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By John M. Bigler If you've been following my recent articles, you will know that the Deficit Reduction Act of 2005 (DRA), which I prefer to call the "Dastardly Republican Act," went into effect Feb. 8, 2006. Because the Senate and the House of Representatives passed different versions of the Act, it has been challenged as unconstitutional in a number of lawsuits. Up to this point, however, no lower court judge has shown the courage to agree. They prefer to hide behind the reasoning that legislative branch should correct its own mistakes.
The new law also emphasizes that annuities will now be treated differently. Any annuity purchased by an individual or their spouse after Feb. 8, 2006, will be required to name the Department of Social Services as primary beneficiary up until the amount paid out by the department on an applicant's behalf. There are some uncertainties and conflicts regarding the New York interpretation of the federal law. Arguably, there may be certain types of annuities that will not need to name the Department of Social Services. It is also questionable whether the spouse will be required to name the Department of Social Services. These are issues that will have to be examined more closely and most likely will be determined in the courts.
The ADM also reaffirms that the home, which was always an exempt resource, will no only be considered exempt up to a value of $750,000. Any equity value over and above that amount will be counted as a resource against the applicant. The law does provide one possible benefit, and that is the definition of an acceptable purchase of a life estate in the home of another person. In the past, there was always a question when an older person purchased a life estate - typically in the home of children. How long does the individual have to stay in the home? Now, the new ADM specifically indicates that in order for a life estate purchase to be considered acceptable, the applicant must have lived in the home for at least a year. One question will be whether an applicant who already owns the home would still be allowed to purchase a life estate in another home. That might be an effective way to protect assets.
One of the most traditional planning tools, the rule of halves, will no longer be acceptable in Medicaid planning. The ADM apparently, specifically also makes unavailable the idea of a reversed rule of halves where one could transfer all the assets upon entering the nursing home and then have the transferee spend half of that money on the cost of the nursing home. Of course, one could simply start giving away their assets while they are still in good health and hope to wait out five years, but that is not a terribly desirable approach. More likely, promissory notes are going to be more popular. An individual entering a nursing home can lend out all of their assets to a family member through a promissory note with scheduled payments that are actuarially sound. The family member could then pay the cost of the nursing home from the loan money for approximately half of the period of ineligibility while the period of ineligibility was still running on the other half of the transfer. This seems like a fairly safe way to plan under this DRA, but again, until it has proven to be effective we simply don't know.
An important point to emphasize is that spousal refusal is still intact. The local social services departments recognize spousal refusal in both institutional and community applications, and that has not changed under the new law. A transfer to a spouse is an exempt transfer and even if the spouse retains assts over and above the allowable amount for the spouse of an applicant, the well spouse or community spouse can simply sign a statement saying that they refuse to contribute their assets and the application will be approved.
Since the reelection of President Bush, seniors have been hit hard by both Medicare Part D, which has caused many seniors to pay thousands of dollars in prescriptions costs that they did not pay before, and now the "Dastardly Republican Act," which is based on a big lie that multimillionaires were sheltering their assets and which is causing havoc with middle class seniors who either have the wrong type of illness or fear they may get the wrong type of illness, resulting in long term catastrophic medical expenses. However, at least we have the peace of mind knowing that we are safe from viewing the caskets of our brave fallen heroes and safe knowing that billions of dollars are being well spent in Iraq to promote freedom, even though approximately 10% of that money has been stolen by contractors and we have an administration who vigilantly changes the color code of our terrorist alert system based on their popularity in the polls. I guess that means that we are going to be on red alert for at least the next two years.
Reprinted with permission of the Suffolk Times © 2006 [ Contact Us ] [ Guestbook ] [ Email ]  The Law Offices of John M. Bigler, Attorney At Law 1421 Wantagh Avenue, Wantagh, New York 11793-2206 1-888-ELDER-LAW · 516-409-6565 · Fax: 516-409-6522 E-Mail: info@biglerlaw.com · Web Site: www.biglerlaw.com |
Now, the New York State Department of Social Services has issued an administrative directive (ADM) guideline detailing New York's position regarding the DRA. The new ADM specifies that any transfers made after Feb. 8, 2006 will now result in a period of ineligibility to be calculated much differently than the old law. The period of ineligibility will either start the month after the transfer or at the time an individual is in a nursing facility and otherwise eligible for Medicaid benefits whichever is later. Under the old law, the penalty started the month after the transfer no matter what the circumstances. Now, effectively, the penalty will not start until an individual is in a nursing home and down to the Medicaid resource level, which this year is $4,150. Only then will a penalty result for any transfers occurring within the last five years. Of note, as many are aware, there is a now a look-back of 60 months for all transfers rather than 36 months for transfers to individuals and a 60 months only for transfers to or from a trust. However, for the time being, Medicaid applications that are filed will still only ask for 36 months of information regarding transfers to another individual. Starting February 2009 37 months will be requested; each month thereafter an extra month of retroactive information will be requested until February 2011, when we get to a full 60 month look-back.