federal law, so states have taken to defining what it means to provide care – with some states being very specific. Specific can be good in that it gives you a guideline on what you need to qualify for the exception, except the average person rarely checks into these requirements.

For instance, in Ohio, to prove you’ve provided care, the applicant’s doctor has to sign an extensive form that certifies that the care was provided, that the parent needed the care the entire 2 years, and that the care delayed entry into the facility.

If you don’t keep the parent’s primary physician in the loop during the 2 years, they may not have enough information to complete the certification. If you change doctors or your doctor retires, it’s important to make sure there is a plan for contingencies.

2. DIFFICULTY PROVING RESIDENCY: States vary on how much detail they require to prove that a child or sibling actually lived in the home. Failing to actually live in the home as a primary residence will nullify the exception.

Some people try to get some mail sent to the home thinking that will be enough to prove residency; however, Medicaid will likely take a closer look. Be sure that your driver’s license shows the address as your principal address and that you file tax returns at the residence.

If you have more than one home, load up on proof that you lived with the parent or sibling; consider getting a library card and have your credit cards mailed to that address. Make it clear and unambiguous that the home was your principal residence during those 2 years.

3. THINKING MOM WILL MAKE IT 2 YEARS AT HOME: If your plan to protect the principal residence is to care for mom at home for 2 years and then put her in a facility, life can sometimes get in the way. A person with Alzheimer’s can often deteriorate quicker than you might expect.

Additionally, this strategy often runs afoul if the parent suffers a stroke that requires hospitalization and care in a facility. Children will often run themselves ragged trying to provide care during this timeframe thinking that free title to the home will be their reward, only to have the rug pulled out from underneath of them.

4. NOT FACTORING IN THE MORTGAGE: Dad want’s to deed you the house so it won’t be recovered against, but there’s a problem: Dad still owes $50,000 on the mortgage. To transfer a clean title, a mortgage has to be satisfied before the property can be gifted. The same is true of a home with a reverse mortgage.

Often by this time, the home has far more equity in it than mortgage. However, the exceptions only apply to transferring home title to a valid recipient. Failing to account for the mortgage or reverse mortgage can slow the process down and require that the child refinance – often a difficult thing to do. In a worse case, the deed cannot be transferred in time because the mortgage cannot be satisfied and the home is liened against by the state.

5. APPLYING FOR WAIVER BENEFITS: What if mom never goes into the nursing home but the state waiver program will provide her benefits at home? This could be a problem. The cost of HCBS waiver care at home is part of the estate recovery system. Medicaid payments for home care or assisted living care through waiver services rack up a bill that Medicaid can recover against at death. The child-caregiver exception makes it clear that the care provided had to delay entry into the nursing home, which it could do even though the parent never enters the nursing home. However, the 2-year living requirement is based upon the 2 years prior to the entry of the nursing home. Some states add the HCBS application and require a showing of 2 years of care prior to that date, but some states do not. If mom ever does end up in the facility and waiver care was used prior to entry, it could also eliminate the 2-year requirement because someone other than the child provided care in the 2 years before entry.

Are you working with advisors who know these rules and how to make the most of them? If not, you should be. Our team can help you with your Medicaid Planning cases by providing case design, case support, and a global insight on the best techniques to use given the circumstances. Our training and marketing programs can help you develop and grow your practice, while learning to maximize the value of each opportunity.

[1] 42 U.S.C. §1382b(c)(1)(C)(i)(I).

[1] 42 U.S.C. §1382b(c)(1)(C)(i)(II).

[1] 42 U.S.C. §1382b(c)(1)(C)(i)(II).

[1] 42 U.S.C. §1382b(c)(1)(C)(i)(III).

[1] 42 U.S.C. §1382b(c)(1)(C)(i)(IV).

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LTC industry under duress

Don’t a denial or a premium hike stop you from helping your clients

There’s, clearly, no doubt that the long-term care insurance (“LTCI”) industry is under increasing duress

Last summer, LTCI giant Genworth announced that its company would engage in an “intense, very broad, and deep review of all aspects of our long-term care insurance business,” according to the company’s president and CEO Tom McInerney.  The only solution on the horizon is to raise premium rates on new and existing policies. 

In talking recently with industry insiders, apparently John Hancock – another major player in the LTCI market – is following suit more quietly.  John Hancock has indicated through back channels that it is informally putting the brakes on aggressively pursuing new LTCI business, capping issuance of new business through its marketing channels as it goes through a thorough review and ultimate overhaul of the structure and pricing of its LTCI product offerings.  Companies like Unum and Prudential have pulled out of the group market entirely or stopped offering individual coverage completely. 

The LTCI industry is struggling from a combination of higher claims payouts than the actuaries expected and lower investment return due to historically low interest rates. 

