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

Trustee’s Liability for Contractor’s Work

Whether you are a Trustee of a trust that owns real property, a Personal Representative of a decedent’s estate that holds real property, or simply a homeowner, it is important for you to know your potential liability when you engage a contractor to perform work on the property if an employee of the contractor gets hurt on the job.

Many home service contractors do not carry worker’s compensation insurance coverage for their employees.  This is especially notable with tree service contractors.  The same men who climb trees with powerful chain saws to cut limbs and tree trunks while hanging from a rope around their waists in one of the most dangerous home service professions often find it prohibitively expensive to pay the premiums for worker’s compensation insurance, and therefore do not obtain such coverage.

The problem with that is, if one of the workers is injured on the job, even if that person is an employee of the contractor, then the law may treat such injured worker as your employee for liability purposes.  And, unless you, as Trustee or homeowner, have worker’s compensation insurance to cover this particular type of worker – and obtaining such coverage for the once in a blue moon tree cutter or other home service contractor likely is not possible – then the potential liability is unlimited.

Suppose, for example, that the Trustee of a trust that owns real property hires a contractor to remove a tree, and the climber who is cutting limbs halfway up the tree with a chain saw, has an accident and loses his arm, or cuts a gash into his head, or falls out of the tree and dies.  With worker’s compensation insurance, the liability would be limited by law and would be paid by the insurance company, but if there is no such coverage, and the worker or worker’s estate seeks recovery from the trust, then the resulting liability could bankrupt the trust, and the Trustee could potentially be held personally liable to the beneficiaries of the trust for failing to exercise due diligence and engage a contractor who has worker’s compensation insurance.

The homeowner who hires a contractor with no worker’s compensation insurance likewise risks financial ruin should the contractor or one of his employees become injured on the job.  The same holds true for the Personal Representative of a decedent’s estate if there is real property in the estate and the Personal Representative engages a contractor to perform work on the property, which the Personal Representative might do to improve the property in order to sell it.

Therefore, it is important to closely scrutinize the terms of the engagement when hiring a home service contractor.  With respect to insurance, including general liability insurance, vehicle insurance, and worker’s compensation insurance, the Trustee, Personal Representative, or homeowner should obtain a currently dated Certificate of Insurance, directly from the contractor’s insurer, and addressed to the Trustee, Personal Representative, or homeowner.  One should review that certificate closely to ensure that the limits of coverage are sufficient and that there are no excluded persons that include those who will be on-site performing the work.

Also closely scrutinize the service contract itself.  For example, while the contractor may have sufficient insurance, the service contract may place the burden of any liability on subcontractors, in which case, if you as Trustee, Personal Representative, or homeowner agree to this term, the contractor’s insurance coverage may be worthless to you.  If that is the case, be sure to strike that provision from the contract and have both parties sign to ensure that you are holding the contractor liable for all workers performing under the contract between you and the contractor, regardless of whether the contractor employs subcontractors to perform the work.

William M. Gatesman advises clients regarding their financial and estate planning concerns, assists and advises Trustees, Personal Representatives, and other fiduciaries, and serves as Trustee over trusts for clients and their beneficiaries.  If you have any questions concerning this article or related matters, please contact us.

Medicaid Updates Transfer Penalty Rule

If one applies for Medicaid to pay for long term care in a nursing home, the state will look to see if the applicant made any gifts in the five years preceding the Medicaid application. If so, then (with some exceptions addressed in various articles on this website) a period of Medicaid ineligibility will be imposed.

For many years before 2014, the period of ineligibility was determined by dividing the amount of the gift by $6,800, which amount was supposed to be the average monthly cost of care in a nursing home. In July, 2014, that number was changed to $7,940. Medicaid has again updated the divisor to take into account Nursing Home care cost inflation.

Effective July 1, 2016, the divisor to determine the number of months of Medicaid ineligibility for gift transfers is $8,684, which means that one would be ineligible for one month for every $8,684 in gifts made during the five years preceding the Medicaid application.

Bear in mind that the term “gift” means any transfer of resources with respect to which the transferor did not receive full value. Thus, if a person sold her house for less than it’s fair market value (Medicaid uses assessed value or an appraisal to determine fair market value), then Medicaid will treat the difference between the sales price and the deemed fair market value to be a gift transfer even if such sale was made to a third party in a bona fide arms length transaction.

We at the Gatesman Law Office endeavor to stay at the cutting edge of new developments in Medicaid law and policy.

Should you have any questions as to how this new policy might affect you or a loved one, please contact us by clicking the Contact link on this website.

Bill Gatesman

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.

Medicaid Exclusion for Joint Assets Under Attack

It is a well established principle of the Maryland Medicaid rules that certain jointly owned assets such as stocks or real property will not be counted as available resources to a nursing home resident who applies for Medicaid benefits if the other joint owner refuses to participate in a sale of the property.

For decades, such assets have been disclosed by nursing home residents on their Medicaid applications and such assets have been valued at zero for purposes of determining Medicaid eligibility.

Recently, however, a Medicaid applicant was denied Medicaid coverage for nursing home care because the applicant owned stock, in certificate form, with her son in joint ownership, even though the son had refused to participate in a sale of the stock. Ordinarily, such a denial by a Medicaid caseworker would be overturned when the case was appealed to an Administrative Law Judge, but in this case, the Administrative Law Judge ignored the specific regulation in the Maryland Medicaid Manual that explicitly states that jointly owned stock should not be a countable asset where the joint owner refuses to sell.

