Ohio High Court Rules That Transfer of Home Between Spouses Prior to Medicaid Eligibility Is Improper

A narrowly divided Ohio Supreme Court has ruled that the transfer of a home between spouses prior to Medicaid eligibility is an improper transfer and is subject to the community spouse resource allowance (CSRA) cap.  Estate of Atkinson v. Ohio Department of Job and Family Services (Ohio, No. 2013–1773, Aug. 26, 2015).  One year and six days after hearing oral argument in the case, the majority ruled that "federal and state Medicaid law do not permit unlimited transfers of assets from an institutional spouse to a community spouse after the CSRA (Community Spouse Resource Allowance) has been set."  The court distinguished, and did not overturn,  the 2013 federal appellate court ruling in Hughes v. McCarthy, that permitted use of spousal transfers using "annuities."

In 2000 Marcella Atkinson and her husband transferred their home into a revocable living trust. In April 2011, Mrs. Atkinson entered a nursing home and soon applied for Medicaid benefits. In August 2011, following Medicaid’s “snapshot” of the couple’s assets, the home was removed from the trust and placed in Mrs. Atkinson's name. The next day, Mrs. Atkinson transferred the house to her husband. The state determined an improper transfer had occurred and imposed a penalty period.  Mrs. Atkinson passed away, and her estate appealed to court, arguing that under federal and state statutes a spouse is not ineligible for Medicaid for transferring a home to the other spouse and that an institutionalized spouse may transfer unlimited assets to the community spouse between the date the spouse is institutionalized and the date that the spouse's Medicaid eligibility is determined. The estate lost at both the trial court and the Ohio Court of Appeals, and the estate appealed.  

In a 4-3 decision, the Supreme Court of Ohio rules that transfers between spouses are not unlimited after the snapshot date and before Medicaid eligibility and that such transfers are proper only up to the amount that fully funds the CSRA. The court rejected the estate’s reliance on the Sixth Circuit Court of Appeals’ holding in Hughes v. McCarthy (6th Cir., No. 12-3765, Oct. 25, 2013) that an annuity purchased by a community spouse before a Medicaid eligibility determination is not an improper transfer, finding that the purchase of annuities are subject to special rules and “not applicable under these facts.”  The court, however, remands the case for review of the penalty imposed because the Medicaid agency may have applied the wrong statute.  “Neither federal nor state law,” the court wrote, “supports the agency's confiscation, after the CSRA has been set, of the entire amount of transferred assets, some or all of which may have already been allocated to the community spouse on the snapshot date.”

A dissent joined by three justices states that “[w]hat this family did is and was permitted by state and federal law. . .  the home is explicitly excluded from the definition of 'resources' for purposes of establishing the CSRA.” (emphasis in original).  But, the majority rejected various "exempt asset" and "timing" arguments, in effect, interpreting state and federal law in the manner that would permit  sheltering the minimum possible assets after the ill spouse's admission to the nursing home.

For the full text of this decision, click here.

Home-Care Workers Win Right to Overtime Pay and Minimum Wage

Home-care workers won the right to overtime pay and the minimum wage after a U.S. court Friday upheld a Labor Department rule that was challenged by business groups.

The Obama administration said the decision by the U.S. Court of Appeals for the District of Columbia covers almost 2 million workers “whose demanding work merits these fundamental wage guarantees.”

The rule helps ensure a “stable and professional workforce” for recipients of the services, according to a statement Friday from the Labor Department.

“We are thrilled that this historic ruling will remedy an injustice millions of dedicated, hardworking caregivers have had to tolerate for far too long,” said Christine Owens, executive director of the National Employment Law Project.

A lower court had ruled that the Labor Department exceeded its authority in extending the wage protections. The rule was opposed by the Washington-based U.S. Chamber of Commerce, which has said it would make home-health care too expensive for some.

Congress extended benefits to domestic workers when it amended the Fair Labor Standards Act in 1974. The measure included a narrow exemption for babysitters and workers who provide “companionship” services that the Labor Department later interpreted to include direct-care workers.

