Ken Kern, Esq.
When consulting with a client regarding the formulation and execution of a viable Medicaid asset protection plan utilizing an irrevocable trust, there is no single sentence, warning or mantra that the Elder Law practitioner repeats more often than: "But all of this depends on you not requiring long term nursing home care within five (5) years of the transfers to the trust". Over and over again, this is repeated to the client. Why? Not only to provide the wise counsel expected and required of the profession, but also to subtly remind the client that life happens. It is exceedingly rare that a client, even one sitting down with an Elder Law attorney for the purpose of devising a Medicaid asset protection plan, expects that a nursing home stay is in their near future. Of course, if the client's circumstances were such that a nursing home stay was reasonably foreseeable, the creation and funding of an irrevocable trust with the client's assets, or any outright uncompensated transfers for that matter, wouldn't be on the table. But as we all know from where we sit, unexpected illness or infirmity is life on life's terms. While there are of course, crisis planning options (e.g. Medicaid Promissory Note, exempt transfers, etc.) available when a client requires long term nursing home care within the Medicaid program's five (5) year look back period, this article will discuss a useful option in the event: 1) the client is admitted to a nursing facility requiring a stay beyond that covered by Medicare and/or comparable rehabilitative insurance coverage; 2) the client's assets are at or below the Medicaid resource allowance ($14,850.00 for 2017); and 3) a safe discharge is available to the client.
Medicaid Administrative Directives, namely 96 ADM-8, provides that a penalty period imposed for a transfer of assets runs continuously from the first date of the penalty period regardless of whether the applicant/recipient continues to receive nursing facility services. Thus, if an applicant/recipient leaves the nursing facility, the penalty period nevertheless continues until the end of the calculated period. This leaves open, in the case of an individual who can be safely discharged to the community, the purposeful triggering of a Medicaid penalty period as a means of protecting assets for the future.
Consider the following example: in May 2017, client creates an irrevocable trust and funds same with assets valued at $250,000. In September 2017, client requires admission to a skilled nursing facility for rehabilitative therapy. Whether as a result of uncovered Medicare co-insurance payments or the client remaining at the facility past the expiration of his coverage under Medicare, there is a balance due to the facility of $4,500. The client is discharged to his home in the community on December 1, 2017 and applies for Institutional Medicaid coverage with a requested Medicaid eligibility date of November 1, 2017 to cover the unpaid balance due to the nursing home. Thereafter, the local Department of Social Services issues a determination that the client is ineligible for Institutional Medicaid Benefits for 19.51 months (the assets transferred, $250,000, divided by $12,811 (the 2017 regional rate for Suffolk County) = 19.51 months).
Based on the establishment and funding of the irrevocable trust in May 2017, the client is not eligible for Institutional Medicaid Benefits until June 1, 2022 when the five (5) year look back period expires. However, by filing for Medicaid Institutional benefits at the present time to cover the small balance due to the nursing home, the client triggers the start of the penalty period of 19.51 months. As such, the client will be eligible for Medicaid intuitional benefits in June of 2019, effectively cutting down the penalty period from five (5) years to just less than two (2) years.
Although this provision of 96 ADM-8 has been in effect since 1996, it is still rare that one sees a client take advantage of same; the reason may be that the client is simply unaware that this is an available option either because their attorney failed to advise them of this tool to literally cut down the five (5) year period of ineligibility due to the asset transfers or, given the barrage of information thrown at the client during the initial consultation and subsequent Medicaid planning discussions with their counsel, they just don’t remember. Rather, what happens more often than not, is the client pays privately for their stay and returns to their home in the community, perhaps with the assistance of home health aides paid for by community based Medicaid assistance, but entirely unaware that if they had contacted their elder law attorney to file an institutional Medicaid application on their behalf, as in the example above, they would be eligible for Institutional Medicaid benefits in less than five (5) years from the month of the transfers to the trust.
Of course, the successful application of the above hinges on the ability of the client to be safely discharged from the nursing facility and to return to the community, allowing the triggered penalty period to run continuously even though the client no longer requires an institutional level of care. In addition, this plan also requires that the assets transferred be less than a certain amount, lest the unintended consequence of increasing the penalty period beyond the look-back period be incurred.
Consider this example: in May 2017, client creates an irrevocable trust and funds same with assets valued at $850,000. In September 2017, client requires admission to a skilled nursing facility for rehabilitative therapy and, as in the first example, incurs a balance due to the nursing home of $4,500. Client is safely discharged back to his home in the community on December 1, 2017.
In this case, the filing of an Institutional Medicaid application for the purpose of triggering the start of the client’s penalty period would be completely inappropriate due to the value of the assets transferred. If the penalty period were to be triggered in this case, the penalty would exceed the five (5) year look back period; the assets transferred of $850,000 divided by $12,811 (the 2017 regional rate for Suffolk County) = 66.35 months. Based on the filing of this intuitional Medicaid Application, the client would be ineligible for Medicaid nursing home benefits beyond the 60 month/5 year look back period.
Under the correct circumstances, the purposeful commencement of the penalty period can be an extremely useful tool for the Elder Law practitioner and if successful, will not only provide significant monetary value for the clients but also priceless peace of mind. Of course, the potential benefits and pitfalls must be discussed with the client at great length and then, as best practices dictate, memorialized in writing. Forewarned is forearmed, so having a long, detailed and frank discussion with the client as to the unknowns, risks and benefits involved in such a strategy will serve to protect the interests of both the Elder Law practitioner and the client.
Published: June 2017
Ken Kern is partner at Cona Elder Law PLLC. Mr. Kern leads the firm’s Health Care Reimbursement and Recovery Department, concentrating his practice in health care facility representation, civil litigation, complex Medicaid eligibility matters, Fair Hearings, Article 78 proceedings, guardianships and resolution of all issues related to resident financial accounts. Mr. Kern can be reached at 631.390.5000 or email@example.com.
Cona Elder Law is a full service law firm based in Melville, LI. Our firm concentrates in the areas of elder law, estate planning, estate administration and litigation, special needs planning and health care facility representation. We are proud to have been recognized for our innovative strategies, creative techniques and unparalleled negotiating skills unendingly driven toward our paramount objective - satisfying the needs of our clients.
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