Trusts can undermine Medicaid eligibility even if they accomplish other goals

A “Trust” is an estate-planning structure that has many different uses and purposes. Fundamentally, to be valid, there needs to be (a) a Trustee — the manager, who is not the owner of the assets; (b) a Beneficiary – the party that the trustee can spend assets on, who is not the owner of the assets, (c) terms and conditions – usually contained in a legal document which could be a Will or could be another document that creates the Trust. Until a Trust receives assets, it is an unfunded trust and may be referred to as a “dry trust.” Some trusts are irrevocable, others are revocable. Sometimes the Trust is assigned its own taxpayer EIN# which is obtained from the IRS. Sometimes the Trustee is also the Beneficiary; other times the assets are placed in Trust as a gift, for benefit of other family members. . Certain trusts are designed to provide “creditor protection” by shielding the assets from those who might be coming after the beneficiary’s creditors. Certain Trusts are designed to preserve the Beneficiary’s eligibility for means-tested disability-related services. Certain trusts give total discretion to the trustee, whereas others place obligations on the Trustee (such as “pay all the income to the beneficiary for 5 years” or “give the beneficiary 1% of the principal every year in January”). How it is written depends on what the purpose is.

The Medicaid program has strict, low financial restrictions for eligibility. As readers of this blog know, a resource is defined as something that the applicant (or his spouse) owns and which can be converted to cash to be used for the applicant’s support and maintenance. Other than a properly-structured  first-party Special Needs Trust, a residence, one car, an irrevocable funeral trust, a burial place and a life insurance policy whose face value is less than $1,500, pretty much anything else that meets this criteria is treated as a  countable “resource.”  There are special regulations concerning when the assets in a Trust are counted as a resource of the individual.

Section 4.11 of the State Medicaid Manual describes the treatment of Trusts. It applies to trusts that were created by an applicant, his or her spouse, or another party who has legal authority to act on their behalf (Guardian, Agent under Power of Attorney, or Court). It does not apply to trusts created by a spouse of the applicant in their Will (but keep in mind, e.g., the requirements of the DeMartino case and the elective share statute). If assets of the individual or their spouse form any part of the Trust and the individual or their spouse are beneficiaries,  100% of the Trust is a countable resource if the Trust is revocable (such as a “Revocable Living Trust” that some people use to “avoid probate”), and if it is an irrevocable trust, the portion of income or principal that could be paid to or for benefit of the individual (or spouse) continues to be counted as income or as a resource. Either way, any of this could adversely affect eligiblity.  A person might be treated as a Beneficiary without even realizing it.

We see many different Trusts in our practice, and we write Trusts when they are useful. I am frequently asked by new elder care clients, “do I need a trust?”  (and even more often, “I heard that I need a Trust so the nursing home doesn’t take it all”). The response of course is, “what do you want to accomplish, who do you want to protect, how’s your health, and what do we have to work with?”

The problems caused when a Trust is deemed to be a “countable resource” can create substantial financial jeopardy for an applicant, particularly because after the Medicaid application is filed, it may be many months before that bad news is received from the agency.  When discussing a trust strategy later in life, it is a good idea to talk with the attorney about the impact of the Trust on Medicaid eligibility as well as its efficacy for whatever other issues are being addressed. Forewarned is forearmed.

Call us for advice on trusts and Medicaid eligibility and for individualized estate planning strategies …. 732-382-6070

Watch out for the Rules of Evidence in Medicaid appeal hearings

The first level of appeal when the State Medicaid Agency issues an adverse decision is called a “Fair Hearing” and takes place at the NJ Office of Administrative law (OAL). The Judge is referred to as an Administrative Law Judge or “ALJ.” That Judge issues an initial decision that is subject to review and final decision by the NJ Division of Medical Assistance and Health Services (Medicaid). The burden of proof is on the applicant, and the hearing is conducted generally like a trial — witnesses can be questioned under oath; documents can be introduced in evidence. The formal rules of evidence that govern the New Jersey courts are relaxed somewhat, but there are still requirements to prove each point of the legal case by using some non-hearsay evidence. The following case illustrates what can go wrong when “the i’s aren’t dotted and the T’s aren’t crossed,” as they say.

 B.S. v. Div. of Med. Assistance & Health Servs., was an unsuccessful appeal after an unsuccessful Fair Hearing. The 92-year-old  Petitioner lived in a nursing home and had applied for Medicaid. When her 5 years’ of financial records were submitted for the required “look-back” scrutiny, the county division for social services noticed that there were two large bank withdrawals from her account. The funds had been transferred to her daughter’s account. The daughter was told to provide proof that either (a) all of the transferred money had been actually spent for benefit of the applicant or that (b) the transfer was some kind of purchase at fair market value for goods or services. The requested proof wasn’t supplied and a 224-day “transfer penalty” was imposed. The request for Fair Hearing was then filed.

