New York Appellate Court Affirms Determination that Impostion of Medicaid Penalty Period Was Proper

It is a black-letter rule that all non-exempt transfers of assets for less than fair-market value that are made within five years of applying for Nursing Home Medicaid coverage will result in the imposition of a Medicaid "penalty period."  One exception to the transfer penalty rules are transfers made "for a purpose other than to qualify for Medicaid.  When other exempt transfers (such as transferring assets to a spouse) are not available, this "catch all" exception is frequently argued by Medicaid applicants seeking to avoid the imposition of a Medicaid penalty period.

Such an argument was made in Corcoran v. Shah, which was recently before the New York Supreme Court's Appellate Division for the 4th Judicial Department.  In Corcoran, a Beatrice Corcoran and her husband had transferred $176,000 to family members.  Within five years of those transfers Mrs. Corcoran applied for nursing home Medicaid coverage, and the state imposed an 18-month Medicaid penalty period.

In challenging the state's determination, Mrs. Corcoran argued that the transfers were not in fact made for the purpose of qualifying for Medicaid and thus fell under that exception to the Medicaid penalty rules.  In  its June 20th, 2014 decision rejecting Mrs. Corcoran's argument, the Court noted that Mrs. Corcoran was required to rebut the statutory presumption that her transfer of assets "was motivated, in part if not in whole, by ... anticipation of future need to qualify for medical assistance" (citation omitted). 

The court noted that the evidence showed that Mrs. Corcoran had suffered from mobility issues for several years prior to the filing of the Medicaid application, establishing that she was long at risk for needing long-term care.  In addition, the court pointed out that there was no proof that Mrs. Corcoran and her husband had established a "pattern of giving," which, under the case law, has been frequently cited as an essential element to rebut the presumption that asset transfers made within the 5-year Medicaid look back period were made to avoid an asset spend down for Medicaid purposes. 

The brief opinion can be read in its entirety here.

U.S. Supreme Court Denies Bankruptcy Protection To Inherited IRAs

(I apologize for hot having posted for awhile ... it's been rather busy!)

In a 9-0 opinion issued today, June 12, 2014, the U.S. Supreme Court ruled that an inherited IRA is not an exempt asset for purposes of the federal Bankruptcy Code (11 U. S. C. §522(b)(3)(C)).  The court held that a traditional or Roth IRA is exempt from bankruptcy because, under the statute, a true retirement fund is intended to provide the account owner with a source of funds for sustenance "to provide for their basic needs during their retirement years." 

In contrast, the Court ruled that an inherited IRA has a number of characteristics that differentiate it from a traditional IRA, particularly the requirement that withdrawals from an inherited IRA must begin no later than the year after the original account owner's death, "no matter how far [the inheriting beneficiary] is from retirement."

For the past couple of years we have been recommending to our clients with large retirement accounts (i.e., in excess of $250,000) that they consider using a "stand-alone retirement trust" as a beneficiary of their retirement accounts, rather than having children or other beneficiaries inherit the IRA in their own names.  One reason for that recommendation has been out of a concern as to how accessible the IRA might be for the creditors of those who will inherit a decedent's retirement account.  After today's Supreme Court decision, our concern has proven to be justified, and the use of stand-alone retirement trusts will be more important than ever.