MQA’s Hidden Dangers

May 2, 2014

by David Zumpano with No Comment Asset Protection Legal Technical Medicaid VA

Today, many elder law attorneys rely on Medicaid qualifying annuities to get their clients qualified to receive Medicaid benefits. They're also used when clients seek VA pension benefits.

While Medicaid qualifying annuities have become the default solution, they are not without risk. One challenge is that MQA's do not work well for single individuals. Second, even when used in married planning, there is no assurance the amount placed in the Medicaid qualifying annuity will actually be preserved. In fact, it could all be lost with the subsequent disability or death of the community spouse.

These are just some of the issues (not to mention the Veterans Administration's changing position on annuities when applying for veteran pension benefits) that we will be discussing at the Asset Protection, Medicaid and VA Practice With Purpose Program June 9th – 11th in Chicago.

National Asset Protection, Medicaid and VA experts and dozens of attorneys like you will be collaborating to identify the hidden risks in the different Medicaid and veterans' benefits strategies. This program promises to be the hands-on strategic solving many lawyers crave in their practice. Click here to get a full outline and to register for the program.

In these three days here is just some of what we will cover:

ASSET PROTECTION:

Recent updates to asset protection and Medicaid compliant strategies.
The new asset protection strategies dominating the marketplace.
The death of DAPT'S, FLP'S, GRATS, GRUTS, and tax planning, and what's replaced them.
The five essential trusts and key drafting needs to serve 99.7% of clients.
The Power of Powers of Appointment, in the right places.
Four "must have" drafting considerations and three "most forgotten" powers in trust.

MEDICAID:

Four steps to Medicaid eligibility for any client.
How to calculate the "breakeven" to ensure the proper filing date for the shortest penalty period.
Medicaid Qualifying Annuities: Hidden risks and how to properly disclose them to clients or protect from them.
The seven key factors to calculate any Medicaid case in seven minutes (or less!).
IRA's: Exemption versus taxes, how to calculate if IRA's should be liquidated or exempted in Medicaid and VA cases.

VETERANS' BENEFITS:

New fully developed claims process for veterans and widows.
Qualifying assisted living facilities as UME's.
Key language to complete the physician affidavit for more timely approvals.
Update on three year look back for VA benefits.
The key reports no longer required for VA applications.
Dangers of annuities in VA benefits planning.
The effects of the Supreme Court decision on DOMA related to veterans' benefits.

HERE'S WHAT YOUR PEERS HAD TO SAY ABOUT THE PROGRAM:

"It will change your practice and your life!" — John Koenig
"Great way to grow into a real firm and help one's community." — Antoinette Middleton
"Go to the training session and consider and evaluate upgrading your delivery of services, for me it's modernizing what I can offer." — Wally Kelleman

Are you going to miss or attend the most important event of the year? Click here now to join some of your most successful colleagues in Chicago and to be confident in the strategies you provide every day.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Medicaid Planning: The Ins & Outs of MMMNA #6 – Snap Shot Dates

April 30, 2014

by David Zumpano with No Comment Asset Protection Legal Technical Medicaid

This will be the sixth and final installment in our Medicaid planning series on MMMNA, or the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. If you didn't see the first five posts, click on the links to find numbers One, Two, Three, Four and Five.

The one thing most people don’t understand when calculating MMMNA is determining the snap shot date, which is the date used to calculate the community spouse resource allowance (CSRA). On the snap shot date the Medicaid authorities will take a snap shot of all of the client’s assets, and that’s how they determine how many assets the applicant has to be divided by two.

Medicaid law says the snap shot date is the first day of the month that the Medicaid applicant is admitted to a healthcare facility for at least 30 continuous days. So what happens if the applicant is not admitted for 30 continuous days? That breaks the required continuity and you won’t have a snap shot date. What if the applicant went in on the 15^th of the month? If that was the first of 30 continuous days, the first day of that month would be the date that you calculate the CSRA. Not the 15^th of the month, but if the client went in on April 15 and stayed at least 30 days, then we have our continuous stay on the 15^th of April and the first day of that month would be April 1. That would be the date to use our community spouse resource allowance.