Where Are Our Family Photos?!? Planning for a Digital Legacy

Attorneys Sasha A. Klein, and Mark R. Parthemer have written an excellent article, published in GPSolo, a publication of the American Bar Association,  explaining how current law does not provide adequate protection of digital assets upon death of an owner of these assets. After explaining the dificiencies and difficulties presented, they posited some sage advice for the planning necessary to protect these all-to-common and valuable assets: 

What can we do now? Plan! Fiduciaries face many obstacles with respect to digital assets that do not apply to traditional assets, including password protection and encryption. Therefore, proactive planning for these assets is necessary. Clients should take two critical steps.

First, identify and create an inventory of all digital assets, which should be updated regularly. Many applications exist to help clients plan for their digital assets. For clients who change their password frequently or use many different passwords, applications such as 1Password, LastPass, and Dashlane store all passwords with access to the list through only one main password. Several third-party digital asset storage providers also act as “electronic safe deposit boxes” that release information only on the user’s death or incapacity. These allow clients to easily update information during life and grant their executor or guardian immediate access on death or incapacity. Privacy concerns exist, however, because these storage providers are targets for identity theft. In addition, this is a relatively new industry, and there are no guarantees these companies will still be in business at a client’s passing.

Second, provide the fiduciary access to the digital assets. During life, a client may wish to grant an individual the ability to have immediate access by creating an account with multiple users or appointing an agent through a durable power of attorney. If using a durable power of attorney, a provision granting access to digital assets (which could be specific to certain types of digital assets or broadly apply to all digital assets) should be explicitly included. The power should also expressly provide consent to access such accounts. Currently no states have modified their power of attorney statutes to include digital assets. In addition, a review of the TOS agreement is essential because it may trump any lifetime planning. Your client also may wish to create backup files of his tangible media through DVDs, CDs, flash drives, external hard drives, or a cloud service.

After death, a last will and testament or revocable trust can give a fiduciary access to a decedent’s digital assets. The will or trust can specifically devise digital assets and appoint a fiduciary (such as a “digital executor” or “digital trustee”) to administer the digital assets. Another option is to draft a separate letter of instruction for digital assets and incorporate it by reference into a will or trust (to the extent allowed under state law). Consider including a definition of digital assets in the will or trust (you may want to use your state’s definition if one exists or the UFADAA’s definition). Your client’s will and trust should specifically provide which digital assets are under the fiduciary’s control and where and how to dispose of them after death. Explicit directions are more likely to convince the service providers to grant the fiduciary access.

Our clients have one additional tool to solve these problems: LegalVault.^®   LegalVault^® is an advanced document storage system which allows you to:

• access healthcare directives such as a living wills and healthcare powers of attorney at anytime and any location;

• provide critical information to caregivers such as emergency contacts, allergies, medications and primary care provider details;

• store other documents such as trusts, wills, deeds, contracts, oil and gas leases, installment contracts and the like;

• store digital asset information, such as pictures, movies, songs, a list of professional advisers, and site passwords. 

Go here for more information regarding LegalVault.^®

Go here to read the full article.


    

Ohio Guardian and Ex-Probate Judge Admits to Stealing from Wards

The Youngstown Vindicator, in reporting upon an on-going investigation into county corruption, discovered that  ex-county Probate Court Judge Mark Belinky, convicted last year of tampering with government records, admitted to "stealing money from people that he was a guardian over."   He also admitted to altering probate court documents to further such theft, by, for example, using a Mahoning County probate computer to create false probate court records. The admissions were gleaned from previously sealed affidavits in an ongoing case investigating political corruption. The now unsealed affidavits recount the financial fraud visited upon Mahoning County wards at the hands of the person appointed by the court to protect their interests.  

For more, go here.

Happy Birthday Social Security!

August 14 marked the 80th anniversary of the Social Security Act. Acting Commissioner Carolyn W. Colvin announced the launch of the agency's event-filled celebration, with many activities leading up to this date.

President Franklin D. Roosevelt signed the Social Security Act in 1935, providing economic security for workers when they retired. Today, Social Security provides benefits to more than 56 million retirees, disabled workers, and their families.

