VA Program Adds Divestment Rules and More

The so-called “Aid and Attendance” pension has become an important source of income for older adults needing long term care services, and an important source of business for some elder law attorneys. The program is offered through the Veterans Administration.  Eligibility requires military service during a period of conflict, or being the spouse or surviving spouse of a veteran that meets that requirement. In addition, there are asset and income eligibility rules. Those income and asset rules will change dramatically with the implementation of new regulations formally adopted today (but taking effect in 30 days).

There are several changes. Some of the more notable changes are outlined below. Before I get into those, I think it would be helpful to acknowledge the context of these changes and the overriding themes that tie them together.

First, it seems evident that these new rules are a reaction to the role of lawyers and financial planners who, for the past ten years or so, have become increasingly involved in “helping” veterans qualify for these benefits. The VA clearly perceives this development as harmful to the program and perhaps even exploitative towards the veterans.

Second, this VA benefit is often considered by older adults who need help with aging issues, as something available either in addition to, or as an alternative to, applying for long term care benefits through Medicaid. For historical reasons, these two programs have had very different financial (asset and income) eligibility rules.  These changes make the VA benefit rules more like the Medicaid eligibility rules.

 

Divestment. Divestment means giving away your assets (or taking other steps to artificially reduce their availability) in order to qualify for the benefit. Heretofore, there was no penalty if an applicant gave away resources in order to qualify for this VA benefit.  Now there will be.  Most Medicaid long term care programs have had divestment rules for at least 20 years.

Like the Medicaid long term care programs, penalties for asset transfers will result in periods of ineligibility the duration of which will be a function of the amount sheltered. Whereas the so-called “look back period” for Medicaid is five years, the look-back for this program will be three years.

Use of trusts and annuities in planning can result in divestment analysis under these new rules.

There are exceptions, and interestingly there is an exception for elders who were taken advantage of by an advisor who was marketing services purportedly designed to allow them to qualify for this benefit. Or, in other words, if an attorney told you to put your assets in an irrevocable trust or annuity, and now, as a result, you are ineligible for benefits, you merely have to assert that the lawyer was a charlatan to avoid the penalty (at least that how I read it).

Homestead Exemption. Both this VA benefit and Medicaid have historically exempted the primary residence from consideration as a countable asset.  In recent years, Medicaid has placed a limit on the value of an exempt homestead.  Now VA will limit the exempt homestead by using a different measurement – two acres.

Countable Asset Limit.  The amount of exempt assets that have historically been excluded for this VA benefit has been uncertain.  While some offices used a “rule of thumb” figure at times, the real rule required a calculation taking into account the income shortfall of the applicant, their life expectancy and their available resources.  Medicaid has long had a simple $2,000 rule for single people, and a formula for married persons, with a ceiling.  That Medicaid formula is called the Community Spouse Resource Allowance (or CSRA) (also sometimes called the “protected spousal amount”).  Each year the Medicaid program announces the maximum CSRA. In 2018, the maximum CSRA is $123,600.  VA has adopted, as their new asset limit for all applicants, the Medicaid maximum CSRA.

 

Conclusion. These are dramatic changes for lawyers who offer advice on this benefit.  There are other changes.  Above are those that I perceive as most notable.  To read more:  click here to read the rule changes as they were originally published in 2015 (yes it has been around that long); and click here to read the VA commentary that accompanied the announcement that the rule changes would finally be implemented today.

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MSC Takes Its Shot at Estate Recovery

The Michigan Supreme Court has released an opinion in four combined cases all involving Michigan’s Medicaid Estate Recovery Program.  As we’ve learned from prior posts, the Michigan Court of Appeals has not been a friendly environment for Medicaid long term care planning (see for instance the “Bloody Thursday” from just a few weeks ago).  Well it turns out the Supremes are even less welcoming.

In their opinion the Michigan Supreme Court concludes the Court of Appeals was too generous in calculating the start date for estate recovery. They hold DHHS can go back to July. 2010.  The Supremes reject all constitutional arguments or considerations, and address the “house of modest value” issue by vacating those portions of the Appeal’s Courts decisions that discuss it.

