Archive for October, 2010
Ever since the federal Deficit Reduction Act was implemented in 2003, Medicaid planning strategies in the Massachusetts elder law area have been restricted. Even ordinary activities, such as helping grandchildren with college expenses and contributing to wedding celebrations, have been scrutinized and flagged as gifts that trigger a penalty period when the grandparent needs help with long term care expenses.
Here’s a recent Massachusetts case that did not penalize a parent for helping an adult child, in this case with a new business venture. It’s not unusual for parents to invest in a child’s business. Here in Massachusetts, Raymond Southwick invested money in his son’s business that was structured as a loan and in return he received promissory notes requiring repayment.
The Division of Medical Assistance challenged this loan as a gift. They argued that because his son’s business failed, the promissory notes were worthless. This would be problem enough for the family but the real problem arose when the son’s mother needed expensive long term care in a nursing home. Mass Health, the Massachusetts Medicaid agency, argued that this this bad investment disqualified her from receiving Medicaid benefits for her nursing home care.
The hearings and appeals on this issue appeal took almost five years. At the end of this process, the Massachusetts Superior Court trial court recently ruled that the investment was not a transfer that disqualified his wife from receiving Medicaid.
Southwick v. Waldman (Mass.Super.Ct., No. PLCV2006-01026-B, Sept. 9, 2010).
The Court found that “there is no Medicaid rule that prohibits an applicant, member or spouse from making speculative investments,” and saw no evidence that the loans were a sham. The Court concluded that there was no disqualifying gift and transfer of assets and therefore, the ordered that the mother be deemed eligible for Medicaid.
This is just one more example of how complicated this area of elder law is. Many recent Court decisions have not been in favor of the disabled person. And no one wants to go through five years of litigation to get a good result.
There are two important lessons I want to share from this case and the many others that have been decided in the past few years.
- It’s absolutely critical to make sure you get help from a qualified elder law attorney who is up to speed on the recent changes.
- It’s important to get advice before you make seemingly innocent transfers and gifts to family members.
We recently put together the”Protecting Your Assets Planning Guide” that describes how you can use current best strategies to protect your savings from the high cost of long term care. If you would like a copy, send an email to ClientServices@PollexEstatePlanning.com and include “Protecting Your Assets” in the subject line.
At least 10 states want to expand a voluntary freeze on foreclosures by some of the nation’s largest mortgage lenders to include more companies and more regions. Calls also increased for a nationwide moratorium.
What does this mean for the housing market and home prices?
Distressed sales through foreclosures or short sales now make up nearly a third of the residential real estate market, according to an estimate from home sales research firm RealtyTrac, and that home prices have been reduced by about 26% as a result.
Any short-term rise in overall home sales is likely to be misleading, said Rick Sharga, RealtyTrac senior vice president, as the numbers might be skewed by the loss of rock-bottom foreclosure sale prices from the market.
“You might get a false positive read on fourth quarter home prices because you’ll be eliminating a lot of sales at the bottom of the market,” he said. “There are so many factors distorting the market, it’s tough to get an accurate read.”
Sharga thinks the freezes could cause lenders to move toward more short sales, in which the bank agrees to a sale for less than the balance of the mortgage. That could lead to a more substantial impact on market prices.
“It might stimulate a little more short sale activity, as lenders and servicers look for ways to more efficiently move the property outside the foreclosure,” said Sharga. “Typically your discount on short sales is only 15%, compared to 35% for a [foreclosure sale].”
Just the level of uncertainty about the halt in foreclosures has the potential to depress home sales as buyers wait to see what foreclosed homes might be coming on the market in the future.
A prolonged delay in foreclosures could also hurt long-term prices by driving investors who had been returning to the real estate market to invest elsewhere.
“Some of the money that is waiting to go to [into foreclosure sales] might evaporate and those sales could be lost,” said Zandi.
However, on Monday of this week, Bank of America and GMAC announced that they would restart foreclosures, declaring that no significant problems had been found.
Restarting the nation’s foreclosure machine puts the lenders on a collision course with state attorneys general, who announced last week a nationwide investigation of foreclosure practices. It may be difficult for lenders to declare the foreclosure crisis over and get back to business as usual.