Read more: http://www.benzinga.com/pressreleases/15/08/p5767355/social-security-act-celebrates-80th-anniversary#ixzz3jmlVhY00

Recent Medicaid Changes Encourage and Support "Aging in Place" Philosophy

Medicaid is constantly reviewing and updating its policies, but many beneficiaries find that it is comparatively rare for Medicaid to update its policies in a way that is truly beneficial to them. Often, “updates” simply make things more complicated.  A few recent changes, however, empower beneficiaries to remain at home, or in the community, rather than acquiescing to institutional care.  In effect, these changes signal greater awareness of, and respect for, the "aging in place" philosophy.   

These regulations require, in many instances, state adoption and implementation to be meaningful.  Seniors, their families and caregivers should know, however, that even then, implementation and utilization of these benefits will require awareness, diligence, and persistence to realize.  Like Medicare benefits for home care, one could expect that health care providers and other professionals will for some time be generally unaware of the availability of these benefits, and specifically incapable of meaningfully implementing the expanded benefits.

Regardless, there are now additional weapons in the arsenal for those fighting to keep themselves or loved ones free from unnecessary long-term institutional care.

Only California, Maryland, Montana, Oregon, and Texas have approved Community First Choice Amendments to the State Plans.

Expansion of Home and Community Based Services Plan

Previously, the Home and Community-Based Services (HCBS) plan was only offered through waiver programs. The most recent updates to Medicaid, however, provide home and community-based services as part of the regular plan. This means that individuals who qualify for Medicaid can receive either in-home services that will make it possible for them to remain at home longer or community-based services that are much more comfortable than skilled nursing homes as part of their regular care routine.

Community First Choice (CFC) Plan

The "Community First Choice Option" (CFC) allows States to provide home and community-based attendant services and supports to eligible Medicaid enrollees under their State Plan. The CFC state plan gives enhanced federal funding to help provide support and services to individuals who would otherwise require institutional care. These services are designed to provide necessary support to individuals who, without it, would find themselves in high-care level institutions. Providing other elements of care in place of institutional settings is beneficial to both the patient and the program, as it allows them to maintain their quality of life longer and permits the provider to save money in the process.

Money Follows the Person (MFP)

The MFP program is designed to assist individuals who are no longer in need of the services provided within institutions. These funds help them to transition back to their community and independent living when institutional care is no longer required. In many cases, a lack of funding kept people in institutions long past the time when they could have returned home with the benefit of proper care, so this provision has truly been designed with the quality of patient care in mind. 

Community Based Long-term Services and Support (LTSS) Funding

Community-based LTSS care allows many individuals to maintain a higher quality of life and enjoy interaction with other individuals in their situation. The new provisions have increased funding for states that help increase access to these programs, encouraging a shift toward community-based services instead of institutional care in many states.

These provisions will be of great benefit to many aging individuals, particularly those with chronic health conditions who wish to remain in their homes for as long as possible. As their need for care increases, they’ll be able to access the services that they need instead of either accepting care that they don’t want in the form of an institutional setting or putting off care that they need because they can’t afford it. These changes to Medicaid policy will likely be the first of many as it becomes necessary to make changes in order to sustain the program.

Care Coordination and Case Management Benefits

The demands of a chronic condition can be overwhelming. For many elderly individuals, it’s impossible to simply list all of the medications they take, much less keep up with the tests and procedures that they’ve undergone. Care coordination and case management ensures that everyone who is treating a given patient is on the same page and that the patient is receiving quality care for all of their conditions, not just the one covered by a specific doctor at a specific moment.

While improvement in care coordination and case management is not specifically related to only home or community based care, the improvement reduces risks often associated with home based care heavily reliant upon the beneficiary or caregivers to coordinate and manage care, and therefore, only encourage home or community based care.   

NOTICE Act Requires Hospitals to Warn of Costly Medicare Loophole

President Obama has signed a new law intended to prevent Medicare beneficiaries from spending days in a hospital only to find that they hadn’t been admitted to the hospital at all – they were only under “observation.” This is important because Medicare covers nursing home stays entirely for the first 20 days, but only if the patient was first admitted to a hospital as an inpatient for at least three days.  Many beneficiaries are being transferred to nursing homes only to find that because they were hospital outpatients all along, they must pick up the tab for the subsequent nursing home stay -- Medicare will pay none of it. 

