Articles Posted in Medicaid Trusts

The Eastern District of Virginia Bankruptcy Court issued an opinion on a case with a unique factual scenario almost three years ago, on February 6, 2013 in the case of In Re Woodworth, (Bankr. E.D. Va., No. 11-11051-BFK, Feb. 6, 2013). The case is important because it speaks to the larger issue of fraudulent intent and how even when a trust settlor relies on a seemingly befitting and authoritative disclaimer against fraudulent conveyances, a Court can still find fraud. It also speaks to the vital need to consult with competent counsel for all major financial decisions, to insure that those decisions do not impact eligibility for medicaid or other government programs.

The case centered on a woman’s attempt, and seeming initial success, at what the Court characterized as medicaid fraud. The case involved the debtor, Holly Woodworth and her mother, Dorothy Lee Stutesman. Assuming that the facts of the opinion are accurate, it seems that Ms. Stutesman was rather poor in her money management skills. Ms. Stutesman first entrusted her husband to manage her finances and then her daughter, Ms. Woodworth, after her husband passed away. Most specifically, she first invested a very large sum of money, at least $143,000, with Merrill Lynch, although she used Ms. Woodworth’s social security number to open and listed her as the account owner. Both Ms. Woodworth and Ms. Stutesman both testified under oath that this arrangement was to protect the money from those who would prey on Ms. Stutesman’s lack of financial ability. Most importantly, Ms. Stutesman added that in addition to her desire to protect the money from potential scammers, she did not want assets in her name, in order to be eligible for Medicaid and other public benefits, if and when she should need them. In 2010, after the hit to the stock market, the parties created a trust.

The Bankruptcy Court found the language of the engagement letter that came along with the creation of the trust noteworthy and for good reason. Most specifically, the engagement letter stated that the trust “avoids creditors claims of fraudulent conveyance and civil conspiracy to divest yourself of valuable assets, and avoids IRS trigger for a taxable transaction.” Id. At 3. Both parties recognized that the money in the Merrill Lynch account and then trust was Ms. Stutesman’s. Ms. Woodworth filed bankruptcy due to events and factors unrelated to the trust, although she claimed that she only held title to the funds in the trust but no equitable interest.

Anyone who has watched a nightly news broadcast or browsed a new website likely heard this month about the roll-out of Obamacare (the colloquial name for the large-scale healthcare overhaul known as the Affordable Care Act). In the past we discussed the way that the new law offers additional opportunities with expanded Medicaid services.

Most recent discussion relates to problems with the website created to allow consumers to purchase new insurance via health care exchanges. Luckily, New York essentially had its own separate sign-in system that was not plagued by the problems with the federal site which was used by those in states which had not set up their own programs.

Beyond the technical issue, how has everything worked out thus far in New York?

Life insurance is a common tool used by New Yorkers to protect loved ones in the event of an uncertain future. At other times it is a useful way to transfer assets to a new generation, often with significant tax benefits. While there are different types of life insurances (term, universal, whole), the basic idea is the same. An individual enters into a contract with the insurance company to send monthly payments (premiums) in exchange for a lump payment to the insured’s beneficiaries in the event of death.

Naturally, the amount that you have to pay in a monthly premium to receive a certain size of lump sum depends on different factors. The life insurance underwriting process is complex, but it usually seeks to evaluate one’s general risk of dying in a certain period. Age is huge factor. It will cost far less for a 20 year to purchase the same value insurance as a 75 year old.

Factors That Can Be Considered

It is not easy for many local residents to understand all of the ins and out of the Medicaid program. While Medicaid is a critical tool that provides support for local seniors who need long-term care, it can be a whirlwind of stress, anxiety, and frustration when families attempt to navigate the administrative waters and understand what they need to do to join. Making matters worse is that fact that Medicaid qualification is based on income, and so most families are forced to “spend down” assets before receiving aid. Without proper planning, this means that many families are forced to shed most of their assets just to receive the extra care they need–loosing property and savings built up over a lifetime.

This situation seems particularly damaging for certain families, including those with one healthy spouse and the other in need of care. Fortunately, in those situations the option of “spousal refusal” exists. This essentially allows a healthy spouse to divest property from the other, such that the sick spouse qualifies for care without the healthier spouse losing most everything as well.

Eliminating the Refusal?

