ELDER LAW IN A DAY

1. NJ INSTITUTE FOR CONTINUING LEGAL EDUCATIONELDER LAW IN A DAYJULY 10, 2017Presented by Donald D. Vanarelli, Esq.___________________Certified Elder Law AttorneyAccredited VA AttorneyRecipient, Lifetime Achievement AwardBy New Jersey State Bar Ass’n, Elder and Disability Law SectionNamed to the NJ “Super Lawyer” list, 2007 - Present

2. ELDER LAW IN A DAY LONG-TERM CARE TRUSTS Donald D. Vanarelli, Esq.

3. BACKGROUND: MEDICAID • Joint federal & state program created under Title XIX of the Social Security Act of 1965. • Funding source for long-term care to the aged, blind and disabled. • Eligibility is based upon financial need: • Unmarried applicant’s countable resources cannot exceed $2,000.00; monthly income cannot exceed $2,205.00.

4. LONG-TERM CARE TRUSTS Using the proper trusts, individuals with excess income/resources can become eligible for Medicaid.

5. QUALIFIED INCOME (“MILLER”) TRUSTS Medicaid Communication No. 14-15: • “Medically Needy” Medicaid program ends • Individuals seeking Medicaid coverage for nursing home or home/community-based services must apply for eligibility under MLTSS

6. PRIOR TO MLTSS: Three Medicaid programs: (1) “Medicaid-Only”: for nursing home residents  (2) “Global Options”: for residents of ALFs and for home health aides • Both of these programs were subject to an “income cap”; those with excess income were ineligible.  (3) “Medically-Needy”: nursing homes residents, but not those in ALF or at home, with excess income could still qualify for Medicaid

7. MLTSS: QIT / MILLER TRUST • Under MLTSS, by using a QIT (“Miller Trust”), those who need home and community-based services but have excess income can become Medicaid eligible. • Excess income placed in a QIT is not countable.

8. MEDCOM NO. 14-15 QIT REQUIREMENTS • May only be established by applicant, legal guardian, or POA •   Must be irrevocable • May only hold income that is received by the Medicaid applicant •   Income such as sSa benefits, etc. must be deposited the month it is received •   All income from a single source must be transferred to the QIT

9. MEDCOM NO. 14-15 QIT REQUIREMENTS (cont’d) • Resources (cash, proceeds from real estate sale, savings and investment accounts) cannot be transferred to a QIT • Income in QIT can be used only for certain expenses (applicant’s cost share, RXs, approved medical expenses, PNA, a spousal monthly maintenance allowance, health insurance premiums)

10. MEDCOM NO. 14-15 QIT REQUIREMENTS (cont’d) • Trustees commissions up to 6%, if income remains in QIT after expenses are paid • Balance remaining after payment of expenses must remain in the QIT • Medicaid pay-back provision upon death of the Medicaid recipient

11. QIT INFORMATION / RESOURCES • The New Jersey State website contains: • QIT template -http://www.state.nj.us/humanservices/dmahs/clients/Qualified_Income_Trust_Template.pdf • “FAQ” page - http://www.state.nj.us/humanservices/dmahs/clients/QIT_FAQs.pdf

12. PLANNING FOR EXCESS RESOURCES • Outright transfers of assets (gifts) are subject to Medicaid eligibility penalty (based on value of the asset transferred) • “Look-back period:” Medicaid will “look back” from application date to analyze asset transfers by the applicant • Some transfers are exempt: Transfer of the Medicaid applicant’s principal residence to a qualifying “caregiver child”; transfers to an adult disabled child

13. PLANNING FOR EXCESS RESOURCES (CONT’D) • Since DRA, same look-back period for a transfer/gift to a person and a transfer/gift to a trust • Individual may make non-exempt transfers (outright or in trust) in non-crisis scenarios • The individual may avoid the need for long-term care until the look-back period expires • A portion of the transferred assets will have been preserved for the applicant’s loved ones

14. TRUSTS ESTABLISHED BY THE DONEE / CHILD • Applicant makes gift to child; child establishes a Donee Trust • Applicant relinquishes all legal control over the transferred assets •   Child establishes the trust and serves as trustee •   Trustee has discretion to distribute principal/income to the donee/child and issue • Parent/applicant not a beneficiary of the trust •   Trust assets distributed to the donee/child upon termination of the trust

15. GRANTOR TRUSTS • Trust could be structured as a “grantor trust,” for estate and income tax purposes • Income can be payable to the trust while income tax liability remains with the grantor, avoiding higher income tax rates for trusts • Assets are included in the grantor’s estate for estate tax purposes. Trust assets with low basis, such as RE and securities, get a “step-up” in basis to FMV at time of grantor’s death

16. ADVANTAGES OF DONEE TRUST (OVER OUTRIGHT GIFT) • Level of protection created for the child •   Outright gift of assets to the child could be subject to equitable distribution in the child’s later divorce

17. Trust Established by the Applicant/Parent: Availability Medicaid’s “any circumstances” test: (B) In the case of an irrevocable trust-- (i) if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual… 42 U.S.C. §1396p (d)(3)(B).

18. CHILDREN’S TRUST • Parent transfers assets directly to a Children’s Trust • Transfer to the trust = transfer of assets (Medicaid penalty) • Irrevocable trust for the benefit of the child; parent retains no rights • Child serves as trustee, may make distributions to children • Upon parent’s death, trust assets distributed in accordance with parent’s wishes

19. CHILDREN’S TRUST (cont’d) • Parent retains no access to income/principal • Funds not “available” • Children’s trust can be structured as Grantor trust: income taxed to parent & assets taxed in parent’s estate for step-up in basis

20. INCOME ONLY TRUST • Parent transfers funds directly into Trust • Transfer to the trust = transfer of assets (Medicaid penalty) • Trust is irrevocable • Grantor/parent receives income from trust during the grantor’s lifetime • Grantor has no access to principal (theory: no right to principle = not “available”) • I no longer recommend these devices for long-term care planning.