The new law, the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, does not eliminate the practice of placing patients under “observation” for extended periods, but it does require hospitals to notify patients who are under observation for more than 24 hours of their outpatient status within 36 hours, or upon discharge if that occurs sooner.  The notification will have to explain to patients that because they are receiving outpatient, not inpatient, care, their hospital stay will not count toward the three-day inpatient stay requirement and that they will be subject to Medicare’s outpatient cost-sharing requirements.  The law does not make hospital observation stays count towards Medicare’s three-day requirement, as some lawmakers had proposed.

The NOTICE Act will take effect on August 6, 2016, one year from the date it was signed.  

For the text of the NOTICE Act, click here.

For more about Medicare, click here.

2016 Medicare Pemiums to Increase- Social Security Benefits Stay Flat

According to Mark Miller, writing for RetirerementRevised, "retirees are facing a double-whammy next year: no inflation adjustment in their Social Security benefits and a whopping 52 percent jump in certain Medicare premiums."

The article continues: 

Medicare premium hikes will hit only 30 percent of beneficiaries – those who are not protected from a “hold-harmless” provision in federal law that prohibits any premium hike that produces a net reduction in Social Security benefits. But the likely increases suggest strongly that the recent trend of moderate healthcare inflation is ending.

Let’s start with the Social Security news. Final figures for 2016 will not be available until the fall, but the recent annual report of Social Security’s trustees projects that there will not be any cost-of-living adjustment (COLA) next year. The COLA is determined by averaging together third-quarter inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Inflation has been flat due to collapsing oil prices.

On the healthcare front, renewed cost pressures are pointing toward much higher Medicare premiums starting next year, according to the Medicare trustees’ annual report.

Consider the monthly premium for Part B (outpatient services), which has stayed at $104.90 for the past three years. The Medicare trustees projected that the premium will jump 52 percent, to $159.30 for beneficiaries who are not protected by the hold harmless provision.

That would include anyone enrolled in Medicare who is not yet taking Social Security benefits due to a decision to delay enrollment. It also would include new enrollees in Medicare next year. (The increase also would be applied to low-income beneficiaries whose premiums are paid by state Medicaid programs).

High-income retirees – another group that is not protected by the hold-harmless provision – also will be hit hard if the trustee projections hold.

Affluent seniors already pay more for Medicare Part B and also Part D for prescription-drug coverage. This year, for example, higher-income seniors pay between $146.90 and $335.70 monthly for Part B, depending on their income, rather than $104.90.

The Medicare trustees now project that to jump even more.

Go here to read the whole article.

Protecting Your Deceased Loved Ones From Identity Theft

We've all been warned about protecting ourselves from identity theft, but one group of victims can't take action to protect themselves—the dead. Identity thieves steal the identities of more than 2 million deceased Americans a year, according to fraud prevention firm ID Analytics. Fortunately, there are steps that you can take to discourage identity thieves from targeting a deceased loved one.

 

Part of the reason the deceased make prime targets for scam artists is that it can take up to six months for credit agencies to be notified about a death. As soon as possible, you should send copies of your loved one's death certificate through certified mail to the three major credit reporting agencies—Equifax, Experian, and TransUnion. Along with a certified copy of the death certificate, you should include papers certifying that you are the executor or person representing the deceased; the decedent's full name, date of birth, and Social Security number; the decedent's most recent address; and the date of death. You should also request that the credit bureaus put a "deceased -- do not issue credit" alert on the decedent's credit files.

In addition, you should send copies of the death certificate to any banks, insurers, credit card companies, or other financial institutions where the deceased had accounts. You should also cancel the decedent's driver's license by notifying the state motor vehicles department.

One way that identity thieves find victims is by looking through obituaries. When writing your loved one's obituary, try to avoid information that might be useful to identity thieves such as date of birth, mother's maiden name, or the decedent's address. Think about what information someone would need to open a bank account and avoid including that in the obituary.