A couple of details are important in this calculation. For one, hospital and nursing home stays are considered continuous institutionalization. And that’s what we’d typically call this: the first day of continuous institutionalization, and hospitals and nursing homes piggyback. So, for example, if I have a client that goes into the hospital on November 15, and then goes into a nursing home on December 3, and then into your office on January 3, what’s the snap shot date?

The first question to ask yourself is, have there been 30 days of continuous institutionalization? Your answer is yes. The client went from the hospital to the nursing home, and those two piggyback, so there have been 30 days. The next question is, when did the continuous institutionalization begin? It began on November 15, so the snap shot date is November 1, the first day of the month of continuous institutionalization.

Let's consider a different example. The client went into the hospital on November 15 but was discharged on December 3 because there were no nursing home beds available. Then the client goes into a nursing home on December 5 and comes into your office on January 3. Well, we know that that interruption is OK because, under the Medicare rules, as long as you get admitted to a nursing home within 30 days of your discharge then Medicare will pay the first 20 days of your stay in a nursing home. Medicare will pay the first 20 days of nursing home care as long as you’re admitted to a nursing home within 30 days of being discharged from the hospital and you were in the hospital for at least three days.

But we’re not talking about Medicare – this is Medicaid. We're working on what the snap shot date would be. So the question is, have 30 continuous days occurred? The client went into the hospital on the November 15 and stayed until December 3, which is not 30 days. There was another stay from December 5 to January 3, so there is no continuous institutionalization yet. Assuming that the client stays in for another two days, then you will have had 30 days of continuous institutionalization. And since the first day of the continuous institutionalization was December 5, then the snap shot date will be December 1, and they will take a snap shot of all of the assets of the husband and wife on that date. That's all there is to calculating the snap shot date.

Now that I told you how the law works, be aware that most states do not do it that way. Instead, most states will use the date you apply, which is an advantage to you. You can control the date you apply, but you cannot control the date someone is institutionalized. So again, even though the federal law spells out the rule above to determine the snap shot date, only some states follow that rule. The rest will use the date you’re in the facility and apply for Medicaid.

So that’s how we deal with the snap shot date. And again, the significance of that date is that it is the date they take a snap shot of all assets to determine how many assets the husband has, how many assets the wife has and how much can be exempted under the CSRA.

If your interested in learning more about MMMNA, consider joining us for our Asset Protection, Medicaid Planning & VA Practice With Purpose program June 9-11th in Chicago. Click here to register or learn more.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Medicaid Planning: The Ins & Outs of MMMNA #5 – Asset Tests

April 23, 2014

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical Medicaid

This post continues our Medicaid planning series with a deep dive into MMMNA, or the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. We've already covered some of the basics of determining MMMNA for your clients; If you didn't see the previous posts, click on the links to find numbers One, Two, Three and Four.

So, similar to the rules we covered on the individual income allowances, there’s also the asset test. Unlike the income allowances where you’re allowed $60 a month or $80 a month, under the asset test you’re allowed a certain amount of assets. The minimum is $1,500; by federal law they cannot allow you less than $1,500 of assets per month. About 80% of the states go beyond that, allowing $2,000 per month. And in a few states it's even higher. One day New York sent out a notice saying the state was increasing the individual resource allowance to $14,400, which was a windfall for our clients. There are also some states at $5,000 or other amounts, and about a dozen other states are at the $1,500 minimum.

When you see a state that has a $1,500 resource allowance, then you know it's a 239B state. What does that mean? Back in the '70s there was a code section 239B that raised the allowance from $1,500 to $2,000 federally. But some states complained, so under 239B of the statute they allowed the states to opt out of the increase. Remember, federal Medicaid laws allow the states to be less restrictive but not more restrictive. So you would think if a state allows a $1,500 resource allowance when the federal minimum is $2,000, such a state would run afoul of that standard. And you would be correct, unless that state filed an election under section 239B to maintain the $1,500 minimum resource allowance. So if your state’s minimum resource allowance is $1,500, you are a 239B state. It's a term worth knowing because you might hear it at CLEs and events of that nature.