Click here to read In Re Rasmer Estate, Gorney Estate, French Estate and Kethcum Estate.

Appreciation for all who have worked so hard on this issue. It appears however that the time has come to let it go.

 

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Estate Recovery – Last Gasp or Second Wind

Thursday, January 12, the Michigan Supreme Court is scheduled to hear oral arguments in several combined matters all relating to the issue of Medicaid estate recovery. The main issue in these cases is whether the manner in which the State implemented the estate recovery program gave those Medicaid beneficiaries who were subject to recovery sufficient notice of their rights and responsibilities – i.e. Was it fair? To read the briefs that have been filed in this matter, click here and follow the links.

This hearing is the culmination of years of litigation in local courts throughout Michigan, followed by several of those cases being appealed to the Michigan Court of Appeals.   While many local judges ruled in favor of the elder law attorneys who fought these cases, to date, as readers of this blogsite know, the appellate courts have not been nearly as friendly.  But those have all been COA cases. Perhaps the MSC will be kinder.

The State Bar Elder Law and Disability Rights Section has funded the Appellant’s case. They’ve invested a lot and have a quality product to show for it.  But one wonders what they expect to come of it.  While it’s possible the MSC could decide that every case in which the State has collected money under the estate recovery program was defective and the money should be refunded, that seems highly unlikely.  At best, perhaps, relief for the named plaintiffs and some instruction to the State to do better in the future. At worst, a stamp of approval on the process as it was followed.

In any event, one can’t knock the advocates for pushing back. The implementation of estate recovery in Michigan has been a long and curious process.

And in other news: dower is dead. The lame duck session of the Michigan legislature passed laws abolishing this relic of the common law.  No surprise here.  To read more on dower, click here.

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Two Happy Notes

notes jpeg

On the topic of self-settled special needs trusts (aka Medicaid Pay-Back Trusts; aka D4A Trusts), the “Special Needs Trust Fairness Act” has passed both houses of Congress and is headed to the desk of President Obama for his signature. These trusts have long been used to protect the assets of persons who are disabled and under age 65, and who apply for Medicaid and/or Supplemental Security Income.  However, the law has been that these trusts must be created by a court, a guardian/conservator, or the parent or grandparent of the disabled trust beneficiary.  After this new Act becomes law, in addition to these existing methods, persons who are disabled and competent will be able to create their own trusts.  A very important and long sought development in the special needs world.

On the topic of long term care Medicaid benefits, Michigan’s Department of Health and Human Services has amended the rules relating to the treatment of annuities in the context of qualified retirement accounts owned by a Medicaid applicant.   Specifically, as of January 1, 2017, new BEM policy (click here) will provide that where the Medicaid applicant has money in retirement accounts (IRA’s, 401k’s, 403B’s, etc.), different rules will apply to the conversion of those accounts to income through the use of a commercial annuity.  Specifically, the requirement that such annuities are irrevocable, actuarially sound, and that they make payments in equal monthly amounts; will not apply to annuities created with these types of accounts.  Welcome back balloon annuities – I guess. [This positive development was brought about by Chalgian and Tripp’s own David Shaltz, who continues to work under the radar for important reforms that benefit the broader elder law community.]

 

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Lame Duck Legislature Lays Golden Egg – BIG TIME

Golden Egg

DAPT – learn it and love it. Soon it will be all the talk.  Domestic asset protection trusts.  The news is that the Michigan legislature has approved a pair of bills that would make Michigan one of fifteen states with such laws, and of those states, one of the most attractive for persons seeking this type of protection.

Specifically, there are two bills awaiting the Governor’s signature which is expected before year end. The meatier of the two, the “qualified disposition in trust act” can be read by clicking here.  A second bill modifies Michigan’s fraudulent conveyance laws so as to accommodate these trusts, to read that bill click here.

