Sheltering Assets to Maintain Housing Benefits

Various articles on this website address ways in which aged or disabled persons may protect their assets and still get government benefits such as Medicaid for long term care in a nursing home, or Medicaid for health care in the community.  By retaining accumulated assets or protecting assets one is about to inherit, an individual can ensure for herself a better quality of life, especially when the only other alternative is to fully impoverish oneself to retain government benefits.

One tool lawyers utilize to enable clients to shelter assets is a trust.  There are various types of trusts that can be employed depending on the individual’s circumstances, and each type of trust has its advantages and disadvantages.

For example, the law will allow a disabled person to keep his or her accumulated wealth to allow for a higher quality of life and to still obtain Medicaid benefits.  [Such opportunity is separate and distinct from the benefit under the Affordable Care Act which allows non-disabled people with low incomes to obtain Medicaid health insurance.  Moreover, this long-standing opportunity afforded to disabled persons likely will persist even if the President and Congress were to repeal the Affordable Care Act as they have threatened to do.]

Consider Mary, a 50 year old disabled individual, who, due to her disability, was never able to work, and who receives Supplemental Security Income (SSI) and is eligible for Medicaid benefits, both of which are means-tested programs.  Means-tested programs are benefit programs that will pay only if the recipient has very few assets, typically $2,000 or less.  Mary, who has been living with less than $2,000 is about to inherit $200,000.  Unfortunately, the deceased relative who has left such inheritance did not do estate planning to prevent such inheritance from causing Mary to lose her government benefits because she will have more than $2,000 after the inheritance is paid to her.

All is not lost for Mary, however.  Mary can work with an experienced attorney to create a special trust to hold her $200,000 inheritance in such a manner that it will not be counted as her resource for benefits purposes.  With such a trust in place, Mary will continue to have less than $2,000 in her name, continue to receive SSI (which she will spend each month for her personal needs), and continue to receive Medicaid to cover her health care needs.  Moreover, the trust assets can be used, not to make distributions directly to Mary, but rather, to pay for things Mary needs and for opportunities Mary can pursue.  One significant condition of this type of trust is that, if there are funds remaining in the trust when Mary dies, then the Trustee will repay the State for Medicaid benefits Mary has received during her lifetime.  But if the trust funds are used for Mary’s wants and needs during her lifetime, then she will have a better quality of life without losing government benefits, and if all the funds are spent for this purpose, then there will be no government payback.

The law governing the use of a trust in this manner is clear cut and well known to experienced elder law and disability law attorneys.  What is not so clear cut is whether such a trust may be used to shelter assets and still allow an individual to obtain or retain Federal or State housing benefits.  For example, if Mary, in addition to getting SSI and Medicaid, also received a voucher to enable her to pay her rent, the question arises:  Will Mary lose this benefit once she inherits the $200,000, even if she employs the type of trust discussed above?

A colleague of mine faced this very question recently and discovered that the law and regulations governing the housing benefit programs do not address whether using the trust described above, which enable Mary to shelter her inheritance for SSI and Medicaid eligibility purposes, likewise will shelter the inheritance and enable her to keep her housing benefits.

This lack of clarity is not new.  William M. Gatesman faced the same situation more than a decade ago.  Then as now, the law was not clear and the regulations did not adequately address the situation.  But a client needed to know, because she depended on her housing subsidy and losing it would have negative consequences for her.

That being the case, Mr. Gatesman researched the housing subsidy rules and called the director of the government office that administered the Federal/State housing subsidy program.  Gatesman found support in one of the housing department’s publications, which publication arguably suggested that using such a trust would allow his client to keep the inheritance and still get the housing subsidy in the same way that she, like Mary discussed above, could keep her SSI and Medicaid benefits.

Mr. Gatesman argued his case in a telephone call and a letter to the Director of the Rental Assistance Division of the Housing Opportunities Commission of Montgomery County, Maryland, which administered the housing benefit programs affecting his client.  As a consequence of that advocacy, the Director issued an Opinion Letter that concluded that Mr. Gatesman’s client could retain her housing benefit because the assets in the trust will not be counted as available to Mary for housing subsidy eligibility purposes.  Indeed, the Opinion Letter advised further that, except in certain circumstances which did not apply in the case at hand, the existence of the trust and the trust assets need not even be disclosed when applying to obtain  the housing subsidy.