So what about the community spouse? We know the individual can only have $1,500 to $14,400, depending on which state you’re in. The federal government addressed the community spouse question with the 1988 Medicare Catastrophic Coverage Act. The MCCA, attempting to avoid impoverishing community spouses, set a new federal minimum amount that a community spouse has to be allowed to keep. And what is that amount? Much like the federal government did with income limits, it set a minimum maximum and a maximum maximum. And for some reason, the minimum changes every July and the maximum changes every January. Last July the minimum was raised to $23,184, so the states cannot allow a community spouse less than that. If you’re in a max state, then your state will now allow the community spouse $115,920.

And again, similar to the income exercise, if the community spouse’s assets are more than the minimum but less than the maximum, then the community spouse resource allowance (CSRA) will be the amount of the community spouse’s assets. So, for example, if I were to say that a husband had $200,000 of assets and a wife had $10,000 of assets, we would first determine who went into the nursing home. If the husband went into the nursing home, the wife only has $10,000, so she would be able to take $13,184 of the husband’s excess assets and then the rest would have to be used toward his cost of care. If the wife went into the nursing home with her $10,000 of assets and the husband had $200,000, the most that the community spouse could have is $115,920, so the difference between the $115,920 and $200,000 would have to go toward the cost of care.

There are exceptions. We can keep some assets by utilizing some special exemptions. But generally speaking, the rule is very simple. The institutionalized spouse is allowed to have $1,500 to $14,400; the community spouse is allowed a minimum of $23,184 or a maximum of $115,920 if you’re in a range state, and if you’re in a max state the allowance is $115,920.

So now that you've seen how to calculate the CSRA, let's try a few examples. If a couple has $130,000 of total countable assets between the husband and wife at the snap shot date, then how much would the CSRA be? The couple lives in Connecticut, which is a range state. In a range state, how much would the community spouse be allowed to keep? Well, we know that half of $130,000 is $65,000. And according to range state rules, if x is greater than the max, then the CSRA equals the max. If x is less than the minimum, then the CSRA equals the minimum or the assets. If x is greater than the minimum but less than the max, then the CSRA equals x. So in this case, that’s what we would have. Connecticut’s a range state. And because $65,000 is below the maximum of $115,920 but above the minimum of $23,000, then the CSRA in Connecticut would be $65,000.

Now try another example: We’re in Florida, which is a max state. So even though half of the countable assets are $65,000, the CSRA cannot be less than $115,920 in a max state, so that is what the CSRA would be in this example.

How about a case in Kansas where one half of the countable assets come to $8,500? If you're asking yourself whether Kansas is a max state or a range state, well, it really doesn’t matter for this example, does it? The CSRA minimum is $23,184, so the CSRA cannot be more than the amount of assets they have. So in Kansas, which is a range state, the whole $17,000 would be exempt, but the additional $6,184 would also be exempt if that client came into additional assets.

And finally, if I’m in Arizona, which is a max state, I can never have more than the $115,920. So if the couple has $250,000, then half of that still exceeds the max. I can never have less than the minimum or greater than the max. If you’re in the middle, you get the range amount, and in this case you can keep $115,920, because there’s a total of $130,000 assets.

Hopefully these examples help you understand how this works. We will wrap up our MMMNA series with a post on snap shot dates, so check back soon.

A Look at the Pros and Cons of Business Planning with iPug™ Trusts and LLCs

April 16, 2014

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

An event not to be missed! On this free webinar we will carefully distinguish the pros and cons of the use of trusts to replace high net worth planning and planning in general for successful business owners and business succession planning using iPugs instead of LLCs.

