Stimulus Checks for the Deceased

Several clients have called our office inquiring what to do with stimulus checks for their deceased loved ones. Many of these checks were delivered even thought the IRS knew the person was deceased.  Indeed they often have designated "DEC'D," after their name.

I wish I had a clear answer, but the answer is that no one knows.  So consider the following:

• Spousal Checks with a Surviving Spouse: Deposit. I am recommending that the spouse deposits the check.  
• Spousal Checks with Neither Surviving: It Depends. (I haven't been asked about this and don't even know that such a creature exists). Is the check already deposited?  Follow the guidance below depending on whether it is or isn't already deposited.   
• You Already Deposited the Check: Plan ahead. I am advising clients that have already deposited the money that they should expect to some day be required to pay it back, but that is based only upon a single statement by the Secretary of the Treasury.  
• You Haven't Deposited the Check: Safekeeping. If they haven't deposited the checks, I have suggested that clients keep it in a safe place so that it might later be returned.  I am not advising destruction of the checks, as apparently some have.  Why?  If there is fraud or misapplication of the funds, without proof that they did not negotiate the check, they may later be responsible for it. Of course, some would ask, isn't the safest place for the money a bank?  Understand that I don't feel I can suggest that you deposit the check if you haven't already.

To understand the complexity, consider the following, a reprint of an article entitled, "Heirs may have to return stimulus money sent to the deceased, but how and when?"

A lot of people who received stimulus payments for their dead parents or spouses are more confused than ever.

 There's new word that they have to return the money. But so far, there's been no official guidance on how to go about it. 

U.S. Treasury Secretary Steve Mnuchin who is quoted in the Wall Street Journal as saying heirs should be returning money that was sent in the name of someone who died. But so far, no one will elaborate.

"I couldn't find any guidance anywhere on what I was supposed to do with this check," said Debbie Carter of Olympia. She recently received a $1,200 stimulus check in the mail for her 79-year-old mother Ann Tate who died nearly a year ago. The check even has the abbreviation 'DECD', for deceased next to Ann Tate's name.Payments to the deceased have been a concern since the stimulus checks started going out. The government is not saying how many dead people received money but consumers are reporting them from across the country.

"I understand that they were trying to be helpful and wanted to get the money out the people as soon as they can to help them," Carter said. "But I think they made more of a mess out of it. We're not the only people, from what I've seen on the internet that have received these checks. And for the Treasury Department to have to go back through and find out who they sent these checks out to and try and get them back- I can't even believe what kind of a mess that's gonna be." 

Despite published reports that the government wants heirs to return economic impact payments sent to the deceased, as of late Wednesday there was no official comment and no information addressing the issue on either the U.S. Treasury or IRS websites.

Carter said her mother, who was an accountant, would consider it a waste.

"I can hear her in my head going, 'I can't believe they did this,'" Carter said.

Carter said she feels for people who really need the money and may have already spent it. She said she and her brothers understand the money is not theirs so they will not cash it. 

"Honestly, I was thinking about holding on to it and keeping it as a historical artifact," Carter said. "Because it's void after one year, so, I'm not taking the money out." 

 People are getting conflicting information from tax professionals about their rights to the money.  

Some people say they were told that if the person was living Jan. 2 their survivors could keep the cash. But in a transcript of a April 17 White House briefing President Trump was asked about checks to dead people. He said, "we'll get that back." 

Bottom line: If you still have stimulus money sent to someone who died, hang on to it if you can, and keep checking the IRS and Treasury websites for guidance on what to do. 

KOMO News reached out this morning to both agencies but neither has replied as of this publication. We'll let you know as soon as we hear anything.

Court Reverses Agency Decision Ignoring Appraised Value of Home for Purpose of Medicaid Penalty

A New Jersey appeals court reversed a final Medicaid agency decision that ignored an appraiser’s testimony that the actual value of an applicant’s house was less than the tax assessed value for purposes of imposing a penalty period. J.B. v. Camden County Board of Social Services (N.J. Super. Ct., App. Div., No. A-5665-17T4, May 5, 2020).

J.B. entered a nursing home. In preparation for applying for Medicaid, her son, acting under a power of attorney, sold her home for $17,500 to an acquaintance who was a realtor. The tax assessed value of the home was $104,700. J.B. applied for Medicaid, and the state imposed a 236-day penalty period because she sold her house for less than the market value.

J.B. appealed, arguing that the house was in poor condition, so $17,500 was fair market value. At a hearing, an appraiser testified that the market value of the house after it was sold and improvements had been made was $78,000, noting the appraisal would have been lower had it taken place either before improvements were made or had she known "the property was a hoarding situation and required a significant amount of repairs." Because there was no evidence of the condition of the house before it was sold, the administrative law judge accepted the appraised value of $78,000 and imposed a 142-day penalty period. In the final agency decision, the director of the state Medicaid agency did not discuss the appraised value and imposed a 329-day penalty period. J.B. appealed.

The New Jersey Superior Court, Appellate Division, reversed in part and remanded the case. The court agreed that the transfer was made for less than market value in order to qualify for Medicaid. The court ruled that the “appraiser's opinion that the fair market value of [J.B.’s] home at the time of the appraisal was $78,000 is well-supported by the evidence on the record as a whole” and the failure of the final agency decision to mention the appraisal “appears to be arbitrary and unreasonable.” The court remanded the case to the director to address this issue.

