Welcome to Jan Neal Law Firm LLC, located at 207 N. 4th Street, Opelika, Alabama 36801 where you can find the latest news concerning Elder and Special Needs Law in Alabama. Contact Jan at 334-745-2779 or toll free 1-800-270-7635 or email her at firstname.lastname@example.org, email@example.com, firstname.lastname@example.org.
A recent case involving basketball star Caldwell Jones demonstrates the danger in having only one spouse’s name on a reverse mortgage. A federal appeals court has ruled that an insurance company may foreclose on a reverse mortgage after the death of the borrower, Mr. Jones, even though Mr. Jones’ widow is still living in the house. While there are protections in place for non-borrowing spouses, many spouses are still facing foreclosure and eviction.
A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. If one spouse is under age 62, the younger spouse has to be left off the loan in order for the couple to qualify for a reverse mortgage. Some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way. But couples often did this without realizing the potentially catastrophic implications. If only one spouse’s name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.
In order to protect non-borrowing spouses, the federal government revised its guidelines for reverse mortgages taken out after August 4, 2014 to allow spouses to stay in the house as long as they meet certain criteria, including proving ownership within 90 days of the borrowers death. In 2015, the federal government allowed lenders to defer foreclosure on a widow or widower and assign the mortgage to the federal government. Advocacy groups looking at reverse mortgage foreclosures have found that despite these new regulations, lenders are still foreclosing on non-borrowing spouses. Of the 591 non-borrowing spouses who have sought help to avoid foreclosure, only 317 received assistance.
These regulations did not help Mr. Jones’ wife, Vanessa. Mr. Jones obtained a reverse mortgage in 2014 on the Georgia home he lived in with his wife. The contract defined the “borrower” to be “Caldwell Jones, Jr., a married man.” Ms. Jones did not put his wife’s name on the reverse mortgage because she was under age 62 at the time of the mortgage. Mr. Jones died later that year, and when Ms. Jones did not repay the loan, the insurer began foreclosure proceedings.
Ms. Jones sued the insurer in federal court to prevent the foreclosure, arguing that federal law prohibited the insurer from foreclosing on the house while she lived in it. Under a provision in federal law, the federal government “may not insure” a reverse mortgage unless the “homeowner” does not have to repay the loan until the homeowner either dies or sells the mortgaged property and defines “homeowner” to include the borrower’s spouse.
On appeal, the 11th Circuit Court of Appeals (Estate of Caldwell Jones, Jr. v. Live Well Financial (U.S. Ct. App., 11th Cir., No. 17-14677, Sept. 5, 2018)) ruled that the federal law in question only covers what the federal government can insure and does not govern the insurer’s right to foreclose. The court agrees with Ms. Jones that the law is intended to safeguard widows and implies that the federal government should not have insured the loan in the first place, but finds that federal law does not cover the insurer’s private right to demand immediate payment and pursue foreclosure.
When purchasing a reverse mortgage, it is always safer to put both spouse’s names on the mortgage. If one spouse is underage when the mortgage is originally taken out, that spouse can be added to the mortgage when he or she reaches age 62.
The Department of Veterans Affairs (VA) has finalized rules that were originally proposed in 2015 that will make it more difficult to qualify for VA pension benefits known as Aid and Attendance and Housebound Benefits. These new rules will change how much an applicant can own and how much an applicant can give away and qualify for benefits by establishing an asset limit, a look-back period, and asset transfer penalties for claimants applying for VA pension benefits that require a showing of financial need.
The VA offers Aid and Attendance as cash payments to low-income veterans (or their spouses) who are in nursing homes or who need help at home with everyday tasks like dressing or bathing.
Currently, to be eligible for Aid and Attendance, a veteran (or the veteran’s surviving spouse) must meet certain income and asset limits. The asset limits aren’t specified, but $80,000 is the amount an applicant is usually allowed to keep. However, unlike with the Medicaid program, there historically have been no penalties if an applicant gives away assets at any time before applying. That is, before now you could transfer assets over $80,000 before applying for benefits, and the transfers would not affect eligibility.
