As a reader of this law blog, you know that in April 2011, New York State enacted a significant change to existing Medicaid laws. This change expands the reach of recovery for benefits paid on behalf of a Medicaid recipient from only the recipient’s estate (or that of their spouse) to now encompass non-estate property and assets. These may include a life estate in a deed, jointly owned accounts, and accounts with designated beneficiaries.  Life insurance is exempted from the statute.

The New York State Bar Association’s Elder Law Section has been working hard to clarify the law’s reach and to also address constitutional issues on whether the law would be retroactive to before April 1, 2011. 

Good news…

I am pleased to report that last week the Chair of the Elder Law Section announced that New York State intends to issue regulations (following a required statutory comment period of 60 days) to make the newly expanded Medicaid estate recovery effective as of the death of the Medicaid recipient (or their spouse, as applicable) on or after July 1, 2012 for assets and accounts other than life estate deed transfers.  These proposed regulations will also present a listing of the types of property that will be eligible for Medicaid recovery upon the death of the Medicaid recipient (and their spouse, as applicable).  

Unfortunately, there is still no clarification or change, as of this writing, on recovery against life estate deeds recorded before April 1, 2011 (the statute’s effective date) or the retroactivity for payment of Medicaid benefits if the recipient dies on or before July 1, 2012.  Additional details will be provided to you here in this blog whenever this office is informed.

Yet to be resolved…

Another unresolved part of the expanded recovery is the proposed treatment of retirement accounts.  Unless you as the consumer are successful in your efforts to change the opinions of our elected officials in the NYS Assembly and Senate, retirement accounts (IRA, 401K, etc.) may be subject to claims of repayment for Medicaid paid during the life of the recipient. 

This is troubling because current Medicaid law permits the Medicaid recipient and their spouse to own retirement accounts that are ‘exempt’ as resources, as long as the accounts are in ‘pay status’ (meeting the required minimum distributions for married persons, and higher distribution levels for single individuals), and to designate a beneficiary of those retirement accounts. 

By contrast, other laws ­– including NYS judgment and collection laws, federal bankruptcy laws, and federal ERISA (pension protection) laws – limit or prevent claims from being made against retirement monies.  

We will keep you informed here as we learn more about these issues.

Wishing you and your loved ones a very happy and healthy new year.

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Many seniors transfer their homes or other real estate to family members and retain the right to reside in, use and occupy the home or real property. This retained right is called “a life estate”. The life estate permits the senior to also retain real property tax reductions (STAR, Veterans exemption) if they live in the home – called “a homestead”. 

Under Medicaid law prior to at least September 2011, at the death of the life estate owner, no recovery was permitted to Medicaid for benefits paid on behalf of the recipient. This was because the life estate was considered to have ‘died’ along with the deceased senior. 

Now Medicaid can recover against the life estate and seek repayment from the remainder family members listed on the deed after the recipient and their spouse have both died. 

To do this, Medicaid must determine the life estate interest value based upon:

• The home’s value as of the date of death of the Medicaid recipient
• Age of the Medicaid recipient the day before their death; and
• An Internal Revenue Service table which combines an interest rate for the month of death and age of the life estate owner to calculate a percentage or factor of the life estate owner compared to the whole property. 

For example, according to the IRS, an 86 year old who dies in November 2011, will own about 7% of the home at the time of their death.  If the home is worth $450,000, the maximum Medicaid may recover is about $34,000, even if the actual Medicaid benefits paid during the recipient senior’s lifetime exceed this sum.

Recovery is postponed (deferred) against a homestead in any of these scenarios:

• There is a surviving spouse; or,
• A sibling of the recipient with an equity (ownership) interest has lived in the home at least one year; or
• A care giver child has lived in the home at least 2 years; or
• While a disabled child of any age lives in the home; or
• While a minor under the age of 21 years lives in the home.