Bondholders are escalating efforts to recover losses on soured mortgage-bond deals containing loans with flawed paperwork. Meanwhile, federal banking regulators are assigning additional employees to an ongoing review of large mortgage-servicing operations, according to people familiar with the situation. Officials want to make sure that documentation procedures are being followed and companies are meeting all legal foreclosure requirements. Read more at the Wall Street Journal and at CNN.
One of the most misunderstood planning tools for protecting assets from the enormous cost of long term illnesses such as Parkinson’s disease and Alzheimer’s is the use of Medicaid annuities. As a Massachusetts elder law attorney, I am often asked to explain how and when annuities can help a family protect assets for the spouse who is counting on her life’s savings to provide the basics for her lifetime.
Annuities can be an important planning tool for people who are facing the immediate prospect of paying hundreds of thousands of dollars for nursing home care. But not all annuities qualify as Medicaid annuities. The Medicaid regulations have very specific requirements that must be met in order for an annuity to be effective to protect assets.
This is one of the most common area of confusion. Federal law (The Deficit Reduction Act of 2005) authorizes the use of specialized annuities to gain immediate eligibility for Medicaid provided the annuity complies with the provisions of the law.
In effect, people with too many resources to qualify for Medicaid can convert those excess resources to income through the purchase of the right annuity investment and qualify for assistance.
At the same time that the DRA gave favored treatment to annuities, that law placed tough restrictions on asset transfers and other planning options.
There are many types of annuities. The type of annuity that is useful in asset protection planning is a form of “immediate annuity” An immediate annuity is purchased from an insurance company. In return for the payment of a lump sum of money, the company agrees to provide payments over a chosen period of time.
Through the purchase of an annuity that conforms to the requirements of the DRA, (a “DRA compliant annuity”) individuals and couples who would otherwise have too many resources can qualify for Medicaid benefits. This is currently an approved method to reduce excess resources without incurring any disqualifying penalties.
The purchase of an immediate annuity can be a particularly valuable investment for the spouse of an individual who needs long-term care. In determining eligibility for Medicaid benefits, a married couple’s countable resources are pooled and excess resources are at risk. But the spouse still at home can keep all of her income and this does not affect the Medicaid eligibility of her husband who is in a nursing home.
An immediate annuity converts a cash sum into a guaranteed stream of payments. Such payments are treated as income under Medicaid law. The payments made to the spouse at home may be more than she needs for living expenses and can be added to a savings account or investment account, without affecting her husband’s eligibility for Medicaid benefits.
Timing is a critical factor in using Medicaid annuities. This planning option is a “crisis” planning technique and usually implemented at the point of time that a spouse will be entering a nursing home.
However Medicaid planning depends very much on particular facts and this is an area of law that is frequently changing. As a result, planning ahead and learning your options by meeting with a qualified elder law attorney is crucial.
Here’s an important heads up for all parents who have recently sent a son or daughter off to college. An earlier blog post mentioned this issue and then I saw an article in the Boston Globe that served as an important reminder. Boston Globe -Two Critical Documents
Because of federal privacy laws, once your child turns 18, he is legally recognized as an adult and the college he is attending generally cannot share medical information with you.
That’s why it’s so important that all adults age 18 and older sign a Health Care Proxy and HIPAA authorization – so that you will be able to get the information you need if there’s an illness or accident.
Even if they want to share this information, under the Health Insurance Portability and Accountability Act (HIPAA), a patient’s health information must be kept private once the patient turns 18 and is recognized as an adult. This privacy extends to everyone, including the parents of the student. So if your child becomes ill or has an accident, you will not be able to get information on their health status, unless there is a signed HIPAA authorization.
What happens if there is a serious accident and the child is in a coma – who can be the voice for your child? If the child is over 18, without an executed health care proxy, you may have to go to Probate Court for a guardianship proceeding just to get the authority to make the medical decisions that may be needed.
That’s what happened to Terry Schiavo - a court case which was in the headlines for a very long time.