Jan Neal Law Firm LLC

Alabama Estate, Elder and Special Needs Law


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Wills and Beneficiary Designations Work Together to Distribute Your Estate

will and gavelWhile 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 An out-of-date designation may leave property to an ex-spouse, to children who disappeared from you life while other children provided care, to ex-girlfriends or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.


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Alabama Medicaid Estate Recovery

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.


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January 2018 Newsletter Available

Our January 2018 Newsletter, Bookmarks, has been published , and you can view it online at the link provided.  Several articles are included covering Medicare, Medicaid, nursing home resident dumping, and the new tax law.  Let us know if you want to be added to the email list.


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Planning for the Rising Cost of Long-Term Care

Physiotherapist Holding Senior Patient's Hand On WheelchairPlanning for long-term care is an important issue to tackle, and the latest forecast shows that the associated costs of care are reaching well beyond the average person’s means.  This makes planning to save an estate an important proposition, and the earlier the planning, the greater the options.

The median cost of a private nursing home room in the United States has increased to $97,455 a year, up 5.5 percent from 2016, according to Genworth’s 2017 Cost of Care Survey.  Genworth, an insurer, surveys and publishes long-term care prices across the country annually and provides a benchmark for what caregivers will need to finance long-term care.  The company reports that the median cost of a semi-private room in a nursing home is $85,775, up 4.44 percent from 2016.

The price rise was slightly less for assisted living facilities, where the median rate rose 3.36 percent, to $3,750 a month. The national median rate for the services of a home health aide was $22 an hour, up from $20 in 2016, and the cost of adult day care, which provides support services in a protective setting during part of the day, rose from $68 to $70 a day.

For Alabama, the Genworth survey reports that the average semi-private nursing home room in 2017 was $72,996 per year/$6,083 per month (up from $71,172 per year/$5931 per month from 2016), and the average private nursing home room was $77,568 per year /$6,464 per month (up from $75,192 per year/$6,266 per month in 2016).  The average assisted living facility was $36,684 per year/$3,057 per month (up from $34,800 per year/$2,900 per month in 2016).

Alaska continues to be the costliest state for nursing home care, with the median annual cost of a private nursing home room totaling $292,000. Oklahoma again was found to be the most affordable state, with a median annual cost of a private room of $63,510.

The 2017 survey was based on responses from more than 15,000 nursing homes, assisted living facilities, adult day health facilities and home care providers. The survey was conducted by phone during May and June of 2017.


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Medicare Improvement Standard

Have you or a loved one been denied Medicare-covered services because you’re “not improving”? Many health care providers are still not aware that Medicare is required to cover skilled nursing and home care even if a patient is not showing improvement. If you are denied coverage based on this outdated standard, you have the right to appeal.

For decades Medicare, skilled nursing facilities, and visiting nurse associations applied the so-called “improvement” standard to determine whether residents were entitled to Medicare coverage of the care. The standard, which is not in Medicare law, only permitted coverage if the skilled treatment was deemed to contribute to improving the patient’s condition, which can be difficult to achieve for many ill seniors.

Three years ago in the case of Jimmo v. Sebelius the Centers for Medicare & Medicaid Services (CMS) agreed to a settlement in which it acknowledged that there’s no legal basis to the “improvement” standard and that both inpatient skilled nursing care and outpatient home care and therapy may be covered under Medicare as long as the treatment helps the patient maintain her current status or simply delays or slows her decline. In other words, as long as the patient benefits from the skilled care, which can include nursing care or physical, occupational, or speech therapy, then the patient is entitled to Medicare coverage.

Medicare will cover up to 100 days of care in a skilled nursing facility following an inpatient hospital stay of at least three days and will cover home-based care indefinitely if the patient is homebound.

Unfortunately, despite the Jimmo settlement, the word hasn’t gotten out entirely to the hospitals, visiting nursing associations, skilled nursing facilities, and insurance intermediaries that actually apply the rules. As a result, the Jimmo plaintiffs and CMS have now agreed to a court-ordered corrective action plan, which includes the following statement:

“The Centers for Medicare & Medicaid Services (CMS) reminds the Medicare community of the Jimmo Settlement Agreement (January 2014), which clarified that the Medicare program covers skilled nursing care and skilled therapy services under Medicare’s skilled nursing facility, home health, and outpatient therapy benefits when a beneficiary needs skilled care in order to maintain function or to prevent or slow decline or deterioration (provided all other coverage criteria are met). Specifically, the JimmoSettlement required manual revisions to restate a “maintenance coverage standard” for both skilled nursing and therapy services under these benefits:

Skilled nursing services would be covered where such skilled nursing services are necessary to maintain the patient’s current condition or prevent or slow further deterioration so long as the beneficiary requires skilled care for the services to be safely and effectively provided.

Skilled therapy services are covered when an individualized assessment of the patient’s clinical condition demonstrates that the specialized judgment, knowledge, and skills of a qualified therapist (“skilled care”) are necessary for the performance of a safe and effective maintenance program. Such a maintenance program to maintain the patient’s current condition or to prevent or slow further deterioration is covered so long as the beneficiary requires skilled care for the safe and effective performance of the program.

The Jimmo Settlement may reflect a change in practice for those providers, adjudicators, and contractors who may have erroneously believed that the Medicare program covers nursing and therapy services under these benefits only when a beneficiary is expected to improve. The Settlement is consistent with the Medicare program’s regulations governing maintenance nursing and therapy in skilled nursing facilities, home health services, and outpatient therapy (physical, occupational, and speech) and nursing and therapy in inpatient rehabilitation hospitals for beneficiaries who need the level of care that such hospitals provide.”