Once the proper agencies and institutions have been notified, you should continue to monitor the decedent's credit report for a year to make sure there are no problems.  A free copy of the three credit agencies’ reports is available annually to executors or trustees.  Go to: www.annualcreditreport.com.

For more information from Bankrate about protecting a deceased relative from identity theft, click here.

The Trouble With Advance Directives

Where are your advance directives?  Are they up-to date?

A recent article in the New York Times highlights two major problems with advance directives: 1) the existence of these legal documents is often not known about by medical professionals or loved ones (and even if it is, the physical location of these might not be known) and 2) these documents can be rather ambiguous with vague or outdated language.

The author of the piece tells a troubling tale of an older gentleman suffering from dementia who had created an advance directive years earlier where he stated that while he wanted to remain comfortable, he did not want any “heroic” measures to save his life. Years after his advance directive was filed, the gentleman was hospitalized for a nosebleed and was later put on a ventilator and given a feeding tube for survival. These drastic measures seem to contradict the patient’s wishes, so why on earth were these treatments administered?

The answer is simple – his advance directive was buried away in his medical chart and none of his early doctors had noticed it, and his son who was calling the shots knew nothing of his fathers’ wishes.

This is an all too common scenario in emergency rooms where the goal of healthcare professionals is to keep patients alive and, without the proper paperwork, doctors are required by standing orders to take all necessary medical steps to sustain life.

As an attorney, I stress the value of advance directives.  But, I know all too well that they are only useful when they are accessible before medical treatment commences.  My firm is one of a growing number of firms that are providing an effective tool, LegalVault®, to help clients solve this problem.

LegalVault® is a great tool which allows you to securely store your advance directives and estate planning documents. Here’s how it works:

• The client executes an up-to-date General Power of Attorney for Health Care, and Advanced Directive/Living Will;
• Each document is electronically scanned, and an electronic image of each document is made (which is far superior to a copy);
• Each  client is given a secured LegalVault® account;
• Our firm uploads the image of the  documents to the client's LegalVault® account;
• LegalVault® sends out an Emergency Access Wallet Card which contains instructions for healthcare providers on accessing healthcare-related documents online or via a 24/7 fax back service;
• Once an account has been created, the LegalVault® physician notification system sends a notice to the primary care provider informing him or her of this invaluable service and the storage of advance directives, ensuring that these important planning documents never fall to the back of a medical chart where they go unnoticed for weeks; 
• Clients control what information is available to health care providers, and can quickly update the account with up-to-date documents or information (such as medications or allergies) from their home computer or smart phone;
• With the client's permission, images of other estate planning documents (Wills, Trusts, Powers of Attorney, etc.) are uploaded to the client's LegalVault® account; 
• Clients can log in to their accounts to share other non-healthcare-related documents with our firm, or even upload copies of family keepsakes (photos, home videos, letters to children, family trees) to ensure these are safely secured and passed down to younger generations;
• Clients can keep or maintain important legal and financial records such as insurance policies, annuities, savings bonds, stock certificates, leases, contracts, and other instruments, potentially lost, stolen, discarded, or destroyed by third parties at a time of death or disability;
•  Clients can alert authorities of significant needs or concerns, such as "disabled child at home," "pets at home," or the like;
• A separate vault, inaccessible to our firm, accessible only to the client, and an executor, successor trustee, or personal representative, can store passwords to online accounts;
• Upon renewal of the LegalVault® account (every 3,5, or 7 years) updated documents are executed, ensuring that the documents are never out-of-date.

There is no limit to the storage space available for estate planning documents, pictures, letters, financial documents, and the like.  The cost of such a service is probably less than you might imagine. Contact us if you want to add this valuable service to your estate and/or financial plan. 

