Articles

The Importance of Checking Your Beneficiaries
Beneficiary designations play a crucial role when a person passes away. In fact, they can even override what's in a will. In some instances, the failure to change the name of a beneficiary in a life insurance policy, retirement account, bank account, or other investment account particularly following a divorce, death of a spouse, or death of a previously named beneficiary can result in dire consequences that may be entirely counter to the intent of the original policy or account holder.

You can typically name beneficiaries when you enroll in a company retirement plan such as a 401(k), purchase an annuity or life insurance policy, or open a retirement account. What's more, anyone may designate a beneficiary on a nonretirement account or set up a Transfer on Death account or a Payable on Death account.

Why bother?

When you name a beneficiary for an asset, the asset does not have to go through probate -- the often lengthy and expensive process by which a court allocates the elements of your estate in conformance with a decedent’s Will or under the law of intestate succession—where a person dies without a will. What's more, choosing a beneficiary may save you and your heirs some taxes, thus ensuring that your estate makes a bigger difference in the lives of your loved ones or does more good for your favorite charities. Your beneficiaries can be individuals, charities, or trusts -- but probably shouldn't include minor children. If you choose a minor as a beneficiary, most states will appoint a guardian, who must be bonded, and file accountings with the court each year until the child turns 18. When the minor turns 18 years of age, the court will turn over the assets to the minor child with no questions asked and irregardless of the possible consequences.

An alternative means of leaving your assets to someone under the age of eighteen could be designating a trust to receive and manage the inheritance. Creating a Uniform Transfer to Minors Act account and choosing someone you trust as its custodian is one relatively easy way to do that.

You can also designate a trust as beneficiary of retirement or other assets after your death, in order to retain control over the disposition of that money. Such a trust might allow a spouse to draw income from the trust, while preserving some assets for children or grandchildren Trusts can also be a tool for helping to provide for physically or mentally disabled family members. If you name the individual as a beneficiary, you could reduce his or her eligibility for government benefits. Moreover, he or she may not be able to manage the assets. Instead, an attorney might recommend creating a special needs trust.

It generally makes sense to name a spouse as beneficiary of your company retirement plan assets. He or she can roll those assets over into an IRA, where the money can continue to grow tax deferred -- perhaps for years or even decades. If naming a spouse isn't an option for an IRA, designating another relative or friend as a beneficiary is wiser than naming no one at all. One reason: If no beneficiary is designated for an individual's IRA, upon that person's death the account becomes payable to his or her estate and must be fully distributed within five years to the heirs of the estate, causing a substantial income tax liability.

Don't forget that your beneficiary designations will override your will. The will may state that you want your spouse to inherit everything -- but that might not happen if you named a previous spouse as beneficiary of your IRA or life insurance policy and then forgot to change that designation. This happens surprisingly often with dire consequences to the current spouse. With that in mind, it's essential to review your beneficiary (and contingent beneficiary) designations on an annual basis -- and make immediate changes after an important change in your family or financial status, such as a birth, death, divorce, or inheritance. Making such changes simply requires filling out a change of beneficiary form. You also may need to redesignate your beneficiaries when you or your employer replace your old retirement plan administrator or insurer. Request a confirmation of receipt when you send in a new beneficiary designation. Account administrators can't always be trusted to keep track of documents. The beneficiary designation doesn't take effect until the custodian, trustee, or administrator receives it -- and that must occur before the account holder dies.

Use beneficiary designations in concert with other vehicles such as wills and trusts, as well as your overall estate plan. For example, let's say you want to leave some assets to your children and some to your spouse. In that case, you probably will want to designate your spouse as beneficiary for your IRA -- since she can roll that money over into another IRA where it will continue to grow tax deferred. Meanwhile, your will can specify that your children receive your shares in a real estate partnership as an example. If you're like many folks, you don't even remember designating beneficiaries for your retirement plans, insurance policies, and other assets. Now is the best time to remedy that situation.

Spend a few hours checking with your financial advisor, insurance agent, employers, and the like, to make sure your money will go where you'd like it to go. And while you're at it, remind your parents or other family members to do the same. The results could make a significant difference in your family's long-term security and insure that your desires are carried out following your death.

