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.
Circuit Court Upholds Decision to Eliminate Exemption for Joint Assets
On December 1, I wrote an article, Medicaid Exclusion for Joint Assets Under Attack. That article addresses an instance where the State of Maryland Medicaid authority reversed its long time practice of disregarding jointly owned stock where a co-owner who is not the Medicaid applicant refused to sell such stock. This exclusion is based upon a provision of the Maryland Medicaid Manual that allows for such treatment.
The matter was appealed and an administrative law judge upheld the decision of the Medicaid regulator, so the individual appealed to the Circuit Court of Maryland. That court has now issued its opinion upholding the decision of the Administrative Law Judge.
My December 1, article concluded that: “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.”
Now that the Circuit Court has upheld the Administrative Law Judge’s decision, there is great uncertainty as to how jointly owned assets will be treated if one of the joint owners refuses to participate in a sale of such property. If the Circuit Court ruling were to be treated as binding, then such exemption may no longer be in force, however, there still is a rule in the Medicaid Manual that allows such exemption.
William M. Gatesman stands ready to assist clients in navigating the troubled waters of the Medicaid rules in light of rapidly changing currents, the most recent being the Circuit Court decision eliminating the exemption for joint property where there is a refusal to sell by a co-owner.
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.
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.
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.
Income Deposits and Permanent Medicaid Ineligibility
In order to get Medicaid to pay for one’s long term care costs in a nursing home, one can have no more than $2,500 in assets. While social security and pension income is deposited into one’s account each month, as long as that money is spent before the end of the month, bringing the account balance below $2,500, then Medicaid benefits will not be affected. One routinely spends such income each month because Medicaid requires that the bulk of the Medicaid recipient’s monthly income be paid to the nursing home as a contribution to the individual’s cost of care.
A problem arises, however, when one’s income deposit is made on the last day of the month, as some pension payments are structured, because Medicaid will look at the account balance as of the first moment of the first day of the following month to determine whether the individual has more than $2,500.
Continue reading “Income Deposits and Permanent Medicaid Ineligibility”
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.
How Much House is Too Much?
Many of the articles on this website discuss obtaining Medicaid benefits to pay for long term care in a nursing home. Medicaid benefits also may be available to pay the costs at other care environments, such as assisted living. Some of these articles address the financial eligibility rules for Medicaid, discussing what one can and cannot keep and still qualify for Medicaid benefits.
One significant asset is one’s home property. One is allowed to keep his or her home and still qualify for Medicaid as long as that person resided in the home property prior to entering the long term care facility and states (on the Medicaid application) an intent to return home (even if such intent is highly unlikely ever to be fulfilled).
Given the high value of even a modest home in some parts of Maryland, it is important to be aware that Medicaid imposes equity value limitations on an exempt home property. Currently, one is allowed to keep as an exempt home property a residence with an equity value of $543,000 or less (which amount is adjusted annually to take into account inflation). Market value is reduced by any liens or encumbrances (such as a mortgage) on the property to determine equity value.
Moreover, the equity value limits do not apply where the Medicaid applicant’s spouse, disabled child, or child under 21 resides in the home property, and the equity limit also will not apply to a home property titled solely in the spouse’s name.
Given the very high value of homes in some parts of Maryland, it is important to keep in mind this equity value limitation on home property in the event you or a loved one should require Medicaid benefits for long term care.
Preventing Medicaid Estate Recovery
William M. Gatesman is assisting a client with the probate of her mother’s estate. Mother died after she received Medicaid benefits for her care in a nursing home. The estate owns valuable real property, which was mother’s home property.
The Maryland Medicaid authorities have filed a substantial claim in the estate for many tens of thousands of dollars to recover the Medicaid benefits the State paid on mother’s behalf, which claim is allowed by law. Mother’s will divides her property among her three children, one of whom is disabled and receives Social Security Disability benefits.
The Medicaid rules provide that the State may not make a claim against the estate of a deceased Medicaid applicant if such person is survived by a disabled child. It does not matter that other children who are not disabled will also receive property under the decedent’s Will. However, this is not automatic, and the Personal Representative of the Medicaid recipient’s probate estate must formally disallow the State’s claim and then provide convincing evidence that the estate qualifies for this special rule that disallows a Medicaid claim in the estate.
Mr. Gatesman has been successful in getting the Medicaid claim dismissed in this circumstance.
Another, often overlooked rule also allows for the preservation of substantial assets by negating a claim by Medicaid after a Medicaid recipient dies. The Medicaid rules allow a person who gets Medicaid benefits for nursing home care to keep his or her house, but the State will put a lien on the house owned by the Medicaid recipient. However, under the Medicaid rules, any such lien will be negated if the individual returns home and ceases to receive Medicaid benefits before death.
Therefore, if, rather than dying in a nursing home, the costs of which are being paid for by Medicaid, the individual returns home for hospice care before dying, it may be possible that the State’s ability to assert its lien will be abolished.
William M. Gatesman is well versed in these and other strategies to preserve assets that otherwise might be lost to a Medicaid claim in a probate estate.
Another important rule that family members of a deceased Medicaid recipient should keep in mind is this. While probate law in Maryland places a time limit during which a creditor of a decedent may make a claim in a deceased person’s estate, there is a special rule that gives Medicaid greater leeway in making a claim and there even is a rule that will give a Medicaid claim higher priority for payment over other estate claims in certain circumstances.
In general, a claim in an estate is barred if not properly presented by the claimant within six months following the decedent’s death. The State Medicaid administration, however, may make a claim within six months following the appointment of the Personal Representative of the estate, even if such time is more than six months after the date of death.
Also, State claims for reimbursement of Medicaid benefits paid for certain state hospital costs have a higher priority for payment than other claims in an estate. If a Personal Representative disregards this rule where there are insufficient assets to pay all the estate creditors (as is generally the case in an estate of a deceased Medicaid recipient), then improper payment of claims could result in the Personal Representative incurring personal liability for any shortfall in the payment of the State’s Medicaid claim.
William M. Gatesman is well versed in these special rules affecting the estates of deceased Medicaid recipients and he can assist you and your family in navigating the hazardous waters of administering an estate of a deceased person who received Medicaid benefits during lifetime.
Maryland Updates Medicaid Transfer Penalty Rules
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 that I will address in a later article) a period of Medicaid ineligibility will be imposed.
For many years, 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. That divisor has been updated.
Effective this date, July 1, 2014, the divisor to determine the number of months of Medicaid ineligibility for gift transfers is $7,940. UPDATE: This divisor was again updated effective July 1, 2016.
The Maryland Medicaid authorities publish this information as Schedule MA-6, a copy of which you may download to your computer by clicking here: Schedule MA-6 Average Nursing Home Costs
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