However, a lien may not be imposed if a spouse is living in the house, and estate recovery is allowed only after such spouse has died. For a single person in the nursing home, if the state has put a lien on the house, the law states that the “lien shall dissolve upon that individual’s discharge from the medical institution and return home.”

In some instances, family members choose to take a loved one home when that person has reached the end of life to be cared for by hospice providers in the home setting. In that instance, if a Medicaid lien was placed on the house, the law provides that such lien may not be enforced.

In light of such circumstance, a financially savvy family member who holds an appropriate power of attorney can take steps to protect the house from estate recovery by using a life estate deed.

Such planning would have the following result. First, the Medicaid lien will be ineffectual under the law. Second, the life estate deed will allow the property to pass to family members outside of probate. Property that passes outside of probate is not subject to estate recovery.

In this way, the state would be unable to obtain the house notwithstanding that it had placed a lien on the property.

Ensuring that the power of attorney has appropriate provisions to allow for this type of planning is one of the things this office does when working with a client.

Does your power of attorney fit the bill?

Such losses can be significant. For working age individuals, an automobile accident could result in you losing the ability to work. If that is the case, you will be dependent on an insurance recovery to provide you with the value of the wages you would lose by not being able to work and earn a living for the rest of your life.

Consequently, it is important that you review your automobile insurance bodily injury coverage. I generally recommend that working age people, and especially high earning workers, have at least $1,000,000 in coverage. And importantly, I advise that such high coverage limits apply for your uninsured motorists insurance. That way, if you are hit by an uninsured or underinsured driver, you could look to your own insurance company to make sure you are not impoverished if the accident results in an inability to work.

Also, if you are responsible for injury to a high earning individual and your insurance coverage is not sufficient to compensate that person for her lost wages, then your other assets may be at risk to pay for the injured party’s losses.

Often, one can obtain an increase in liability coverage with no premium increase if you also raise the deductible on your auto collision or comprehensive insurance coverage. Indeed, some advisers suggest that a higher deductible is desirable because, if you make a lot of small claims against your policy, the benefit of the claim will be minimal, but the resulting premium increase could be significant. With a higher deductible, $1,000 for example, you will assume the responsibility to pay for such loss, but you would get the benefit of reducing your premium. Such premium reduction may allow you to obtain higher liability coverage with no increase in overall premium.

Some insurers like GEICO advertise that they can save you money because they have less costly premiums than other insurers. However, GEICO generally will not write a policy with $1,000,000 liability coverage. Therefore, one must consider whether a cut-rate insurer is a good deal if it cannot provide you with the coverage you desire.

Also, while many people have umbrella insurance coverage, such coverage may not apply to uninsured motorist liability. If that is the case with your insurer, then you cannot rely on your umbrella insurance to cover a shortfall in liability coverage if you are hit and injured by an uninsured or underinsured driver.

It is prudent financial planning to review your automobile insurance policy to ensure that your coverage is adequate for your circumstances.

Prior to entering the nursing home, the client, as agent under mother’s power of attorney, assisted his mother by paying in-home care givers using mother’s funds. Such payments totaled $200,000 over a several year period. While doing so enabled mother to continue to reside at home giving her a better quality of life, at the insistence of the caregivers, such payments were made “under the table”. In other words, no employment taxes were paid for these care costs, and the payments were not reported to the IRS.

Client applied for Medicaid, which was denied because the caseworker improperly treated the $200,000 payments as gifts causing Medicaid ineligibility. In fact, such payments were payments for services. The client, on his mother’s behalf, contested the denial and the matter was set for a hearing before an administrative law judge.

Now the client is fearful that providing a sworn statement as to the reason for the payments will expose the client or his mother to potential civil or criminal liability relating to their failure to report the care giver payments to the IRS.

So, instead of running that risk, the client will withdraw his challenge to the denial of Medicaid benefits. That is unfortunate because the payments to the care givers clearly were not gifts.

This cautionary tale is but one example of the complex matters frequently addressed by elder law attorneys as they seek to guide their clients through the maze of public benefits law.

Annuity Replaces Lost Income
Enabling the spouse to keep more assets is particularly important when one considers the Medicaid rule that requires that most of the income earned by the spouse in the nursing home must be paid to the nursing home as a contribution to the cost of care. Hence, whatever additional assets the couple can retain by using an annuity will serve to offset the lost income, income the couple most likely depended on to maintain the day-to-day household expenses.

