Month: December 2016

This week’s blog continues the discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled program coming in 2016-2017.  The initial installment (April 28, 2016) provided an overview of the transition from the old system (following section 209(b) of the federal Medicaid law) to the new system (that will follow section 1634 of the federal Medicaid law.)  The May 5, 2016 installment discussed the new income rules that will go into effect with the new eligibility system.  The May 12, 2016 installment discussed setting up a Qualified Income Trust (aka Miller Trust) that will be necessary for people who need ABD Medicaid to help pay for long term care.  The June 16, 2016 installment discussed the Ohio rules that describe how to use the Miller Trust each month.  The June 23, 2016installment discussed the difficulty in understanding the need for a Miller Trust.  The July 1, 2016 installment discussed the need to empty the Miller Trust account every month.  The July 7, 2016 installment discussed the need to balance the Miller Trust with the desire to have health insurance.  The July 15, 2016 installment discussed the confusing deposit rules for Miller Trusts.  The July 21, 2016 installment discussed the changes that the Ohio Department of Medicaid made to the form Miller Trust document.  The July 28, 2016 installment discussed whether income is supposed to go directly into the Miller Trust.  The August 4, 2016 installment discussed Medicaid’s insistence that the transfers (or deposits) into the Miller Trust account be automatic.  The August 11, 2016 installment discussed money that doesn’t actually reach the Medicaid-recipient that, nonetheless, counts as “income” for purposes of using a Miller Trust.  The August 18, 2016 installment discussed  the appearance that a person on long term care Medicaid has an increase in income when he/she stops paying Medicare premiums.  The August 25, 2016 installment discussed the impact of tax withholding on certain income sources and the difficulty that the tax withholding creates for the Miller Trust.  The September 2, 2016 installment discussed the limit placed on monthly costs of the Miller Trust.  The September 9, 2016 installment discussed how Ohio’s Medicaid rules appear to count income tax refunds twice.  The September 15, 2016 installment discussed the Ohio Department of Medicaid’s change in policy regarding real estate (other than the residence.)  The September 22, 2016 installment discussed keeping the house with an intent to return to home.  The September 29, 2016 installment discussed keeping the house while a dependent family member lives there.   The October 6, 2016 installment discussed the home that is co-owned by someone else (other than the spouse.)  The October 27, 2015 installment discussed real property that is “essential for self-support.”  The November 10, 2017 installment discussed the retirement funds belonging to the spouse who does not seek Medicaid’s help with long term care costs.  The November 17, 2016 installment discussed the 2016 changes in how Ohio Medicaid will allow applicants to give away some of their assets cover the resulting penalty period through a return of part of the assets.  The December 1, 2016 installment discussed Ohio Medicaid’s new prohibition on using promissory notes to recover from an applicant giving away assets.   The December 8, 2016 installment discussed the possibility of using a Special Needs Trust to recover from assets given away creating a Medicaid penalty period.  Today’s installment will discuss the use of short-term annuities to recover from a long term care Medicaid penalty period that results from giving away assets.

Note:  What I am calling “assets” Medicaid calls “resources.”  In Medicaid’s terminology, “assets” includes both “resources” and “income.”  Because most of the public thinks of “resources” as human resources or natural resources, and thinks of money in the bank as “assets,” I will use the term “assets” in this installment to refer to money in the bank and other similar things of value (like real estate, life insurance, etc.) that may be included in the applicant’s life savings.

Generally, when an applicant for Medicaid for long term care services gives away something of value (aka “assets,”) Medicaid will not pay for services for the amount of time that the given-away assets would have covered.  This “penalty” is found within the “transfer of assets” rule in Medicaid’s regulations.

Despite the penalty, some Medicaid applicants wish to give away some of their assets.  Usually, the applicants wish to give assets to their children.  The giving of these assets to the applicant’s children often gives the applicants a great deal of emotional relief because it allows some of their money (the results of their working lives) to outlive them.  Most parents want to leave something to their children and grandchildren.  Finding a way to allow these applicants to give some of their assets is what most elder law attorneys try to do.

