Fredrick P. Niemann, Esq.Medicaid ChangesThe Approaching

StormFREDRICK P. NIEMANN, ESQ.

Hanlon Niemann, PCELDER LAW AND

LIFE CARE PLANNING3499 ROUTE 9 NORTH, SUITE 1-F

FREEHOLD, NJ 07728(732) 863-9900

www.njelderlawcenter.com www.njmedicaidattorney.com

www.applyingformedicaidinnj.comwww.appealingmedicaiddenialinnj.com

Fredrick P. Niemann, Esq.

Fredrick P. Niemann offers his clients nearly 30 years of accomplished practice in law. He is a member of the National Academy of Elder Law Attorneys, the Guardianship and Conservatorship Committee of NAELA, the Special Needs Trust and Estate Tax Committees of NAELA, the Monmouth County Chancery Practice Committee, New Jersey State Bar Association Elder Law Section, and the Monmouth County Chancery Practice Committee. Mr. Niemann is one of the few attorneys in New Jersey to be accredited by the Veteran’s Administration to file applications for the Aid and Attendance pension on behalf of Veterans and or their spouses.

Legal Wit

A curious passerby stopped before a grave in a cemetery, containing the tombstone declaring: “Here lies a lawyer and an honest man.”

“An who’d ever think,” he murmured, “there would be room for two men in that one little grave!”

From the World’s Best Jokes

edited by Lewis Copeland

Legal Wit

It was so cold one day last February that I saw a lawyer with his hands in his own pockets.

Robert Peterson, comedian

A lawyer is a man who helps you get what is coming to him.Laurence J. Peter, educator/writer

The first thing we do, let’s kill all the lawyers.Shakespeare

Cold Hard Facts• 60% will require long-term care• 43% of people over 65 require nursing home care• It costs per month

– $4,000-$5,000 for home care – $4,000-$8,500 for assisted living– $9,000-$12,000 for nursing home– $18-$22 per hour minimum 3 hours for home health aid– $120-$150 for a 12 hour shift for home health aid– $175-$230 for a 24 hour shift for home health aid with 8

hours of sleep

The Greatest Threat

• The greatest threat to the financial security of middle and upper middle class Americans is the cost of long term convalescent care!

5 Ways to Pay for Long Term Care

• Private pay• Long-term care insurance• Medicare (for up to a maximum of 100 days

of skilled care, the first 20 days are covered 100% then there is a co pay for the additional 80 days)

• Veterans Administration Pension Benefits (Aid & Attendance)

• Medicaid

Goals of Planningfor Long Term Care

GOAL 1Asset and Income Protection

– Provide Economic Security for the Community Spouse

– Preserve Inheritance for Children

– Avoid Medicaid Liens on Family Assets and Income

GOAL 2 Lifecare Planning

– Best Quality Care for Aging Person

– Avoid Being a Burden on Kids

WHAT IS MEDICAID?

IT IS A :

• Federal program

• Administered by the State of NJ under contract with each County Board of Social Services (ie., Monmouth, Ocean, Middlesex, Mercer, Bergen)

(cont’d.)

Programs Continued

• Traditional Medicaid Long Term Care (Strict Medicaid) is for:– Nursing Home– Assisted Living– Home based programs (Global Options)

• Medically Needy Medicaid is for: – Nursing Home Care only

Medicaid Eligibility is Based on

1.Medical EligibilityA. The importance of the “PAS”

B. The requirement of a nursing home level of care regardless of program being applied for:

2.Income Eligibility

3.Asset / Resource Eligibility

Income and Resource Limits Under Medicaid Programs

Program

Income Cap

Resource Cap

Medicaid Only

$2,130

$2,000

Medically Needy*

Floating

$4,000

Global Options+

$2,130

$2,000

*Nursing Home placement only, not Assisted Living, Global Options

+Primarily Home Based Care but can include Assisted Living Medicaid

(See next slide)

Cost to Client for MedicaidSingle Person

• Global Options– No cost to individual

– “Estate recovery” on principal residence– Care is limited to approved “Care Plan”

• Seldom (Never) 24/7 Care Services• Can Include Medical Equipment, Supplies, Drugs• Assisted Living

– There is a cost share for the applicant for their room and board

– Resident keeps $100 per month for their personal needs allowance

(cont’d)

(Cont’d.)