Specialized Annuity
The strategy discussed in last month’s article involves the use of a specialized annuity. I have addressed the characteristics of such annuity in my article discussing the 2006 Medicaid rule changes. You can read that article by clicking -HERE-.

These Articles are Not Legal Advice
As with any article on this website, you should not consider the ideas presented here as constituting legal advice to you in particular, or advice that addresses your particular situation. For more information, click the Is This Legal Advice? tab at the top of this page.

Why Did the Nursing Home File a Medicaid Application?
I found it odd that the nursing home would file a Medicaid application when it knew full well that Medicaid would not be granted unless something was done with the cash in the bank. Then it dawned on me: is it possible the nursing home filed such application to further its own interests?

The Medicaid Application Will Be Denied.
In this case, the Medicaid rules allow the couple to keep only $100,000 in the bank. Because they had $200,000, Medicaid would not begin to pay for husband’s nursing home care until the couple had spent the other $100,000, and the Medicaid application filed by the nursing home would be denied because the couple has too much money. With such denial would come a notice stating that the couple had to spend $100,000 and then reapply for Medicaid before the State could begin to pay for the nursing home costs.

Was the Nursing Home Pursuing It’s Own Interests?
I wondered, after hearing that the nursing home filed the Medicaid application, if the nursing home’s purpose was to get such a Medicaid denial notice in order to show such notice to the wife and tell her she needed to continue paying the nursing home until she spent $100,000 on nursing home costs.

A More Beneficial Alternative.
The other alternative that I had discussed with the wife was that she could use that excess $100,000 to purchase an annuity to provide her with additional income, thereby allowing her husband to qualify for Medicaid immediately.

Two Possible Courses of Action.
In other words, there are two courses of action available to the couple. One alternative is to pay to the nursing home $100,000 of the $200,000 in the bank and then apply for Medicaid. At that point, there is only $100,000 to cover the retirement needs of the wife living at home (husband’s needs will be covered because Medicaid will pay the nursing home costs.)

The other alternative is for the wife to use $100,000 to purchase an annuity that will return the full amount to her over a three to five year period. Those funds, together with the $100,000 remaining in the bank accounts, $200,000 in total, would be available to cover the retirement needs of the wife living at home. As in the first alternative, husband’s needs will be covered because Medicaid will pay the nursing home costs.

Which Would You Prefer?
Most people would prefer to keep $200,000 for their retirement years as opposed to keeping only $100,000. Because the Medicaid rules allow one to do so, why wouldn’t the nursing home, which offered to “help” the couple get Medicaid benefits, assist the wife to keep the full amount? Unfortunately, because Medicaid reimburses nursing homes at a slightly lower rate than a private pay resident, nursing homes prefer to have families pay privately for as long as possible and not take advantage of cost saving strategies like the one discussed above in which the wife got to keep $200,000 instead of $100,000.

However, it is a lot easier to live comfortably in retirement when you have $200,000 in savings than when you have only $100,000.

So, whenever a nursing home suggests that it will assist in applying for Medicaid benefits, one has to wonder: is this a case of the fox guarding the hen house?

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Some time later, Mother needs long term care in a nursing home.  Unfortunately, she has only $1,000 in the bank and has been subsisting month to month on her income.  So you help your mother to apply for  Medicaid benefits to cover her nursing home costs.

The Medicaid caseworker accepts your application and does nothing for several months.  The nursing home, knowing that you have applied for Medicaid, requires that your mother only pay her income to the nursing home per month, which she must do in order to get Medicaid.  However, such payment is substantially less than the $8,500 per month the nursing would cost without Medicaid.

Five months after filing the Medicaid application, which is a typical application processing period, the caseworker informs you that mother’s contributions to the household expenses and the telephone bill will be treated as gifts to you, causing your mother to be ineligible for Medicaid.  In response, the nursing home sends you a bill for $40,000 for five months of care and will start billing $8,500 per month for future months.

“That’s outrageous,”  you exclaim, “my mother simply paid for the cost of heating and cooling her living space and for her private telephone line!  Those were not gifts to me!”

Outrageous as that may seem, it is true that the Medicaid rules penalize that type of cost sharing unless it is supported by a contract between you and your mother.