Not so anymore. The new regulations will resemble, to some extent, the existing Medicaid regulations in that the new VA rules set a net worth limit of $123,600, and applicants will be penalized for giving away property within three years of application. This net worth limit of $123,600 will include both the applicant’s countable (non-excluded) assets and his or her income, and net worth will be indexed to inflation in the same way that Social Security increases.
The net worth limit is calculated after first deducting property that will be excluded. Excluded property includes an applicant’s house (up to a two-acre lot and additional acreage if it is not marketable), and it will not count as an asset even if the applicant is currently living in a nursing home. Other exclusions from net worth include payment for medical care from their income, including the payments to assisted living facilities.
The regulations also establish a three-year look-back provision. Applicants will have to disclose all financial transactions they were involved in for three years before the application (similar to the Medicaid five year look-back). Applicants who transferred assets to put themselves below the net worth limit within three years of applying for benefits will be subject to a penalty period that can last as long as five years. This penalty is a period of time during which the person who transferred assets will not be eligible for VA benefits. There are exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a child who is unable to provide “self-support.”
Under the new rules, the VA will determine a penalty period in months by dividing the amount transferred that would have put the applicant over the net worth limit by the maximum annual pension rate (MAPR) for a veteran with one dependent in need of aid and attendance. In 2018 that amount is $2169.67.
For example, assume the net worth limit is $123,600 and an applicant has a net worth of $115,000. The applicant transferred $30,000 to a friend during the look-back period. If the applicant had not transferred the $30,000, his net worth would have been $145,000, which exceeds the net worth limit by $21,400. The penalty period will be calculated based on $21,400, the amount the applicant transferred that put his assets over the net worth limit (145,000-123,600). The transfer subject to penalty would be divided by the 2018 MAPR of $2169.67, resulting in a 9.86 month penalty ($21,400 divided by $2169.67 = 9.86). The penalty begins to run on the first day of the month following the month of transfer.
The new rules go into effect on October 18, 2018. The VA will disregard asset transfers made before that date.
The new regulations may be read at https://www.federalregister.gov/documents/2018/09/18/2018-19895/net-worth-asset-transfers-and-income-exclusions-for-needs-based-benefits
Medicare is extending its offer of relief from penalties for certain Medicare beneficiaries who enrolled in Medicare Part A and had coverage through the individual marketplace. Beneficiaries who qualify will be able to enroll in Medicare Part B without paying a penalty for late enrollment if they enroll by September 30, 2018.
Individuals who do not enroll in Medicare Part B when they first become eligible face a stiff penalty, unless they are still working and their employer’s plan is considered “primary.” For each year that these individuals put off enrolling, their monthly premium increases by 10 percent — permanently. Some people with marketplace plans – that is, plans purchased by individuals or families, not through employers — did not enroll in Medicare Part B when they were first eligible. Purchasing a marketplace plan with financial assistance from the Affordable Care Act can be cheaper than enrolling in Medicare Part B. However, Medicare recipients are not eligible for marketplace financial assistance plans. And because marketplace plans are not considered equivalent coverage to Medicare Part B, signing up late for Part B will result in a late enrollment penalty.
To address this problem, the Centers for Medicare and Medicaid Services (CMS) is allowing individuals who enrolled in Medicare Part A and had coverage through a marketplace plan to enroll in Medicare Part B without a penalty. It is also allowing individuals who dropped marketplace coverage and are paying a late enrollment penalty for Medicare Part B to reduce their penalty. CMS is now expanding the offer of possible relief to people who should have signed up for Part B during a special enrollment period that ended Oct. 1, 2013, or later but instead used exchange plans. It is also extending the deadline to September 30, 2018 (the earlier deadline was September 30, 2017). To be eligible for the relief, the individual must: Have an initial Medicare enrollment period that began April 1, 2013 or later; or have been notified on October 1, 2013, or later that they were retroactively eligible for premium-free Medicare Part A; or have a Part B Special Enrollment Period that ended October 1, 2013, or later. This offer is available for only a short time. To be eligible for the relief, individuals must request it by September 30, 2018.
