MEDICAID PLANNING
December 2014
BY
Gary L. Miller, Esq.
EASTMAN & SMITH LTD.
P.O. Box 10032
Toledo, OH 43699-0032
PH: (419) 247-1849
FX: (419) 247-1777
E-mail:
A.Medicaid – in general
1.Joint federal and state program administered by Ohio Department of Medicaid (formerly Department of Job and Family Services) through county Departments of Job and Family Services.
2.Pays for custodial care in a long-term care facility (LTCF), unlike Medicare, which pays only for skilled care (for up to 100 days).
3.Applicant is ineligible if countable resources exceed $1,500, or if income exceeds the cost of nursing home care.
4.Ohio rules – found in Medicaid Eligibility Manual ( link to Site Index, then Medicaid Eligibility Manual, Chapter 3 - Aged, Blind, and Disabled)
5.A number of significant changes (discussed below) were made
by the Deficit Reduction Act of 2005 ("DRA 2005"), effective February 8, 2006.
B.Exempt assets (OAC §5160:1-3-26 except where otherwise indicated):
1.Home: limited to $500,000 (indexed) of equity under DRA 2005 (§5160:1-39-31)
a.Single – exempt for 13 months after entering LTCF, then be listed for sale, and any offer of at least 90% of the county tax value must be accepted.
b.Married – exempt if spouse still living there ($500,000 limit does not apply).
2.Household goods and personal effects of a reasonable value
3.Automobile
a.Single – one automobile up to $4,500 of value (limit does not apply if automobile is necessary for employment or medical treatment)
b.Married – one automobile regardless of value
4.Life insurance – up to $1,500 of face value
5.Prepaid irrevocable burial contract and burial spaces for self and immediate family (parents, children and their spouses, siblings and their spouses)
6.Unmarketable assets (§5160:1-3-05(C)(6))
7.Real property the individual is making reasonable attempts to sell (exempt for nine months)
8.Income-producing property with an equity value of up to $6,000 and producing at least a 6% return on equity
9.Retroactive Social Security or SSI benefits for up to 6 months (§5160:1-3-27.5(C))
C.Retirement plans (§5160-3-22.7)
1.Retirement accounts are countable resources to the extent that the owner has the right to withdraw them. Therefore, IRAs (unless annuitized) will always be countable.
2.An employer-sponsored plan account is countable only to the extent that the participant has a present right to make withdrawals (but not if the individual must terminate employment in order to obtain any payment).
3.If the account is "annuitized," the annuity rules (see below) apply.
D.Life estates
1.The advantage of gifting only a remainder interest in the residence and retaining a life estate (as opposed to gifting a fee simple interest in the residence) is that the property remains includable in the donor's estate, thereby receiving a stepup in basis for capital gains purposes. The gift of the remainder interest is an "improper transfer" (see below) which causes a period of Medicaid ineligibility. Therefore, such a transfer should typically only be made well in advance of the donor entering a nursing home. Also, if the property is sold during the donor's lifetime, the $250,000 (single) or $500,000 (married) capital gains exclusion is unavailable for the remainder interest.
2.If the life estate is established within the "look-back period" (OAC§5160:1-3-32(B)(1)):
a.If the applicant has the right to transfer or sell the life estate, it is considered a countable resource.
b.If the applicant does not have the right to sell the life estate, its value is presumed to be improperly transferred.
3.If the life estate is established beyond the look-back period (OAC§5160:1-3-32(B)(2)):
a.If the applicant has the right to transfer or sell the life estate, it is considered a resource.
b.If the life estate cannot be sold, it is not considered an improper transfer. However, the use of a nontransferable life estate may effectively prevent the sale of the property during the life tenant's lifetime.
4.Value of life estate = valuation by county auditor, minus debt, multiplied by factor in 26 C.F.R. 20.2031.7 as in effect on April 1, 2005 (see IRS Publication 1457)
E.Promissory notes (§5160:1-3-27.3)
1.A promissory note is counted as an available resource unless it cannot be sold
2.If sale is prohibited, asset exchanged for note is considered improperly transferred
3.Interest portion of payments (but not principal portion) is treated as income
F.Trusts
1.The rules regarding trusts are contained in ORC §5111.151 (effective January 1, 2004), which essentially adopted the trust rules found in OAC §5160:1-39-27.1 (Medicaid Eligibility Manual).
2."Self-settled" trusts established on or before August 10, 1993 ("Medicaid Qualifying Trusts") – regardless of whether the trust is revocable or irrevocable, the amount deemed to be an available resource to the Medicaid applicant/recipient is the maximum amount of payments permitted to the applicant/recipient.
3.Self-settled trusts established on or after August 11, 1993.
a.Revocable trusts – the assets are treated as a resource available to the Medicaid applicant/recipient.
b.Irrevocable trusts:
(i)If the Medicaid applicant/recipient can benefit from the trust, the assets are an available resource.
(ii)If the grantor cannot benefit from the trust, transfers to the trust are "improper transfers" subject to a 60-month "look-back."
(iii)Income-only trusts – trust income is treated as income to the beneficiary, and a transfer to the trust is subject to the 60-month look-back rule.
(iv)Qualifying income trust (QIT) – ORC §5111.151(F)(2) – must be composed only of income received by the Medicaid recipient, and Medicaid benefits must be reimbursed at the beneficiary's death.