For this reason, any time a senior family member is contemplating entering into a financial transaction or co-living arrangement with another family member, it is wise to seek competent legal counsel.   Indeed, seemingly commonsense actions could have far reaching adverse consequences if nursing home care ever becomes a necessity.

The Gatesman Law Office stands ready to assist your family in doing appropriate planning to ensure that such surprises do not occur in your life or the lives of your parents.

Paying for Nursing Home Care

There are several ways to pay for long term care in a nursing home.  Everyone knows the first way — reach into your pocket, take out your checkbook, and write a check.  This method is referred to as private payment.

In addition to private payment, Medicare offers some coverage for nursing home care, but only if you transfer to the nursing home from the hospital, and then, only so long as you require rehabilitative care and continue to improve, will Medicare pay, 100% for the first 20 days and then about 80% for the next 80 days.  That is all.  Medicare does not provide a long term nursing home benefit.

A third way to pay for nursing home care is with long term care insurance.  Many people, however, do not have or cannot get long term care insurance.

Medicaid Benefits for Nursing Home Care

The fourth way to pay for long term care in a nursing home is with Medical Assistance or Medicaid.  Unfortunately, the laws governing the Medicaid program are extremely complex, even more so since Congress changed the Medicaid laws in 2006.

It used to be easier to figure out what rules applied to an individual seeking Medicaid eligibility.  While Medicaid is a joint Federal and State benefits program, and both Federal and State law governs eligibility for Medicaid, whenever the Federal law changed, State law and regulations, both publicly available in the Maryland Annotated Code and the Code of Maryland Regulations (commonly known as COMAR), changed as well.

Medicaid Eligibility Rules

In order to figure out if one qualified for Medicaid in Maryland, one could look up the applicable statutes and regulations.  Indeed, the Administrative Procedure law of Maryland requires that any new rules that a government agency wishes to apply in the State of Maryland must be published in COMAR.   These rules, to be sure, are arcane and complex, and as such, are not easy to understand, but at least one knew where to find them.

Since Congress changed the Medicaid law in 2006, however, which change was substantial, the Maryland agency that administers the Medicaid program, the Department of Health and Mental Hygiene, has seen fit to bypass the regulation process and has attempted to implement the new Federal rules by simply publishing them in the Department’s Medical Assistance Manual.  That Manual is the rulebook the Department sends to the various county Departments of Social Services to assist them in making Medicaid eligibility determinations.

Unlike the Maryland Code and COMAR, the Maryland Medical Assistance Manual is not readily available to the public.  Indeed, it is not even readily available to lawyers, although those lawyers who know the “secret handshake” manage to obtain a copy of this manual.

New Rules Impose Strict Requirements

This is important because the 2006 Medicaid rule changes impose severe restrictions on one’s ability to obtain Medicaid to pay for nursing home care.  For example, no one is allowed to get Medicaid if that person or that person’s spouse owns a house worth more than $500,000, unless a loan is placed against the house to bring its net equity value below $500,000.

To some people, that may seem like a grand dwelling, but in some areas of Maryland, such as the D.C. suburbs, even a simple, small house could be worth more than $500,000.  And if a married couple has only their house and otherwise lives on their Social Security income, requiring one of the couple to borrow against the equity value of that house to enable Medicaid to pay for the nursing home care of the other could impose an extreme financial burden.  This is because the Medicaid rules will not allow the borrower to keep all of the borrowed funds.  Rather, the rules require (unless other financial planning is done) that those funds be paid to the nursing home before Medicaid will pick up the tab.

Medicaid Manual Does Not Comply with Maryland Law

The Department of Health and Mental Hygiene, by simply publishing the 2006 Congressional law changes in the Maryland Medical Assistance Manual, has not followed the procedures required by Maryland law to make the new rules effective and enforceable in Maryland.  Consequently, under Maryland law, these rules should not be enforceable.

Medicaid Lawyers Have Not Challenged the Rules

Indeed, in some instances, the rules set forth in COMAR, the official administrative regulations in Maryland, conflict with the new provisions added to the Maryland Medical Assistance Manual.  Medicaid lawyers in Maryland know this but have not seen fit to challenge the new rules as unenforceable.  The reason not to challenge the rules is three-fold.  First, if a challenger succeeds in overturning the new provisions in the Maryland Medicaid Manual, the State would simply follow the procedure necessary to have the rules published in COMAR, thereby making them enforceable under Maryland law.