The trick is finding a way to cover the applicant’s long term care costs during the time that Medicaid will not (i.e., during the “penalty period” aka the “Restricted Medicaid Coverage Period.”)  There used to be 4 different ways to cover such a penalty period.  During 2016, Ohio Medicaid changed the rules on covering this penalty period.  Today’s installment will discuss the use of short-term annuities to cover a penalty period in long term care Medicaid benefits.

Medicaid rules allow a person who gave away assets to use an annuity to cover his/her long term care costs during the associated penalty period.  The annuities must meet a number of criteria:
– The annuity remainder beneficiary must be the state of Ohio.  (Ohio may be named after the spouse or a dependent child.);
– The annuity must be Irrevocable and non-assignable;
– The annuity must be “actuarially sound” by paying out over a time period equal to or shorter than the annuitant’s life expectancy as determined by the Social Security Administration (usually found via a certain online calculator); and
– The annuity must pay out in equal monthly payments with no anticipated lump sum (except, potentially, to a remainder beneficiary.)
An annuity that meets these requirements is often called a Medicaid-Compliant Annuity.

Satisfying these requirements is relatively easy. They can all be set at the time of the purchase of the annuity.  The trickiest part is determining the monthly payment and the number of monthly payments from the annuity. The annuity payments should be large enough to almost cover the monthly difference between the client’s monthly income and monthly costs.  The number of months should be long enough to cover the penalty period.

Short term annuities are available (to my knowledge) from two sources, Krause Financial Services (MedicaidAnnuity.com) and Safe Harbor Annuity (SafeHarborAnnuity.com.) I have used Krause for such annuities. I became aware of Safe Harbor’s participation in this market in August 2016 and have not yet used Safe Harbor.

Until recently, Cuyahoga County’s Medicaid office had espoused the position that “actuarially sound” meant that the annuity must pay out for the ENTIRE life expectancy of the annuitant rather than for a period of time equal or less than the annuitant’s life expectancy. This position posited that any designed payout shorter than the life expectancy set forth in the Social Security tables referenced in the rule made the purchase of the annuity an improper transfer. (I do not know whether any other counties or individual caseworkers did so.)  Two appeals of this position ruled against the county’s policy.  Then, in November 2016, Cuyahoga County announced that it would accept annuities that were as long as or shorter than the person’s life expectancy.

This week’s blog continues the discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled program coming in 2016-2017.  The initial installment (April 28, 2016) provided an overview of the transition from the old system (following section 209(b) of the federal Medicaid law) to the new system (that will follow section 1634 of the federal Medicaid law.)  The May 5, 2016 installment discussed the new income rules that will go into effect with the new eligibility system.  The May 12, 2016 installment discussed setting up a Qualified Income Trust (aka Miller Trust) that will be necessary for people who need ABD Medicaid to help pay for long term care.  The June 16, 2016 installment discussed the Ohio rules that describe how to use the Miller Trust each month.  The June 23, 2016installment discussed the difficulty in understanding the need for a Miller Trust.  The July 1, 2016 installment discussed the need to empty the Miller Trust account every month.  The July 7, 2016 installment discussed the need to balance the Miller Trust with the desire to have health insurance.  The July 15, 2016 installment discussed the confusing deposit rules for Miller Trusts.  The July 21, 2016 installment discussed the changes that the Ohio Department of Medicaid made to the form Miller Trust document.  The July 28, 2016 installment discussed whether income is supposed to go directly into the Miller Trust.  The August 4, 2016 installment discussed Medicaid’s insistence that the transfers (or deposits) into the Miller Trust account be automatic.  The August 11, 2016 installment discussed money that doesn’t actually reach the Medicaid-recipient that, nonetheless, counts as “income” for purposes of using a Miller Trust.  The August 18, 2016 installment discussed  the appearance that a person on long term care Medicaid has an increase in income when he/she stops paying Medicare premiums.  The August 25, 2016 installment discussed the impact of tax withholding on certain income sources and the difficulty that the tax withholding creates for the Miller Trust.  The September 2, 2016 installment discussed the limit placed on monthly costs of the Miller Trust.  The September 9, 2016 installment discussed how Ohio’s Medicaid rules appear to count income tax refunds twice.  The September 15, 2016 installment discussed the Ohio Department of Medicaid’s change in policy regarding real estate (other than the residence.)  The September 22, 2016 installment discussed keeping the house with an intent to return to home.  The September 29, 2016 installment discussed keeping the house while a dependent family member lives there.   The October 6, 2016 installment discussed the home that is co-owned by someone else (other than the spouse.)  The October 27, 2015 installment discussed real property that is “essential for self-support.”  The November 10, 2017 installment discussed the retirement funds belonging to the spouse who does not seek Medicaid’s help with long term care costs.  The November 17, 2016 installment discussed the 2016 changes in how Ohio Medicaid will allow applicants to give away some of their assets cover the resulting penalty period through a return of part of the assets.  The December 1, 2016 installment discussed Ohio Medicaid’s new prohibition on using promissory notes to recover from an applicant giving away assets.  Today’s installment will discuss the possibility of using a Special Needs Trust to recover from assets given away creating a Medicaid penalty period.

