Medicare income/asset test

[wabmester]

I have a low-income relative who loves her medicare benefits.   So much so, that she's nervous about a potential inheritance coming her way.

The inheritance can potentially buy her a small house (she currently rents) and supplement her income a bit.   So, we're trying to come up with ways to provide her with these inheritance benefits without losing her medicare benefits.

Is anybody familiar with the medicare income/asset tests and how they can be, erhm, circumvented?   My idea is:

1) Tell her to disclaim the inheritence, and give it to a trusted relative (I might be involved)

2) Have the new beneficiaries gift her $12K/year each to supplement her income.   No reportable income for her, and no tax hit for the beneficiaries, right?

3) Perhaps buy a house sheltered within a trust?   Not sure if there are trusts that could effectively shelter the assets, but worst case I figure we can buy her a house from the estate proceeds and let her live in it for free.   I assume this would mean that one or all of the schemers would have to include fair market rent as part of their annual gift exclusion.

Do these sound kosher?   (Yeah, I know I should ask a CPA or lawyer, but I thought others might have poor relatives in similar circumstances.)

 

[haha]

Do you mean Medicaid?? Or is there an income/asset test for Medicare that I haven't heard of?

Ha

 

[wabmester]

Since medicare is still 20+ years away for me, I'm pretty clueless.  (And when I try to become clueful, I just become confused.)

I thought there was an income test for the medicare prescription drug benefits, but in any case, I'm sure you're right that medicaid is the one that is most income/asset-based.

So, yes, I want to circumvent the medicaid income/asset limits.

 

[haha]

This is a question for our local legal staff. But I think most of the things you mention involve fraud, and thus may be not the best plans to follow.

One thing that comes to mind- that might be checked- I think Medicaid exempts a house which is the recipient’s principle residence. So maybe the estate could purchase a house free and clear, and turn it over to her?

Anyway, you/she need a lawyer, and better to consult someone now that be paying fat retainer to a criminal lawyer down the road. 

Ha

 

[wabmester]

You're right -- I was confirming via google as you posted that a house would be excluded from the asset test! That's great!

I don't think there's any potential fraud here, but that's why I'm asking if it's kosher. Disclaiming an inheritance should be perfectly kosher. And gifting her an annual amount under the gift tax exclusion should be perfectly kosher as well. I think.

 

[Martha]

http://www.dads.state.tx.us/handbooks/meh/2000/2321.htm

§358.430(c)(1) — The client may incur a transfer penalty by transferring income on or after August 11, 1993. Transfers of income include:

* waiving the right to receive an inheritance even in the month of receipt;
* giving away a lump sum payment even in the month of receipt; or
* irrevocably waiving all or part of federal, state, or private pensions or annuities.


I don't know if this provision of the medicaid handbook is current, or if it applies to your state (this happens to be the Texas version). You should look in the book for her state. If Washington, try this link: http://fortress.wa.gov/dshs/maa/eligibility/index.html

How old is she? Is she disabled or retired? Is she eligible for Medicare? Maybe with the inheritance she will be able to make payments on a medicare supplemental policy. I believe that if she is eligible for medicare the inheritance won't effect it. If she is getting SSI or SSD, the inheritance may have an impact on those payments.

Medicaid planning is risky risky risky. Be sure to talk to a good qualified advisor about what she can and cannot do.

 

[wabmester]

    * waiving the right to receive an inheritance even in the month of receipt;

Ugh.  Thanks, Martha.  I think that kills that idea.

That actually makes the situation fairly complicated.   She originally wasn't supposed to be the sole beneficiary of this potential inheritance -- there's a living trust that names other beneficiaries, but the trust was never funded, and now it's too late.   So, the original beneficiaries were planning to prepare a settlement agreement that included disclaiming part of the inheritance, and let probate "fix" the unfunded trust problem.

Anyway, it's clear that we need to spend a little quality time with a lawyer.   Ugh.

 

[Martha]

Wab, I edited my post to have a link for the Washington state handbook if that is her state of residence. But you do need to see a lawyer. This is risky stuff.

 

[Nords]

I have a low-income relative who loves her medicare benefits.   So much so, that she's nervous about a potential inheritance coming her way.

Dumb question, but as long as you're considering fraud...

Let's say she inherits $100K and loses Medicaid (or MediWash or whatever low-income medical care she merits). If she was existing on her assets beforehand, scant though they were, now she has money to actually afford some degree of treatment for some period of time. She might even be able to get treatement that's not available under Medicaid. But when she loses Medicaid she'd still be able to purchase some degree of coverage with the $100K, right?