Gather any documentation you have to prove that you are enrolled in a marketplace plan. Individuals who are eligible should contact Social Security at 1-800-772-1213 or visit their local Social Security office and request to take advantage of the “equitable relief.”
Florida and Arizona are the latest states to request a waiver from the requirement that states provide three months of retroactive Medicaid coverage to eligible Medicaid recipients. Whether Alabama plans to follow suite is unknown to the public at this time, but this is a time when shrinking budgets prepare us to anticipate the worse.
Medicaid law allows a Medicaid applicant to be eligible for benefits for up to three months before the month of the application if the applicant met eligibility requirements at the earlier time. This helps people who are unexpectedly admitted to a nursing home and can’t file — or are unaware that they should file — a Medicaid application right away. Preparing an application for Medicaid nursing home coverage may take many weeks; the retroactive coverage gives families a window of opportunity to apply and get coverage dating back to when their loved one first entered the nursing home. “Retroactive coverage is one of the long-standing safeguards built into the program for low-income Medicaid beneficiaries and their healthcare providers,” says the Kaiser Family Foundation.
Now Arizona and Florida are joining a growing list of states that are asking the federal Centers for Medicare and Medicaid Services (CMS) to eliminate the retroactive benefits. CMS has already approved similar requests by Iowa, Kentucky, Indiana, and New Hampshire to waive retroactive coverage. A lawsuit is challenging Kentucky’s waiver, which also imposes work requirements for Medicaid recipients.
Advocates argue that if Medicaid applicants cannot get coverage before the month of application, they may be saddled with uncovered medical bills or fail to receive needed health care because they cannot afford it. According to Justice in Aging, which filed a brief in the Kentucky lawsuit, Medicaid applicants often do not file an application right away because of the complexity of the Medicaid application process or a false belief that Medicare would cover nursing home care.
For more information about the implications of the elimination of retroactive benefits, click here for a Kyser Family Foundation issue paper.
There is one final note of caution when electing to request the retroactive benefits on the Medicaid application. It is important to use care if gifts were made in the prior five years. An applicant may get outside the five year look-back, click the box requesting three months of retroactive benefits and find himself back inside the five year lookback triggering a penalty.
When a person applies for Medicaid to pay for long-term care, either in a nursing home or through the Home and Community Based Waiver (HCBW), Medicaid examines the applicant’s financial transactions for five years preceding the application to determine if any funds were given away or property sold for less than the value assigned by Medicaid. If so, a penalty is calculated by dividing the value of the amount transferred by $6100 (as of 2018) to determine the number of months of ineligibility.
In nursing home Medicaid cases it was always clear that the penalty started to run when the person resided in a nursing facility and would meet all requirements for Medicaid eligibility but for the existence of the penalty for transferring assets. In that situation a person is approved for Medicaid subject to the applicable penalty. He or she is billed privately during the penalty period, often at the peril of relatives who need to come up with funds to pay the bill. When the number of months of penalty assigned runs out, Medicaid will then pay for the resident’s care.
It has not been so clear about how to get the penalty running in HCBW cases. If the penalty cannot run until the person receives HCBW services, but the person cannot receive HCBW because of the transfer of assets, then you can never get past the penalty period. When the application is not taken upon identifying asset transfers, the penalty becomes permanent ineligibility for HCBW services.
On April 17, 2018, the Center for Medicare and Medicaid Services provided revised guidance on how to establish the start date for transfer penalties for HCBW applicants. In that directive CMS indicates that the penalty would begin to run at the point at which a state has: determined that the applicant meets the financial and non-financial requirements for Medicaid eligibility and the level-of-care criteria for the waiver; developed for the individual a person-centered service plan; and identified an available waiver slot for the individual’s placement. The penalty period for that applicant begins no later than the date on which a state has confirmed that all of these requirements are met, and transfers that would be subject to a penalty would be those that were made on or after the 60 months preceding this same date.
It would appear that persons who have transferred assets need to request that the application for HCBW still be taken, a care plan developed and proof provided that a waiver slot is available to establish the date all of these requirements have been met. Hopefully Medicaid will develop procedures to document eligibility for HCBW subject to the penalty so that services can begin when the penalty has run.