On September 26, 2011, New York State issued its administrative explanation (called an ADM) and regulations on the expanded recovery against deceased Medicaid recipients and their spouses. This ADM came nearly six months after Governor Andrew Cuomo and the NYS Legislature passed sweeping proposals to alter Medicaid and implement cost savings measures on April 1, 2011. 

One of those measures expands “estate recovery” beyond estates in probate (dying with a will) or intestacy (dying without a will). Expanded recovery for Medicaid benefits will now be against:

• Jointly owned assets between a Medicaid recipient and a spouse or other third party such as joint bank or financial accounts or in trust for a designated beneficiary;
• Real estate owned as tenants in common or jointly; and
• Real property deeds with retained life estates owned by the Medicaid recipient or their spouse.

Revocable Living Trusts – another way for spouses of Medicaid recipients to avoid probate estate recovery and thus avoid Medicaid claims – are no longer a viable Medicaid planning tool to prevent recovery once the recipient or the spouse die.

The ADM and regulations appear to be effective for recoveries made on or after September 8, 2011.  The most troubling aspect of the new regulations is that NYS is expected to file claims against life estate deeds which pre-date the effective date of the regulations.

My next blog will discuss Life Estate deeds and expanded recovery. 

Future blogs will discuss other recovery issues, the importance of irrevocable living trusts, and deferral and waiver of recovery.

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Changes to New York State’s programs for community care and assistance are pending approval from the federal government, called a ‘federal waiver’.  Some of the proposed changes affect the level of services seniors and the disabled (over age 21) may receive.  While it is too soon to worry, it is time to consider consequences and options:

Personal Care Aide/home attendant program:

• After an application for community Medicaid is accepted, typically a Medicaid nurse comes to assess the tasks the senior or disabled person require. This assessment results in a total number of hours of care and assistance at home.  These tasks are governed by regulations and typically classified as ‘Levels’. 
• Thus far, the proposal for Level 1 tasks (housekeeping and meal preparation/nutrition) reduces services from 12 hours per week to 8 hours per week if the recipient only receives this level of services.  
• Additionally, expect the task evaluation to be performed by a managed care agency and not by the local DSS Medicaid nurse, as NYS transitions virtually all recipients into managed Medicaid or managed long term care Medicaid.
• At present, the change for personal care aides should only affect persons who do not have Medicare and only receive Medicaid (referred to in the law as ‘non-dual eligibles’).
• Also expect that 24-hour (sleep- in) care could be reduced or subject to stricter standards, with definitions of those standards still pending.

Consumer Directed Personal Assistance Program (CDPAP):

• Allows the Medicaid recipient to have his or her own aide – who must be a U.S. citizen or have a green card, and have no criminal history – register with a CDPAP agency. 
• The consumer/recipient is responsible for training their own aide(s).  Medicaid pays the aide.
• Typically, these aides are not restricted as to types of care provided (Levels, feeding tubes, etc.) because the consumer, not Medicaid, is responsible for the aide.
• This program could be affected by the changes described above.

Managed Long Term Care (MLTC): 

• Managed care of any type is designed to control costs in the delivery of services to seniors and the disabled (over age 21) in the community. 
• It is expected to affect the Personal Care Aide program, certified home health agency (CHHA – such as Lombardi) and CDPAP. This affects the delivery and extent of services. 
• Certain groups will not yet be required to enroll in MLTC even where care in the community exceeds 120 days. These groups include, but are not limited to:
  • Breast Cancer Treatment Program
  • Native Americans
  • Services for developmentally disabled persons under OPWDD and for brain injured persons through TBI waivered programs  – until certain features and reimbursement rates are approved by NYS DOH and OPWDD
  • Hospice.  

The discussion for MLTC continues in my next blog.

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Legal advocates had one primary concern when New York State enacted laws to expand estate recovery to ‘testamentary’ substitutes.

You guessed it: the future of planning for seniors of modest means without long term care insurance, who had established or were planning to create irrevocable living trusts (‘Medicaid trusts’) for their homes or other assets.  