One can read that opinion letter by clicking this highlighted text.  As is evident from this Opinion Letter, this issue was addressed a long time ago, in 2004.  Benefits law and practice is not a stagnant thing, and much has transpired over the past 13 years since the Housing and Opportunities Commission issued it’s Opinion Letter.  That being the case, one seeking to shelter assets and maintain eligibility for housing benefits needs to consult with qualified counsel to ascertain whether this Opinion Letter would still be applicable at this time and in the particular circumstances faced by the individual.  Nevertheless, this Opinion Letter serves as an historic legal determination that should be significant for lawyers who assist clients in preserving assets and in obtaining and maintaining eligibility for public benefits.

As a courtesy to my colleagues, for a limited time, I will include links below to other relevant documents.

Housing Opportunities Commission Opinion Letter

Text of Letter Soliciting HOC Opinion

Exhibit Attached to Solicitation Letter

New Procedure to Obtain Estate Tax Return Closing Letter

The Internal Revenue Service will no longer routinely issue estate tax closing letters when it finishes satisfactorily processing an estate tax return. In an online Notice published -HERE-, the IRS states that “estate tax closing letters will be issued only upon request by the taxpayer.” That Notice sets forth the procedure whereby a taxpayer or tax preparer may obtain a Transcript in lieu of a closing letter to ascertain that an estate tax return has been accepted by the IRS.

Protecting Property After Death

Mother dies with a will leaving all of her assets to her three children in equal shares. One of her adult daughters receives Medicaid benefits because her assets are less than $2,000 and she has a very low income due to a disability. Such daughter is expected to receive a distribution of $25,000 from mother’s estate. This will cause daughter to lose her public benefits, which will be disastrous for daughter given the very high costs of her medications.

While daughter could petition a court to create a special type of Supplemental Needs Trust, known as a “d4a trust” and once she receives the distribution from the estate, deposit the funds into such trust, there are significant costs to establishing such a d4a trust, and there are administrative burdens associated with such trust, including annual reporting to the State Medicaid authority. Moreover, a d4a trust requires payback to the state for any Medicaid benefits if there are funds remaining in the trust when the trust beneficiary dies. Given the amount to be distributed, one must weigh whether it is worth the cost of setting up a d4a trust if there are other less costly alternatives.

Fortunately, Maryland law provides an opportunity for a trust to be created in a simpler way. Under the Maryland Discretionary Trust Act, a trust may be established for a beneficiary, and the assets in the trust will not be considered to be available resources for Medicaid purposes. Moreover, unlike a d4a trust, there is no requirement to pay back Medicaid for benefits received during lifetime after the beneficiary dies.

While Mother in her will could have provided for a Maryland Discretionary Act trust for daughter, she failed to do so. Nevertheless, the Maryland Discretionary Trust Act provides that “any person having a right to transfer property to another person may create a trust as a transferor under [the Maryland Discretionary Trust Act].” Under this law, the term “person” includes any legal entity, and a probate estate is a legal entity.

William M. Gatesman presently is working with clients to come up with creative solutions to allow estate beneficiaries to retain their essential public benefits where the decedent’s will did not provide for asset protection in light of those public benefits. Establishing a Maryland Discretionary Trust Act trust is one of the tools in Mr. Gatesman’s tool kit to achieve the objective of protecting a beneficiary’s eligibility for public benefits.

Legislature Tinkers With Power of Attorney Law

The Maryland legislature once again has tinkered with the law governing powers of attorney in Maryland. That law includes Power of Attorney Forms, which if used, or if one’s power of attorney is “in substantially the same form” as one of the form documents, then the law bestows certain rights on the holder of the power of attorney, namely, the right to obtain payment of one’s legal fees from the person or institution who refuses to honor the power of attorney where a legal action is taken to compel acceptance. This right to legal fees differs from the general “American rule” of jurisprudence which holds that each litigant in a legal action must pay his own legal fees.

Unfortunately, the forms in the statute are generally not sufficiently comprehensive and lack certain important provisions.

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October Brings New Laws Affecting Probate in Maryland

There are several new laws affecting probate in Maryland that became effective October 1, 2012. This article will address those statutory changes.