Such denial has implications, not only for the particular individual whose Medicaid application was denied, but for Medicaid applicants statewide. Indeed, this case has been appealed to the Circuit Court of Maryland where a senior Assistant Attorney General, representing Maryland’s Medicaid authority, the Department of Health and Mental Hygiene, essentially has requested the Circuit Court to issue a decision that radically revises the long standing Medicaid policy concerning such jointly owned assets.

If the Circuit Court were to uphold the decision of the Administrative Law Judge in this particular case, then it would shroud the process of dealing with jointly owned assets in a cloud of uncertainty. No longer would Medicaid applicants and their advisers be able to act with certainty regarding jointly owned assets, as there would exist the possibility that Medicaid caseworkers could arbitrarily ignore the applicable rule on the strength of judicial precedent.

This is not the proper way for the Medicaid authorities to change their policy. The proper way is to propose rule changes, either by changing the Code of Maryland Regulations, or by changing the Maryland Medicaid manual. Simply leaving a rule in place that exempts joint assets from consideration, but then attacking such an arrangement by imposing Medicaid ineligibility on a case-by-case basis on unsuspecting Medicaid applicants is bad public policy.

The State’s efforts to deny benefits in the case under discussion in this article is an example of such bad public policy.

William M. Gatesman is following the progress of this case closely and will inform the readers of this website of any new developments as they arise.

In the meantime, Mr. Gatesman stands ready to assist clients with prudent Medicaid eligibility and asset protection planning in the context of a changing landscape.

How to Prevent The Never Ending Estate

Some workers who have received judgments in their favor from their former employers for work related disease or injury, such as asbestos related injuries or coal mining related diseases, find that the judgments are paid out over time, sometimes in the form of small amounts paid now and then over a period of many years. Some of these individuals have died and their probate estates have been wrapped up and closed. Then, out of the blue, another check arrives with a payment on the injury or disease settlement.

Once such check arrives, notice must be given to the Register of Wills in the county in which the estate had been opened, a supplemental inventory and account filed, and distribution made (with the payment of an additional probate fee in some circumstances). If a lawyer assists with this process, there will be legal fees as well. This is a cumbersome and costly endeavor, sometimes for a very small amount of money.

This continuous process of reopening the estate each time a settlement check arrives can be avoided with the proper assignment of future settlement payments to the beneficiaries of the estate when the final estate administration account is filed and the estate closed. Such assignment can grant the Personal Representative of the estate continuing authority to transact checks to make the distributions to the beneficiaries.

The Gatesman Law Office assists clients with the process of simplifying life for estate beneficiaries by arranging for the distribution of such settlement awards that might be received after an estate is closed without the necessity of continually filing supplemental inventories and accounts year after year.

Paying Legal Fees from a Probate Estate

In general, a Personal Representative of a decedent’s estate may not pay legal fees out of the probate estate without first getting approval from the Orphan’s Court overseeing the estate administration.  A Personal Representative has to be careful about this rule.  For example, if the Personal Representative hires a lawyer to prepare a deed, oftentimes, the deed preparer will simply send a bill for services without notifying the Personal Representative of his or her duty to get court authorization to pay that bill.  It would be improper for the Personal Representative to simply pay that bill without obtaining court authorization to do so.

Similarly, a Personal Representative should get court authorization to pay any legal fees incurred before death.  There are two exceptions to obtaining such prior authorization.  Some might argue that such authorization would not be required if the lawyer whose fees are being paid files a claim in the estate for such fees, and the Personal Representative pays the claim, which payment is reflected on an estate administration account (the argument being that such payment is the payment of a claim and not payment of legal fees, per se); however, the conservative way to do so would still be to obtain court authorization, or to pay such amount using the method discussed in the paragraph below.

Another method for paying legal fees incurred by the decedent before death is for the Personal Representative to provide all interested persons and all unpaid creditors with a Notice of the Personal Representative’s intention to pay such legal fees.  That notice will provide the interested persons and unpaid creditors with a time period in which such persons could object to such payment, and if such objection is properly and timely made, the Orphans Court will hold a hearing to determine how much of such fee is to be paid using estate funds.   If no objections are made within the allowable time, however, then the Personal Representative may pay such legal fees incurred before death with no further court action.  There is a particular rule of court that allows legal fees to be paid in this manner.

William M. Gatesman is skilled in the various methods of paying legal fees from a probate estate and assists clients with the proper administration of estates, including the payment of legal fees using estate assets.   As stated elsewhere on this website, these article are of general interest and readers should not consider these articles to constitute legal advice.   William M. Gatesman stands ready to give legal advice to particular clients in jurisdictions where he is licensed to practice law.  Please contact Mr. Gatesman if you would like to obtain legal advice regarding the matters addressed on this website.

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.

Click here to read the rest of the story…

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.

Click here to read the rest of the story…

May a Personal Representative Represent an Estate in Court Without a Lawyer?

Several lawyers have been pondering whether it is illegal for a Personal Representative to bring a legal action without a lawyer because doing so would be considered the unauthorized practice of law.

This office was involved in a case a few years ago in which the Maryland Court of Special Appeals ruled that a Personal Representative (who was not also an estate beneficiary) may not pursue a legal action in Circuit Court without a lawyer. The Appellate Court ruled that doing so constitutes the unauthorized practice of law. The Court ruled also that an estate is not a person who can pursue a legal action “pro se”.

When an individual goes to court without a lawyer, such person is said to be acting “pro se”. Only individuals are allowed to pursue legal actions in court on a pro se basis. Parties who are not individuals, such as corporations, may not do this, but rather, must be represented by a lawyer.

According to the Court of Special Appeals in this unpublished opinion, an estate likewise must have a lawyer to pursue a legal action in Circuit Court.

You may click here to read the case.

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