Friday, April 25, 2014

NY Court Invokes "Hardship Exception" for Medicaid Approval

Most people are familiar with the rule which provides that most types of asset transfers made during the 5-year "look back" period prior to applying for nursing home Medicaid coverage will result in a Medicaid "penalty period." Any such non-exempt asset transfers during the look back period will result in the Medicaid applicant being rendered ineligible for Medicaid coverage of their long-term health care costs for a period determined by calculating the amount of total non-exempt transfers made during the look back period, divided by the "Regional Rate" determined annually by the New York Department of Health.

For example, the 2014 Regional Rate for the "Northern Metropolitan" Region encompassing Orange, Sullivan, Rockland, Dutchess, Ulster, Putnam and Westchester counties is $11,137 per month.  If a Medicaid applicant made total transfers during the look back period of $100,000, the resulting period of Medicaid ineligibility is approximately nine months ($100,000 / 11,137 = 8.97 mos.).  Since a person cannot have more than $14,550 of countable resources for the penalty period to even begin to run, nursing homes in which Medicaid applicants reside are often left chasing those persons to whom the asset transfers were made -- typically the resident's children -- to recover the transferred assets so as to cover the cost of the resident's nursing home care during the penalty period.

However, there are many instances where assets transferred during the look back period cannot be readily recovered.  Often the children or other recipients have spent the money, and if they don't have other assets themselves, they will likely be "judgment proof".  In such cases, the nursing home's only option may be to seek Medicaid coverage on their resident's behalf under the "under hardship" exception to the Medicaid penalty rules that is incorporated in the federal and New York State regulations.

In the recent case of In the Matter of Tarrytown Hall Care Center v. Mcguire, a nursing home was able to convince the Appellate Division for the 2nd Department that Medicaid coverage was improperly denied by the Westchester County Department of Social Services.  In that case, Margaret Traino lived at the nursing home for almost three full years.  Because she had made gift transfers during the look back period, there was a penalty period imposed (the court's published decision does not state for how long).

The nursing home filed an Article 78 petition requesting that Medicaid coverage be provided notwithstanding the gift transfers because of the "undue hardship" exception.  As the court stated, undue hardship is determined to occur, "where the institutionalized individual is otherwise eligible for Medicaid, is unable to obtain appropriate medical care without the provision of Medicaid and is unable to have the transferred assets returned."

The court ruled that in this particular instance the nursing home provided ample evidence that each prong of the "undue hardship" test was demonstrated by substantial evidence, and therefore ordered the Westchester Department of Social Services to grant the nursing home's application on the resident's behalf.

Thursday, April 17, 2014

Big Changes for New York's Estate Tax

On April 1, 2014, Governor Andrew Cuomo signed into law the first significant changes to New York’s estate tax in almost 15 years. The new rules will further reduce the number of New York estates that will be subject to a state estate tax.  But for the wealthiest New Yorkers, the new legislation may lead to a more significant estate tax burden than would have been in effect under the prior rules.
First, the good news.  From 2000 through April 1, 2014, New York’s estate tax exemption had remained fixed at $1 million per person. During the same time period, the federal exemption had increased from $1 million to the current exemption amount of $5.34 million per person. Since many states do not have a separate state estate tax, the increasing divergence between the New York exemption and the federal exemption was seen as creating an incentive for New Yorkers to relocate to states (such as Florida) that do not have an independent state estate tax.
With an eye towards being more competitive with other states, the increase in the New York State estate tax exemption is being phased in over five years as follows:
           For deaths occurring between:

  • April 1, 2014 to March 31, 2015 -- $2,062,500
  • April 1, 2015 to March 31, 2016 -- $3,125,000
  • April 1, 2016 to March 31, 2017 – $4,187,500
  • April 1, 2017 to December 31, 2018 -- $5,250,000

Beginning in January 1, 2019, the New York estate tax exemption will be indexed for inflation to match the existing federal exemption.
While the new law provides immediate and rapidly accelerating relief for most New York estates, estates of decedents with assets in excess of the then-applicable exemption may be in for a rude surprise because of what practitioners are referring to as the estate tax “cliff”.  Specifically, if the decedent’s taxable estate is more than 105% of the New York exemption then in effect, the result will be the loss of the entire applicable exemption.
For example, if a person dies July 1, 2018 with a taxable estate of $5,500,000 (which is just below 105% of the $5,250,000 basic exclusion amount then to be in effect), the estate will be able to use the applicable credit of $420,800, resulting in a New York estate tax of $30,000.  If, however, the decedent’s taxable estate was instead $5,513,000 – that is, just $13,000 more than the taxable estate in the prior example, but more than 105% of the $5,250,000 basic exclusion amount then in effect – the credit of $420,8000 is rendered useless, resulting in a whopping New York estate tax obligation of $452,360.  Thus, the bizarre result would be that for two taxable estates having just a $13,000 difference in value, the additional tax paid by the larger estate would be $422,360!

A further twist is that gifts made within three years of death, if made between April 1, 2014 and January 1, 2019, will be added back to the decedent’s taxable estate unless the decedent was not a New York resident at the time the gift was made. This rule applies even to gifts of real estate and tangible personal property located outside of New York State, even though such property would not have been subject to New York estate tax had the decedent owned the gifted property at the time of her death.

The bottom line: while the estates of a growing number of New Yorkers will be exempt from the obligation to pay New York estate tax, the wealthiest New Yorkers may have even greater incentive than before enactment of the new rules to establish residency in a state that does not impose a state estate tax.