Until a few years ago, LTC carriers had offered an arbitrarily set 5% inflation protection option which functioned principally to drive up the cost of policy premiums. In response, the industry began to offer alternative levels of protection which has led to smarter planning options and variations in coverage designed to reduce the cost to policyholders. Offering “shared care” instead of lifetime coverage, lesser inflation percentage amounts in the 3% range, guaranteed purchase options to create options for more affordable premium levels and, John Hancock’s latest concept of adjusting inflation to the CPI. However, the CPI index itself has come under recent scrutiny by its innovator, given the CPI’s relative stagnancy to date. 

Given that the CPI has to come up at some point and, as it grows, policyholders continue to live longer, and maintain rather than lapse their policies as they age policy payouts by carriers are expected to rise amidst a market that may, likely, continue to experience sluggish new sales. 

The Federal Class Act – which would have allowed universal access to long-term care insurance – was abandoned in favor of a commission to study the problem further.  As if things couldn’t get worse for the consumer, most companies are also looking at limiting overall benefit payouts and tightening underwriting.  This will undoubtedly increase the health-related denials for coverage which are already high for those 65 and over

Even as a Medicaid Planner, I’m a big believer in long-term care insurance.  Partnership Policies are a very useful too in protecting assets from the Medicaid Spend Down and Estate Recovery.  Medicaid Planning is not an alternative to private insurance, it’s a backup.  It’s THE backup.  One that more and more people need because the insurance is getting harder and harder to get. 

The average private pay cost of nursing home is over $88,000/yr. (and exceeds $100,000 in 10 states).  This can financially devastate families in a very fast and real way. 

My questions to those of you who sell LTCI:  What’s your plan when the client gets denied?  Are you ready with a backup plan to help those clients?  Do you stop at the water’s edge of Medicaid Planning because you think it’s too difficult to understand

If you sell LTCI, you’re going to start seeing a lot more denials than usual as these companies tighten their underwriting.  If you have clients like the ones detailed in the Wall Street Journal who had a 47% increase in their LTCI premiums, you’re also going to start seeing a lot more people abandon their policies as prices skyrocket.   That should not mean that you’re impotent to help those clients any further

Do not leave your clients unprotected.  Any estate or financial planner or LTCI seller worth dealing with should have an understanding of how the long-term care Medicaid system works and the planning options available to their clients.  If you don’t, you’re doing a disservice to your clients and you’re losing good business opportunities with people who already trust you to look out for them.

Do you say “Tough luck” when your client gets denied coverage? 

When a client gets denied for long-term care insurance coverage, they’re often emotionally devastated because they feel rejected and exposed.  Be ready with a solution for your clients that mixes long-term care Medicaid solutions and hybrid products (life and annuity products with long-term care enhancements) in a way that turns their denial into a plan of hope.  Provide additional planning that will put a limit on the oval exposure for long-term care expenses. 

Learn it:  As the LTCI industry shrinks, don’t stick your head in the sand and hope it will get better.  Learn Medicaid Planning today with my Medicaid Planning Course and the Medicaid Planning Guidebook

Do it:  Don’t have a lot of experience with Medicaid Planning?  Don’t worry.  We’ve got your back.  Through our Medicaid Mentoring and Medicaid Case Design programs we can work with you to help design a plan for asset preservation at any stage in the process. 

Certify it:  Do you want to stand out in the field of Medicaid Planning?  Ask me how becoming a Certified Medicaid Planner™ can help you.  We can show you how to join the growing roster of the nation’s most qualified Medicaid Planners and get the recognition of your peers of your outstanding commitment to excellence in the field of Medicaid Planning.

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New Year’s Resolution: Grow Your Business in 2014 with Medicaid Planning

Advisors find it very helpful to use the first part of the year to envision where they want to grow with their practice in the year to come.  We set goals; we strive for a bigger next year than we had last year.  I have personally always found it helpful to do this.

Anthony Robins once said that “setting goals is the first step in turning the invisible into the visible.”

Some even call it making “New Year’s Resolutions” like people do when they vow to go to the gym more.  Sure some will hit the treadmill for a while, but we already know what happens to most of those people!

It is my firm belief that every advisor who claims to be a legal, financial or tax advisor that gives advice to seniors needs to have at least a working knowledge of long-term care Medicaid.  Ignorance of the long-term care Medicaid rues is not a defense to a malpractice claim.

MAKE A RESOLUTION: For 2014, I challenge you to add long-term care Medicaid Planning to your advisor toolkit.  You will find it beneficial in a number of ways and here’s just a few:

  1. Nearly ten thousand people turn 65every day in America and a growing number will need long-term care.
  2. The Medicaid spend-down has outpaced taxes, market risk and probate as the single #1 largest risk to a senior’s retirement assets.
  3. Most advisors give the wrong advice about the Medicaid spend down and the asset transfer penalties because they just don’t understand.
  4. The earlier a senior can plan for long-term care the more options they have to preserve assets.
  5. If you’re not ready to help your clients with crisis Medicaid planning, someone else will gladly take them from you!
  6. Medicaid Planning does not mean guaranteeing a person has to go into a nursing home.  Home care and assisted living have become a greater option and integrating Medicaid planning with the VA Aid & Attendance benefit can be a double bonus to your frail clients.