• Nursing Home – Institutionalized resident turns over all income to the

nursing home except $35 for personal needs each month

• Practical Tip– All income but personal need allowance goes to

nursing home and assisted living residence (except Global Options)

Married Couples2012 – 2013 INCOME

Minimum Monthly Needs Allowance

MMNA $1,891.25 + utility allowance of $365

RESOURCES

Community Spouse Resource Allowance

Minimum $ 23,312

Maximum $ 115,920

The 50% Formula

Non-Countable Resources• Home with conditions and limitations

– Community Spouse exemption only, not a single person

• Automobile (unlimited value for community spouse only)

• Household Goods

• Personal Effects

• Irrevocable Prepaid Funeral ( Trust or Insurance Policy)

Non-Countable Resources(continued)

• Term Life Insurance

• Life Insurance With Cash Surrender Value of $1,500 or Less

• $2,000/$4,000 Personal Needs Allowance

• For single person there are practical ways to possibly minimize but not eliminate spend down

BEWARE OF THE MEDICAID “BOOBY TRAP”, THE LOOK BACK PERIOD for Gifts & Uncompensated Transfers

• What is the Look Back Period?

• The Deficit Reduction Act of 2005– Increased look back to 5 years– Look back period begins date applicant

requires a nursing home level of care (Medicaid eligibility) and the application is filed with the County Board of Social Services

Here’s an Example of the “Look Back Period” Under the DRA

Mom transfers $200,000 4 ½ years ago to children and now needs a nursing home level of care

• Because transfer was made within 5 years, the penalty will be for the full $200,000 transferred

• Penalty period is for the full value of the gift if application filed within 5 years of gift

• Results: the $200,000 transfer will have to be spent down to $2,000-$4,000

What Strategies Are Available to Preserve Resources?

• The Medicaid Landscape is Changing on a DAILY BASIS

• There are multiple lawsuits currently pending in which elder law attorney’s are taking the state to federal court

• Strategies differ between single individuals and married couples

Convert Countable Resources to Non-Countable Resources

• This process can be complicated and requires financial calculations

• See the advice of a qualified elder law attorney

• If done correctly, you can protect a significant amount of resources

Example:Our Clients and Spend Down

• Assets to Spend Down $118,440• Pay Down Mortgage - 10,000• Prepay Funeral - 8,000• Use Funds for Qualifying Purchases

and Spend Down of Resources - 35,000• Purchase of Personal Needs Items - 1,000• Adjusted Countable Assets

Remaining $ 58,440

Whenever Appropriate, Start the 5 Year Clock, Pre Plan

• Use of Trusts

1.Irrevocable trusts

A. Grantor trusts for income and estate tax benefits

B. Income only trust

2.Must be an outright transfer; remember, no strings can be attached

(continued…)

(Cont’d)

• No access to income

• No access to principal

• 5 year lookback

• Keep in mind family issues, tax consequences, further care needs

More Advanced ConceptsThe Purchase of a Life Estate

in Child’s Home

• 1 Year Residency required

• Based on actuarial life expectancy of parent

• Capital Gains Tax Considerations to– Parent– Child

(cont’d.)

(Cont’d.)• Regulations define method of calculating value of Life

Estate• Transfers to disabled child(ren)

– Age does not matter

– SSI

– SSD

– DDD

• Outright OR in trust• Be careful not to jeopardize SSI and Medicaid eligibility

Purchase Remainder Interest in Parent’s Home

• Parent sells interest in their home to child

• Opposite concept of parent purchasing of life estate in child’s home

• Strict criteria for NJ eligibility

Care Agreement(s)

• Must be in writing

• Can not be for past services– Prospective services only

• Reasonable Compensation– Based on hourly/daily rates

(cont’d.)