94-Year-Old Ordered to Pay Alimony to Offset Ex-Spouse's Nursing Home Costs

A recent Nebraska case illustrates how difficult it can be to predict the outcome of aggressive last-minute planning.  In what is possibly a divorce for purposes of Medicaid protection, the domestic relations court ordered a 94-year-old to pay alimony to his 95-year old spouse in order to offset her nursing home costs, despite the fact that doing so dropped his available income below the federal poverty guideline.  The case was appealed to the Nebraska Supreme Court.  The highest court determined that a 94-year-old husband must pay alimony to his 95-year-old ex-wife in order to help offset her nursing home costs, even if doing so puts his income below the poverty level. Binder v. Binder (Neb., No. S-14-783, June 26, 2015).

Laura and Glen Binder married in 1982. It was a second marriage for both of them and they had no children together. Mr. Binder owned farmland and operated a fertilizer business. Ms. Binder did not work outside the home. In 2012, Ms. Binder moved into a nursing home. Her income did not cover the cost of care, so Mr. Binder contributed the remaining amount.

Mr. Binder filed for divorce from Ms. Binder when he was 94 years old and she was 95 years old. The court dissolved the marriage and awarded Ms. Binder alimony in order to offset her nursing home costs. Mr. Binder appealed, arguing that the amount of alimony was  an abuse of discretion because it drove his income below the poverty level in violation of state child support guidelines.

The Nebraska Supreme Court affirmed the lower court's decision, holding that the state child support law did not apply because the Binders did not have any minor children. The court concluded that the alimony award is not unreasonable because Mr. Binder has the power to dispose of farmland for his support.

To read another case regarding the unexpected consequences of alimony awards (Alimony Obligation May Require Involuntary VA Admission), go here.

Don't Let Institutions Plan for You: Medicaid-Eligible Nursing Home Resident Stuck With Costs of Private-Pay Room

An Illinois case illustrates why seniors, their families, and caregivers simply cannot entrust their best interests to institutions. An Illinois appeals court rules that Medicaid does not cover a Medicaid-eligible nursing home resident who was in a private-pay room ,and that the nursing home was not required to move her to a Medicaid-certified bed earlier than it did, meaning that the resident could be discharged from the nursing home for nonpayment. Slepicka v. State (Ill. Ct. App., 4th Dist., No. 12MR743, July 7, 2015).

Mary Slepicka entered a nursing home as a Medicare patient. When her Medicare nursing home coverage ran out in April 2011, she became a private-pay resident.  At the time Ms. Slepicka signed the private-pay contract, money from the sale of her house was her main asset. The nursing home did not place Ms. Slepicka in a Medicaid-certified bed until March 2012. After visiting a financial planner, Ms. Slepicka put the assets from the sale of her house in an annuity and applied for Medicaid. The state granted her benefits retroactive to June 2011.

The nursing home claimed it could not bill Medicaid for the days Ms. Slepicka was not in a Medicaid-certified bed, so it billed Ms. Slepicka. Ms. Slepicka did not pay the nursing home (the case description does  make clear whether Ms. Slipicka could pay, given the fact that she purchased and ostensibly irrevocably annuitized the proceeds from the sale of her home), and the nursing home served Ms. Slepicka with a notice of discharge. Ms. Slepicka appealed the discharge, arguing that she could not be charged for the days Medicaid covered. The nursing home argued it did not put Ms. Slepicka in a Medicaid-certified bed right away because it believed she had assets that she needed to spend down. The trial court granted the nursing home summary judgment, and Ms. Slepicka appealed.

The Illinois Court of Appeals affirmed, holding that Medicaid is not required to cover expenses incurred by private-pay residents even if the resident is eligible for Medicaid, and that the nursing home was not required to move Ms. Slepicka into a Medicaid-certified bed. According to the court, "just because a resident is financially eligible for Medicaid, it does not necessarily follow that Medicaid will cover every expense the resident incurs during the period of eligibility, regardless of where the resident incurs the expense." In addition, the court holds that the nursing home did not know that Ms. Slepicka would qualify for Medicaid as soon as she did, so it was not required to move her into a Medicaid-certified bed any sooner.

Sadly, the likely consequence of this case is that Ms. Slepicka's family will be forced to pay for the additional nursing home costs, and for the legal expenses of attempting to protecting her residency in the nursing home.  