LOREM IPSUM

Summary of Medicaid Eligibility Rules

Attorneys are frequently consulted regarding steps that an elderly person should take in order to avoid losing all of their life savings should they or a parent be required to go into a nursing home for long term care. More and more this area of the law is becoming a specialized area of legal practice known as elder law and persons seeking information in this area should be sure to consult an attorney who is familiar with the new laws that currently apply.

On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA), which cuts nearly $40 billion over five years from Medicare, Medicaid, and other programs. Of greatest interest to the elderly and their families, the new law places severe new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. The DRA made significant changes to Medicaid’s long-term care rules, including the look-back period; the transfer penalty start date; the undue hardship exception; the treatment of annuities; community spouse income rules; home equity limits; the treatment of investments in continuing care retirement communities (CCRCs); promissory notes and life estates; and state long-term care partnership programs.

Following is a brief summary of the Medicaid laws before and after enactment of the DRA in these areas. Also, bear in mind that states including Tennessee are gradually coming into compliance with the new transfer rules.

The Look-Back Period

A person applying for Medicaid coverage of long-term care must disclose all financial transactions he or she was involved in during a set period of time--frequently called the "look-back period." The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. The DRA extends Medicaid's "look-back" period for all asset transfers from three to five years. Previously, the agency reviewed transfers made within 36 months of the Medicaid application (60 if the transfer was to or from certain kinds of trusts). Now, the look back period for all transfers is 60 months. The extension of the look-back period will make the application process more difficult and could result in more applicants being denied for lack of documentation, given that they will need to produce five years worth of records instead of three.

The Penalty Period Start Date

The penalty period is the period during which a Medicaid applicant is ineligible for Medicaid payment for long term care services because the applicant transferred assets for less than fair market value during the look-back period. Before the DRA, the penalty period began either when the transfer was made or on the first day of the following month. It was possible for the penalty period to expire before the individual actually needed nursing home care. The DRA changes the start of the penalty period to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage but for the transfer. In other words, the penalty period does not begin until the nursing home resident is out of funds and has no money to pay the nursing home for however long the penalty period lasts. This change in the law could result in the gift that was previously made to achieve eligibility having to be retracted in order to pay for nursing home care during the penalty period. Therefore, the goal of saving assets to pass on to one’s heirs may not be achieved unless the gift is made at least five (5) years prior to applying for Medicaid.

Home Equity Limits

Before the DRA’s enactment, an individual could still qualify for long-term care services even if he or she had substantial assets in his or her home. Under the DRA, states will not cover long-term care services for an individual whose home equity exceeds $500,000, although states have the option of increasing this equity limit to $750,000. In all states and under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there.

The Treatment of Annuities

The DRA added requirements for disclosing immediate annuities, which have been useful estate planning tools. In its simplest form, an immediate annuity is a contract with an insurance company under which the consumer pays a certain amount of money to the company and the company sends the consumer a monthly check for the rest of his or her life or a prescribed time period. An immediate annuity can be used to convert assets into an income stream for the benefit of an institutionalized Medicaid applicant or the applicant's spouse. The state will not treat the annuity as an asset countable toward Medicaid’s asset limit ($2,000 in most states) as long as the annuity complies with certain requirements. The annuity must be: (1) irrevocable – the annuitant cannot take funds out of the annuity except for the monthly payments, (2) non-transferable – the annuitant cannot transfer the annuity to another beneficiary, and (3) actuarially sound - the payment term cannot be longer than the annuitant’s life expectancy and the total of the anticipated payments have to equal the cost of the annuity.

To these requirements, the DRA added an additional requirement. The state must be named the remainder beneficiary of any annuities up to the amount of Medicaid benefits paid on the annuitant’s behalf. If the Medicaid recipient is married or has a minor or disabled child, the state must be named as a secondary beneficiary. The Medicaid application must now also inform the applicant that if he or she obtains Medicaid benefits, the state automatically becomes a beneficiary of the annuity.

