How Trusts Affect Medicaid Eligibility and Estate Recovery

1. How Trusts Affect Medicaid Eligibility and Estate Recovery 3/20/2019 Audio Webinar Matthew J. Leonard, Esq. Matthew J. Leonard, Esq.Salter McGowan Sylvia & Leonard, Inc.56 Exchange Terrace, 5th FloorProvidence, RI 02903Ph:  (401) 274-0300 ex. 8215Fax: (401) 453-0073 Admitted To Practice In: Rhode Island, Massachusetts and Florida mleonard@smsllaw.comwww.smsllaw.com www.RIMedicaidPlanning.com

2. Who is Eligible for Medicaid?Three Possible Scenarios • Single Person: • “Countable Assets” must not exceed $2,000 ($4,000 in some states) • Married Couple – one spouse institutionalized and one spouse in the community: • General Rule: Countable assets must not exceed: • $25,284 minimum • $126,420 maximum (Spousal share ½ of joint resources as of beginning of period of continuous institutionalization) • Assets available to at-home spouse are called the “community spouse resource allowance” (CSRA)

3. Who is Eligible for Medicaid?Three Possible Scenarios • Married Couple, both spouses institutionalized: • Countable assets may not exceed $4,000 ($8,000 in some states) • Medical Need: To be eligible for Medicaid under a long term care support one needs to demonstrate a medical need for skilled nursing • Income: Individuals who receive Medicaid benefits are able to retain $50 per month (varies by state) of their income with the balance being remitted to the nursing facility subject to spousal needs. Income may not exceed $9,581

4. Revocable vs. Irrevocable Trust Considerations • Countable Assets and Medicaid Eligibility – All assets owned by applicant (or spouse) are countable assets other than: • Principal Residence ($878,000 maximum home equity limit) • Household Belongings • One Automobile • Personal Belongings (jewelry and clothing) • Prepaid funeral and Prepaid burial account • Life insurance policies with cash value of less than $4,000 • Inaccessible assets (e.g., disputed claims and some types of joint property) • Assets necessary for self-support

5. Single Clients vs. Married CouplesAssets • All countable assets owned directly by applicant or applicant’s spouse are considered assets of applicant • Joint Ownership: • Bank Accounts – General Rule: Entire balance is allocable to Medicaid applicant • All other assets – General Rule: Proportionate Ownership (i.e., percentage of ownership in parcel of real estate) • Rebuttable Presumption of Ownership – applicant must provide proof if they do not own or control an asset despite being title owner (i.e., being placed on bank account for convenience purposes for a parent of child)

6. Single Clients vs. Married ClientsAssets • “Community Spouse” permitted to keep one-half of the couples combined countable assets (as of the date of institutionalization) up to $126,420 for 2019 – with a minimum allowance of $25,284 – this is the CSRA Example: Couple owns $100,000 in countable assets. Applicant eligible for Medicaid once assets reduced to $54,000: $4,000 for applicant and $50,000 for community spouse (one-half of $100,000). Example: Couple owns $325,000 in countable assets. Applicant eligible for Medicaid once assets reduced to $130,420 ($4,000 for applicant and $126,420 for community spouse)

7. Single Clients vs. Married CouplesIncome • Single Medicaid Beneficiary – All income to nursing home except for: • $50.00 personal needs allowance (varies by state) • Amounts needed to pay for uncovered medical costs, including health insurance premiums • Allowance may be given if owning a personal residence • Institutionalized Spouse – All income to nursing home except for: • $50.00 personal needs allowance (varies by state) • Amounts needed to pay for uncovered medical costs, including health insurance premiums • Community spouse share (where monthly needs exceeds actual income)

8. Single Clients vs. Married CouplesCommunity Spouse • Income of Community Spouse – Untouched and preserved intact • Added protection of community spouse – Minimum Monthly Maintenance Needs Allowance (MMMNA) • What is MMMNA – Under a prescribed formula based on housing costs, the state permits a community spouse to earn a minimum monthly income ranging from $2,057.50 to $3,160.50 • What if MMMNA exceeds actual monthly income of community spouse? Example: The CS earns $1000 a month SSI and pension, but her MMMNA is calculated to equal $3,160, so there is a $2,160 a month shortfall.

9. Single Clients vs. Married Couples • Community Spouse is entitled to make up the shortfall by: • Receiving a portion of the institutionalized spouses income equal to shortfall, $3,500 Institutionalized Spouse’s Income - 2,160 To Community Spouse • 50 Personal Need Allowance • 140 Prescription Plan Premium • 1,150 To Nursing Home (“patient-paid amount”) If Community Spouse still has shortfall, she can appeal for an increased CSRA; the extra assets retained will generate income equal to shortfall.

10. Life Expectancy of Client • Transfers of assets within 5 years of applying for Medicaid where the transfer occurred and the person transferring the asset did not receive something back of value, will create a disqualification of that person for a period of time. • Pre-Need Planning vs. Emergency Planning • Understanding a clients health, timeline and life expectancy is critical before embarking on a plan of Medicaid qualification • If a client is expected to need skilled nursing care within the next 5 years, executing transfers that will cause a period of disqualification is not advised • If a client is not expected to need skilled nursing care within the next 5 years, executing transfers that will cause a period of disqualification is more manageable – be sure to obtain client buy-in on the plan and consequences.

11. How Revocable Trusts Can Interfere with Medicaid Eligibility • Revocable Trusts and Pre-Need Planning: If applicant (or spouse) has access to trust principal or income the trust may be considered an available resource. • Revocable Trusts do not work for Medicaid qualification • Assets transferred to a trust (revocable or irrevocable), will be subject to the 60 month “look back” period. • This 60-month period applies to the transfer to an irrevocable trust of assets which cannot be paid under any circumstances to the individual making such transfer, and to income from those assets, payment of which to the individual is prohibited.  Thus, the effective cap on periods of ineligibility resulting from the transfer of assets to a trust is 60 months. • Revocable Trusts allow for payments of principal and thus are always deemed available to applicant regardless of if the transferred occurred over 60 months ago or if the asset it otherwise exempt (i.e., home).

12. Funding Trusts with Exempt Assets:The Transfer Penalty • Transfers Leading To Medicaid Ineligibility • Any transfer of assets for less than fair market value will trigger a period of ineligibility. • Ineligibility is determined by dividing the amount transferred by the figure published by each state as to the average cost for nursing care for that state, in Rhode Island for 2019 that figure is $9,581 • If an applicant made gifts totaling $172,458, he or she would be ineligible for Medicaid for 18 months ($172,248 divided by $9,581). • Another way to look at this is that for every $9,581 transferred, an applicant will be ineligible for nursing home Medicaid benefits for one month.

13. Funding Trust with Exempt Assets:Exceptions To Transfer Penalty Rule • No Period of ineligibility will apply to transfers of asset made to: • spouse • blind or disabled child • trust for benefit of blind or disabled child • trust for benefit of disabled person under age 65 • trust for benefit of under 65 disabled applicant • pooled disability trust • No period of ineligibility will apply to transfers of principal residence made to: • spouse • child under 21 • blind or disabled child • caretaker child • sibling living at home with equity interest in house • Cure: transfers can be cured by transferring assets back to applicant.