One wonders whether underlying the court's decision is an effort by the court to move the State of Illinois to common law filial responsibility since the state does not have a filial responsibility statute.  Future cases may make clear the court's objective, if such an objective exists.    

For the full text of this decision, go here.

Understanding "Third Party" Special Needs Trusts

There are three types of special needs trusts: first-party special needs trusts, third-party special needs trusts, and pooled trusts.  All three are designed to manage resources for a person with special needs so that the beneficiary can still qualify for public benefits like Supplemental Security Income (SSI) and Medicaid.  While first-party special needs trusts and pooled trusts hold funds that belong to the person with special needs, third-party special needs trusts, as the name implies, are funded with assets that never belonged to the trust beneficiary, and they provide several advantages over the other two types of trusts.

Third-party special needs trusts are set up by a donor – the person who contributes the funds to the trust.  A typical donor is a parent, grand-parent, or sibling of the special needs beneficiary.  These trusts are typically designed as part of the donor's estate plan to receive gifts that can help a family member with special needs while the donor is still living and to manage an inheritance for the person with special needs when the donor dies.  Third-party special needs trusts can be the beneficiaries of life insurance policies, can own real estate or investments and can even receive benefits from retirement accounts (although this process is very complicated and not typically recommended unless there aren't other assets available to fund the beneficiary's inheritance).  There is no limit to the size of the trust fund and the funds can be used for almost anything a beneficiary needs to supplement her government benefits.  Upon the beneficiary's death, the assets in a third-party special needs trust can pass to the donor's other relatives as the donor directs.

One of the key advantages of a third-party special needs trust is the ability of the donor to direct the assets available upon the beneficiaries death without risk of resource recovery-the right of the state to recover assets to pay the state back for benefits paid during the beneficiary's life.  Because the funds in the trust never belonged to the beneficiary, the government is not entitled to reimbursement for Medicaid payments made on behalf of the beneficiary upon her death, unlike with a first-party or pooled trust.  This allows a careful donor to benefit her family member with special needs while potentially saving funds for other people who don't have the same needs.

Whereas first-party special needs trusts can only be established by the beneficiary's parent, grandparent, guardian or a court, anyone other than the beneficiary can set up a third-party special needs trust.  First-party trusts must be established for the benefit of someone who is younger than 65, but third-party trusts don't have age limits.  In some states, first-party trusts must be monitored by a court, but third-party trusts almost never have to go through this same process, especially while the donor is still alive.  In addition, while the donor is living, funds in the trust usually generate income tax for the donor, not for the beneficiary, avoiding the complication of having to file income tax returns for an otherwise non-taxable beneficiary and then explain them to the Social Security Administration.

Although a third-party special needs trust has many advantages, it is not always a viable option for families of people with special needs.  One of the major drawbacks of a third-party trust is its absolute inability to hold funds belonging to the person with special needs.  So if the trust beneficiary receives an inheritance that wasn't directed into the special needs trust to begin with or if she settles a personal injury case, the funds have to be placed in either a first-party trust or a pooled trust, since even one dollar of a beneficiary's own money could taint an entire third-party trust.  But even with these restrictions, most people trying to help a family member with special needs are going to at least need to strongly consider drafting a third-party special needs trust.  Your attorney can help you understand how these important trusts fit into your other estate planning goals.

Medicaid Applicant with Private Care Agreement Assessed Transfer Penalty Because Rate Was Too High

Private Care Agreements must be drafted carefully, and the compensation rates provided within must conform to the law.  An example of what can happen when they are not, comes in from New Jersey, where an appeals court ruled that the state properly disregarded a Medicaid applicant's care agreement and assessed a transfer penalty because the rate charged under the agreement was too high and the applicant did not provide enough details about the services provided in order to calculate their value. E.A. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., App. Div., No. A-2669-13T3, July 20, 2015).

E.A. lived with her daughter, B.C., from 2004 until 2012. In 2006, they entered into a care agreement in which E.A. agreed to pay B.C. a monthly fee for care. The fee was based on the amount charged by a private home health care company. B.C. occasionally made larger withdrawals than the contract called for and did not keep records of the services provided. In 2012, E.A. entered a nursing home and applied for Medicaid. The state ignored the care agreement and found that B.C. had transferred a total of $244,510 to B.C. and imposed a 936-day penalty period.