In addition, all annuities must be disclosed by an applicant for Medicaid regardless of whether the annuity is irrevocable or treated as a countable asset. If an individual, spouse, or representative refuses to disclose sufficient information related to any annuity, the state must either deny or terminate coverage for long-term care services or else deny or terminate Medicaid eligibility.

Promissory Notes and Life Estates

Prior to the DRA’s enactment, a Medicaid applicant could show that a transaction was an (uncountable) loan to another person rather than (countable) gift by presenting promissory notes, loans, or mortgages at the time of the Medicaid application. A promissory note is normally given in return for money and it is simply a promise to repay the amount. Classifying transfers as loans rather than gifts is useful because it allows parents to “loan” assets to their children permanently (gift) and still maintain Medicaid eligibility.

Congress considered this to be an abusive planning strategy, so the DRA imposes restrictions on the use of promissory notes, loans, and mortgages. In order for a loan to not be treated as a transfer for less than fair market value it must satisfy three standards: (1) The term of the loan must not last longer than the anticipated life of the lender, (2) payments must be made in equal amounts during the term of the loan with no deferral of payments and no balloon payments, (3) and the debt cannot be cancelled at the death of the lender. If these three standards are not met, the outstanding balance on the promissory note, loan, or mortgage will be considered a transfer and used to assess a Medicaid penalty period.

Prior to the DRA’s passage, another common estate planning technique was for an individual to purchase a life estate (a legal right to live in and possess a property) in the home of another person, such as a child. By doing this, the individual was able to pass assets to his or her children without triggering a transfer penalty. The DRA still allows the purchase of a life estate in another person’s home, but to avoid a transfer penalty, the individual purchasing the life estate must actually reside in the home for at least one year after the purchase.

Undue Hardship Exception

Before the DRA’s passage, federal law allowed for an exemption from the transfer penalty if it would cause "undue hardship," but the law did not establish procedures for determining undue hardship and left it up to states to create their own. The DRA finally sets out some rules and requires states to create a hardship waiver process that complies with specific language in the federal law. The new law provides that undue hardship exists when enforcing the penalty period for asset transfers would deprive the Medicaid applicant of (1) medical care necessary to maintain the applicant's health or life or (2) food, clothing, shelter, or necessities of life.

If an applicant asserts an undue hardship, state Medicaid agencies must approve or deny the application within a reasonable time and must inform the applicant that he or she has the right to appeal the decision, and provide a process by which this can be done. In addition, the applicant must be told that application of the penalty period can be halted if undue hardship exists.

Continuing Care Retirement Communities

The DRA now expressly allows continuing care retirement communities (CCRCs) to require residents to spend down their declared resources before applying for Medicaid. However, the spend-down requirements must still take into account the income needs of the Medicaid applicant's spouse. The DRA also requires that three conditions be met before a CCRC entrance fee can be considered an available resource of someone applying for Medicaid coverage of nursing home care. The entrance fee must be able to be used to pay for the individual’s care, the fee or any remaining portion must be refundable on the institutionalized individual’s death or on termination of the admission contract when the individual leaves the CCRC, and the fee must not grant the individual an ownership interest in the CCRC.

SUMMARY

The Deficit Reduction Act of 2005 that became effective on February 8, 2006, significantly impacted the ability of individuals to plan for becoming Medicaid eligible for long term nursing home care. Persons should remember that any assets to be gifted away should be done a minimum of five years from the potential entry into a nursing home or else the gift could result in a penalty period during which the nursing home care would have to be from the private funds of the patient prior to becoming eligible for Medicaid.

LOREM IPSUM

Why Plan Your Estate?

Humans, unlike any other species, have the knowledge that we will eventually die. While no one likes to dwell on the prospect of his or her own death, it is important to plan for you eventual death for economic as well as the purpose of insuring that your desires in regard to the distribution of your property following your death are carried out. If you postpone planning for your demise until it is too late, you run the risk that your intended beneficiaries -- those you love the most -- may not receive what you would want them to receive whether due to extra administration costs, unnecessary taxes or squabbling among your heirs.

