Medicaid Planning Worthwhile
By: Amos Goodall
Last week’s column by James Rayback, “Assets Must Be Spent Before State Aid Kicks In”, really misses the mark. Mr. Rayback is a great lawyer who usually writes a very educational column, but this time, his thesis is simply wrong. Incidentally, his example also is not fair. A self settled, irrevocable discretionary trust with the settlor as trustee is generally not good estate planning for someone facing the possibility of going into a nursing home. To imply that someone receiving good legal advice would use this planning strategy gives a false impression.
While one may choose not to engage in that field of estate planning known as “Medicaid Planning”, the decision to do so is an option for persons facing the catastrophic decision whether to place a family member in a nursing home. Medicaid planning may be complicated, but it is not impossible, and it is not a means of avoiding legitimate debts. It is simply a recognition that the law allows--and in some cases even encourages--certain worthwhile expenditures or asset transfers by persons who have been frugal their entire lives. Anyone who tries to punish senior citizens from preserving the small nest eggs they’ve accumulated over a lifetime simply does not understand the process. Essentially, good medicaid planning is nothing more than applying tax savings measures that already exist. Middle class people should have access to some of the loopholes that wealthier individuals use every day.
While there may be sharp practices taken by people acting in bad faith, most of Medicaid planning is about as controversial as taking a deduction for contribution to your church or accepting some other benefit conferred by governmental regulation. We pride ourselves on the separation of church and state, but a tax deduction for a donation to a church reduces taxable income and, therefore, income tax paid, which increases the burden on everyone else. A person who wants to give a piece of property to a niece or nephew will pay Pennsylvania Realty Transfer Tax on such a deed, but a deed to the person’s brother or sister, the parent of the niece or nephew, followed by a second deed to the niece or nephew, is recognized by the regulations and is a completely tax free transaction. Certainly no one suggests it is immoral to take a tax deduction for a church contribution or to transfer property in this fashion.
About the only accurate statement in Mr. Rayback’s column is “It is extremely difficult for a person to create a trust for his or her own use and care and at the same time receive government medical assistance.” Medicaid planning is complex, but it is certainly not violative of any law or regulations. It is assuredly not impossible to change the title to property including creating a trust for a person’s own or family use and to receive nursing home benefits, sometimes immediately and sometimes in the future.
Medicaid planning is not a device for wealthy individuals to avoid paying for their care of nursing home costs. It is simply a method for people who have, in the course of working many years, accumulated a small nest egg who wish to preserve that for the benefit, first of their more healthy (but possibly not independent) spouse and secondly for their children. In a speech recently given to the annual Western Governors’ Association, Colorado Governor Bill Owens pointed out that the average American retires with only about $30,000.00 in savings. These figures were confirmed in research published in Connecticut as well. Mr. Rayback’s column would begrudge the right of a person who has worked hard all his or her life to preserve such a nest egg, both for future rainy days in the person’s own life and for the person’s family.
Characterizing seniors’ actions to preserve some small portion of their lifetime earnings as somehow wrongful fails to recognize that our great society has been built through the labors (and sometimes at a cost of the health of) those same senior citizens who are now facing the catastrophic decision whether to go into a nursing home.
Ten years ago, the Omnibus Budget Reconciliation Act of 1993 (“OBRA 93") defines a trust as any arrangement which transfers assets to another person, organization or agency (trustees), with the intention that it be held, administered or managed by the trustee for the benefit of the person transferring the property. OBRA 93 recognizes that properly created and properly timed, a trust is not considered an asset of the person entering into a nursing home, and there is no moral stigma to doing so. The law recognizes it; medical assistance regulations recognize it; and the Pennsylvania Nursing Care Handbook supports this view. §440.442. Morever, there are a number of other reasons for establishing trusts and engaging in other property transfers which are permitted under Medicare law and regulations and will not interfere with an application for medical assistance.
Trusts have a number of good reasons. A trust can help the healthy spouse live comfortably after the death of the unhealthy spouse, especially where the couple’s main income is a pension based on the life of the unhealthy spouse that ends on the latter’s death. A trust can provide for payment for items needed for living not covered by nursing home assistance budgets. A trust can provide continued support for disabled children. The traditional reasons for trusts–third party or professional management of one’s assets under conditions as set by the person creating the trust–also apply.
If Mr. Rayback’s article leads readers to the conclusion that such trusts cannot be made effectively, he is doing a disservice to the senior citizens among his readership and their families.
Supreme Court Justice Oliver Wendell Holmes, Jr., one of the icons of jurisprudence, once wrote that “lawyers spend a great deal of time shoveling smoke”. Unfortunately, Mr. Rayback’s smoke may obscure the real truth that Medicaid planning is appropriate, available and can be accomplished effectively.