Here's a sneak peek at what we'll be covering:

Planning for Business Owners
Planning for Efficient Gifting and Federal Estate Tax Planning
Planning for reasons such as…
- Maintaining Control
- Promoting Family Unity
- Protecting Family
- Wealth from Failed Marriages
- Managing Family Assets Efficiently
- Protecting Family Wealth from Creditors

Registration for this live event is FREE … Click here now to reserve your space!

To your success,

Dave Zumpano,

Co-Founder, Lawyers with Purpose
Practicing Attorney…Just Like You!

Medicaid Planning: The Ins & Outs of MMMNA – Part 3

April 8, 2014

by David Zumpano with No Comment Asset Protection Legal Technical Medicaid

Income Allowance:

Thanks for coming back for another session of MMMNA school. There's a lot to this issue, and it can get a bit complex, but it's an important component in Medicaid planning.

This post is part three of our series on determining MMMNA, the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. If you didn't see the first post, you can find that here, and part two is here.

Our last post got into a few scenarios involving MMMNA, but there are some additional income allowances that we need to cover. The institutionalized spouse is allowed a personal needs allowance, which as we said, ranges from $30 to $106.50, depending on the state. The applicant is also given allowance to help pay for health insurance. So Medicaid basically says, we don’t want to get stuck being the primary insurance payer, so in addition to your personal needs allowance, we’re going to allow you enough money to pay your health insurance premium so your insurance company can be the insurance of first resort and Medicaid can be your backup.

To be clear, Medicaid only exempts the cost of health insurance for the institutionalized spouse, not the community spouse. So, only the institutionalized spouse gets the personal needs allowance and the health insurance allowance. The community spouse gets the MMMNA, which we’ve already talked about. In addition, about 25% of the states also have a housing and shelter allowance, and another 25% of the states have a heating and utility allowance. These allowances are a state specific issue. The federal law does permit it, but not all the states do it. And again, it's for the community spouses only, with the intent being to make sure that community spouses have sufficient income to stay in their homes.

So again, institutionalized spouses gets their personal needs allowance of somewhere between $30 and $106.50 and they get to keep the cost of their health insurance so they can continue to pay that. Medicaid will let them do that. And the community spouse gets the MMMNA that we reviewed previously. Also, the community spouse could get a housing and shelter allowance or a heat and utility allowance if the state permits it. That's it, period. If you’ve got that down, that’s all you’ve got to know; it’s never going to change. If you're confused, it's because you’re trying to make it do something else, but it's really that simple. You just have to apply the rule.

So, no matter what fact pattern is that you are looking at, the first thing you need to determine is whether you are looking at a max state or a range state, then follow the methodology we shared in the previous two posts. Next look at the income of the husband, then look at the income of the wife. Figure out which spouse is in the nursing home, and which spouse is in the community. Then you can calculate the MMMNA. And in addition to the MMMNA, you will possibly have the housing and shelter allowance and the heating utility allowance, depending on the state. Of course, if the applicant is not married, you don’t even have to worry about that MMMNA calculation. All of the income that a single applicant gets to keep is the personal needs allowance and the health insurance premium amount.

You are probably thinking, OK, that's not so tough. And you're right, but you're not through it yet. Our next post will cover the income cap rules that factor in, so check back soon for that.

Medicaid Planning: The Ins & Outs of MMMNA – Part Two

April 2, 2014

by David Zumpano with No Comment Asset Protection Legal Technical Medicaid

This post is part two of our series on determining MMMNA in your Medicaid planning. If you didn't see the first post, you can find that here.

Our last post delved into how you determine the minimum monthly maintenance needs allowance, or MMMNA, which is the minimum income allowance for the community (or well) spouse in a Medicaid claim. If you read that post, you should be able to figure out the MMMNA for a few basic cases. So let's go through what the minimum and maximum would be, and what the MMMNA would be, in each of four scenarios.

Starting with scenario one and scenario two, the fact pattern is this:

The husband has $3,000 a month of income.
The wife has $1,000 a month of income.
The MMMNA minimum is $1,939; the maximum is $2,931.

