Long-Term Care Insurance: Only The Wealthy Need Apply?

No surprise here:  a new report released by the Urban Institute indicates that only 10.7 percent of all Americans over the age of 55 have purchased any type of long-term care insurance ("LTCI"), but that almost 20 percent of the 55-and-over set with incomes over $100,000 per year have purchased LTCI.  The vast middle class -- a group that suffers the greatest financial impact when facing the cost of long-term care (since the poor will qualify for Medicaid) -- find themselves frequently priced out of the LTCI market.

The full report can be read here.

Reverse Mortgages Become Dicier

Reverse mortgages can be effective tools that allow cash-strapped seniors to leverage the equity in their homes to maintain or enhance their standard of living.  Too often, however, the complexity and costs of these vehicles diminish the value that they might provide.

In an effort to help protect seniors who are evaluating a reverse mortgage, the Department of Housing and Urban Development has required lenders to provide counseling to every proposed borrower prior to consummating the loan.  Unfortunately, the budget deal just reached between Congress and President Obama has cut-out the funding for the counseling program.  Unless the money miraculously reappears, reverse mortgage counseling will end as of October 1, 2011.

New York's 2011 Budget Includes Modest Changes to Long-Term Care Medicaid Rules

In my last post, I described the significant changes that were proposed by Governor Cuomo's "Medicaid Redesign Team" as they pertained to the Community Long-Term Care Medicaid program.  Specifically, the proposals included the elimination of "spousal refusal" and the imposition of transfer penalties for the Community Medicaid program.  Longstanding New York law has permitted the "well" spouse to refuse to contribute their income and assets towards the care of the "ill" spouse.  In addition, a person applying for Community Medicaid is permitted to transfer any amount of assets to children or other family members without having those transfers result in a period of Medicaid ineligibility for the person seeking Community Medicaid benefits.

To the surprise of many elder law attorneys and other senior advocates, the budget bill approved last night by the Legislature did not include either the repeal of spousal refusal or the imposition of transfer penalties for Community Medicaid.  One change that we will see will be the expansion of "estate recovery" against the assets of a deceased Medicaid recipient to include "non probate" transfers including transfers from trusts, retained life estate interests and similar "testamentary substitutes."  Under existing law, estate recoveries are permitted only against probate assets, or those that pass via intestacy.

Cuomo's Budget Proposal Includes Significant Changes to Community Medicaid

It's no secret New York -- like many states -- is facing a significant budgetary crisis.  Medicaid is one of costliest programs administered by the state, and not surprisingly Gov. Cuomo's proposed budget includes significant cuts to Medicaid spending.

From an elder law perspective, the most dramatic of the proposed Medicaid changes is in the area of Community Medicaid.  Under present law, there are no "transfer penalties" associated with a Community Medicaid application.  That is, a medically-needy person living in the community (e.g., other than in a nursing home) can transfer all their non-exempt assets (e.g, assets excluding the home and a $13,800 resource allowance) to children or other persons and immediately qualify to receive Medicaid services.  The proposed legislation would incorporate a sixty-month "look back" period for non-exempt transfers, the same period that is used for eligibility for the nursing home Medicaid program.  Non-exempt transfers made during the look back period would result in a period of ineligibility for Community Medicaid, the duration of which would be determined by the amount of the non-exempt transfers made during the look back period.

The proposed rules also call for the elimination of "spousal refusal," which currently permits a spouse to refuse to make his or her assets or income available for determining the Medicaid eligibility of the other spouse.  Spousal refusal is used routinely in New York to permit an ill spouse to obtain Medicaid coverage without requiring a spend down of the couples' assets.  Only a handful of other states (the most prominent of which is Florida) permits spousal refusal under any circumstance.  Note that the budgetary proposal does not appear to eliminate spousal refusal for nursing home Medicaid cases.

Since enacting controversial legislation is the ultimate "sausage making" process, the final budget is sure to include significantly different provisions than are found in this initial proposal.  Nonetheless I expect that the final bill will include at least some dramatic changes to the Medicaid program that will affect seniors and their families. I will be sure to keep my readers informed as developments unfold.

Obama's New Estate Tax Proposal

With the ink barely dry on the recent federal estate tax legislation that set the federal estate tax exemption at $5 million per person through December 31, 2012, President Obama's recently proposed budget includes a proposal to return the federal estate tax exemption to its 2009 level of $3.5 million per person effective January 1, 2013.  The President's proposal would also include the current "portability" provision that permits the allocation of any unused estate tax exemption upon a first spouse's death to be "added to" the surviving spouse's exemption upon the death of the surviving spouse.  If approved, the new rules would place some limits on the use of valuation discounts and GRATS that are commonly used in planning for clients with larger estates.

At first glance I think this plan is a good start.  It would allow the vast majority of estates pass without being subject to a federal estate tax, while bringing in some revenue from the wealthiest American families to help reduce the budget deficit. Of course none of that will help unless Congress and the President are able to rein-in the entitlement programs (e.g. Medicaid, Medicare, Social Security).