In summary, a DAPT allows people to create trusts funded with their own resources, have the resources in those trusts used for their own benefit, and yet have those trust resources unavailable to their own creditors. Nifty trick.  A complete reversal of prior law and common law.  That is, in states without these laws, and in Michigan historically, a person could not put their own assets in trust and then tell their creditors to take a hike.  In the future, they can.

There are limits. One limit is that the conveyance must be done in a manner that is not a fraud on creditors.  Specifically, the standard imposed by the new law is that the trust may not be funded with “actual intent to hinder, delay or defraud any creditor.”  Another limit is that the interest the settlor reserves is a discretionary or support interest.

Specifically the law defines this relationship as follows:

The potential or actual receipt or use of principal if the potential or actual receipt or use of principal is the result of (i) a trustee’s discretion, (ii) a trustee acting in accordance with a support provision, or a (iii) trustee acting at the direction of a trust protector who is acting in its discretion or in accordance with a support provision.

This sounds so great that the initial reaction is that everyone will want one – and expect the chicken dinner seminar crowd to echo that sentiment. In reality though, these trusts make sense for people who (1) have significant wealth, and (2) have significant risks of creditors.  Otherwise, why would anyone put their money in an irrevocable trust and limit their access to those assets to support or discretion?

This will bring trust work to Michigan. Michigan has become a favorable jurisdiction for trust planning, and now, self-settled asset protection trust planning. Michigan laid the groundwork for being a leader in this arena with the exceptional protections afforded beneficiaries of discretionary trusts when it adopted the Michigan Trust Code in 2010.  This legislation gives that work a whole new application.  Look for wealthy people in other states, both states that do not have these laws, and some states that have these laws but less favorable provisions, to look to Michigan as a place to locate their trusts.  To cloak oneself in these protections, it will be necessary to have a Michigan trustee.  Good news for the trust departments of Michigan’s banks, as well as Michigan’s estate planners.

Note, don’t confuse this change with self-settled asset protection trusts now used in the context of planning for government benefits – special needs trusts. Those rules are federal and this will not impact those rules.

These laws are a product of the Probate and Estate Planning Section of the State Bar. A committee of that group’s members has been working on this project for years, and deserves great credit for bringing this about. For ICLE partners, a good summary of the law provided was by Rob Tiplady at the May 2015 Probate Institute.  I suggest you look up his materials.

This is my first pass at discussing this important development. Expect more down the road.  This matters.

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A Bridge Too Far

bridge

When clients come in with really difficult problems, we all try to come up with creative solutions to get them out of the jam. But there is a line where “creative solutions” ends and “WTF give it a try, there’s nothing to lose” begins.  File this unreported COA case in that second bin.

Lyle was on Medicaid and had an exempt homestead. He only owned 50% of the home because well prior to applying for Medicaid, he had made his home joint with his child, Steven.  The language of the deed however clearly created a tenancy-in-common, meaning that Lyle and Steven each owned 50%.  Lyle died and the State of Michigan filed a claim for estate recovery against Lyle’s 50%, claiming nearly $50,000.

Attorney consulting on the estate recovery issue, decides that the solution is to go to court and have the deed “reformed” so that upon Lyle’s death, the entire ownership interest went to Steven, as would have been the case had the deed been drafted to provide for survivorship rights. The argument, which is probably exactly true, is that Lyle no doubt believed that the deed he signed meant that his house would go to Steven when he died.  The local judge went along with the reformation/strategy/scheme/charade, but, unsurprisingly, the Attorney General (representing the Department of Health and Human Services) appealed.  The Court of Appeals reverses the trial court, and holds that Lyle’s 50% is in his estate and subject to the estate recovery claim.

So, while I’m sure many of us can appreciate the “nothing to lose” thinking that went into the effort (and I suspect I would have given the idea some consideration), the fact is that the Attorney General is on a roll in Medicaid cases that go up to the appellate courts, and the result from the COA in this case shouldn’t be a surprise. If so inclined, read the case by clicking here.