E.A. appealed, arguing that the state should not have disregarded the care agreement and that the state did not calculate the worth of B.C.'s services. After a hearing, the administrative law judge ruled the penalty period was appropriate, and E.A. appealed to court.

The New Jersey Superior Court, Appellate Division, affirms the state's decision, holding that the state properly disregarded the care agreement. According to the court, B.C. and E.A. did not comply with the agreement when B.C. made additional withdrawals, and B.C. was not entitled to the rate charged by the private home health agency because she did not provide the same full-time services as the agency. In addition, the court rules that E.A. did not provide enough details of the types of services actually provided under the care agreement for the state to calculate the value of her services.

For the full text of the decision, go here.

IRS issues Proposed Regs for ABLE Accounts

The IRS has issued proposed regulations implementing Sec. 529A, which authorizes states to offer specially designed tax-favored accounts for the disabled (ABLE accounts). Sec. 529A was added by the Achieving a Better Life Experience (ABLE) Act of 2014, which was part of the Tax Increase Prevention Act of 2014.

ABLE accounts were created in recognition of “the special financial burdens borne by families raising children with disabilities and the fact that increased financial needs generally continue throughout the disabled person’s lifetime” (preamble, p. 5). Contributions made to an individual’s ABLE account can be used to meet the individual’s qualified disability expenses.

One account is permitted to be set up per eligible individual and total annual contributions are restricted to the amount excluded under Sec. 2503(b) for gift tax purposes ($14,000 for 2015, but inflation adjusted). Amounts contributed in excess of those limitations must be returned to the contributors on a last-in, first-out basis by the due date of the beneficiary’s tax return (including extensions) for the year in which the contributions were made and are subject to a 6% excise tax if they are not returned.

Sec. 529A allows a state (or agency or instrumentality) to create a qualified ABLE program under which a separate ABLE account may be established for a disabled individual who is the designated beneficiary and owner of that account. Contributions to that account are subject to both an annual and a cumulative limit, and, when made by a person other than the designated beneficiary, are treated as nontaxable gifts to the designated beneficiary.

Distributions made from an ABLE account for qualified disability expenses of the designated beneficiary are not included in the designated beneficiary’s gross income, but the earnings portion of distributions from the account in excess of the qualified disability expenses is includible in the designated beneficiary’s gross income. An ABLE account may be used for the long-term or short-term needs of the beneficiary. One of the most important provisions of these accounts is that they are generally not counted when determining the disabled person’s qualification for needs-based federal programs.

To qualify, the program must be established and maintained by a state or a state’s agency or instrumentality; permit the establishment of an ABLE account only for a designated beneficiary who is a resident of that state, or of a state contracting with that state; permit an ABLE account to be established only for a designated beneficiary who is an eligible individual; limit a designated beneficiary to only one ABLE account, wherever located; permit contributions to an ABLE account established to meet the qualified disability expenses of the account’s designated beneficiary; limit the nature and amount of contributions that can be made to an ABLE account; require a separate accounting of each designated beneficiary’s account; limit the designated beneficiary to no more than two opportunities in any calendar year to provide investment direction; and prohibit pledging an interest in an ABLE account as security for a loan.

Because eligible individuals often will not be able to set up their own accounts, the rules allow a person with power of attorney or the beneficiary’s parent or guardian to set up the account. Each account must be for an eligible individual, which means the individual is entitled to benefits based on blindness or disability under title II or XVI of the Social Security Act and the blindness or disability occurred before the date on which the individual turned 26, or the individual obtains a disability certification meeting requirements specified in the regulations.

To ease the administrative burdens and in recognition that some people may move in or out of disabled status, in years in which an eligible individual is no longer eligible, the plan cannot accept additional contributions and will not be deemed to make a distribution, but the account can remain open. The rules also are flexible in the requirements for annual recertifications of disability.

For more, go here.