States Cannot Terminate Medicaid Benefits During Covid Crisis

A provision in one of the coronavirus relief packages signed into law prevents states from terminating Medicaid benefits during the pandemic.

The Families First Coronavirus Response Act (“CV Response Act”), signed into law on March 18, 2020, prevents states from terminating any Medicaid recipients who were enrolled in Medicaid on or after March 18, 2020 even if there is a change in circumstances that would normally lead to termination. All Medicaid recipients’ coverage must continue through the end of the month in which the public health emergency declared by the Secretary of Health and Human Services for COVID-19 ends.

If the state terminated a Medicaid recipient’s benefits after March 18, 2020, the state must make a good faith effort to contact the recipient and encourage him or her to reenroll. States may terminate coverage for individuals who request to be terminated or who are no longer residents of the state.

The continuous coverage requirement does not apply to individuals who were determined to be presumptively eligible for benefits. However, individuals who were determined ineligible before March 18, 2020, but who continue to receive coverage while they appeal the decision are entitled to continuous coverage.

For a description of all of the other benefits and terms of the Act, click here. 

For a list of Frequently Asked Questions (FAQ) about the Medicaid requirements under the law, click here.

Company’s Ability to Change Terms of Irrevocable Annuity Does Not Make It Available Resource

Medicaid applicant’s irrevocable annuity is not an available resource even though the company issuing the annuity has the authority to change its terms. Cushing v. Jacobs (U.S. Dist. Ct., D.N.J., No. 20-CV-130, March 25, 2020). 

Jane Cushing purchased an irrevocable annuity from the Croatian Fraternal Union of America (Croatian). The annuity had a provision that the president or treasurer of Croatian could change or waive the contract’s requirements. Ms. Cushing applied for Medicaid. The state decided that because the president or treasurer of Croatian could change its terms, the annuity was revocable. The state denied Ms. Cushing benefits due to excess assets. 

Ms. Cushing sued the state in federal court, arguing that the annuity is not an available resource, and filed a motion for summary judgment. The state argued that in a previous case (MM v. Division of Medical Assistance and Health Services, OAL Docket No. HMA 1057- 2019), a Medicaid applicant asked the president to change the terms of her annuity purchased through Croatian, so the state determined that the annuity was revocable and denied the applicant benefits. 

The U.S. District Court, District of New Jersey, granted Ms. Cushing summary judgment, holding that the annuity is not an available resource. According to the court, the annuity contract is “unambiguous on the issue of revocability,” and the prior case had no bearing on Ms. Cushing’s annuity. 

Little Noticed Provision in Trump Executive Order Allows Seniors to Opt Out of Medicare

Seniors are now permitted to opt out of Medicare.  A little-noticed section of a longer Executive Order on Medicare issued last November by President Trump directed the Secretary of Health and Human Services (HHS) to “revise current rules or policies to preserve the Social Security retirement insurance benefits of seniors who choose not to receive benefits under Medicare Part A.” (E.O. 13890, Sec. 11). The order took effect on April 3, 2020, but there appear to be no new proposed rules. 

You may wonder, "why?"  During President Obama’s administration, three retired federal employees – among them former Republican House Majority Leader Dick Armey -- sued the federal government because they wanted to drop their Medicare Part A coverage without losing Social Security benefits. They claimed participation in Medicare threatened their coverage under the Federal Employees Health Benefit (FEHB) program.

A U.S. district court judge dismissed the case in March 2011, a decision that was upheld the following year by a three-judge panel of the U.S. Court of Appeals for the District of Columbia, with then-judge Brett Kavanaugh writing for the majority that the federal statute offers the plaintiffs no path to disclaim their legal entitlement to Medicare Part A benefits.  The U.S. Supreme Court declined to review the decision.   

Although there exist no implementing rules, presumably anyone can now drop Medicare coverage without it affecting their Social Security retirement benefit.   John Kraus, one of the plaintiffs in the original suit, explained to ElderLawAnswers that “[t]here isn't any law, statute, or regulation that memorializes in the U.S. Code this linkage of the two programs. It is only found in the Social Security Administration's (SSA) Program Operations Manual System (POMS).”

When asked why he and his fellow plaintiffs wanted to separate from Medicare, Kraus explained that  the reasons

“are several.  The foremost is that one enrolled in Medicare cannot have a High Deductible Health Plan with a Health Savings Account. Secondly, for FEHB participants, their coverage becomes secondary to Medicare, without a premium reduction for FEHB coverage. Third, there is the issue of Medicare solvency, which could be a serious consideration in the near future. Lastly, there is the consideration of reduced choice and availability of health care providers because they are either leaving the Medicare program or not accepting additional Medicare recipients as new patients.”

Judith Stein, executive director of the Center for Medicare Advocacy, contends that allowing people to drop Medicare Part A would only weaken the program.  “We do not support allowing people to opt out of Part A,” Stein told ElderLawAnswers.  “[It’s] not good for Medicare in general, and not allowed by courts – to date.”