These are reasons why estate planning is so important, no matter how small your estate may be. Estate planning allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want. It permits you or those charged with the eventual administration of your estate to save as much as possible on taxes, court costs and attorneys' fees; and it affords the comfort that your loved ones can mourn your loss without being simultaneously burdened with unnecessary red tape and financial confusion, all of which are common problems which occur when at least a minimum estate plan is not put in place prior to death. Estate planning is especially important in this age of blended families from multiple marriages because of the possibility that a persons stepchildren or a spouse’s subsequent spouse may eventually end up inheriting a persons assets despite their actual intent to leave a significant portion of their life’s bounty to their biological children.

All persons should have an estate plan that includes, at a minimum, two important estate planning instruments: a durable power of attorney and a will. The first is for managing your property during your life, in case you are ever unable to do so yourself. The second, a will, is for the management and distribution of your property after death. In addition, more and more, Americans also are using revocable (or "living") trusts to avoid probate and to manage their estates both during their lives and after they're gone.

Persons wishing to create a will should not succumb to the temptation to buy estate planning software for a will or download one from the internet. Tennessee, like most states, has very specific laws that govern what constitutes a valid will and how one is to be executed. Some of these software programs and internet downloads fall short of meeting the requirements of the law, and furthermore even if valid written, if the will is not properly executed the will might be held not to be valid thus leaving the estate to be administered under the law of intestate succession (without a will) for the particular state.

To insure that you have a valid estate plan, consult an attorney experienced in estate planning.

How to Spend Down Income and / or Assets

to Become Medicaid Eligible

Medicaid Spend Down: An Overview

For Medicaid eligibility for long-term care, an applicant must have income and assets under a specified amount (as well as have a functional need for long-term care). If the applicant’s income or countable assets exceed Medicaid’s financial limits in their state, it is possible to become eligible by “spending down” one’s income or assets to the point where they become financially eligible. However, there are many Medicaid spend down rules about how one can legally spend down their financial resources, and if these rules are violated, the applicant will be denied Medicaid.

The income and asset limits for Medicaid do not remain consistent across the United States, nor do they remain the same even within each state. The limits often vary based on the specific Medicaid program and on one’s marital status. However, one fact remains the same: all Medicaid programs for the elderly require either restricted income or assets or both. This holds true if one is applying for in-home care via a state’s regular Medicaid program, institutional Medicaid / nursing home care, or assisted living services under a Home and Community Based Services (HCBS) Medicaid Waiver.

This article discusses spend down of both income and assets, but the main focus will be on asset spend down, which is more complicated than income spend down. Furthermore, asset spend down is applicable across the 50 states, while income spend down is only relevant in some of the states.

Asset Spend Down

An applicant must have assets, also called resources, under a certain amount to qualify for Medicaid. However, being over the asset limit does not mean one cannot qualify for Medicaid benefits. When considering one’s assets, it’s important to be aware that some assets are exempt, or said another way, not counted towards the asset limit. (Further detail is below under Countable Assets and Non-Countable Assets). If one is over the asset limit after considering all non-countable assets, one will have to “spend down” assets in order to meet Medicaid’s asset limit. That said, one needs to proceed with caution when doing so. Medicaid has a look-back period in which all past transfers are reviewed. If one has gifted assets or sold them under fair market value during this timeframe, a period of Medicaid ineligibility will ensue.

Income Spend Down

As previously noted, in order for applicants to be eligible for Medicaid, they must have limited income. If one has income above the qualifying limit, one can still qualify for Medicaid via spend down. In many states, this option is known as the “Medically Needy Pathway”. Depending on the state in which one resides, “medically needy” may be called something different. For example, the program might be called any of the following: Share of Cost, Excess Income, Surplus Income, or simply, Spend Down. Regardless of name, these programs allow applicants to spend excess income on medical bills and expenses, such as past due medical charges, prescription medications, health insurance premiums, and doctors’ appointments. Once Medicaid applicants have spent their excess income (the amount over the income limit) on medical expenses, they will be Medicaid eligible for the remainder of the “spend down” period, which is between 1 and 6 months.