The New York statute and its regulations proposal to the federal government for approval appear to signify that trust principal will not be subject to recovery – even with the expansion of estate recovery.  However, the income in the trust at the death of the creator (applicant or spouse) will be subject to estate recovery. 

A few examples:   

• If you have transferred your home to an irrevocable trust or are planning to do so, Medicaid laws create a period in which you may not receive nursing home benefits paid through Medicaid (‘the penalty period’). As of February 8, 2006, that penalty period was increased from 36 months to 60 months. At the death of the creator of the trust, Medicaid will now have the right to inquire as to whether income (interest, dividends) are owned by the trust. If yes, recovery will have to be paid from this retained income. Typically, the home in a trust has no income accumulating or earned unless a home is used as a rental property with net income remaining after deduction for expenses (other than depreciation). Key information for you – the principal of the trust appears to remain intact and can still be distributed to your heirs.
• What if you transferred an investment account to the trust rather than a home and that account earns interest and/or dividends?  Typically, the trust document requires net trust income to be paid out to the creators. If you have not taken this income over the years, you may wish to consider taking the distribution of income to live on or otherwise pay your bills. If you are healthy and have sufficient other income, you may also consider amending the trust to eliminate your right to income from the trust document. However, this will create another 60-month (5 year) penalty for receipt of Medicaid-paid nursing home care. 
• Another form of income is called capital gains. We do not know what the state changes will say about capital gains. Typically, most trust documents allocate capital gains to principal. Many trust documents contain a ‘substitution of trust principal for another asset of equal value’.  This clause is used by many attorneys for income tax reasons (‘grantor trust provisions’ – beyond the scope of this blog). This clause may be  important to some trust creators if an investment account in the trust equals the value of the homestead outside of the trust. Replacing one property with another in a trust requires careful legal analysis; if possible, this could eliminate or reduce potential estate recovery against ‘income’ after the death of the trust creator.

The federal approval of NY State amended regulations are expected in late Fall 2011.  Watch this blog each week, as we will continue to provide you with information critical to your elder law planning needs. 

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Last week’s blog discussed New York State’s submission to the federal government of changes to its State Medicaid plan and regulations, expanding estate recovery to retained life estates in real estate of seniors and the disabled. 

Here’s more of what we do not yet know.

We don’t know…

• if life estate transfers recorded before a certain date (such as budget passage on April 1, 2011) will be protected or exempted from the changes or whether the death of the life estate owner must occur after a date specific. 
• if deed transfers to protected persons – a caregiver child who lived with the parent for 2 years, or a disabled adult child of any age – will be protected or exempted from the expanded recovery changes. 

The New York State Bar Association and other legal advocacy groups are researching the constitutionality of the State’s efforts to expand recovery against life estates. 

If you have prepared a life estate deed with my law office, contact the office to discuss your options.  As more information becomes available, my office will keep you updated through this blog and my newsletter, The Polner Abrahams Report.

Next week’s blog – some good news.

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The new fiscal year budget passed by New York Governor Andrew Cuomo and the NYS Legislature on April 1, 2011, included sweeping proposals for changes to Medicaid. Because many of these changes dramatically alter the federally approved plan all states must submit to receive federal funds as part of services cost sharing (with county and state), they must be approved by the federal government.

As a reader of this blog (and my newsletter), you already know that spousal refusal will remain legal for nursing home and home care. Spousal refusal permits a couple to ‘divide’ their countable assets into two pots: one owned by the Medicaid applicant, and the other owned by the non-applying spouse.

It comes as no surprise that cost saving measures affecting advance planning are now under review. This effort is expected to produce regulations that will enable New York State to implement those law changes. The state has asked the federal government to expand ‘estate recovery’ as broader than a Surrogate estate matter (‘probate’ if the applicant or their spouse die with a will; ‘administration/intestacy’ if there is no will). Recovery is expected to be broadened to cover ‘testamentary substitutes’ such as revocable living trusts, jointly owned financial accounts, life insurance with designated beneficiaries, and, most troubling, real property subject to a life estate.

