SEPTEMBER 2018 SEPTEMBER 2018
CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
V.A. “Aid & Attendance” Revisited. It has been several years since this newsletter addressed problems with the planning that is being done by non-attorneys to qualify veterans for the so-called V.A. “Aid & Attendance” (“A&A”) benefit. In fact, the reference to “A&A” is a misnomer, because even though the non-service-connected pension that certain veterans may be eligible for, depending on their income and resources, has an “A&A” component, the basic pension itself is not tied to an “A&A” supplement. In fact, there are “A&A” supplements for even the service-connected pension. The non-service-connected pension that is the subject of this article is available to veterans who have had as little as one day of service during a time of war, and as a result a benefit may be available to the veteran, which may be greater in the case of a married veteran, and which also may be available to a qualified veteran’s surviving spouse. The veteran’s so-called “A&A” pension program often arises in the context of assisted living care. I recently had another client situation develop, which I have cautioned about before, involving a pension qualification plan implemented by a non-attorney who in the course of that process sold an annuity to a client that was not needed in order to qualify for the V.A. pension. Some assisted living facilities actively promote this type of planning. It is done by so-called financial advisors who do not “charge” for the service, but frequently sell a financial product as a part of the process. The problem with this approach is that there is often a transfer of assets involved, typically to certain family members rather than to a trust (because the trust would be ineffective for the purpose of qualifying for the V.A. pension), and since there is no penalty currently for transfers of resources in connection with the V.A. pension program, as a result of the transfer the veteran living in the assisted living facility can be qualified for a V.A. pension. The pension is a supplement to the veteran’s income that helps to pay for unreimbursed medical expenses, such as assisted living costs.
The problem with this approach is that the transfer of assets creates a Medicaid qualification problem when the veteran transitions to a nursing home level of care. This happens often, and in many instances it happens very quickly after the veteran has qualified for the V.A. pension. Later, when the time comes to qualify the veteran for Medicaid, the veteran will be ineligible because of the transfer of assets. While it is possible to return the assets to the veteran, and then enter into an asset protection plan that would allow preserving approximately one-half of those assets, and then qualify the veteran for Medicaid, in many instances the funds may not be available. If the funds are tied up inside a financial product, it may not be easy or even possible to obtain those assets, and further, if the children have not handled the money properly, or if a child has died, it may be difficult or impossible to access the funds. The result may be that a veteran is ineligible for Medicaid, and yet has no resources to pay for his or her care. It creates a definite conundrum. Reputable financial advisors should be happy to work with an attorney who is much better versed in the asset protection area than any financial advisor could be, but doing so might result in the plan not being implemented, and as a result, some so-called financial advisors rarely recommend that legal advice be sought. This attitude is tantamount to a nurse practitioner performing major surgery in a non-hospital setting and actually discouraging the patient from receiving proper medical care. Readers are strongly advised to obtain independent professional advice from a Certified Elder Law attorney before implementing any asset protection plan. Remember, when “free” services are offered, you typically get what you pay for.
Recent Court of Appeals Decision Overturned. A recent Court of Appeals decision, In Re The Matter of Guardianship of Timothy A. Robbins, an Adult, Indiana Court of Appeals Case No. 18A-GU-242 (July 26, 2018), overturned a Trial Court decision that limited the funding of a special needs trust in a guardianship proceeding. Timothy suffered catastrophic injuries due to a car accident. After litigation, post-judgment mediation, and a subsequent settlement, the amount received after paying fees and the Medicaid lien, etc., was $6.75 million in a lump sum plus structured settlement payments over a period of time. The Trial Court refused to allow the entire lump sum payment to be paid into a special needs trust, and allowed only $1 million to fund the SNT, because the judge simply did not feel that it was “fair” or “right” for people to be able to qualify for Medicaid by funding special needs trusts. The court obviously exceeded the bounds of its authority, and the Court of Appeals so held. The Court of Appeals reversed and remanded with instructions to fund the full settlement, and in its decision, recited the important purpose of an SNT, which is to avoid the so-called Medicaid “spend down” in order to preserve SSI and Medicaid. The special needs trust of the type that was being funded, a so-called (d)(4)(A) “self-settled” SNT, requires the Medicaid program to be paid back following death to the extent of Medicaid benefits provided. Readers who have an interest in learning more about special needs trusts should access my previous newsletters which address various aspects of SNTs. My website, www.rkcraiglaw.com, in the “Articles and Links” section, contains a plethora of articles and commentaries, including many presentations that I have made over the years relating to special needs trusts.
Collections Against Estates And Non-Probate Transferees. Senate Enrolled Act 247 (SEA 247, enacted as 2018 P.L. 163), effective July 1, 2018, was the result of a decade of active communication and disagreement between the State of Indiana and its agencies and attorneys representing decedents’ estates and recipients of nonprobate transfers. A “nonprobate transfer” is an asset that passes outside of probate, such as through a revocable trust, a joint tenancy with rights of survivorship, or a pay-on-death (POD) or transfer-on-death (TOD) transfer. If a person dies, and a nonprobate transfer occurs, the asset passes outside of the estate. Indiana recognizes an augmented estate concept which allows recovery against nonprobate transfers, but there have been numerous issues to arise over the years which resulted in creditors and certain state agencies believing that they were short-changed and either did not have adequate time or did not receive adequate notice of their ability to recover against a nonprobate transfer. SEA 247 imposes a number of changes, one of which is that in the case of any decedent who is at least 55 years of age, the Estate Recovery Unit of the Office of Medicaid Policy and Planning (OMPP) of the Family and Social Services Administration will be deemed to be a “reasonably ascertainable creditor” for the purpose of notice. This means that notice must now be given to the OMPP in any such estate proceeding, and failing that, the OMPP will have a longer period of time within which to collect its possible claim. In the case of a decedent who dies and whose assets all pass without probate, then there would be no estate administration, and no notice would be given to the OMPP. In that case, if the county office of the Division of Family Resources was not notified by the decedent of the probate transfer prior to the decedent’s death, the OMPP would have to file a complaint against the nonprobate transferee within two years after death. Shorter periods of time would apply if the county office of the Division of Family Resources was notified by the decedent of the nonprobate transfer prior to death, such as in conjunction with the Medicaid application. Different rules apply to other government creditors, and different rules also apply to non-government claims against nonprobate transferees. Consequently, as a planning matter, if a nonprobate transfer has been used in conjunction with the planning process, then when an application for Medicaid is filed, that nonprobate transfer should be reported in conjunction with the Medicaid process. Confirmation of that report should be maintained in case a claim is filed later against the nonprobate transferee. Please note that one very important planning device that I use very frequently in conjunction with asset protection planning is a so-called irrevocable income-only trust (“IIOT”). While an IIOT is a nonprobate transfer arrangement, it is not subject to Medicaid claims, although the five-year look-back period will apply to assets transferred to that trust. The application of the five-year look-back period and the resulting imposition of the Medicaid penalty does not adversely affect planning with IIOTs, but the effect of such a Medicaid penalty will be taken into account as a part of the planning process.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.