Not all states have a medically needy pathway. These states are called income cap states, and in these states, Medicaid applicants can still become income eligible via Qualified Income Trusts (QITs). Commonly called Miller Trusts, an applicant’s excess income is directly deposited into an irrevocable trust, which means it cannot be changed or dissolved. A third party, called a trustee, controls the QIT. The money in the trust is exempt from Medicaid’s income limit, and it is only available for very limited purposes, such as paying for the senior applicant’s long-term care and medical related expenses.

Understanding Exempt vs. Non-Exempt Assets

Not all assets held by the applicant are counted towards Medicaid’s asset limit. When determining if one is over the asset limit, it’s critical to know which assets are counted and which are not.

Countable Assets
Countable (non-exempt) assets are counted towards the asset limit. They are also sometimes referred to as liquid assets, which are assets that are easily converted to cash. Countable assets include cash, bank accounts (checking, money market, savings), vacation houses and property other than one’s primary residence, 401K’s and IRA’s that are not in payout status (depending on the state in which one resides, this isn’t always the case), mutual funds, stocks, bonds, and certificates of deposit.

Non-Countable Assets
Non-Countable (exempt) assets are not counted towards Medicaid’s asset limit. Exempt assets include one’s primary home, given the individual applying for Medicaid, or their spouse, lives in it. Some states allow “intent” to return home to qualify the home as an exempt asset. There is also a home equity value limit for exemption purposes. (Home equity value is the market value of one’s home minus any debt against it). As of 2020, the equity value cannot exceed $595,000, or $893,000, depending on the state in which one resides. However, there is no equity value limit if a Medicaid applicant’s spouse lives in the home. Another exception to the rule is California, which has no home equity value limit whatsoever (for certain types of Medicaid). Other exempt assets include pre-paid burial and funeral expenses, an automobile, term life insurance, life insurance policies with a cash value no greater than $1,500 (this limit can be the combined face value of multiple small life insurance policies), household furnishings / appliances, and personal items, such as clothing and engagement / wedding rings.

Determine Your Asset Limit and How Much Must be Spent Down

When considering the gray line between exempt and non-exempt assets and the complicated rules governing single applicants versus married applicants, it can be difficult to determine if one is over the Medicaid asset limit, and if so, by how much. Furthering the complexity is the fact that asset limits vary based on the state in which one resides.

Individual Applicants
It is fairly standard that a single elderly applicant is limited to $2,000 in countable assets, but again, this figure varies based on the state in which one resides. For instance, in Connecticut, single applicants can keep only $1,600 in assets, Mississippi allows up to $4,000 in assets, and New York has a much higher asset limit of $15,750 (in 2020).

Married Couples
In most cases, married couples (with both spouses as applicants) are able to retain up to $3,000 of their combined countable assets. As with individual applicants, there are exceptions to this rule based on the state in which one resides. Furthermore, the asset limit sometimes differs based on the Medicaid program in which the couple is applying. For example, the above $3,000 asset limit is common when both spouses apply for their state’s regular Medicaid program. (For the elderly, this program is often called Aged, Blind and Disabled Medicaid). For couples who are applying for nursing home Medicaid or a HCBS Medicaid Waiver, states often consider each spouse as a single applicant, allowing each spouse $2,000 in assets, as Oklahoma does. Put differently, together a couple can often keep up to $4,000 in assets. Other exceptions exist. North Dakota allows married couples to keep up to $6,000 in assets, regardless of if they are applying for regular Medicaid, nursing home Medicaid, or a HCBS Medicaid Waiver. Rhode Island couples applying for regular Medicaid can retain up to $6,000 in assets and up to $8,000 in assets if they are applying for nursing home Medicaid or a HCBS Medicaid Waiver.