Watch for my upcoming blog discussing how irrevocable living trusts (Medicaid trusts) are still protected.

What does this mean?

The most troubling aspect of the requested expansion of recovery is New York’s decision to try and recover for benefits paid on behalf of a senior —or a disabled person over age 55 – from their life estate in real property (typically, their home).

Since 1993, seniors have legally transferred their homes (or other real estate) to adult family members, and retained a life estate in the real property as a simple and often less expensive form of Medicaid planning. If the transfer is the homestead, the life estate permits the senior to keep real estate tax reductions such as the Veterans exemption, STAR and senior exemption.  New York State’s proposal to recover against the life estate interest would permit the state to determine the value of the life estate interest based upon the value of the home and the age of the Medicaid senior on the day before the death of the senior. The regulatory proposal does not appear to carve out any exceptions to the proposed benefits recovery, even if the transfer of the home was lawful, including to a caregiver child who resided for 2 years with the parent, or to a disabled adult child.

My next blog will discuss other changes submitted to the federal government.

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The NYS Legislature has passed legislation amending the Family Health Care Decisions Act to permit a health care decision-making surrogate to authorize hospice care, including for hospice in ‘stand alone’ centers outside of hospitals and nursing homes.

On February 24, 2010, then New York State Governor David A. Paterson signed into law the Family Health Care Decisions Act, amending Public Health Law by adding Article 29-CC.

The law, which for more than 15 years was sought by advocates, allows family members or ‘surrogates’ to make health care decisions – including end of life decisions – for persons without health care proxies (or legal guardians), who are in hospitals or nursing homes.     

However, according to the report of the New York Task Force on Life and the Law, granting the surrogate the authority to elect hospice care was still needed in the 2010 version. As the Task Force reported, the end of life approach of hospice “emphasizes palliative treatments and comfort care rather than curative care,” making it consistent with the concerns and limitations in the law. 

The new 2011 legislation therefore authorizes the surrogate to elect and agree to hospice care outside of a nursing home or hospital when hospice is in a ‘stand alone’ facility. 

The legislation does not apply to surrogate decision making for hospice care at home or in a doctor’s office. 

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The scenario: Grandparents establish trusts for each of their grandchildren and make annual gifts to each trust.  The trusts are irrevocable and continue until a specific age for each grandchild.  As it turns out, after the trust is established, one grandchild is discovered to be on the autism spectrum, or has onset of another disability. And there is a chance that he or she will need SSI or other government programs in the future.

Question: Is there some way to change the trust to preserve future benefits – to create a special needs trust without making the trust into a pay back SNT and recovery by Medicaid?

Answer: In New York State, the answer is sometimes ”Yes”.  It is difficult to amend a trust when a minor is a beneficiary.  But a tool known as ‘decanting’ (think of fine wine and pouring the wine from one vessel to another) can permit the grandparent creator of the trust (the “trustee”) to decant the trust (and its accounts) into a special needs trust (without pay back).

Under Article 10 of the New York Estates Powers and Trust Law, before decanting to the new trust, specific prerequisites must be met and documented in a written statement:

(1)   The grandparent trustee must have the sole discretion (i.e., be the only person who is legally permitted) to use the principal from the existing trust to decant into the new trust;

(2)   The grandchild beneficiary must not have a fixed income interest in the existing trust (i.e., the grandchild’s use of the trust income is at the discretion of the grandparent trustee, and not as a regular fixed income payout);

(3)   And the trust document itself cannot, among other things, exonerate the trustee from failure to exercise the due diligence and care required for managing the existing trust.

Once the proper special needs trust (called a Living or Inter vivos Escher Trust because it is not a pay back trust) is established, there must be a trustee-to-trustee movement of funds from one trust to the other, re-titling the account(s). In some situations, a new tax identification number (TIN) may be required and formal close out of the prior TIN must be handled by a certified accountant.