When we set a New Year’s Resolution, we don’t always get a lot help keeping it.  A lot of people can tell you that you need to lose weight, but few will meet you at the gym in the morning and help you work off the pounds.

So my challenge doesn’t go without help and assistance.  We provide the most compressive Medicaid Planning support in the country.

In 2014 I encourage you to take advantage of the following Medicaid Planning tools to help you get ahead in the New Year:

Practice Mentoring: Are you looking to add Medicaid Planning but you don’t know where to begin?  Do you have a Medicaid Planning case but you’re not 100% sure what to do with it?  We have the solution.  Through my mentoring program, I work with local advisors of all types to help them develop their Medicaid Planning business, including help with case development and marketing

Case Design and Support: Do you have a Medicaid Planning case that needs the help of an experienced advisor to design the overall strategy?  We can put together comprehensive strategies and help you walk your clients through what needs to be done.  We provide critical support for new attorneys and financial advisors as they grow into this area of practice as well as provide expert help to seasoned Medicaid Planners.

Learn Medicaid Planning: People have different learning styles.  If you’re the type that likes to hear something explained, then my Medicaid Planning course is right for you.  If you’re the type who likes to read and digest a topic, then my Medicaid Planning Guidebook will give you page after page of explanation of the inner working of Medicaid and solid practice techniques.

Medicaid Compliant Annuity Planning:Medicaid Compliant Annuity planning is alive and well in2014. But unlike typical annuities, Medicaid Compliant Annuities are a precision instrument that needs to be used delicately. One mistake and the annuity could cause your client a transfer penalty.  You can’t afford to make mistakes on your Medicaid Compliant Annuities. We can help support all of your Medicaid Compliant Annuity needs.

Funeral Trust Planning: Did you know that most life insurance has to be cashed in when a person goes into a nursing home?  Did you know that in most states you can put up to $15,000 in a funeral trust funded by a life insurance policy and it’s exempt from the Medicaid Spend Down? Did you know that there’s a company that sells the trust and the policy as a package deal? These are things our successful advisors know and use on a regular basis … and you can, too.

Becoming a Certified Medicaid Planner™:  One of my single proudest achievements has been the work that I’ve done over the past couple of years to help develop and elevate the CMP™ designation as a world class certification program. A CMP™ stands out in the field as someone committed to knowing the subject matter and committed to the highest professional ethics.

So in 2014 make your New Year’s resolution to add Medicaid Planning as part of your practice and let us help you stick to it!

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2014 Spousal Impoverishment Figures Released

The Centers for Medicare and Medicaid Services (CMS) has released the new annual spousal impoverishment figures for 2014. The full numbers are contained in the 2014 Medicaid Spousal Impoverishment Desk Reference, which you can download for FREE by clicking on the following link: https://medicaidplanning.org/2014-medicaid-numbers/

Here is a quick recap of the new figures and what they mean:

            2014 ASSET LIMITS

The New minimum Community Spousal Resource Allowance (CSRA) is $23,448. The new maximum CSRA is $117,240.

Reminder, in the straight deduction states the Max CSRA is the asset cap. Any asset amount below that is sufficient to qualify for long-term care Medicaid. For example, if a couple has $100,000 in countable assets, then in the straight deduction states they do not need to spend down any further. Also, in straight deduction states the minimum CSRA never comes into play.

In the one-half deduction states, the minimum and maximums are both used. Take the couple with the $100,000. In a one-half deduction state, the CSRA calculation would take the total countable resources and divide by 2 to yield the CSRA of $50,000.

Where the maximum is used in a one-half deduction state is when the countable resources exceed twice the maximum. For instance, a couple with $300,000 would only be able to set aside $117,240 for the CSRA. The remaining assets would be exposed to a spend down.

The minimum CSRA is a floor and only factors in when the total amount of assets divided by 2 fall below the minimum. For example, if a couple has $40,000, then the CSRA would not be $20,000 because that’s below the minimum. The CSRA in that case would become the minimum $23,448.

            2014 INCOME LIMITS

The Minimum Monthly Maintenance Needs Allowance (MMMNA) is $1,938.75 (for all states except Alaska and Hawaii). The new maximum amount is $2,931. The Maintenance Needs Allowances are set mid-year and these numbers remain in effect until July 1, 2014. This figure is used to determine how much of the patient’s income a community spouse can keep.