Second, any such challenge in a particular case, even if successful, would apply only to the individual on whose behalf the challenge was made.  In other words, a judicial decision that the new rules are unenforceable would apply only to that one person, and any other person would likewise have to mount a legal case to challenge the rules.  This would have to be done for each and every case.

Third, it generally is more cost effective for individuals to comply with the new rules, notwithstanding their technical unenforceabililty in Maryland, then to apply for Medicaid, suffer a determination of ineligiblity based upon the Maryland Medical Assistance Manual, and file, prepare and pursue an appeal of that adverse determination.

Court Action Carries Risks

Indeed, even where the law is clear that any new regulations must go through the proper procedures and be published in COMAR before they are enforceable in Maryland, whenever anyone takes a matter to court, there is a risk that the result will not be satisfactory.

In a recent case in which an individual ran afoul of a technical requirement under the new rules and consequently suffered three months of Medicaid ineligibility, that individual, because she had nothing more to lose, with our assistance, filed an appeal and challenged the enforceability of the Maryland Medicaid Manual provisions that are not also published in COMAR.  In fact, the relevant COMAR provision conflicts with the manual provision and is more generous to the person who filed the appeal.

Nevertheless, even though the law is clear cut, in the context of an administrative appeal under the auspices of the Department of Health and Mental Hygiene, the Administrative Law Judge who heard the case ruled that Maryland’s Department of Health and Mental Hygiene was entitled to apply the Manual provisions to deny Medicaid eligibility in this case.  I believe that the decision is wrong, and the affected individual has the right to appeal to a Court for a definitive determination on the issue.  Doing so, however, would be more costly than accepting the consequences of the denial of Medicaid eligibility.  And so the matter rests.

The Law Remains Inaccessable

As a consequence of Maryland’s new practice of bypassing the statutorially mandated procedure for implementing new regulations, the Department of Health and Mental Hygiene has made the complicated process of getting Medicaid for long term care in a nursing home even more complex.  No longer can a lawyer review the applicable law and regulations to give you sound advice as to how to proceed.  Instead, only those who know the “secret handshake”, those who are so involved in this area of legal practice as to be aware of the specialized rules that are not generally published, are able to provide you with competent advice and representation in the complex field of Medicaid eligibility and asset preservation planning.

Does your advisor know the secret handshake?

Loving Trusts can be problematical.  A typical Loving Trust has provisions relating to “community property.”  Community Property is a special class of marital property with respect to which spouses have certain statutorily defined rights — but such is the case only in so-called “community property states” such as California.  Maryland is not a community property state, and a trust by a Maryland resident that has community property provisions at best is confusing and at worst could cause unintended consequences.

But there is a more serious problem with the Loving Trust.  The Loving Trust is a joint trust created by a husband and wife.  Only the husband and wife may modify or revoke the trust.  The trust may not be modified or revoked by the agent under a power of attorney for either husband or wife.  Moreover, once one spouse dies, the trust may not be revoked.

This is a problem because trusts can cause one to be ineligible for Medicaid.  If the trust is revocable, and the trust beneficiary requires nursing home care, then the trust can be revoked and the problem resolved.  If one is the beneficiary of a Loving Trust, however, and the spouse has died, then such trust may not be subject to revocation.  As a consequence, such trust may cause Medicaid ineligibility, or may prevent the surviving spouse from preserving assets.

And for estate planning purposes, because estate tax law has been fluctuating in recent years, it does not make sense to draft a trust that will become irrevocable and unmodifiable after one’s spouse dies.  Such trust cannot be changed to respond to changes in the estate tax law.  As a consequence, using a Loving Trust may result in the payment of estate taxes that otherwise could have been avoided.

Beware the Loving Trust.

The period of ineligibility is determined by dividing the amount of the gift (or the aggregate amount of all gifts) by the penalty divisor.  The penalty divisor has been $4,300 for many years.  For Medicaid applications filed on or after June 1, 2009, the penalty divisor will be $6,800.  Using the new divisor, a gift of $68,000 will cause a Medicaid ineligibility period of 10 months, six months less than the penalty that would have been imposed using the old divisor.

Please contact the Gatesman Law Office to learn more about how this change may affect you.