In scenario one, the husband is in a nursing home, so we know that the wife is the community spouse, and she has $1,000 in income. Plus, we are in a max state, which means that the community spouse is entitled to the maximum income – $2,931.

What does that mean? That means of the total income of $4,000 between the husband and wife, $1,069 will be contributed toward the cost of care each month. So essentially the husband goes into the nursing home, the wife gets her $1,000 of income– or she gets to keep her $1,000, plus she gets to keep $1,931 of the husband’s monthly income. The balance of $1,069 ($4000 – $1000 – $1931)would go toward the cost of his care. (We are setting aside the discussion of his personal needs allowance, but whatever it is in this state, the amount contributed to the cost of care would be reduced by the personal needs allowance.)

What if the wife went into a nursing home? What’s the MMMNA in that case? It’s still $2,931, but now the husband is the community spouse, so he would be able to keep $2,931 and he would have to contribute 25% of the amount over $2,931. So his $3,000 minus $2,931 comes out to $69, and 25% of that would be $17.25. But remember, New York is the only state that currently requires spousal contribution for incomes above the MMMNA. In all the other states the husband as community spouse would get to keep his total $3,000 in monthly income, and the cost of care would be $1,000, the wife’s income, less whatever the personal needs allowance is for the state.

Why? Because every other state allows the community spouse to keep whichever is greater, the MMMNA or the community spouse’s actual income. As discussed in the previous post, we make that distinction because the federal Medicaid law does not require it; the law does not even allow it. The states allow it. Remember, the federal government sets the laws on Medicaid, and the states can be less restrictive, but they cannot be more restrictive. So in most states if the husband, who is the community spouse in this scenario, has $3,000 a month of income, they will allow him to keep 100% of his income. That’s why we have shown it here as $3,000, and all you would lose is the institutionalized spouse’s income of $1,000.

So how would this be different in a range state? With the husband going into the nursing home, the wife is now the community spouse, so the range state would essentially say, she can keep the bottom of the range. She has $1,000 of income, but the MMMNA says the minimum is $1,939, so she gets to keep her income, plus $939 of his income. So in that scenario she would get $1,939, and the remaining $2,061 of his income would be contributed toward the cost of his care (again less the personal needs allowance amount, which he would get to keep).

So that's the difference between a range state versus a max state. Now again, this is because the husband went in the nursing home and he is the higher income earner. In the range state, because the wife is the lower income earner, it would be the same scenario. The husband would be the community spouse. In the range state, again the top of the range is $2,931. But again, most states don’t have any chargeback. So the answer for a range state in this particular fact pattern would be the same as for a max state.

Don't feel alone if you find this confusing. Our intent was not to confuse you, but to show you that there is a science to Medicaid and how this works. Stick with us in our upcoming MMMNA posts and we'll continue to bring clarity to this fairly complex issue.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Medicaid Planning: The Ins & Outs of MMMNA – Part One

March 26, 2014

by David Zumpano with 2 Comments Asset Protection Medicaid

Part of planning for a married Medicaid applicant is figuring the minimum monthly maintenance needs allowance, which is the minimum income allowance for the community (or well) spouse. Medicaid law says that the income of the Medicaid applicant in excess of the limits must be used toward the cost of care. But if the applicant has a spouse, Medicaid, through the concept of the minimum monthly maintenance needs allowance (“MMMNA”), allows the community spouse to keep some or all of their income.

Medicaid considers the gross income of the community spouse. If the community spouse’s income is in excess of the MMMNA, then under the federal rules, 25% of the community spouse’s income must be used for cost of care. While New York is currently the only state that enforces that provision, we must be aware of the federal rules because it is probably only a matter of time before other states are assessing the 25%.

Now if the community spouse’s income is less than the MMMNA, then income from the applicant will be diverted to the community spouse to try to get the community spouse’s income up to the MMMNA. If the community spouse’s income is still below the MMMNA, then assets needed to generate sufficient interest to fill the income up to the MMMNA are exempt. This is what we call the assets to income rule.

