From The Certified Elder Law Attorney's Desk:

William W. “Bill” Erhart

CASE STUDIES OF COMPLEX MEDICAID QUALIFICATION CLIENTS

As you all know, our office specializes in Public Benefits law, primarily long-term care Medicaid. The general public and many commentators have serious misconceptions about Medicaid planning. Many think it simply a matter of spending down money or paying nursing homes or buying prepaid funeral contracts or even just purchasing certain types of annuities. All of those features can play a role in Medicaid planning, but folks overlook the value of professional services and the economic benefit we give our clients using techniques even the most educated lay persons do not have in their repertoire.

CASE NUMBER ONE: DO NOT GET DIVORCED

Husband – 68 years old: He is retired and has a serious chronic disease which debilitates him. He will require long-term care, first in assisted living and eventually in a skilled nursing facility. He has a $700,000 IRA. He has income in excess of the State income cap. The initial estimate for long-term care is $6500 a month.

Wife – 48 years old: She is an executive for a large Philadelphia business. Her income is $300,000 per year. She has a 401(k) worth over $1 million.

After consulting with a big Philadelphia law firm, they get divorced in order to preserve her assets. The plan is to spend his $700,000 IRA in long-term care. He is still living at home. They do not want to get divorced. The children and family members are quite upset.

Upon consultation with us, we directed them to contact their divorce lawyers and to vacate the divorce.

Under the Medicaid rules, her income is not considered in determining Medicaid eligibility for her husband for long-term care. And her 401(k) is considered an exempt resource under Delaware law. Upon restoring the marriage, using a Medicaid Compliant Annuity (“MCA”) we made his IRA payable to his wife. Although she did not need the income, the tax payable on the IRA distributions is far less than the monthly cost of care.

We created a Qualified Income Trust (Miller Trust) for the husband, through which his excess monthly income will pass. Although in this instance, unnecessary because of the wife’s high income, we performed a Minimum Monthly Maintenance Needs Allowance calculation to determine whether any of his income should be preserved for the household’s use.

Using the Community Spouse Resource Allowance (“CSRA”), which is permitted by Medicaid law, we transferred any excess resources into the name of the wife. We transferred the house with all of its equity into her name alone.

We revised the estate plan for both spouses. For the wife, we created a special Will which, if she should predecease her husband, creates a Marital Trust on his behalf, the assets of which are exempt from Medicaid.

Under this Medicaid plan, 100% of this family’s assets were preserved to qualify the chronically ill husband for long-term care Medicaid. The marriage was left intact and family harmony, a major consideration in estate planning, was preserved.

Eventually, skilled nursing for the husband cost almost $12,000.00 a month.

CASE NUMBER TWO: PEOPLE GET DIVORCED ANYWAY

Married couple implement Medicaid Asset Preservation Plan similar to the one above. Husband’s IRA is payable to the soon to be ex-Wife. He is in a nursing home. She is still working. For reasons unrelated to finances or Medicaid or illness, they decide to get divorced. However, all assets are currently in the wife’s name. Husband had been receiving the benefit of supplemental payments from her while he was in the nursing home to enhance his quality of life. He does not want to give up the supplemental resource. She does not want to be involved with him post-divorce. Pursuant to Federal law, one spouse cannot create Medicaid asset protection trust for another spouse. So cannot be done by property agreement. [Really thought hard about this]. How do they resolve this in a fair way?

Solution: They retain separate counsel. They get divorced. Since she is still working, alimony is voluntarily assessed against her. Once divorced, their separate counsel negotiates a commutation agreement, where for a lump sum, deposited into an asset protection trust for the benefit of the ex-husband, the alimony obligation is discharged.

This is a lot more complicated than it sounds. But works in Delaware, as well as other states.

CASE NUMBER THREE: WHAT TO DO WITH THE RENTAL PROPERTIES?

Years before anyone contemplates that father or mother will need long term care, son wants two office condominiums. Because of credit and cash flow concerns, father and son have a discussion where father purchases the two office condominiums and agrees to lease them to the son. The son gets use of the office condominiums and the father receives regular income.

Years later, the wife becomes infirm and needs long term care. For various reasons, father does not want to deal with the office condominiums any longer. There are issues with Medicaid about the assets being considered income producing and therefore exempt.

Solution: After an appraisal and discounting, son buys the office condominiums from her father. Each has separate counsel. The son executes a Medicaid Compliant Promissory Note and a Medicaid Compliant Mortgage, which under the Medicaid rules are nontransferable and non-assignable. The note and mortgage have no cash value for a third party. Hence, they are not considered available resources for purposes of Medicaid. Son continues to pay approximately the same amount of money to the father, this time instead of rent it is a mortgage payment. Father continues to receive approximately the same amount of money from son. Because it is his income, not the wife who is applying for long-term care Medicaid, it is not considered for long-term care Medicaid qualification.

Father revises his Will, so that when he dies, the note and mortgage he holds from the son goes to the son and not the other children.