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New Policy undermines LTC Partnership Insurance Benefits

Foolish me. I got excited about the implementation of a long term care insurance partnership program in Michigan, and have written about it here several times.

As previously discussed, the law, which was finally implemented just this spring, provided two benefits to those who purchased and used a LTC partnership policy: (1) an increased asset protection at the time of application, and (2) an equivalent protection of those assets at death from Michigan’s estate recovery program. For a simple example, if a single person purchased a partnership policy which paid out $300,000 in benefits to that individual, that individual could apply for Medicaid and be eligible when they had countable assets of less than $302,000 ($2,000 as the usual asset limit, plus $300,000 as a benefit of having purchased the insurance).  Likewise, at death, this individual would have an “asset disregard” of $300,000 from the estate recovery program.  The concept is to incentivize people to buy LTC insurance and in return the State would provide them with greater asset protections if they exhaust their resources and turn to Medicaid for assistance.

Seemed reasonable and even creative. But apparently state policy-makers thought the deal was too sweet for the consumer.  Hence they are changing in the definition of “estate” as it appears in the State Medicaid Plan so that the asset disregard related to estate recovery is essentially negated.  Specifically the new policy will change the definition of an “estate” to be as follows:

… If a decedent received (or is entitled to receive) benefits under a long-term care insurance policy and had assets or resources disregarded, pursuant to 42 USC 1396p(b)(4)(B) “estate” includes all real and personal property and other assets in which the decedent had any legal tittle or interest immediately before or at the time of death to the extent of that interest, including but not limited to, assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, transfer-on-death deed, payable on death contact, promissory note or other arrangement.

This means that the exempt assets, including one’s house, would be considered as part of the asset disregard for estate recovery, and that the value of the home would be counted even if it passed to others at death by ladybird deed or otherwise in a manner which would avoid estate recovery under current rules.

The long term care Medicaid application now includes matching language. It says:

If you have received an asset disregard due to a long-term care partnership policy, Estate Recovery applies to all assets whether they are subject to probate administration or not.

After all is said and done it looks like the energy that so many put into making the concept of a long term care insurance partnership meaningful in Michigan will not be realized thanks to the efforts of the state bureaucrats who seem obsessed with the perception that the people of Michigan, and especially their planners and counselors, are all part of a conspiracy to rip off their system.

Thanks much to my colleague David Shaltz for ferreting out this development.

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Four Companies Approved to Sell LTCI Partnership Policies

Topic: The Long Term Care Insurance Partnership Program.

Background: This topic was previously addressed in these posts: LTC Insurance Partnership Shows Signs of Life (posted March 29, 2015); and LTCI Partnership Update (posted August 19, 2015).

What’s New?

Public Act 198 of 2015 which implemented the Long Term Care Insurance Partnership Program in Michigan took effect February 22, 2016. Along with the implementation date came a deadline for insurance companies interested in issuing policies that will qualify as partnership policies.  The four companies that applied and have been approved to issue partnership policies are:

Bankers Life and Casualty Company

John Hancock Life Insurance Company

Thrivent Financial for Lutherans

Massachusetts Mutual Life Insurance Company (approval pending)

These four companies are the only companies obtaining approval at this time. It is possible other companies will seek approval in the future.  These companies are presumably ready to sell these policies now or in the very near future.  Expect to start hearing about them.

Conversion policies

Be on the lookout for people who purchased LTCI insurance policies after January 1, 2008. The law allows individuals who purchased LTCI insurance policies after that date to “convert” their policies to partnership policies.  However, for this to occur, they would have to have purchased policies from one of the companies identified above who are authorized to issue partnership policies in Michigan, and those companies would have to agree to the conversion.  People who have such policies should consider contacting their agents and exploring their options with respect to conversion.

Friends in High Places

As mentioned in prior posts, implementation of the LTCI Partnership Program has been a priority of State Rep. Kevin Cotter, elder law attorney, now Speaker of the State House. As a result of Rep. Cotter’s interest in the subject and in educating his colleagues and the public about this topic, I was granted a very nice meeting yesterday with several people from DHHS, the Speaker’s office, and the State House Republican Policy Office.  Very generous of them to spend time answering questions.  Thanks all.