Several executives are in hot water this week as federal officials approved the final draft of a report that rips the use of New York Medicaid funds. All budgets are getting a close look these days as officials try to figure out ways to minimize shortfalls, and Medicaid is often given particularly close analysis because it represents such a large portion of annual expenditures. That is true at all levels of government. Because Medicaid is a joint program paid for by state and federal coffers, all lawmakers have some incentive to study the spending and offer efficiency proposals.

The latest report, entitled “Billions of Federal Tax Dollars Misspent on New York’s Medicaid Program” took a critical look at the compensation of executives at many New York nonprofit hospitals which rely on Medicaid support. In particular, as explained in a Journal News story, at least fifteen of those executives reportedly earned more than half a million dollars in compensation last year; another hundred earned over $200,000.

Besides the general outrage at the potential misuse of funds, all of these developments may factor into decisions by policymakers in crafting changes to Medicaid. As a result, these news items may, in small ways, impact future options for New York residents on Medicaid. In fact, the report specifically called out our state’s current spending, noting that “New York’s per-resident Medicaid spending is nearly double that of Pennsylvania and more than double that of California and the entire country.”

Many seniors and their families only learn about the significant cost of nursing home care when they begin planning for it later in life. New York is one of the most expensive in the country, with annually costs reaching $100,000 or more to live in a skilled nursing facility. NY elder law attorneys and other senior advocates always recommend as early preparation as possible, because getting a jump on the issue keeps more options open. For the majority of residents, Medicaid support is usually needed. The earlier this is planned for, the more property can be spared for being “spent down” to qualify for Medicaid.

Conversely, some seniors of more means (or more early planning), may have saved enough personal assets to pay for nursing home care on their own. Some pay for care for a few years and then switch over to Medicaid when their resources are exhausted.

Unfair “Granny Tax?”

Talks between President Obama and Speaker of the House John Boehner to avert the “fiscal cliff” continue this weeks. While not the only leaders involved in the effort, most disagreement on the issues exist between the President and House Republicans. Some observers are confident that the parties will reach an agreement before the January first cliff. However, members of the public remain skeptical, and many are rightly worried about how the automatic cuts and tax increases will affect them.

New York seniors are likely wondering whether their Medicare or Medicaid support will be changed in any way as a result of going over the cliff or in a compromise to avoid it. While we will not know for sure until things are more settled, some members of Congress recently came forward to issue their support for protecting the full value of the programs.

As reported by Now NY, the group of Democratic Senators and House members held a conference this week arguing that no deal to avoid the cliff should include cuts to Medicare or Medicaid. This is stark contrast to some other policymakers who argue that there is no way to get a deal without actually conceding some budget cuts for those programs.

One critical piece of federal legislation affecting senior citizens across the country is the Older Americans Act. Perhaps the most significant budgetary portion of the Act is spending for Meals on Wheels programs. The idea behind the program is simple: seniors living in their own home receive daily visits from program volunteers who provide meals and check on the elderly community member.

New research into the value of these programs provides quantitative backing for what most already know colloquially: these programs are a tremendous benefit for seniors. In fact, the data suggests that they may actually save more money than they cost. That is because the program is a significant factor in keeping overall long-term care costs down.

New Research

Financial scammers have long targeted the elderly both for their mental/physical vulnerabilities and the fact that they are more likely to have a large nest egg used for retirement. However, in some ways the problems has worsened in recent years. That is because advances in electronic finances have raised much confusion among the elderly, making them even more likely to fall prey to those willing to take advantage of that vulnerability for their own financial gain.

A blog post at Forbes last week issued another clarion call for all local community members to be on the look-out for elder financial exploitation. The author discussed one pair of theives that tried to bilk a New York woman out of a multi-million dollar property she had owned for decades. In another local case a home care worker stole $350,000 from her client–the senior’s entire life savings.

It is important to remind all local residents that it is not just the obvious targets–seniors with dementia or Alzheimer’s–who are at risk. Literally anyone can be caught, even those who have all their wits about them. As the author noted, ” My mother in law, Alice, is 90 and still very sharp. She would be hard to fool, but I know the right thief could probably do some harm if we weren’t watching closely all that goes on financially.”

Nearly 1 in 5 Americans participate in the Medicaid program. New York state has a higher participation rate than the national average and the largest total expenditures on the program in the country. It is simply undeniable that millions upon millions of Americans–from children to the elderly–depend upon this program.

That is why many are paying close attention to what the current Presidential candidates are saying about what they’d like to do with Medicaid in the future. Unfortunately, in the jumble of political slants and spin, it is difficult to get honest answers about what each candidate (and party) truly believes is the best step forward.

The Proposals

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