But there's a little more to it than that. The federal law says there’s a minimum and there’s a maximum MMMNA. The states are allowed to set the MMMNA for the community spouse. But the federal government says the states can’t set a MMMNA below $1938.75 (we will call it $1,939 to keep the math easy) or above $2,931. So your state’s MMMNA will be somewhere between those two numbers.

States vary in how they set the MMMNA. About half of the states are what we call “max states.” They set the MMMNA at the maximum end of the range and say that the community spouse can keep up to $2,931 in gross monthly income. Other states are “range states.” That is the MMMNA can fall somewhere between both the maximum and minimum range the feds allow for the MMMNA. In a range state, if the community spouse's income is less than $1,939, then the community spouse can take the institutionalized spouse’s income up to that minimum. And what happens if the community spouse’s income was more than the minimum but less than the maximum? Then the income of the community spouse would be the MMMNA.

Let’s consider the following examples to show you what I mean.

I had a community spouse who had $1,000 of income. The applicant, the husband, was the predominant income earner, and the community spouse had $1,000 of income. In a max state, the law says the community spouse could keep the first $2,931, regardless of whom it came from. So if the wife had $1,000 of income, she would be able to keep the first $1,931 of the income of the husband, who’s in the nursing home. And if the husband didn’t have $1,931, then the assets to income rule would come into play. That means the law would say that, if the total income between the institutionalized spouse and the community spouse does not equal the MMMNA, then the community spouse can exempt additional assets needed to generate the income to get the community spouse up to the MMMNA. So again, if this is a max state, the threshold is $2,931. If the community spouse had $1,000 and the husband had $3,000 of income, the community spouse would be able to keep $1,931 of the applicant’s income.

In a range state, the community spouse is allowed to keep the minimum, but if the income is below $1,939, then the community spouse gets to take income from the institutionalized spouse to get to the $1,939 limit. For instance, if a community spouse’s income was $1,000, she could take $939 from the husband’s income. If she had income of $2,500, then her MMMNA would be $2,500 because her income is below the maximum and above the minimum MMMNA. And if a community spouse earns more than the maximum MMMNA, then 25% of that amount in excess would have to be contributed toward the cost of care. Those are the federal rules. But remember, as of now only New York applies the 25% rule. Most states allow the community spouse to keep any income in excess of the MMMNA.

We will continue to delve into MMMNA in future posts on this blog, to help you understand the nuances and work through the complexities of this issue.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

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Obama Care & Estate Recovery – The Impact on Medicaid – Lawyers With Purpose

February 3, 2014

by David Zumpano with 2 Comments Asset Protection Medicaid

The Omnibus Budget Reconciliation Act of 1993 required all states to implement an "estate recovery program" to recover assets from the estates of any individuals who received Medicaid benefits during life. The default language of the federal statute provides the state can recover from the "probate estate" of the Medicaid recipient, but allows the states to expand the definition to include all assets owned by the recipient including joint accounts, lifetime interests, beneficiary designated accounts, and even trusts.

So what does this have to do with the Affordable Care Act, commonly known as, “Obama Care”? There is a new twist coming to light regarding States’ rights to recovery for Medicaid benefits paid. What does the Affordable Care Act have to do with Medicaid benefits? While it does not, in any way, provide care for nursing homes, it does provide that Medicaid can be a provider of health insurance and can be available on the exchange for affordable healthcare. It seems pretty ordinary, except the Affordable Care Act has a provision that ensures estate recovery from the estates of those receiving Medicaid benefits for healthcare.

What does this all mean? Well, for the first time, estate recovery will apply to those individuals who receive Medicaid as a health insurance benefit rather than just as a nursing home benefit. This could impact many seniors who currently rely on Medicaid (in addition to Medicare) to help pay for their medical expenses and healthcare costs. It is unclear whether the enforcement procedures or the state's ability to recover on healthcare-related Medicaid costs will be enforced and, if so, how it will be managed.