The OAL has a rule that requires a “residuum” of non-hearsay evidence for each fact to be proven. If the other party won’t stipulate to the fact, then it must be proven through what’s called “competent” evidence – i.e., non-hearsay. Here’s the rule:

1:1-15.5 Hearsay evidence; residuum rule

(a) Subject to the judge’s discretion to exclude evidence under  N.J.A.C. 1:1-15.1(c) or a valid claim of privilege, hearsay evidence shall be admissible in the trial of contested cases. Hearsay evidence which is admitted shall be accorded whatever weight the judge deems appropriate taking into account the nature, character and scope of the evidence, the circumstances of its creation and production, and, generally, its reliability.

(b) Notwithstanding the admissibility of hearsay evidence, some legally competent evidence must exist to support each ultimate finding of fact to an extent sufficient to provide assurances of reliability and to avoid the fact or appearance of arbitrariness.”

Apparently, at the hearing, her evidence was made up of  “unauthenticated bank records” and a power of attorney, ruling that petitioner had failed to submit any competent evidence. The case was scheduled for hearing three times, and neither the Petitioner (nor her attorney) presented any witnesses to testify about what had occurred or to explain any documents that were presented in evidence.  As a result, the ALJ ruled that there was insufficient evidence to show that the transfers were anything other than an outright gift — which causes a penalty under the Medicaid program. The Director affirmed (adopted the decision) and the Appellate Division affirmed.

The burden of proof rests with the applicant in Medicaid cases. Careful detailed preparation is needed to successfully prove a case at an administrative hearing.

Call us for representation on Medicaid applications and appeals of denials …. 732-382-6070

 

Medical Aid-in-Dying Act signed by Governor Murphy

On April 12th, New Jersey joined seven other States which have enacted laws authorizing a terminally patient to self-ingest a drug that would end their life. Oregon was the first State to allow this, in 1997. The New Jersey bill was A1504/S1072. It will go into effect on August 1, 2018. Over two dozen other States are actively considering such legislation.

The Act specifies criteria for who is eligible to take advantage of its protections: The individual must be an adult over 18 and able to self-ingest the medication. They must have a terminal diagnosis with a prognosis of six months of less, and they must be determined to have full mental capacity. The Act allows such an individual to make and carry out an “informed decision” to ingest a fatal drug. Informed decision is defined as:

   “a decision by a qualified terminally ill patient to request and obtain a prescription for medication that the patient may choose to self-administer to end the patient’s life in a humane and dignified manner, which is based on an appreciation of the relevant facts and after being fully informed by the attending physician of:

(1)   the patient’s medical diagnosis;

(2)   the patient’s prognosis;

(3)   the potential risks associated with taking the medication to be prescribed;

(4)   the probable result of taking the medication to be prescribed; and

(5)   the feasible alternatives to taking the medication, including, but not limited to, concurrent or additional treatment opportunities, palliative care, comfort care, hospice care, and pain control.

 

There are many steps in the procedure protocol. First, the individual must originate the request by making two spoken (oral) requests to the physician, with a 15 day waiting period in between; the doctor must bring in a consulting specialist to confirm capacity; the doctors may refer the individual for psychological or psychiatrist for further capacity evaluation if capacity is not clear; the doctor must offer the patient the option to rescind his or her request. The individual also must complete a specific form and submit it to their doctor; the form will be titled “REQUEST FOR MEDICATION TO END MY LIFE IN A HUMANE AND DIGNIFIED MANNER.”

The written request must be witnessed in a manner similar to other legal documents, in which two witnesses attest to the individual’s capacity (competence) and willful voluntary act. One of the witnesses must be “disinterested” — not standing to benefit in any way from this death. The physician must also refer the individual to an appropriate health care professional for a discussion about other treatments or palliative care at the end of life. Ultimately, the doctor can then prescribe the medication.

The law contains requirements related to patient record-keeping so that every step of the process is well documented. Persons who participate in good faith with the process, or to decline to participate, are given immunity against criminal and civil liability, and are protected against professional disciplinary action related to their licenses. There are also protections that prevent life insurance and other contracts from restricting an individual’s rights under the Act, and each step of the way must be carried out by the individual and not by a proxy.  For example, neither a legal guardian, agent under power of attorney, or health care representative could act in the place of the individual.

For individuals facing harrowing end of life decisions, the new Act will provide important and welcome relief from suffering. A plan can be put in place to assure that the transition for the individuals, and the safety and security of those left behind, can be as peaceful as possible.

Talk to us about life care planning and elder care planning… 732-382-6070

Lauren S. Marinaro Presents on Variety of Elder Law Topics in 2019

At NJ NAELA’s Unprogram on April 10, 2019 in Morristown, New Jersey, Lauren S. Marinaro presented and facilitated a member discussion group on the Affordable Care Act, Expansion Medicaid eligibility and Medicare.  The discussion focused on the eligibility differences between being on Medicaid through the Affordable Care Act (ACA) and being on Aged, Blind, and Disabled Medicaid, as well as how to transition from one to the other when Medicare eligibility is achieved.  Also discussed was the use of the ACA Marketplace for certain individuals over the age of 65.  On June 5, 2019, Lauren S. Marinaro will present at the 81st Semi-Annual Tax and Estate Planning Forum in New Brunswick on the “Use of Restricted Credit Cards by Trustees and Trust Beneficiaries.”  Marinaro will also be presenting at NJ ICLE programs in November and December of 2019.