Married Couples with One Applicant
Even when only one spouse of a married couple is applying for Medicaid, the couples assets are considered jointly owned and counted towards the asset limit. In the case of one spouse applying for nursing home Medicaid or long-term care via a HCBS (Home and Community Based Services) Medicaid waiver, the applicant spouse is generally able to retain up to $2,000 in assets. The non-applicant spouse, commonly called the community spouse, is able to retain a higher number of the couples’ combined assets. As of 2020, this figure, called the Community Spouse Resource Allowance (CSRA), can be as great as $128,640. That said, there are a few exceptions, such as Illinois, which only allows a community spouse to keep up to $109,560 in assets, and South Carolina, which allows the community spouse to keep assets up to $66,480.

The CSRA is further complicated by the fact that some states are 50% states, while others are 100% states. In very simplified terms, in 50% states, the community spouse can keep up to 50% of the couples’ assets, up to the maximum allowable amount. (As mentioned above, this figure, as of 2020, is $128,640 in most states). There is also a minimum resource allowance, which as of 2020, is $25,728. This means that if the combined assets of the couple are at or below $25,284, the community spouse is able to retain 100% of the assets up to this figure. In 100% states, the community spouse is able to retain 100% of the couples’ joint assets, up to the maximum allowable amount. (Again, this figure, as of 2020, is $128,640 in most states).

Please note that when only one spouse of a married couple applies for regular Medicaid (Aged, Blind and Disabled Medicaid), there is no Community Spouse Resource Allowance. In this case, the couple is generally limited to $3,000 total in assets. As with individual applicants and married couples in which both spouses are applying, there are some exceptions.

How to Spend Down Assets to Become Eligible

If an applicant is over the asset limit for Medicaid eligibility, spending down excess non-exempt assets becomes paramount. As mentioned above, one must proceed with caution in order to avoid violating Medicaid’s look-back period, which is 60-months in every state but California. (California has a 30-month look-back period). Fortunately, there are many ways for one to spend down assets without violating the look-back rule, and hence, avoid being penalized with a period of Medicaid ineligibility.

One can pay off accrued debt, such as loans (vehicle, mortgage, personal, etc.) and credit card balances.
One can purchase medical devices that are not covered by insurance, like dentures, eyeglasses, and hearing aids.
One can make home reparations and modifications to improve access and safety, as well as build on to their existing home, such as adding a first floor bedroom or bathroom.
Vehicle repairs, such as replacing the battery, getting an engine tune-up, or replacing old tires are also a way to spend down assets, as is selling an existing car at fair market value and purchasing a new one.
One can create a formal life care agreement, often referred to as personal care agreement. This type of agreement is generally between an elderly care recipient and a relative or close family friend. It allows the care recipient to spend down their excess assets while receiving needed care. It is vital this type of contract is drafted properly and that pay is reasonable for the area in which one lives. If it isn’t, one could be in violation of Medicaid’s look-back period.
One can purchase an annuity, which in simple terms, is a lump sum of cash converted into a monthly income stream for the Medicaid applicant or their spouse. The payments can be for a set period shorter than one’s life expectancy or equal to the beneficiary’s life expectancy.
One can purchase to purchase an irrevocable funeral trust, which can only be used for the expenses of a funeral and burial. In general, up to $15,000 per spouse can be placed in a funeral trust. However, this amount varies by state.
One can also cancel life insurance policies that have a cash value over $1,500. (Remember, life insurance policies with a combined face value of $1,500 or less are exempt from Medicaid’s asset limit). Therefore, if one has a policy with a cash value over $1,500, it’s best to cancel the policy or decrease the cash value. However, when canceling a policy or decreasing the cash value, the policyholder is paid either the cash value or the difference in cash value. Therefore, the cash received must be spent on exempt assets, such as those mentioned above.

Seek Assistance from a Medicaid Planning Professional

Asset and income spend down can be complicated, and if not carefully done, can result in Medicaid ineligibility. Professional Medicaid planners are extremely instrumental in assisting one in the Medicaid application process, particularly if one is over the income and / or asset limit(s). As mentioned above, being over the limit(s) does not mean one cannot become Medicaid eligible. Professional Medicaid planners are able to assist one in reallocating income and / or assets, maintaining maximum assets for healthy spouses, and “spending down” assets without violating Medicaid’s look-back period.