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New Power of Attorney Law

As of October 1, 2010, there is a new law governing Powers of Attorney in Maryland. In order to be effective, any power of attorney executed in Maryland after October 1, 2010, must be signed by two witnesses and notarized. The notary may be one of the witnesses.

Moreover, if one uses one of the form powers of attorney set forth in the statute and a financial institution refuses to accept the power of attorney, one could sue the bank and, contrary to the usual rules of court, get a court order commanding the bank to pay your legal fees.

However, the form documents provided by the statute are woefully inadequate for some purposes, particularly for those people who wish to ensure that appropriate asset protection planning can be accomplished should they ever require long term care in a nursing home.

While the statute allows for powers of attorney with added provisions to be considered statutory forms with the same benefits as the bare-bones form set forth in the law, Maryland estate planning lawyers have been struggling for months with how to devise powers of attorney with significant additional provisions that nevertheless comply with the new law.

The Gatesman Law Office has developed just such a Power of Attorney. For a limited time, we will offer to our existing clients a special discount to obtain the new power of attorney plus get a complimentary review of their estate plan in light of their current situations.

I am pleased to offer the same discount to readers of this website who contact us by October 31, 2010. Be sure to mention this offer when you call or email us. To reach us, simply click Contact Us for further instructions.

More Than One Way to Skin a Cat

You’ve heard the old saw: “There is more than one way to skin a cat.” Such folk wisdom can inspire estate planners to dream up creative solutions to thorny legal problems.

Recently, the Gatesman Law Office had been assisting a family in revising the distribution pattern under their estate plan. Husband and wife each had a revocable trust, which trusts held property in further trust for one of their children after both husband and wife died. The share for their other child was to be given to him outright, free of trust.

However, as time passed, the conditions that prompted the desire to hold property in trust for the couple’s now adult child no longer existed and they were in the process of revising their revocable trusts to eliminate the trust for such adult child.

Then, suddenly and unexpectedly, husband died. As a consequence, husband could no longer amend his revocable trust. While wife, who survived her husband, was now the trustee and beneficiary of husband’s trust, she did not have the power to amend the trust to change how trust assets would be distributed after her death.

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Estate Plan Checkup

For our younger readers, this time of year is heralded by the hustle-bustle of back to school activities.  It is the time for parents of young children to double check that the kids have shoes that fit for gym class, warm clothes for the winter months, and pens, pencils, and rulers to stock the kids’ backpacks for the first day of school.

For all adults, now is a good time to review your estate plan to make sure that your plan is in order to meet your changing needs.  Have you executed a Power of Attorney to ensure that a trusted agent can manage your financial affairs should you become incapacitated?  Do you have an advance health care directive to ensure that appropriate medical choices are made even if you cannot communicate those choices to your health care providers?

Are the individuals you have chosen to serve as your agents in those documents still the best choices, or have your or their circumstances changed significantly so that choosing other agents is appropriate?

Do you have a Will?  Does your will impose limits because your children were minors when you wrote it, limits that are no longer appropriate?

By asking yourself these and other questions, you will discover whether it is time to review your estate plan with your legal counsel.  This type of periodic review of your estate plan will ensure that your plan continues to meet your needs even as your needs change over the years.

Happy autumn from the Gatesman Law Office.

Estate Plan Check Up

Many people are in the habit of visiting their doctors for an annual physical or other regular check-up.  Still more visit their accountants each year to assist them with their income taxes.  And most people regularly visit their auto mechanics to change the oil in their cars every three months or so.

The practice with lawyers is different, however, and people may put themselves in peril if they do not periodically review their affairs with their attorney.

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Tying the Hands of Your Health Care Agent

This office has recommended, and most estate planners will agree, that one should consider appointing a trusted individual to make health care decisions for you in the event you are unable to do so. I wrote a comprehensive article on that topic on October 7, 2007.

Maryland law not only allows one to appoint a Health Care Agent, the statute provides forms one may use to do so. While I have always recommended that one seek experienced legal counsel when appointing a Health Care Agent – one of the statutory forms curiously omits a significant provision – such advice is even more compelling in light of a new ruling by Maryland’s Attorney General.

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