Note:  What I am calling “assets” Medicaid calls “resources.”  In Medicaid’s terminology, “assets” includes both “resources” and “income.”  Because most of the public thinks of “resources” as human resources or natural resources, and thinks of money in the bank as “assets,” I will use the term “assets” in this installment to refer to money in the bank and other similar things of value (like real estate, life insurance, etc.) that may be included in the applicant’s life savings.

Generally, when an applicant for Medicaid for long term care services gives away something of value (aka “assets,”) Medicaid will not pay for services for the amount of time that the given-away assets would have covered.  This “penalty” is found within the “transfer of assets” rule in Medicaid’s regulations.

Despite the penalty, some Medicaid applicants wish to give away some of their assets.  Usually, the applicants wish to give assets to their children.  The giving of these assets to the applicant’s children often gives the applicants a great deal of emotional relief because it allows some of their money (the results of their working lives) to outlive them.  Most parents want to leave something to their children and grandchildren.  Finding a way to allow these applicants to give some of their assets is what most elder law attorneys try to do.

The trick is finding a way to cover the applicant’s long term care costs during the time that Medicaid will not (i.e., during the “penalty period” aka the “Restricted Medicaid Coverage Period.”)  There used to be 4 different ways to cover such a penalty period.  During 2016, Ohio Medicaid changed the rules on covering this penalty period.  Today’s installment will discuss the use of a Special Needs Trust to cover a penalty period in long term care Medicaid benefits.

Prior installments have introduced the Special Needs Trust.  The April 2, 2015 installment discussed Special Needs Trusts as part of the series on qualifying for Supplemental Security Income (SSI) and Medicaid.  The April 9, 2015 installment introduced the Pooled Trusts, a Special Needs Trust for a number of people simultaneously, also as part of the series on qualifying for SSI and Medicaid.  Either of these kinds of trusts, a stand-alone Special Needs Trust and a Pooled Trust, are possible vehicles for helping to cover a penalty period.

Special Needs Trusts can be useful for covering a penalty period because a deposit into a Special Needs Trust is not an “improper transfer” triggering a penalty period.  Likewise, the contents of a Special Needs Trusts do not count as “resources” or “assets” for someone who is trying to qualify for long term care Medicaid.  These two rules concerning Special Needs Trusts make the trusts useful for “riding out” a penalty period during which Medicaid won’t pay for long term care.

To make an improper transfer (i.e., to shelter part of one’s assets from the costs of long term care,) someone who needs long term care would give away some of his/her assets and then place enough money into a Special Needs Trust to cover the monthly costs during the penalty period that results from the assets given away.  Then, enough money could come out of the Special Needs Trust each month to cover that month’s costs.

