Medicaid Crisis Planning: Advanced Techniques for Preserving Assets - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Medicaid Crisis Planning: Advanced Techniques for Preserving Assets After Nursing Home Admission Leveraging DRA Promissory Notes, Community Spouse Resource Allowance and Medicaid Qualified Annuities WEDNESDAY, NOVEMBER 20, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Angela N. Manz, Attorney, The Law Office of Angela N. Manz , Virginia Beach, Va. Joley L. Eason, ThompsonMcMullan , Richmond, Va. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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Medicaid Crisis Planning Advanced Techniques for Preserving Assets After Nursing Home Admission 3097 Brickhouse Court Virginia Beach, VA 23452 Tel: 757-271-6275 | Fax: 757-273-7129 www.manzlawfirm.com angela@manzlawfirm.com 5

Disclaimer • This presentation does not constitute legal, accounting, or other professional advice. Only through a personal, confidential consultation with qualified legal counsel can anyone properly evaluate their own unique estate planning challenges and determine what, if any, appropriate legal strategies and tactics should be used. 6

IRS Circular 230 Disclaimer • Nothing in this presentation is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. 7

Medicaid Compliant Promissory Notes • S1120.220, S1140.300 and M1450.540 • Promissory notes are used to change a countable resource into a non-countable resource • Promissory notes can be considered a non- countable resource as long as certain conditions are met. • Funds used to purchase a promissory note, loan, or mortgage on or after February 8, 2006, must be evaluated as an uncompensated transfer unless the note, loan, or mortgage: 8

Medicaid Compliant Promissory Notes • Promissory Note Requirements: • Has a repayment term that is actuarially sound (see M1450.520), • Provides for payments to be made in equal amounts during the term of the loan with no deferral and no balloon payments, and • Prohibits the cancellation of the balance upon the death of the lender. 9

Medicaid Compliant Promissory Notes • Promissory note requirements are very similar to the Medicaid compliant annuity requirements. • When would you use a promissory note? • Use for a single person, or for a married couple, where client has an amount of excess resources that do not justify using a longer term annuity and where the borrower child/family member is a low risk individual. 10

Medicaid Compliant Promissory Notes • Example: • Mrs. Smith is single and in a NH. She has $52,000. She may keep $2,000. $50,000 must be “spent down” before she can be eligible for Medicaid. • In the reverse half a loaf plan (as discussed in later slides), Mrs. Smith may make a loan to her child in exchange for a Medicaid compliant promissory note. The note would not be a countable asset and the loan proceeds would be structured to provide income to Mrs. Smith during her penalty period. 11

Medicaid Compliant Promissory Notes • General rule of thumb: • The higher the amount of assets, the better it may be to use a Medicaid compliant annuity instead. This is to ensure that: • For a single person, the funds are guaranteed to be available to the Medicaid applicant to help pay for care during a penalty period, or • For a married couple, the funds are guaranteed to be available to help provide for the CS. 12

Medicaid Compliant Promissory Notes • Consider not using a promissory note when the child borrowing the money is at risk for a lawsuit, divorce, bankruptcy, etc. • Goal is that the money is sheltered, so evaluate the risk before proceeding. • If the child is a higher risk than is comfortable, consider using an irrevocable trust or a Medicaid compliant annuity instead. 13

Medicaid Compliant Annuities • See M1450.520 and 1450.530 • For Medicaid purposes, an annuity means a contract or an agreement by which one receives fixed, non-variable payments on an investment for a lifetime or a specified number of years. • Typically referring to single premium immediate annuities, also known as a SPIA. 14

Medicaid Compliant Annuities • Annuities are typically used to change a countable asset into an income stream. • All annuities purchased by the Medicaid applicant or by the CS must be reported to DSS. • An annuity that names revocable beneficiaries is considered to be an available resource because it can be surrendered, cashed in, assigned, transferred or have the beneficiary changed. 15

Medicaid Compliant Annuities • Annuities are presumed to be revocable when the annuity contract does not state that it is irrevocable. • The countable value of the revocable annuity is the amount of the funds in the annuity minus any fees required for surrender. M1140.260 16

Medicaid Compliant Annuities • A non-employment related annuity purchased by or for an individual on or after February 8, 2006, using that individual’s assets will be considered an available resource unless it meets all of the following criteria: the annuity • is irrevocable; • is non-assignable; • is actuarially sound; • provides for payments in equal amounts during the term of the annuity with no deferral and no balloon payments made; and • the state is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized individual or the state is named the remainder beneficiary in the second position after the community spouse or minor or disabled child. 17

Medicaid Compliant Annuities • If the annuity does not meet the criteria listed above, the balance of the annuity is a countable asset regardless of whether or not the individual can access the balance. • An annuity is actuarially sound when the annuity payments do not exceed the annuitant’s life expectancy, according to the life expectancy chart in the Medicaid manual. 18

Medicaid Compliant Annuities • Typically use a Medicaid compliant annuity • To provide an income stream during a reverse half a loaf penalty period for a single applicant, or • To shelter excess resources for a community spouse and obtain immediate qualification for the institutionalized spouse. • Both of these strategies are discussed later in the presentation. 19

Strategies for a Single Applicant • For a single applicant, the following strategies are typically used: • Pre-purchase irrevocable funeral/burial plan M1130.420 • Pay down debt • Home improvements • Purchase a life estate and reside in the home for one year 20

Strategies for a Single Applicant • Utilize a care agreement to transfers assets to a caregiver child without penalty • Caregiver child transfer of the residence • Purchase a more expensive home (if the home is exempt) • Purchase a vehicle • Transfer assets to a minor or disabled child • Reverse half a loaf 21