While this doesn’t change the rights Medicare patients have always had, it should make it somewhat easier to enforce them. If you or a loved one gets denied coverage because the patient is not “improving,” then appeal.

To read the court order implementing the new corrective action plan click here.


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Dementia Resource Publication

We have been working on a publishing project with Middle Alabama Area Agency on Aging (M4A) to produce dementia friendly resources for professionals and caregivers.  This booklet was published in June 2017 and can be read here.  To download you will need to go to the publishing platform, Issue, to create a free account or download the pdf here.  Printed copies may be obtained by contacting M4A at (205) 670-5770 or toll free (866) 570-2998.


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Resources for UNA Social Workers

Last week I spoke to the alumni social workers group at The University of North Alabama in Florence, Alabama, and shared information about authority and capacity issues for seniors.  I promised to post additional information for reference on our web site, so here you have it.

The Alabama Uniform Power of Attorney Act effective January 1, 2012, is found at Alabama Code (1975) Sections 26-1A-101 through 404.  The standard power of attorney form is found at Section 26–1A–301.  This power is presumed durable without specific language being required like previous powers of attorney.

ALA. CODE § 26-1A-120(a)(3) provides that a person may not require an additional or different form of power of attorney for authority granted in the power of attorney presented, and a person who refuses to effect a transaction in reliance upon an acknowledged power of attorney may be subject a court order mandating that the person effect the transaction.  If the document is found to be valid, attorneys fees and costs incurred may be awarded.

The Portable Physician Do Not Attempt Resuscitation Orders regulation  is found at Board of Health 420-5-19-.02.  Different facilities can continue to use their own forms, but for the order to be portable the statutory form provided in the regulation is required.

The capacity assessment materials I discussed produced by the American Bar Association and American Psychological Association can be found here.

What a great group of social workers I met, and I look forward to speaking again to the group in August.

 

 


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Elder Law Bookmarks 2nd Qtr.

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Our latest newsletter was sent today and can be viewed online at https://attorney.elderlawanswers.com/newsletter/actions/view/c/15771/cs/3b48dcc5d6ad249de1c25b6748a377f8


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Deeding Property with a Reserved Life Estate

agreementThe term “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, at which time it passes to the other owner, referred to as the person with the remainder interest. Life estates can be used to avoid probate while giving a house to children without losing the ability to live in the home, remaining responsible for property tax – with the benefit of homestead and age related tax exemptions, remaining responsible for homeowner insurance, yet creating ownership in the children at the death of the parent.   This type of deed can play an important role in Medicaid planning since Medicaid does not assign any value to a life estate when the parent applies for Medicaid to pay for nursing home care.  If the transfer occurred prior to five years before application, there will be no penalty for the transfer.

In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.

Another example of use of life estates is when a spouse who owns property in only his or her name wants to leave that property to his or her children from a former marriage but wants the later in life spouse to be protected and have a place to live.  That person might write a will leaving a life estate to the spouse with the remainder to his or her children on the death of the spouse.  This comes up not infrequently when individuals want to protect property passed to them by family and who want to keep that property in their blood line while protecting the spouse as well.

When the life tenant dies, the house will not go through probate, since at the life tenant’s death the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states that have not expanded the definition of estate recovery to include non-probate assets, which includes Alabama at the time this is being written.

Although the property will not be included in the probate estate, it will be included in the taxable estate. Depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation.  However, the joint federal lifetime estate tax exemption and gift tax exclusion is $5,490,000, so few people are actually subject to estate tax.

The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share and the larger the share of the remaindermen.

Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if Medicaid application is made within five years of the transfer. Further, purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property and live in the house for more than a year.

For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid.  Just be aware that there may be some local variations on how this is applied, so get good advice before finalizing arrangements involving a life estate if long term care could be a future concern.


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SSI and Gifting Resources

SSI is the basic federal safety net program for the elderly, blind and disabled, providing them with a minimum guaranteed income. If your resources are above the program’s resource limits of $2,000 for an individual or $3,000 for a married couple, you may be able to “spend down” to qualify for SSI, similar to the process to qualify for the Medicaid program.

If you give away a resource or sell it for less than it is worth in order to get under the SSI resource limit, you may be ineligible for SSI for up to 36 months. The SSA looks at whether or not you have transferred a resource within the previous three years. If you have, it computes a penalty period by dividing the amount of the transfer by your monthly benefit amount.

Thus, if you give your son a $6,000 gift and then apply for a monthly SSI benefit of $600 within three years of the gift, you will not be eligible for SSI for 10 months (6,000/600=10). That 10-month period will begin on the date of the transfer and end 10 months later. In other words, although you can be ineligible for up to 36 months due to a transfer, that is only a cap. The actual period of ineligibility is based on the value of what you transferred divided by the monthly benefit in your state.

You should be aware that transfers may be “cured” by the person to whom you made a gift returning it to you. And, finally, there are certain exceptions to the transfer penalty. These include gifts to:

A spouse (or anyone else for the spouse’s benefit);
A blind or disabled child;
A trust for the benefit of a blind or disabled child;
A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the applicant, under certain circumstances).

In addition, special exceptions apply to the transfer of a home. The SSI applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

The applicant’s spouse;
A child who is under age 21 or who is blind or disabled;
Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the applicant, under certain circumstances);
A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or
A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.