G.Improper transfers (§5160:1-3-07)
1.Definition – any transfer:
a.For less than fair market value
b.Made during the lookback period
(i)Transfers prior to February 8, 2006 – three years from the date of the Medicaid application, or five years if made to or from a trust;
(ii)Transfers on or after February 8, 2006 – five years.
c.For the purpose of qualifying for Medicaid
2.Period of "restricted Medicaid coverage" (ineligibility for payment of nursing home cost)
a.For each improper transfer, number of months calculated by dividing the amount of the transfer by the Average Private Pay Rate (APPR), currently $6,327.
b.Prior law – ran from the date of the transfer; DRA 2005 (effective February 8, 2006) – runs from the date the applicant would otherwise have been eligible for Medicaid.
c.Successive gifts – periods run consecutively.
3.The transfer of the residence is not an improper transfer (§5160:1-39-07(E) if made to:
a.The individual’s spouse;
b.The individual’s child under age 21, or over age 21 and blind or permanently disabled;
c.“The individual’s adult child who was residing in the home for at least two years and who provided care to the individual which permitted the individual to reside at home, rather than in an institution or facility”; or
d.The individual’s sibling who has an equity interest and was residing in the residence for at least one year prior to the individual’s institutionalization.
H.Gifting strategies
1."Half-a-loaf" method and consecutive monthly gifts of up to the APPR no longer work. However, a similar result to the half-a-loaf method may be achievable by one of the following methods:
a.Total gifts(or promissory notes) followed by partial gifts back(Exhibit A) – however, some counties are not permitting this strategy, and the Ohio Department of Medicaid has issued a proposed rule prohibiting it.
b.Partial gifts (or promissory notes) and single premium immediate annuity with the balance
(i)Objective – convert an otherwise countable resource into income.
(ii)The purchase of an annuity on or after February 8, 2006, is not an improper transfer (see above) provided it is irrevocable, non-assignable, and "actuarially sound" (payable over no longer than the annuitant's life expectancy).§5160:1-3-22.8(C).In addition, the state must be named either as:
(a)First beneficiary up to the amount of Medicaid benefits received, or
(b)Second beneficiary after the spouse or a minor or disabled child, and first beneficiary if the spouse or legal representative of the child disposes of the remainder for less than fair market value.
2.Except for the above, the only effective gifts are those made more than five years before the date of the Medicaid application. One possible strategy is a gift to an income-only irrevocable trust.
I.The community spouse resource allowance, or CSRA (§5160:1-39-36.1)
1.Calculated only once, on the "snapshot date" (first day of 30 days of continuous institutionalization)
2.Community spouse (CS) may retain CSRA of one-half the couple's countable resources, subject to the following current limits:
a.Maximum – $117,240 in 2014
b.Minimum – $23,448in 2014
3.All countable resources in excess of the CSRA are attributed to the institutionalized spouse (IS) and must be reduced to $1,500 to qualify for Medicaid.
4.Maximizing the CSRA
a.Delay expenditures until after the snapshot date.
b.Increase resources by borrowing on the residence prior to the snapshot date (can repay immediately after the snapshot date).
5.In some cases, CSRA can be increased through a single premium lifetime immediate monthly payout annuity (SPLIMPA) calculation (requires a state hearing), but, under DRA 2005, only after the "income-first" rule (K2 below) is applied.
J.Planning for a married couple (spending down the excess of the CSRA plus $1,500)
1.Use as much as financially advisable for exempt assets, such as prepaid funeral and burial plots, home repairs and improvements, and an automobile.
2.Use the balance for a total gift followed by partial giftback (Exhibit A) or the purchase of a Medicaid-exempt (see H1b(ii) above) single premium immediate annuity for the community spouse (see Hughes v. McCarthy).
K.Income of a married couple
1.The Medicaid applicant's income must be less than the cost of nursing home care.
2.The CS may retain all of his/her income, plus a portion of the IS's income(the Monthly Income Allowance, or MIA) if the CS's income is less than the Minimum Monthly Needs Allowance (MMNA), which is the sum of the Maintenance Needs Allowance (MNA) of $1,939 (in 2014) plus the Excess Shelter Allowance (for a maximum MMNA of $2,931 in 2014).
3.The remainder of the IS's income, minus a $45 personal needs allowance and medical premiums and expenses, represents the "patient liability" and must be applied to the IS's nursing home care.
L.Estate recovery
1.OBRA 1993 requires that the state seek recovery of Medicaid benefits from the recipient's estate.
2.ORC §2117.061(B) now requires that, if a Medicaid recipient was age 55 or older, the estate must notify the Ohio attorney general's office of the recipient's death by 30 days after the appointment of the executor or the filing of an application for release from administration.
3.Recovery cannot occur until the recipient and his spouse have died, but the state may seek recovery against the surviving spouse's estate.
4.Ohio previously sought recovery from the probate estate only. However, effective June 30, 2005, ORC sec. 5111.11(b) expands estate recovery to nonprobate assets (any assets "in which an individual had any legal title or interest at the time of death," including assets conveyed "through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement").
M.CS should generally "disinherit" the IS through nonprobate transfers (but the Department of Job and Family Services may attempt to treat some nonprobate transfers, such as transfer-on-death deeds, as improper transfers by the IS).
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Exhibit A
Gift/Giftback Strategy
Total Resources / $117,017Less: resource limit / $ (1,500)
Gifts (improper transfers) / $115,517
Penalty period in months (gifts/$6,327) / 18.26
Monthly expenses:
Nursing home ($200/day x 30 days) / $6,000
Professional fees / $ 400
Total / $6,400
Monthly income (Social Security and pension) / ($1,377)
Monthly gift back (net monthly expenses) / $5,023
Monthly reduction in penalty period (gift back / $6,327) / 0.79
Months to eligibility (original penalty / (1 + monthly reduction) / 10.18
Total gifts back / $51,129
Gifted assets remaining upon Medicaid eligibility / $64,388
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