The CMS revised guidance can be read here.
While a will is an important document to have in any estate plan, the reality is that most property passes to heirs through other, less formal means. Failure to recognize this fact can result in some unintended consequences in estate distributions.
Many bank and investment accounts, as well as real estate, can be titled to joint owners who take ownership automatically at your death. Other banks and investment companies offer “payable on death” accounts that permit owners to name the person or people who will receive the account funds when the owner dies. Life insurance, of course, permits the owner to name beneficiaries. Some real property is titled to joint owners with rights of survivorship so that when one owner dies, the other takes full ownership of the property. A future interest in property can be transferred during a person’s life, subject to a life estate held by the transferor, so that when the life estate holder dies, the property is owned by the person/s to whom the future interest was given. No probate would be necessary.
All of these types of ownership and beneficiary designations permit these accounts and types of property to avoid probate, meaning that they will not be governed by the terms of a will. When taking advantage of these simplified procedures, owners need to be sure that the decisions they make are consistent with their overall estate plan. It is not unusual for a will to direct that an estate be equally divided among the decedent’s children, only to find that because of joint accounts or beneficiary designations, the estate is distributed unequally, or even to non-family members, such as new or old boyfriends and girlfriends.
It is also important to review beneficiary designations every few years to make sure that they still reflect your wishes. An out-of-date designation may leave property to an ex-spouse, to children who disappeared from you life while other children provided care, to ex-girlfriends or ex-boyfriends, to relatives who are on means tested public benefits who will lose those benefits by inheriting, and to people who died before the owner. All of these failures to make proper designations can thoroughly undermine an estate plan and leave a legacy of resentment that most people would prefer to avoid.
These concerns are heightened when dealing with retirement plans, whether IRAs, SEPs or 401(k) plans, because the choice of beneficiary can have significant tax implications. These types of retirement plans benefit from deferred taxation in that the income deposited into them, as well as the earnings on the investments, are not taxed until the funds are withdrawn. In addition, owners may withdraw funds based more or less on their life expectancy, so the younger the owner, the smaller the annual required distribution. Further, in most cases, withdrawals do not have to begin until after the owner reaches age 70 1/2. However, this is not always the case for inherited IRAs. To further complicate matters, the spouse has a right to funds in a 401(k) that must be disclaimed by waiver after marriage to prevent their having rights to those funds even if you named someone else as your 401(k) beneficiary.
Following are some of the rules and concerns when designating retirement account beneficiaries:
- Name your spouse, usually. Surviving husbands and wives may roll over retirement plans inherited from their spouses into their own plans. This means that they can defer withdrawals until after they reach age 70 1/2 and take minimum distributions based on their age. Non-spouses of retirement plans must begin taking distributions immediately, but they can base them on their own presumably younger ages.
- But not always. There are a few reasons you might not want to name your spouse, including the following:
- He or she is incapacitated and can’t manage the account
- Doing so would add to his or her taxable estate
- You are in a second marriage and want the investments to benefit your first family
- Your children need the money more than your spouse
- Consider a trust. In some circumstances, a trust would be appropriate, providing for management in the case of an incapacitated spouse, permitting assets to benefit a surviving spouse while being preserved for the next generation. Those in first marriages may want to name their spouse as the primary beneficiary and a trust as the secondary, or contingent, beneficiary. Transferring assets to a trust can also be used to plan for long-term care expenses if planning is done early enough (five years before you or your spouse need nursing home care).
- But check the trust. Most trusts are not designed to accept retirement fund assets. If they are missing key provisions, they might not be treated as “designated beneficiaries” for retirement plan purposes. In such cases, rather than being able to stretch out distributions during the beneficiary’s lifetime, the IRA or 401(k) will have to be liquidated within five years of the decedent’s death, resulting in accelerated taxation.
- Be careful with charities. While there are some tax benefits to naming charities as beneficiaries of retirement plans, if a charity is a partial beneficiary of an account or of a trust, the other beneficiaries may not be able to stretch the distributions during their life expectancies and will have to withdraw the funds and pay the taxes within five years of the owner’s death. One solution is to dedicate some retirement plans exclusively to charities and others to family members.