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And So It Ends – Perhaps

The Ketchum case discussed in more detail in a prior post was just released. It is a published Court of Appeals opinion.  Click here to read the case.

This case arises in the context of a series of cases that have been decided by the COA since Michigan first adopted an “estate recovery” law in 2007. Each case has addressed the proper interpretation of that statute.  In each case the position of the Department of Community Health has been upheld.  The same is true in Ketchum

Whereas prior cases focused on the issue of proper notice to impose an estate recovery claim, Ketchum was the first case to address the so-called “home of modest value” exemption; which purports to exempt an amount from estate recovery, which amount is equal to 50% of the average home value in the county in which the house is situated. The issue was whether this exemption is as simple as the statute suggests, or whether the home value is only one factor in determining whether this “hardship waiver” is available.  As explained in prior posts, the requirements for obtaining this exemption as set forth in DHHS policy go far beyond the simple valuation analysis.

In Ketchum, the decision of he COA turns on the unusual fact that after the death of the Medicaid beneficiary, the house was sold. Accordingly, it could be argued that the case does not foreclose the possibility that situations in which the house is retained would not be controlled by this decision.  But the dicta of the case suggests otherwise.  The COA takes pains in its decision to equate this case to prior estate recovery decisions, and specifically to the provisions of the statute that allow DCH to negotiate terms and conditions regarding Michigan’s estate recovery program, and to include additional requirements not specifically addressed in the law.

This whole process of watching the law of estate recovery go from a statute, to policy and then through the Courts to clarify the appropriateness of policy; and where the line between law and policy is drawn, would make a great case study for law students. The suggestion could be made that the deck was stacked against advocates in the process, and that each of these opinions, adopting the Department’s position, was driven less by a desire to “get it right” than by the desire to endorse the Department in whatever they chose to do.  Aging advocates will no doubt be left with some frustration – perhaps justified.  In any event, this is our system.

While there remain legal theories that could continue this battle, it is uncertain whether anyone will have the time or inclination to pursue those avenues. In the meantime, this appears to be the end.

Click here to read the prior post on Ketchum.

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Ketching Up on Estate Recovery

Tomorrow, Tuesday, is a red letter day in the elder law world. The Court of Appeals will hear oral arguments in the matter of In Re Estate of Ketchum.

Ketchum is the fist case that has gone up to the COA to address that portion of Michigan’s estate recovery law which excludes an amount equal to 50% of the average home value. Specifically, Michigan’s estate recovery law, MCL 400.112g, says:

(3) The department of community health shall seek appropriate changes to the Michigan medicaid state plan and shall apply for any necessary waivers and approvals from the federal centers for medicare and medicaid services to implement the Michigan Medicaid estate recovery program. The department of community health shall seek approval from the federal centers for medicare and medicaid regarding all of the following:

  1. An exemption for the portion of the value of the medical assistance recipient’s homestead that is equal to or less than 50% of the average price of a home in the county in which the medicaid recipient’s homestead is located as of the date of the medical assistance recipient’s death.

This is versus what the subsequently adopted policy actually provides, as set forth in BAM 120, at pages 8-9 [click here to read]. That policy characterizes this exception as a hardship waiver, and establishes almost unachievable thresholds to qualifying.  The policy goes well beyond the plain language of the statute, and essentially eviscerates the protections the legislature presumably intended when it was passed.

Best foot forward. The good news is that attorney David Shaltz of Chalgian and Tripp will be making the oral argument in this case.  Nobody is better qualified to handle this argument, and to explain the law and history that underlies it.  Thanks to Attorney Charlotte Shoup, the attorney who represents the estate, for graciously inviting David to take on this role.

Conclusion. Expect several weeks or months before a decision.  Expect a published decision.  But don’t get your hopes up.  In its recent opinions on Medicaid long term care issues, the Court of Appeals has not been a friendly place.

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