It is essential we understand the estate recovery laws and how they impact Medicaid recipients. More importantly, it’s imperative to ensure your healthcare needs will be met now and in the future. The best way to ensure the total protection of your assets and your values now and after you pass, is to plan ahead. Those that have failed to plan are typically the most adversely affected by the rules. I encourage you to make sure you address these new rules when doing your planning.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center.

Medicaid Terms of Art Glossary

January 22, 2014

by David Zumpano with No Comment Asset Protection Medicaid

Dave Zumpano used the below Terms of Art Glossary for the Your Legal Hour series on Medicaid Planning: Who Should Consider It. We've put them in a user friendly format for you to print and use as needed!

CS: Community Spouse: The Spouse of an institutionalized individual and does not reside in an institution.

IS: Institutionalized Spouse: The spouse that resides in an institution and is receiving chronic care (not custodial).

MA: Medicaid Applicant: Individual applying for Medicaid.

MR: Medicaid Recipient: Individual qualified for and who is receiving Medicaid benefits.

INDIVIDUAL RESOURCE ALLOWANCE: The amount of resources (assets) the Medicaid Applicant can retain and still be eligible for Medicaid benefits.

CSRA: Community Spouse Resource Allowance: Minimum and Maximum amount of resources (assets) the community spouse is entitled to retain and have the institutionalized spouse be eligible for Medicaid benefits.

MMMNA: Minimum Monthly Maintenance Needs Allowance: (“Triple M N A”): The minimum amount of income per month a “community spouse” is entitled to retain prior to being required to contribute toward the “institutional spouse’s” cost of care.

SNAP SHOT DATE: The date used to calculate the CSRA. The first day the Medicaid applicant is admitted to a health care facility for at least 30 continuous days and then applies for Medicaid benefits.

LOOK-BACK DATE: The first day of the month in which a MA resides in a health-care facility and applies for Medicaid benefits. (Can apply for benefits retroactively 3 months.)

LOOK-BACK PERIOD: The period of time Medicaid will look at all financial records of a MA. The Look Back Period begins on the Look Back Date.

SPEND DOWN: The method or process of transferring (or spending) MA’s income or assets to get applicant and/or community spouse to Medicaid qualifying levels.

COMPENSATED TRANSFER: A transfer or spending of MA or CS’s income or assets and MA or CS receives something of equal value in return.

UNCOMPENSATED TRANSFER: A transfer or spending of MA or CS income or assets and MA receives no value, or less than the value transferred in return.

MONTHLY DIVISOR: The average cost of one month of private pay nursing home costs in your region. (Must be revised annually by the state)

PENALTY PERIOD: The number of months an MA is ineligible for Medicaid Benefits because of an uncompensated transfer.

Know The Five Key Trusts

October 14, 2013

by Lawyers With Purpose with No Comment Asset Protection Medicaid

We’ve seen a lot of changes in trusts for estate planning solutions over the last 20 years. Prior to 1993 there were basically two types of trusts; revocable living trusts to avoid probate and provide for asset management in the event of disability, and irrevocable trusts to prevent any unnecessary estate tax. Over the last 20 years a lot has changed, and a new genre of trusts known as iPug™ now serves 99.8 percent of Americans. iPug™ stands for Irrevocable Pure Grantor Trust. “Pure” means it is a grantor trust for income tax purposes and included in the grantor’s taxable estate. The popularity of these trusts has grown significantly since 2001, with the enactment of EGTRRA raising the federal estate tax limits to over $5 million. As a result, the number of Americans affected by estate tax is now less than one fifth of one percent.

There are three variations of the iPug™ trust: the income-only version, which we at Lawyers with Purpose call the MIT™; the control-only version, which we call the FIT®; and the third-party version, which we call the KIT®. Each of these trusts allows the grantor to be the trustee of the trust AND retain the full power of appointment to change everything and anything in the trust except that which the grantor wishes to protect. For example, in the income-only version the grantor irrevocably gives up the right to principal but retains the right to income and the ability to change all provisions of the trust, including the beneficiaries and the timing, manner and method of distribution. While this has many traditional planners on edge, my law review article “Irrevocable Pure Grantor Trust, the Estate Planning Landscape has Changed,” should calm the typical concerns. It should provide comfort that I have been using these for over 20 years and have thousands of them in the marketplace, and they have been utilized throughout the country by over 500 law firms over 13 years.