- Consider special needs planning. It can be unfortunate if retirement plans pass to individuals with special needs who cannot manage the accounts or who may lose vital public benefits as a result of receiving the funds. This can be resolved by naming a special needs trust as the beneficiary of the funds, although this gets a bit more complicated than most trusts designed to receive retirement funds. Another alternative is not to name the individual with special needs or his trust as beneficiary, but to make up the difference with other assets of the estate or through life insurance.
- If probate will be necessary, leave an account jointly titled with your personal representative to provide expenses during probate. If your home needs to be sold, funds will need to be available to pay property tax, insurance, utilities, etc.
- Keep copies of your beneficiary designation forms. Don’t count on your retirement plan administrator to maintain records of your beneficiary designations, especially if the plan is connected with a company you worked for in the past, which may or may not still exist upon your death. Keep copies of all of your forms and provide your estate planning attorney with a copy to keep with your estate plan.
- But do name beneficiaries! The biggest mistake many people make is not to name beneficiaries at all, or they end up in this position by not updating their plan after the originally-named beneficiary passes away. This means that the plan will have to go through probate at some expense and delay and that the funds will have to be withdrawn and taxes paid within five years of the owner’s death.
In short, while wills are important, in large part because they name a personal representative to take charge of your estate and they name guardians for minor children and disabled spouses, they are only a small part of the picture. A comprehensive plan needs to include consideration of beneficiary designations, especially those for retirement plans.
Medicaid benefits seem more like loans than benefits these days. This is because there are laws that require states to recoup what it spent on care from estates after the Medicaid recipient dies.
This federal recoupment effort carried out by each state is known as Medicaid Estate Recovery. For this reason it is important for a person who is considering application for any type of Medicaid to get solid advice on this topic prior to applying for Medicaid. It is also important for any person probating a will or administering an estate to consider the possibility of Medicaid being an estate creditor to put the agency on notice before disbursing the proceeds of an estate or else risk personal liability against the personal representative (aka executor).
To grasp Medicaid Estate Recovery, it is important to understand that there are many different categories of Medicaid, but they are all part of a joint federal/state program. Estate recovery applies to some categories of Medicaid and not to others.
Also understand that there are certain types of liens on property that individuals can give to Medicaid to allow them to qualify for Medicaid. These are pre-death liens referred to as TEFRA (Tax Equity and Fiscal Responsibility Act) liens. An example might be a single person of any age who cannot qualify for nursing home Medicaid because he owns his home, thus resulting in resources that exceed the $2000 resource limit. He might give a lien and place the property on the market to sell and qualify for nursing home Medicaid under the “bona fide effort to sale” property exclusion. Medicaid will hopefully recoup funds from the sale of the property up to the amount it paid for the care of the individual who gave the lien, but often the property does not sell during the lifetime of the Medicaid recipient. Medicaid will continue to hold that lien and right to recover funds from the sale after the Medicaid recipient dies.
But what is referred to as Medicaid Estate Recovery goes a step further. Even without a specific TEFRA lien being given by the property owner, Medicaid can recoup funds from the probate estate of the Medicaid recipient after his death provided there are funds from which to recoup. In other words, this is a statutory lien that applies to estates of deceased Medicaid recipients for whom certain types of Medicaid benefits were paid.
Through Medicaid Estate Recovery the federal government requires states to seek recovery of funds spent on care from the estates of persons who received certain benefits, particularly benefits paid after the age of fifty-five years and incorrect payments. This includes:
- benefits that were not paid correctly to a person of any age (resulting in what is known as an overpayment);
- benefits paid after age 55 for nursing home Medicaid;
- benefits paid after age 55 for waiver services (at home care provided to avoid institutional care);
- benefits paid for hospital and drugs for persons who received those benefits in connection with nursing home or waiver Medicaid after the age if 55.
Federal law gives the states the option to seek recovery of funds for all Medicaid expenditures for services received after age 55 unless otherwise exempted (more on this later). This would include money spent for SSI eligible persons who qualify for Medicaid in the community. Alabama has opted to exercise this recovery.