Click here for more detail about the President's proposal.

Another Major Insurer To Stop Issuing Long-Term Care Policies

Following on the heels of MetLife's announcement last November that it was going out of the Long-Term Care Insurance business, Berkshire Life -- the subsidiary of Guardian Life that writes LTC policies -- has announced that it too will stop issuing LTC policies by the end of 2011.

As noted in this article, the LTC insurers have been plagued by a common problem:  too few policyholders have dropped the policies after issuance, and too many people (at least from the insurers' standpoint) are filing claims. Essentially, the actuaries improperly evaluated these policies, leaving them under priced and underfunded.

So, what does this mean to the consumer?  LTC policies will be harder to come by, and will surely be more expensive at any age range.

This unwelcome development makes proactive Elder Law planning, guided by an experienced Elder Law attorney, all the more important. Under current law, a well-drafted and appropriately funded Medicaid Asset Protection Trust is the premier long-term care planning tool in the Elder Law attorney's tool box.  A Medicaid Asset Protection Trust will render assets funded into the Trust as "exempt" for Medicaid spend-down purposes five years after the assets are funded into the trust.  The "Trustmaker" may retain all income derived from the trust assets, while they will not have access to the principal assets.  Principal assets, however, may be distributed to the Trustmaker's children or other designated beneficiaries during the Trustmaker's lifetime and after his or her death.

A primary residence is often an ideal asset for funding into a Medicaid Asset Protection Trust.  The Trustmaker may retain (a) lifetime occupancy rights, (b) property tax exemptions under New York State law (and likely in many other jurisdictions) and (c) the capital gains tax exemption (currently $250,000 for an individual and $500,000 for a married couple) if the residence is sold during the Trustmaker's lifetime.  While our clients often elect to fund liquid assets into a Medicaid Asset Protection Trust, it is especially helpful to fund real estate and other illiquid assets into these trusts, as it is much more difficult to engage in "crisis" Medicaid planning with illiquid assets than with liquid assets.

Types of Gifts that Don't Result in a Medicaid "Penalty"

Under the Medicaid “look back” rules, gifts made by a nursing home resident within the five-year period preceding a Medicaid application are scrutinized by the Department of Social Services to determine the impact of those gifts on the applicant’s Medicaid eligibility.  Contrary to common perception, however, not all asset transfers made during the look back period will result in the imposition of a period of Medicaid ineligibility.  Rather, there exist a number of transfers that are “exempt” from the imposition of a Medicaid “penalty.” 

The most common exempt transfer is a gift of assets from one spouse to another.  Such spouse-to-spouse gifts – regardless of the amounts transferred – are completely exempt from the imposition of any period of Medicaid ineligibility.  I typically recommend the transfer of virtually all assets into the name of the “well” spouse to enable the “ill” spouse to become immediately eligible for nursing home Medicaid coverage.  The only requirement in spousal cases is that the spouse residing in the nursing home cannot retain assets in excess of $13,800. Often the only asset that will remain in the name of the nursing home resident is the bank account into which his or her Social Security and pension checks are deposited.

In addition to the exempt spousal transfers, there are a number of exempt transfers that apply to the family home.  A home can be transferred without Medicaid penalty to any of the following:

• A spouse
• A child under the age of 21
• A blind or disabled child of any age
• A sibling who has an “equity interest” in the home (which can include payment for taxes and household expenses) and who has lived in the home for at least a year prior to the filing of the Medicaid application
• A “caretaker” child who has lived in the parent’s home for at least two years prior to the filing of the Medicaid application

 Besides transferring a home to a spouse, the most common exempt transfer of a residence is to the “caretaker” child.  To qualify for the exemption, the child does not need to have any credentials as a health-care provider. Rather, the child who has lived with a parent for at least the two-year period must establish to the Department of Social Service’s satisfaction that the child has provided needed assistance to the parent.  Such assistance will usually include: cooking; dispensing medication; shopping for the parent; assistance with dressing, bathing, and similar daily tasks. 

Another exempt transfer is the funding of a Medicaid applicant’s assets into a Supplemental Needs Trust for the sole benefit of disabled family member, provided that such disabled person is under the age of 65 at the time the transfer is made.  This exemption is permitted under the law on public policy grounds.  The federal government recognizes that absent the use of assets from a parent or grandparent to help support the disabled child or grandchild, the disabled person will likely need to rely on governmental programs to provide for their daily needs.  Allowing an elderly parent’s or grandparent’s assets to fund a Supplemental Needs Trust for a younger disabled child or grandchild can help reduce that person’s reliance on public assistance.  Note that upon the disabled beneficiary’s death, any assets remaining in this type of Supplemental Needs Trust must vest in the disabled beneficiary’s estate, and are therefore subject to recovery by the state to recoup the cost of public benefits paid to or for the disabled beneficiary during his or her lifetime.