Simply, iPug™ planning does not relate to tax planning, but rather to asset protection planning.

The Uniform Trust Code, the Restatement Second and Third of Trusts and every treatise on trusts is in agreement, asset protection rules are very simple: whenever the grantor retains a right directly or indirectly (through any power of the trustee) to benefit from a self-settled trust, is also available to the creditors of the grantor. This is where iPug™ trusts are uniquely different. In the MIT™, the grantor irrevocably gives up the right to principal from the trust and cannot ever have access to the principal. Thus, because it is forbidden to be distributed to the grantor, it is blocked from access by any of the grantor’s creditors, predators or long-term care costs. Similarly, the control-only version of the iPug™ (FIT®) works exactly the same way, except that in this version the grantor retains no right to income or principal. This trust is typically used for people who do not need the assets or the income from the assets placed in it, but seeks to protect it from their creditors, predators and long-term care costs. The significance of the FIT® is that the grantor still retains full control of all assets and maintains privacy, not having to share any financial information with family or anyone else. The grantor also retains the freedom to make distributions of principal anytime during life, to any child or other beneficiary, for any purpose. The only restriction is that the grantor is prohibited in any way from transferring the income or principal to him or herself, thereby protecting it from any third-party creditors, predators or long-term care costs. Basic Asset Protection Law.

Finally, the third-party version (KIT®) is a slight variation in this trust is typically used when a client has already transferred assets to third parties (i.e. children). For example, dad and mom transferred the family farm to the kids hoping to "protect it," but not realizing that by doing so, it became subject to the kids’ creditors, predators, long-term costs and divorce. In order to protect transferred assets from the creditors, predators, divorce and long-term care costs of the transferees (children), the transferees act as co-grantors to create an irrevocable trust and fund it with the assets that had been previously conveyed. The parents can be the beneficiaries during their lifetime and upon the death of the parents, it can revert back to the children individually or in an asset protection trust designed similar to a MIT™ or FIT® to the children (now as grantors) and therefore self-settled. This provides asset protection to the parents during life but also could provide lifetime asset protection to the children as if they had done a MIT™ or FIT® themselves (after death of parents). Since a KIT® is a third-party trust, it is not within reach of the parents' predators, creditors or long-term care costs.

Perhaps the greatest untapped use of iPug™ trusts by most practitioners is for business owners. I have been successfully using these trusts with business owners for many years, and they love them when they understand how it protects them. If a business owner has a corporation or LLC, all of their personal assets are protected from the liability of that LLC or corporation, but the LLC or corporation is not protected from their personal liabilities. The corporation or LLC is an asset subject to the reach of the creditors if the liability is personal. As a result, I have many clients who opt to put their business interests into a MIT™ or FIT®. Using the MIT™ protects the business from being taken by personal creditors, predators or long-term care costs but does allow all the income from the business (which pours into the MIT™) to be distributed to the grantor. Another strategy is to use the FIT® for the business trust. This provides no income or principal to the grantor through the trust (and therefore protects it from the grantor's predators, creditors or long-term care costs) but the grantor could receive any amount of income deemed reasonable by business standards directly from the LLC or corporation.

For example, as an officer or employee of the corporation the grantor can receive a salary like any other employee. This income, however, will not be subject to his creditors and predators but could be “shut off” at any time by his resigning from the company. This provides both the benefits of retaining the right to income as well as retaining the ability to protect the income should the grantor decide differently at some point in the future. Trust planning is exciting in this new millennium, and utilizing all of the various trusts will help make us better counselors in serving our clients. I encourage you to stay abreast of all the issues related to iPug™ trusts and how they work for Medicaid eligibility, veteran’s benefits, and business protection planning.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder of MPS, Founder and Senior Partner of Estate Planning Law Center.