The bringing money back each month from the Special Needs Trust is just like getting money back each month from a family member in Partial Give-Back method described in the November 17, 2016 installment.  There is a big difference between the Partial Give-Back method and the Special Needs Trust method, though.  The money given away in the Partial Give-Back method (part of which money came back each month) is part of an “improper transfer” that creates a penalty period.  (The penalty period got reduced each month because of the partial give-back in that method (until the January 2016 rule change.))  Depositing money into a Special Needs Trust is not considered an “improper transfer,” so it does not increase the penalty period for Medicaid coverage.

If the plan to give away assets when applying for Medicaid includes leaving a large amount in the Special Needs Trust after the penalty period has ended, the applicant might wish to use a stand-alone Special Needs Trust (as discussed in the April 2, 2015 installment.)  If the plan to give away assets includes leaving nothing or leaving a small amount in the Special Needs Trust after the penalty period has ended, the applicant might wish to use a Pooled Trust (as discussed in the April 9, 2015 installment.)

HOWEVER, I would prefer that Special Needs Trust not be used in this manner.  A Special Needs Trust is a very important shelter for assets to benefit people with special needs.  As discussed in prior installments, a Special Needs Trust can give a great deal of life enjoyment to someone who might otherwise be able to have nothing because of the financial limitations of government income and health programs for people with disabilities.  That enabling of life enjoyment is what a Special Needs Trust should, in my opinion, be used for.

Unfortunately, government policy makers who do not like to spend money on people with special needs repeatedly launch attacks on the Special Needs Trust law and rules, especially focusing on Pooled Trusts.  The use of Special Needs Trusts to counterbalance an improper transfer of assets when applying for Medicaid gives such hard-hearted government officials another reason to attack Special Needs Trusts.  Because other methods are available to cover a penalty period that accompanies an improper transfer of assets, I urge you NOT to use Special Needs Trusts for that purpose.

Friends, I didn’t write a blog last week.  I was celebrating Thanksgiving with my family.  I hope you too enjoyed your Thanksgiving weekend.

This week’s blog continues the discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled program coming in 2016-2017.  The initial installment (April 28, 2016) provided an overview of the transition from the old system (following section 209(b) of the federal Medicaid law) to the new system (that will follow section 1634 of the federal Medicaid law.)  The May 5, 2016 installment discussed the new income rules that will go into effect with the new eligibility system.  The May 12, 2016 installment discussed setting up a Qualified Income Trust (aka Miller Trust) that will be necessary for people who need ABD Medicaid to help pay for long term care.  The June 16, 2016 installment discussed the Ohio rules that describe how to use the Miller Trust each month.  The June 23, 2016installment discussed the difficulty in understanding the need for a Miller Trust.  The July 1, 2016 installment discussed the need to empty the Miller Trust account every month.  The July 7, 2016 installment discussed the need to balance the Miller Trust with the desire to have health insurance.  The July 15, 2016 installment discussed the confusing deposit rules for Miller Trusts.  The July 21, 2016 installment discussed the changes that the Ohio Department of Medicaid made to the form Miller Trust document.  The July 28, 2016 installment discussed whether income is supposed to go directly into the Miller Trust.  The August 4, 2016 installment discussed Medicaid’s insistence that the transfers (or deposits) into the Miller Trust account be automatic.  The August 11, 2016 installment discussed money that doesn’t actually reach the Medicaid-recipient that, nonetheless, counts as “income” for purposes of using a Miller Trust.  The August 18, 2016 installment discussed  the appearance that a person on long term care Medicaid has an increase in income when he/she stops paying Medicare premiums.  The August 25, 2016 installment discussed the impact of tax withholding on certain income sources and the difficulty that the tax withholding creates for the Miller Trust.  The September 2, 2016 installment discussed the limit placed on monthly costs of the Miller Trust.  The September 9, 2016 installment discussed how Ohio’s Medicaid rules appear to count income tax refunds twice.  The September 15, 2016 installment discussed the Ohio Department of Medicaid’s change in policy regarding real estate (other than the residence.)  The September 22, 2016 installment discussed keeping the house with an intent to return to home.  The September 29, 2016 installment discussed keeping the house while a dependent family member lives there.   The October 6, 2016 installment discussed the home that is co-owned by someone else (other than the spouse.)  The October 27, 2015 installment discussed real property that is “essential for self-support.”  The November 10, 2017 installment discussed the retirement funds belonging to the spouse who does not seek Medicaid’s help with long term care costs.  The November 17, 2016 installment discussed the 2016 changes in how Ohio Medicaid will allow applicants to give away some of their assets cover the resulting penalty period through a return of part of the assets.  Today’s installment will discuss Ohio Medicaid’s new prohibition on using promissory notes to recover from an applicant giving away assets.

