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.

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.

Nevertheless, because legal counsel had been working with this family for years and knew the estate planning objectives of both husband and wife, and because husband had been in the process of revising his trust when he died, legal counsel devised a plan to validate that old saw, “there is more than one way to skin a cat.”

The plan worked like this. In addition to amending the distribution of his trust, husband was in the process of changing the designated successor trustees so that his children would serve as such successors. So, legal counsel prepared a contract between wife, acting as Trustee of husband’s trust, and the two children, whereby the two children would agree to serve as successor trustees under the trust should wife cease to serve, in exchange for which, the trust would distribute the property to the children at wife’s death in the manner that husband desired.

Because this was a valid contract, and there was a quid pro quo between the parties, the wife and her children were able to effectively change the distribution pattern in husband’s trust to meet husband’s objectives, even after husband had died. Such method of revising the trust, although unorthodox, is legal and effective.

In this and other ways, the Gatesman Law Office stands ready to provide you with creative solutions to any unusual or unique legal problems you may be facing.

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?

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.

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.

Rosen provides many other resources to assist lawyers and others who seek to research Maryland law.  I have placed a link to Trevor Rosen’s blog in the Web Links section of this webpage.  To see Rosen’s blog, click on the words “Researching Maryland Law” in our Web Links.

Some clients, instead of getting SSI disability income, instead receive Social Security Disability Income (SSDI) and Medicare. If that is the case, then using a special trust may not be necessary.

The type of trust that allows the client to retain her disability benefits requires that Medicaid be paid back after the client dies. Also, there are restrictions on how the trust fund may be used. Therefore, it is more advantageous to the client to avoid having to use such a trust.

But lawyers must be careful. One cannot simply assume that it is ok to distribute a personal injury award to a client without using a trust just because that individual receives SSDI and not SSI benefits. This is because some people who get SSDI also participate in the Qualified Medicare Beneficiary (QMB) program. QMB will pay all the insurance premiums and co-pays for the client, and may cover the cost of a drug insurance contract. QMB, however, is a Medicaid program, and a client who receives too many assets or income outside of a trust could lose his QMB benefits. This could be disastrous to a client who has very high drug costs.

Sometimes, personal injury lawyers will negotiate what is known as a “structured settlement” which essentially is an annuity that makes regular monthly payments to the client. For those clients who get SSI and Medicaid, such annuity must be structured so that all income payments after age 65 must be paid to the State of Maryland rather than to the client. While this may be beneficial for a client who, but for the annuity, would lose his substantial drug insurance coverage, it is not the best solution for all people, especially those who receive SSDI but do not receive QMB benefits.

This alphabet soup of public benefits programs presents a minefield for personal injury lawyers trying to get the best settlement for their clients. The Gatesman Law Office stands ready to assist them and their clients with choosing the best overall financial settlement to achieve their client’s objectives.

This inquiry reveals one of the many pitfalls of Medicaid asset preservation planning.

Except in certain circumstances, lawyers who perform work for clients and collect legal fees in advance are required to hold the client funds in a special account, treating those amounts as assets of the client until earned by the lawyer.

The Medicaid rules count any and all assets belonging to the client as available resources when determining whether the client is eligible for Medical Assistance, or Medicaid benefits.  The rules state further that a single individual may keep no more than $2,500 in order to qualify for Medical Assistance for long term care in a nursing home in Maryland.

If the Medicaid planner seeks to apply for benefits on behalf of the client when the client has only $2,000 in a bank account, but the planner also holds $2,500 in a client funds account for such client, intending to bill against these client funds for services to be performed, then under the Medicaid rules, the client has $4,500 in available resources.

A single person in a nursing home who has resources of $4,500 would not be eligible for Medical Assistance.  To make matters worse, it typically takes a Medicaid caseworker about six months to fully process a Medicaid application, although once processed, eligibility may be granted retroactively back to the month the application was filed.  There is no telling how long it might take the caseworker to ask about the lawyer’s client funds account.

Indeed, such inquiry may come five or six months after the initial application is made.  If that were the case in the example above, then as long as the client funds account for the Medicaid applicant had more than $500 in it, Medicaid eligibility would not be granted.

In the example above, if the client funds account had more than $500 during the five months following the application, the client would not be eligible to receive Medical Assistance to pay his nursing home care.  And, because five months of private pay in a nursing home could cost as much as $40,000, an amount that dwarfs the client’s $2,000 bank account, it is clear that overlooking just one available resource could have catastrophic consequences.

For this reason, experienced elder law attorneys take care in structuring their fee arrangements so as to avoid this problem.

While the jury is still out on whether the lawyer who made the inquiry in the first paragraph will have a problem as she has made her inquiry to a number of experienced elder law attorneys to get their opinions, the practice of the Gatesman Law Office has always been to establish a Medicaid plan that avoids this problem.

This type of traditional Medicaid planning, however, does nothing to preserve assets for the well spouse should the well spouse also require long term care in a nursing home sometime in the future.  Indeed, many of the powerful asset preservation tools available to a married couple cannot be used to preserve assets for a single person seeking Medical Assistance benefits to cover nursing home costs.

Consequently, even where a couple has done asset protection planning when one of them enters a nursing home, after that individual has died, the well spouse remains at risk to lose all of her assets in the event she should require long term nursing home care.

William M. Gatesman has been a leader in developing asset preservation techniques for individuals and families facing the possibility of high long term care costs.  Mr. Gatesman’s latest development in long term care asset preservation strategies is the Spousal Asset Preservation Trust.

Under the Spousal Asset Preservation Trust strategy, both husband and wife execute Wills within which there is a trust designed to hold property for the surviving spouse.  The Will, however, does not put any property into such trust.  Rather, such trust would be funded, if at all, by property passing into the trust outside of probate, by Pay-on-Death account titling or beneficiary designation.

Because property passes into the trust in this manner, it is not subject to a surviving spouse’s statutory right to “elect against the will” and get access to the property held by the deceased spouse.  Such spousal election, if it were available under this strategy, is a way in which the Medicaid rules force the family to use assets to pay for medical care costs.  Similarly, such property is not subject to Medicaid estate recovery through the probate of the deceased spouse’s estate.

If the spouse in the nursing home had executed a will with a Spousal Asset Preservation Trust and an appropriate power of attorney, then, when that spouse reaches the point where death is imminent, the well spouse can take action under the power of attorney to ensure that all of the couple’s assets – assets which, up until that point were titled in the well spouse’s name – pass outside of probate into the Spousal Asset Preservation Trust under the Will of the spouse in the nursing home at the time of that person’s death.

The effect of this strategy is that, after the nursing home spouse dies, all of the property remains to be used by the well spouse, but the moment the well spouse falls ill and requires nursing home care, such property is not considered an available resource that would cause the surviving spouse to lose Medicaid eligibility.

The Spousal Asset Preservation Trust is a cutting edge tool in the Medicaid asset preservation planning field.  To learn more about this strategy and whether it might work for you, please click on the Contact link at the top of this page and send Mr. Gatesman an email.