And when the $100K is consumed, wouldn't she go back on Medicaid?

In other words, a windfall came and got blown away. Highly disruptive in the short term but supposedly no net gain or loss in the long term. This might not be worth the risk of being accused of fraudulent/manipulative transactions... the risk seems to outweigh the putative gains.

 

[Brat]

I assume we are talking about Medicaid, not Medicare.

It may to too late to set up a special needs trust account (ARC in both Orengon and Washington have them) and have the will direct the $ to such an account.

If there person making the will has a house and the will provides the administrator the ability to give equity in the house and not cash to the relative this might pass the sniff test. 

Find an elder lawyer fast.

 

[wabmester]

Let's say she inherits $100K and loses Medicaid (or MediWash or whatever low-income medical care she merits).  If she was existing on her assets beforehand, scant though they were, now she has money to actually afford some degree of treatment for some period of time.  She might even be able to get treatement that's not available under Medicaid.  But when she loses Medicaid she'd still be able to purchase some degree of coverage with the $100K, right?

And when the $100K is consumed, wouldn't she go back on Medicaid?

I don't know much about how the medicaid income/asset test works, so I can't answer that.   Whenever we try to give her some assets, she always resists due to fear of losing her benefits.   It's not necessarily a rational fear.

Of course, I've left out some of the complicating factors, but I'll include them now for potential entertainment value.

None of her family members trust her with a lump sum.    The unfunded trust I mentioned above was created in part to create an income stream for her.    Since it was unfunded, I looked for other ways to accomplish the same goal.   A new trust, an annuity, etc.   But I hit upon the idea of disclaiming her inheritance and gifting as a way to kill two birds with one stone: give her an exempt income source, and shield her from having the assets in her name.

So, now I'm leaning towards forgetting about medicaid and just determining exactly what benefits she needs and how to get them from another source assuming that her inheritance will disqualify her.

That still leaves the issue of turning her lump sum into an income stream.   So, what would you do if you wanted to give somebody an income stream but also wanted to limit the chances of them depleting that stream?

1) Create an income trust?   Potentially expensive both in terms of creation and managment.

2) Buy her an annuity?   More cost effective, but still might provide her with more income than she needs.   We could tailor the annuity size to her needs, but then we'd need to find a way to keep the rest of the principal safely away from her.

3) Disclaim a sum to a family member, and that member then gives her a credit card.   This is more complicated than the other approaches, but I like it because it provides a variable income stream as needed, potentially provides the family member a tax break for a dependent, and somebody gets reward points!

Anyway, I'm starting to understand how estate planning can get complicated.   We'll probably end up creating a trust in this case, as that seems like the cleanest solution, but we'll still have to figure out who gets to play trustee or pick a cheap and wise corporate trustee.

 

[Brat]

I picked up on this late in the evening so didn't think about the difference between Medicaid and SSI. SSI is an income stream for persons with disabilities who are in practical terms unemployable providing for basic needs and health care. Examples are persons who are retarded or who have serious mental illnesses. Medicaid pays for long term care (usually in a nursing home) and health care for the poor.

Both have income and asset tests. It is my understanding that neither requires a recipient to leave their home, although in most states Medicaid puts a lean on the home - Medicaid funds operating like a loan.

I faced just such a potential issue with my Mother who wants to provide for a disabled grandson on SSI. Her attorney told Mom that unless the money went directly into a Special Needs Trust he would loose his SSI and his representative would need to file again when he met the asset tests - a major disruption. Renouncing the bequest won't cure the problem.

Purchasing health care insurance for a disabled person not on SSI or Medicaid is a nightmare unless there is a state insurance program for the uninsurable.

A Special Needs Trust can only provide for 'extras', not housing and food.

A lawyer really needs to get involved here, I hope the grantor hasn't passed away and is willing to make appropriate provision for this family member. If the grantor has passed away, what was done can't be fixed.

If the grantor is alive then maybe an IRREVOCABLE trust could be established to be funded at the grantor's passing – not an inexpensive option. That trust could direct the trustee to provide (whatever) to adult decedents with income below (% of some standard). Be sure to provide a process for replacing trustees. I don't think a revocable trust would avoid the asset test.

If the person is on SSI set up an account for the recipient before the grantor passes. Orgs such as ARC have already done all the trust work and have staff to manage the program.

I am not a lawyer and am only communicating my meager understanding of this complex issue.