Care Agreement

• What is “Reasonable Compensation?”– can include rent, utilities

• Care in Parent’s Home

• Care in Child’s Home

• Care in Separate Residences

• Documentation is a must

• Failure to document equals denial

Care Agreement… (continued)

• Taxable Income to Caregiver

• Withholdings Required by Parent– FUTA– FICA– Income Tax (optional)

Life Insurance• Convert Cash Value to Additional Paid Up

Insurance• Assign ownership & beneficiary designation on

term policies• Children can/should purchase high value

insurance policies– Example:

• $250,000 death benefit

• $65,000 cash surrender value

• Mom 89 years old

Medicaid Qualifying Annuity (MQA)

• A little known and understood type of annuity

• NOT! A commercial annuity

• Must have mandatory features to be legal under NJ Medicaid

Strategies for Protecting Your Home

• Timing and Contents of Transfer Critical

• Transfer to Community Spouse

• Transfer to Child Under 21, Blind or Disabled

• Transfer to Caregiver Child– Strict Conditions Precedent Must be Met– Transfer to Sibling With an Ownership Interest

What About the Transfer of the Home Outright to Children

• Gift Tax Issue

• Carry Over Basis

• Loss of $250,000/$500,000 Principal Residence Exclusion

• Lose Homestead Tax Rebate, Veteran’s Deduction, Senior Citizen Deduction, Itemized Deduction

Other Options to Protect the Home:Transfer Home/Retain Life Estate

• Retain Control• Gift Tax• Step Up in Basis• Retain Homestead Tax Rebate• Veterans Deduction, Senior Citizen

Deduction, Itemized Deduction• Principal Residence Exclusion/Trust

Summary of Seminar byUse of a Case Example

You Be the Lawyer

Bill Smith Age 88 (early onset Alzheimer’s)Sofia Smith Age 71 (good health, primary caregiver)House (jointly owned) $450,000John IRA $101,000Sofia IRA $44,000Brokerage Account (jointly owned) $160,000CD’s (jointly owned) $75,000

(cont’d)

(Cont’d)

Money Market (jointly owned) $30,000Checking Account $14,000Vacation condo in Florida

(jointly owned) $150,0001998 Buick (Sophia) $5,0002007 Ford (Bill) $9,000Total Assets: $1,038,000

(cont’d)

(Cont’d)Income• Bill

– Social Security $1,200 per month• Pension $1,300 per month• LTC Insurance $5,000 per month

Total $7,500 per month• Sofia

– Social Security $989 per month

Total $989 per month

As You Develop a Plan, Here Are a List of Considerations

• Income Requirements and Limitations Under Medicaid

• Resource Requirements and Limitations Under Medicaid

• Transfer Rules and Penalty Periods

• Income, Gift and Estate Taxes

(Cont’d)

• Beneficiary Designations of Existing Accounts and Assets

• Estate Recovery

• Fair Hearing Appeals

• Documents

A Final Thought

Long Term Care Insurance (LTCI)• 5 Year Policy• Inflation Factor• Transfer of Assets Prior to Start of Policy Benefits

– Policy Pays for Care During Penalty Period

• NJ Long Term Care Partnership Act– No one over 65 who is healthy should be without LTCI!

Hanlon Niemann, PCAttorneys at Law

3499 Route 9 North, Suite 1-F

Freehold, NJ 07728(732) 863-9900

fniemann@hnlawfirm.comwww.njelderlawcenter.com

www.njmedicaidattorney.comwww.applyingformedicaidinnj.com

www.appealingmedicaiddenialinnj.com FREDRICK P. NIEMANN, ESQ.

ELDER LAW ANDLIFE CARE PLANNING