Note:  What I am calling “assets” Medicaid calls “resources.”  In Medicaid’s terminology, “assets” includes both “resources” and “income.”  Because most of the public thinks of “resources” as human resources or natural resources, and thinks of money in the bank as “assets,” I will use the term “assets” in this installment to refer to money in the bank and other similar things of value (like real estate, life insurance, etc.) that may be included in the applicant’s life savings.

Generally, when an applicant for Medicaid for long term care services gives away something of value (aka “assets,”) Medicaid will not pay for services for the amount of time that the given-away assets would have covered.  This “penalty” is found within the “transfer of assets” rule in Medicaid’s regulations.

Despite the penalty, some Medicaid applicants wish to give away some of their assets.  Usually, the applicants wish to give assets to their children.  The giving of these assets to the applicant’s children often gives the applicants a great deal of emotional relief because it allows some of their money (the results of their working lives) to outlive them.  Most parents want to leave something to their children and grandchildren.  Finding a way to allow these applicants to give some of their assets is what most elder law attorneys try to do.

The trick is finding a way to cover the applicant’s long term care costs during the time that Medicaid will not (i.e., during the “penalty period” aka the “Restricted Medicaid Coverage Period.”)  There used to be 4 different ways to cover such a penalty period.  During 2016, Ohio Medicaid changed the rules on covering this penalty period.  Today’s installment will discuss the use of a promissory note between the Medicaid applicant and a family member.

First, let’s explain a promissory note.  A promissory note is a legal document that contains a promise to repay a loan.  For example, anyone who has mortgaged a home has probably signed a promissory note as an agreement  to pay back the borrowed money.

In the context of Medicaid for long term care context, the person needing care can give away some of his/her assets.  Then, to pay for care during the penalty period that results from the give-away of assets, the person who needs care must set up a flow of income to pay the monthly care costs.  (The assets given away are protected from long term care costs and from Medicaid as long as the flow of income to pay for the penalty period is calculated correctly.  It really is a big math problem.)

Monthly installments to repay a loan can be just the flow of income to appropriately cover such a penalty period.  So, the person who needs long term care can lend money to someone (usually a family member, but it can be someone else.)  Then, the family member (as the borrower) would repay the loan in installments of an appropriate size to cover the monthly care costs during the penalty period.  To document the repayment terms (and to ensure that the “loan” wasn’t actually given away, which would result in a longer penalty period,) the lender (the person needing care) and the borrower (the family member or friend who offering to make the monthly payments) would have to sign a promissory note.

Remember, there’s no need for a promissory note if it isn’t used to cover a penalty period.

Before Ohio Medicaid’s August 1, 2016 rule changes, the acceptability of promissory notes was a bit unpredictable.  Some county Medicaid offices would accept promissory notes.  Some county offices would not accept them.  And then, even within some county Medicaid offices, some caseworkers would accept promissory notes and some would not accept them.

Now, after the August 2016 rule changes, Ohio Medicaid has (supposedly) prohibited the use of promissory notes for penalty recovery.

So, if promissory notes are prohibited, why would I even write about them?  I’m not sure that Ohio’s prohibition on promissory notes in Medicaid cases is permanent.

The federal Social Security law allows promissory notes to be used as described here, and the Medicaid program (at both the federal and state level) are part of the Social Security law.  One would think, that something allowed by the Social Security law would be allowed by the Medicaid rules that exist only because of the Social Security law.  So, at some point, some elder law attorney will probably challenge Ohio’s prohibition of promissory notes as a violation of the Social Security law.