This?article is the first glimpse at part of the CLE materials that will be discussed tomorrow?at NBI?s ?Using Gifting Strategies for Medicaid Planning??teleconference presented by attorney Martin?Womer.
There are two categories of gifts for Medicaid purposes:
A transfer for less than fair market value (the traditional definition of gift); or
A statutorily defined transaction that constitutes a gift whether or not anything is actually given away.
How rigorous state Medicaid rules are about traditional gifts varies greatly.? For example, in some states, a gift only occurs when the applicant or his or her spouse affirmatively transfers assets to another person.? In other states, a gift may occur when the applicant (or his or her spouse) fails to act and thereby fails to receive an asset to which he or she is entitled.? The classic example of this is failure of a surviving spouse to exercise his or her statutory elective share right under the state probate code.? Failing to exercise the elective share is, in some states, a deemed gift because assets to which the surviving spouse was entitled by law pass instead to others under the deceased spouse?s estate plan or by intestate succession.
The fact that states have authority to assess a transfer penalty for failing to take action to acquire assets to which the individual or his or her spouse is entitled is documented in HCFA/CMS Transmittal 64.
The DRA created the second category of gifts ? transfers defined by law that may or may not be real transfers.? The DRA?s two instances of such artificial gifts result from its imposition of standards for annuities and promissory notes.? In passing the Medicaid long term care provisions of the DRA, Congress was cracking down on perceived abusive transactions involving annuities and promissory notes.? Without discussing techniques that brought about this reaction from Congress, it is important to recognize that today any long-term care planning with annuities and promissory notes should only involve ?Medicaid-compliant? annuities and promissory notes, or the planner proceeds at great risk of committing legal malpractice ? unless an exception applies.
Medicaid-compliant Annuities and Promissory Notes.? Unfortunately, the traditional standard of ethical practice that a transaction should be commercially reasonable does not apply in the Medicaid planning arena.? So, for example, if a 75-year-old senior sells his house to his child or grandchild in a legitimate sale for fair market value and takes back a 20- or 30-year mortgage and promissory note, the DRA says that this is a transfer for Medicaid purposes because the promissory note was not actually sound.? That is, the term of the note is longer than the actuarial life expectancy of the senior, oso he or she will not receive full value back within his or her life expectancy.? Although this was a typical commercial transaction, it does not qualify as Medicaid-compliant.
The DRA?s standards for Medicaid-compliant annuities and promissory notes were thought to be onerous when first imposed.? Now that we have been working with them for 5 years, they just are what they are and we have to always be diligent to abide by them.? The fact that some of the requirements are distinctly commercially unreasonable is unfortunate in some ways, but it?s also one of the may reasons that the knowledge that elder law attorneys apply in their work provides value to clients.? It also makes elder law attorneys important colleagues for other estate planning and business planning attorneys to refer clients to.? We often have to work out creative solutions to resolve Medicaid problems brought about by lack of compliance with Medicaid eligibility rules in the normal course of business and family life.
The Medicaid-compliant annuity provisions of the DRA are codified at 42 USC?1396p(c)(1)(F) & (G).
The DRA?s similar requirements for a Medicaid-compliant promissory note are codified at 42 USC ?1396p(c)(1)(I).
The DRA?s requirements for annuities and promissory notes define only whether failure to comply constitutes a transfer for transfer penalty purposes.? They do not say (directly) that a Medicaid-compliant annuity or promissory note is noncountable. However, the general rule is that assets that are not available to the applicant or his or her spouse are noncountable.
Because of this, as has been documented by several U.S. Circuit Court of Appeals decisions, a Medicaid-compliant annuity, because it is irrevocable and nonassignable, is noncountable.
The DRA does not require a Medicaid-compliant promissory note to be irrevocable and nonassignable, but as a practical matter, in order for such a promissory note to be noncountable it, too, must be irrevocable and nonassignable.
Purchase of a Life Estate.? Yet another DRA-imporse statutory transfer occurs when someone purchases a life estate in another person?s home and fails to live in the home for at least one year immediately thereafter. See 42 USC?1396p(c)(1)(J).
As with the Medicaid-compliant annuities and promissory note provisions, this intentionally negative standard also serves as a safe harbor, instructing planners on exactly what is needed to avoid causing a transfer penalty with this technique.
To learn more about potentially ruinous gifts and get practical tips for structuring Medicaid-compliant asset transfers, register for??Using Gifting Strategies for Medicaid Planning? to be held tomorrow at 2pm ET.
About the author:
Martin C. Womer?is the founder, president and managing attorney of the Maine Center for Elder Law, LLC. Mr. Womer assists clients with Medicaid (MaineCare) planning and applications; planning for VA Aid and Attendance eligibility; and trust and estate planning and settlement. His area of concentration is crisis Medicaid planning and Medicaid pre-planning. Mr. Womer earned his undergraduate degree, cum laude, from Colby College, and his J.D. degree from the University of Maine School of Law. After law school, he was a senior planner with the Maine Land Use Regulation Commission from 1997 to 1999, prior to entering private practice. Mr. Womer is chair of the Elder Law Section of the Maine State Bar Association (MSBA), for which he often teaches seminars on long-term-care planning. He is a member of the National Academy of Elder Law Attorneys (NAELA) and ElderCounsel, LLC. Mr. Womer teaches the legal-technical portions of ElderCounsel?s ?Medicaid Immersion and Practice Building Camp?, an intensive three-day course for members of ElderCounsel. He is honored to be featured on the cover of the February 2009 bimonthly issue of NAELA News published by the National Academy of Elder Law Attorneys. The magazine contains an article about Mr. Womer and another article written by him. He is a member of the Board of Directors of the Southern Maine Area Agency on Aging, and chairs the nonprofit agency?s Planned Giving Advisory Committee. Mr. Womer was a founder and incorporator of York County Triad, Inc., an organization dedicated to helping seniors avoid financial exploitation and other abuse, and serves as its Treasurer and a member of its Board of Directors.??
Related posts:
- Medicaid Law 101: Medicaid Eligibility When Medicare Runs Out
- 5 Things Estate Planners Need to Know About Elder Law
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