When handled properly, the special needs trust will protect the young disabled grandchild for their lifetime.  If you need to have your estate plan reviewed for possible decanting or other trust review, please contact my law office.

 

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With budget cuts across New York State and the recent New York Times article on neglect and mistreatment in large state-run institutions, families with developmentally disabled family members are faced with even more worries than ever before:

• Cuts in Medicaid may result in fewer slots for programming and supervised work opportunities
• A struggling economy makes it harder for find employment for persons with developmental disabilities
• Always looming is the question, “Where will my adult child (or sibling – brother, sister) live? 

Today I am pleased to share a story with a happy ending – a story where my services as an advocate and lawyer played a small but complementary role to the efforts of a dedicated family and two nonprofit organizations. 

In 2005, five brothers and sisters came to my office for an estate consultation. Their mother, Rose, had died, leaving a family home in Mineola.  They sought my services to help probate her will. 

“Okay,” I said, “let’s get the names in your family.”

One family member responded, “You’ll need a bigger sheet of paper– there are twelve of us.” 

Thus began my legal relationship with this family. 

Of the twelve siblings, seven are developmentally disabled or impaired. Each of those seven either work or attend OPWDD (New York State Office for People with Developmental Disabilities) programs; they take public transportation, make meals, keep house, attend church, and go about their lives with the hands-on organizational support of their five siblings – Jim, Rosemary, Debbie, Elizabeth and Terrence. 

Their mother’s will – drafted and executed long before the Court of Appeals decision in Estate of Escher (1981) created legal provisions for special needs trusts – had left the Mineola family home to the seven developmentally disabled siblings.  Since she had died in 1991, the five other siblings had been managing their seven developmentally disabled  siblings’ day-to-day lives.

After probating the will, I prepared a deed from the estate to the seven siblings.  “You really need to become the legal guardians for your siblings,” I recommended to the five, “so you can manage the home.”

A decision was made to appoint 17A guardians for five of the seven siblings. “You also need the home to be transferred to a revocable living trust,” I  suggested next, “to avoid multiple estate proceedings as each of your siblings die.” And so, the revocable living trust was drafted and the deed transferred to the trust.

But even with all this legal work, the home was in need of serious repairs to maintain its habitability for the seven developmentally disabled siblings.  From 2006 to 2011, I watched as these five siblings tackled the housing problem for their brothers and sisters from every angle – as the New York State economy took a nose dive in 2008, government funding and mortgages disappeared, and government agencies opposed sponsored mortgage programs.  By then, six of the seven siblings had moved together into a rental home when their mother’s home became completely uninhabitable.

And then, two organizations stepped forward – Habitat for Humanity of Nassau County (HFHNC) and the Disability Opportunity Fund, led by Charles D. Hammerman, offering an innovative way to rebuild the family home: tear it down and then start a new home from scratch.

It has not been a simple process – applications, negotiations, covenants, mortgages to secure against ‘flipping’ the home – and each step of the way I am proud to have played a small part and watched the efforts of the five siblings come to fruition as they valiantly continued to manage the daily care and details for their seven siblings. 

And so, on a beautiful sunny day in May 2011, demolition began on this family’s home in order to realize their mother Rose’s wish to properly house her seven developmentally disabled adult children there. 

Housing for developmentally disabled persons in New York State and on Long Island is a complex and critical issue for families and government.  The creativity of Habitat for Humanity and the know-how of the Disability Opportunity Fund will make all this possible for this very unique family – only because of the unstoppable dedication of five  siblings – Jim, Rosemary, Debbie, Elizabeth and Terrence.  I am proud to serve as their attorney. 

For a photo album of this heartwarming project and for more information, go to http://www.hfhnc.org/photos.htm (click on HFHNC Lowe’s Women Build May 2011). For information about the Disability Opportunity Fund, visit http://thedof.org.     

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