To further complicate matters, the Alabama Medicaid Administrative Code includes language indicating that the agency will seek recovery for benefits paid for a person of any age who permanently resides in a nursing facility, intermediate care facility for the intellectually disabled or other medical institution. There are attorneys in Alabama who believe that this application of estate recovery for institutional benefits for persons under the age of 55 violates the federal statute. If Medicaid does seek recovery of such funds a recovery in this category will likely be challenged in years to come.
Medicaid Estate Recovery does not apply to the Medicare Savings Programs (QMB, SLMB and QI), but Alabama is collecting on benefits paid for these programs prior to 2010. These are programs that help low income persons eligible for Medicare pay for healthcare costs through Medicaid. Due to the Medicare Improvements for Patients and Providers Act (MIPPA) these categories of Medicaid benefits are not subject to estate recovery. Note that as of 2016 the award letters to these recipients incorrectly indicated that estate recovery would apply. An exception to this exclusion is Medicare Savings Program benefits paid on behalf of beneficiaries of first party special needs trust.
At this time Medicaid Estate Recovery only applies to property in the probate estate in Alabama. That means that property that passes directly to someone outside of the probate estate cannot be reached by Medicaid. Examples include property titled as survivorship property (in a deed where the owners hold property as joint tenants with right of survivorship); property in which the deceased had already transferred it to another retaining only a life estate (through a life estate and remainder deed); proceeds of life insurance, IRAs, or brokerage accounts with a beneficiary named to take the proceeds at death; joint bank accounts with a co-owner or set up as payable on death to a named beneficiary.
Estate recovery/lien enforcement can be delayed or waived in certain circumstances.
Delay may occur:
- until after the death of any surviving spouse (no lien was taken);
- related to the home, until the property is no longer occupied by a surviving child under the age of 21 years of age; a surviving child who is blind or disabled (no lien was taken);
- related to the home, until the property is no longer occupied by a sibling with an equity interest who had resided in the home for at least one year preceding the Medicaid recipient’s admission to the facility where benefits were paid (no lien was taken);
- related to the home, until the property is no longer occupied a son or daughter who provided two years or more of care immediately before the admission to the facility where benefits were paid and that care was of such a level that it allowed the Medicaid recipient to reside in the home and avoid institutional care (a lien may exist, and note that the property could have been transferred to the child without penalty).
- related to the home, until the property is no longer occupied by a sibling who is lawfully living in the home and was lawfully residing continuously in the home for at least one year immediately prior to the Medicaid recipient being admitted to the facility where benefits were paid (a lien may exist).
Waiver may occur:
- for an amount of money equal to sums paid under a qualified long-term care insurance policy;
- upon proving undue hardship which is: the existence of a situation, established by convincing evidence, that the estate subject to recovery is an asset such as a family farm or family business which produces “limited income” (defined as equal to or less than the income limit established in Rule 560-X-25-.14 [at or below 141% of the poverty level]) and is the sole income-producing asset of one or more heirs to the estate. The limit of 141% of the poverty level is $1426.45 for a one person household, $1934.05 for a two person household (for larger households, add 507.60 for each additional person). Note that the Medicaid regulations state that undue hardship does not apply for recipients with long term care insurance policies who became Medicaid eligible by virtue of disregarding assets because of payments made by a long term care insurance policy or because of entitlement to receive benefits under a long term care insurance policy OR if the Medicaid agency determines the hardship was created by the recipient by resorting to estate planning methods under which the recipient illegally divested assets in order to avoid estate recovery.
To request an undue hardship waiver a request for a waiver application must be made to Alabama Medicaid within 30 days of receiving the agency notice against the estate or upon the sale, transfer or conveyance of real property subject to a TEFRA lien.
A bill was filed in the Alabama Senate in the 2017 legislative session and again in the current 2018 session that would give the Alabama Medicaid broad statutory powers to impose liens against the real property of any Medicaid beneficiary. Astonishingly it would require every estate administered in Alabama to notify the agency as a creditor even if the deceased person never applied for Medicaid. That pending legislation can be read here.