A technical article for Maryland elder law professionals.
Another lawyer called recently and asked me how to resolve a problem faced by one of his clients. When I told him what to do, he remarked: “You’re making that up!” He was right about my “making that up” because my solution involved employing a fiction to obtain the desired result.
There are two ways an asset preservation planner may use fiction to help a client to qualify for Medicaid benefits. The first is getting a court order nunc pro tunc, and the second is to use a special power of attorney.
When to Employ a Legal Fiction
Sometimes people forget to take all the steps needed to set up their affairs to obtain Medical Assistance benefits. For example, a disabled person under age 65 can put all of her assets into a special type of trust and then qualify for SSI and Medicaid benefits in the following month. If, however, that person fails to transfer all the assets in the first month, there will be no Medicaid eligibility in the second month.
Obtaining a Court Order
In that instance, the individual can go to court in the second month seeking a court order transferring the property into the trust, which transfer by necessity will occur in the second month, but having the court order state that the transfer is nunc pro tunc, which is a Latin phrase meaning “now for then”. The legal effect of such an order is to create the legal fiction that the transfer had occurred in the preceding month.
Fiction to Employ When There is Too Little Time
Other times, an individual may have too little time to transfer assets before the end of the month. For example, if the disabled person under age 65 was prepared to transfer his assets into the special trust discussed above, but there was too little time to do so, he may use a special kind of power of attorney to accomplish the transfer in the first month even though it won’t actually take place until the second month.
Transferring Life Insurance
This often occurs with life insurance. In order to transfer a life insurance policy (which is an asset with value that might cause Medicaid ineligibility), one must obtain a form from the insurance company, fill out and submit the form, and then wait several weeks while the form is processed before the transfer will be effective.
Special Power of Attorney
The tool to create the legal fiction that the transfer in fact occurred in the first month even though the insurance company won’t complete processing the request until the second month is a special power of attorney coupled with an interest.
Coupled with an Interest
A power of attorney coupled with an interest means that the agent under the power of attorney, i.e. the attorney-in-fact, has a legal right to the property that is affected by the power of attorney, and consequently, the power of attorney may not be revoked without the agent’s consent. The special power of attorney should recite that the transfer of the property is effective as of the date the power of attorney is signed.
Power to Indorse Checks
Moreover, the agent should have the express authority to indorse the check if the insurance proceeds will be payed out by check, which indorsement would be “pay to the order of [the trustee of the special trust]”. That way, the funds would go directly to the trustee and not be funneled through the disabled person’s checking account.
One important consideration when using any of these strategies is that the nature of the transaction must be fully disclosed to the Medicaid authorities when one presents an application to receive Medical Assistance benefits.
This office has used both of these methods which employ a legal fiction to assist clients in obtaining Medicaid eligibility.