21. CAUTION: MEDICAID’S TREATMENT OF INCOME ONLY TRUSTS There have been recent troubling trends in Medicaid’s treatment of long-term care planning trusts, in other states and in a very recent NJ case: • Threat that Medicaid could deem trust assets to be countable • No regard to when the trust was established or when assets were transferred to trust (transferred assets countable even beyond the look-back period)

22. MASSACHUSETTS TRENDS • Irrevocable trusts that pass the “any circumstances” test rejected • Medicaid rejecting transfers to trusts occurring +5 years prior to the application • Medicaid’s position: common trustee powers (power to allocate funds between income/principal; retained special power of appointment, power to substitute assets with those of equivalent value) fail the “any circumstances” test, even where trustee is expressly prohibited from distributing principal to the grantor

23. Heyn v. Director of Medicaid, 89 Mass. App. Ct. 312 (2016) • Mass. Supreme Court rejects Medicaid’s argument: “any circumstances” analysis is limited to whether the applicant can receive distributions of trust principal. • Since Heyn, Medicaid still finds that applicant’s use of a residence transferred to a trust makes the entire corpus “available.”

24. Heyn v. Director of Medicaid, 89 Mass. App. Ct. 312 (2016) (Cont’d) • “Given the current political climate, which tends to disfavor an individual’s use of irrevocable trusts in long-term care planning, elder law attorneys across the country should be on alert that challenges similar to those faced by Massachusetts elder law practitioners regarding the treatment and defense of irrevocable trusts in long-term care planning could arise in their states at any time, if they have not already.” Neeley, NAELA Journal.

25. NEW HAMPSHIRE NH Supreme Court: assets in an irrevocable trust are includable as countable assets by Medicaid, where grantor retained power to appoint income/principal; power to require trustee to accumulate income; right to alter order/number of successor trustees or name additional/successor trustees; and other rights as initial trustee (even though grantor resigned as trustee more than five years prior to the Medicaid application). “The fact that the applicant was not a Trust beneficiary is not dispositive.”

26. NEW JERSEY: G.V. v. DMAHS • Irrevocable income only trust created by Medicaid applicant/petitioner • Real property transferred into the trust, +5 years prior to Medicaid application • Daughter was trustee • Net income was to be paid to the petitioner during lifetime; trustee authorized, in her discretion, to pay principal to remainder beneficiaries, but “no such distribution shall be made to the Grantor.”

27. G.V. v. DMAHS Medicaid caseworker: the trust assets “available” to petitioner; application denied. Fair Hearing: Issues are: (1) whether trust is countable because assets of trust “would be accessible to petitioner but for her own ‘fault’”; and (2) whether 5 year look-back period is relevant

28. G.V. v. DMAHS: FAIR HEARING ALJ: Resource is excludable if inaccessible to individual “through no fault of his/her own”: Here, the Trust established by petitioner is non-excludable for purposes of determining Medicaid eligibility. The resources contained in the Trust are inaccessible to petitioner due to her own “fault.” In other words, she would have had access to the Trust assets but for her decision to create a trust over which she has no control.

29. G.V. v. DMAHS: FAIR HEARING (cont’d) ALJ: Five-year look-back period is irrelevant: Petitioner’s case … does not deal with assets given as a gift or transferred for less than FMV. Rather, the sole issue is whether the Trust should be an excluded resource for purposes of determining Medicaid eligibility.

30. G.V. v. DMAHS: FINAL AGENCY DECISION “The notion that one could hide assets in a trust so as to pass them to heirs while having Medicaid pay for care has long been appealing to individuals but an anathema to Congress.”

31. G.V. v. DMAHS: FINAL AGENCY DECISION (cont’d) So a trust containing the assets of the Medicaid applicant is a countable available resource regardless of the purpose for which the trust was established, regardless of whether the trustees have or exercise discretion under the trust, regardless of any restrictions on when or whether distributions may be made from the trust, and regardless of any restrictions on the use of distributions from the trust. Any funds that individual places in his or her own trust are still counted as that person’s resources even when they are in a trust.

32. POOLED TRUST • Exception to general rule that assets in a trust are countable by Medicaid • Established/administered by non-profit association • Contains “pooled” assets of many individuals (each in separate account with separate beneficiary)

33. POOLED TRUST (cont’d) Must meet the following requirements: • Established and managed by a nonprofit association; • Separate account maintained for each beneficiary (but assets pooled for investing/management);

34. POOLED TRUST (cont’d) • Established solely for benefit of disabled individual by individual, parent, grandparent, legal guardian, or court; and • The trust must contain a Medicaid payback provision If beneficiary is aged 65 or older, funds transferred to pooled trust are subject to transfer penalty.

35. “SOLE BENEFIT OF” TRUST; DISABILITY ANNUITY TRUST • N.J.A.C. 10:71-4.10: no penalty when individual transfers assets for sole benefit of individual’s disabled child, or to any other disabled person under age 65 • Assets can be transferred to an irrevocable “sole benefit of” annuity trust

36. “SOLE BENEFIT OF” TRUST; DISABILITY ANNUITY TRUST (cont’d) • DAT assets payable for sole benefit of beneficiary on actuarially sound basis • DAT must include Medicaid payback provision • Useful in “crisis” situations if beneficiary receives SSD & Medicare (if receives SSI/Medicaid, a Disability Annuity Special Needs Trust is appropriate)

37. THANK YOU FOR ATTENDING Questions/Comments?