The new Community Spouse Monthly Housing Allowance is $581.63 (for all states except Alaska and Hawaii). This number also changes mid-year and remains in effect until July 1, 2014.

            2014 HOME EQUITY LIMITS

The new minimum Home Equity Limit is $543,000. In the handful of states that have adopted an upper limit, that amount is $814,000 for 2014. This limit was set before the collapse of the housing market. As we start to see the housing market recover, this equity limit will start to become a serious factor for long-term care patients. NOTE: This limit does not apply if the patient is married.

            ADDITIONAL INFORMATION

If you want more information on how to calculate the CSRA or how to maximize the conversion of excess assets to income you should consider purchasing the Medicaid Planning Guidebook or taking the Medicaid Planning course. We provide a full range of support for advisors of all varieties to assist with their Medicaid Planning cases, including advisor mentoring and case design services. We also offer a full range of Medicaid Compliant Annuities and other valuable planning tools to assist with solving the most difficult of Medicaid Planning issues. You can make 2014 a more profitable year by learning how to help people navigate long-term care Medicaid eligibility and asset protection!

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Understanding the Differences Between Medicare and Medicaid

            It’s amazing how many advisors don’t clearly understand the difference between Medicare and Medicaid.  Maybe you’re one of them or maybe you just think you know the difference. If you get confused sometimes, imagine how your clients must feel.          

            Every advisor dealing with retirees should have a good understanding of the difference between the two if for no other reason than to be able to properly guide your clients.

            For more information on Medicaid planning, our mentoring support center, and why this area of consulting is our industry’s biggest area of growth, go to www.medicaidplanning.org.

            Medicare and Medicaid both sound alike and both are government programs that provide health services to the elderly. Both programs also pay for some portion of a nursing home stay, but most people can’t tell you which one pays for what portion. 

            Here are the basics every advisor should know about Medicare:

  • Medicare is an automatic primary health insurance for seniors age 65 and over.
  • Medicare also provides primary health insurance for some people under age 65 who become automatically eligible because of their disability.
  • Medicare does NOT pay all of a covered person’s medical expenses. The gap between the cost of services and the coverage is known as the Medigap and, as many of you already know, a private Medigap insurance plan helps cover the difference.
  • Medicare now has a prescription drug coverage plan which is known as Part D with a separate premium, supported by the government and separate co-pays.

            When it comes to a nursing home, most people think Medicare covers long-term care. They get a rude awakening when they learn that the most Medicare covers is 100 days in a skilled nursing facility.  And even then, it’s not a full 100 days.

            Medicare pays full price for the first 20 days. For the remaining 80 days, the patient has to pay the first $144.50 (2012 amount; figure adjusted annually). To even qualify for that, the patient had to have spent at least three days in the hospital first and transfer to the nursing home within a limited period of time after discharge from the hospital.

            In short, Medicare is not a solution to nursing home expenses like most seniors think it will be.

            Medicaid, on the other hand, is the biggest payer of nursing home expenses.  But unlike Medicare, you don’t automatically qualify for coverage.

            Why no automatic coverage? Because the laws state that in order to qualify, patients must

dramatically spend down assets in order to qualify for coverage. For individuals the amount of “countable” assets they can own and still qualify is approximately $2,000 (which sounds crazy to most people).           

            Countable assets include IRAs, stocks, mutual funds, bonds, CDs, etc.  These assets must be repositioned using proper Medicaid planning techniques (click here to learn more) or spent on nursing home care before Medicaid will pay for expenses. And if you think clients can just give their assets away and immediately quality for aid, that’s not going to happen. Improper gifting coupled with an ill-timed Medicaid application can cause a waiting period of in excess of five years before being able to qualify for aid.          

            And any assets they let the patient keep, the state can put a lien on them and take them when the patient (or the patient’s spouse) dies through estate recovery.          

            Learn Medicaid planning and have a support team

             There are 7,000 people turning 65 every day and with people living longer than ever, the amount of people who will need Medicaid planning to preserve assets is greater than ever.           

            Because few advisors know this important subject matter and because of the client need, we created www.medicaidplanning.org. It is the only place of its kind where advisors can both learn Medicaid planning and have a support team that is second to none when it comes to making sure their clients receive the best advice.  

            If you are looking for an area to grow your business and earn significant money in the process, you need to learn Medicaid planning.

            For hard core education on Medicaid planning, you can read my book The Medicaid Planning Guidebook (click here to learn more) or take the Medicaid Planner Course.

            I will be starting a webinar series where I will be teaching the Medicaid Planning course in one-hour modules over the next few months. If you are interested in signing up for this webinar series, please e-mail info@medicaidplanning.org.  

            If you are interested in mentoring and case design support, please click here to learn more about our unique platforms.

            Finally, if your primary goal is simply to sell Medicaid-compliant annuities and life insurance in Funeral Trusts, we can also help you do that in a compliant manner.