Medicaid Planning Lesser Known Asset Protection Strategies

A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen

A complete transcript of the program begins below:

Attorney Pippen:

Hey, Attorney John Frazier’s on the line. Let’s go to John. Good morning, John.

Attorney John Frazier.

Attorney Frazier:

Hey, Joe. How you doing?

Attorney Pippen:

Going good. John is our Medicaid VA attorney and he calls in with the Tip of the Week, just about every week. So, John, what are we talking about today?

Attorney Frazier:

Today, I’m going to talk about a couple of Medicaid planning lesser known asset protection strategies. I would say that some of these strategies, most clients have never heard of, and then some clients have likely not heard of some of these other ones, too. The four strategies I was going to talk about, we have something called a Burial Savings Account here in Florida. So a Medicaid applicant is allowed to have a bank account called a Burial Savings Account up to $2,500 and also, the spouse is allowed to have that also for up to $2,500, so that creates an extra $5,000 asset limit for Medicaid applicants and their spouse.

Attorney Pippen:

John, let me ask a question for that.

Attorney Frazier:

Yes.

Attorney Pippen:                               

Suppose you set up a Burial Savings Account and the money is not used. I mean, suppose for example, the person didn’t know they had already prepaid part of the funeral plan and then they have $2,500 set aside and not all of the money is used, what happens to that money then?

Attorney Frazier:

Well, this is a very confusing thing I think, and this is something really, I would say none of my clients have ever even heard of this before. Even banks oftentimes have not heard of it, but a Burial Savings Account is actually a bank account as opposed to a funeral service or a cremation contract, which is an actual contract with a funeral service provider. So the way that we set these up is the Medicaid applicant is going to have a bank account, which will say the Medicaid applicant’s name, and then Burial Savings Account in the title, right after the person’s name. We will also always set up a beneficiary on these accounts. It’ll be either POD, TOD, or ITF, that would be Transfer on Death, Payable on Death, In Trust For. They all really mean the same thing, so if you don’t put the beneficiary on there, you will create a probate situation, which we definitely always need to avoid in a Medicaid scenario.

So the way that it works, is if the Medicaid applicant or recipient passes away, or if the spouse passes away, the beneficiary would take the death certificates to the bank, present their ID card, and then the bank would issue a check for the balance in the Burial Savings Accounts to the beneficiary. The nice thing about this strategy is, it’s tax-free, so there’s no taxes on that $2,500 or whatever’s left in the account, and it can be used for anything. It does not have to be used for burial purposes. It’s actually a very, very nice strategy. One of the downsides is, because most of the banks have never heard of this, some banks will not do it because they just don’t know what it is, but it’s really just a savings account.

Attorney Pippen:

Alright, do you have a list? Not that you have to mention it on the air, but do you have a list of banks or clients that want to do this? Do you have a bank contact that knows how to set these up?

Attorney Frazier:

Oh, yeah. Yeah, we do have bank contacts and sometimes we have to communicate directly with the bank to explain it to them, just so that they understand that all it is, is a savings account. I think once it’s explained to the banker, most of them will cooperate, but in some cases they won’t, and there are some banks that are a little bit notorious for not having the greatest customer service, so we will direct our clients away from those banks.

Attorney Pippen:

Alright, so what’s the next of the Medicaid planning lesser known asset protection strategies to cover?

Attorney Frazier:

The next one is a funeral service or cremation contract. The state of Florida says that a funeral service or a cremation contract of any value is exempt for both the Medicaid applicant and the spouse, as long as it’s made irrevocable, so whenever we have a client purchase one of these contracts, we always tell them that they must make it irrevocable, which means that it can’t be cashed in and get the money back on it, and then you can shelter any amount of money for that. I typically see between maybe $1,500 up to $8,000. I had one client who spent $25,000 on a funeral service with all sorts of extra flowers and things like that, so that’s another thing that’s a good thing to consider when you’re looking to apply for Medicaid. Another thing that I think many people find to be strange is the purchase of an automobile is exempt.

The Medicaid applicant and the spouse are allowed to have one car between the two of them of any value. Extra cars, as long as they’re older than seven years old, and non-luxury vehicles are also exempt. We have actually used this strategy for individuals in nursing facilities without a driver’s license. The way that we do that is, the car can be purchased with the person who has the Power of Attorney, it would be titled in the name of the Medicaid applicant, and then the state of Florida allows us to add another driver for insurance purposes, and it’s actually permissible to do that. I’ve had people buy a variety of different cars under those circumstances. In some cases it’s been a wheelchair van to pick up the family member in the nursing facility, but it doesn’t have to be and it could be one car of any value.

That’s a nice way to shelter, sometimes a very significant amount of assets, because it’s certainly possible to spend between $30,000 and $70,000 on a new car, and the only tax consequences are sales taxes, so that’s a nice thing to consider. And then, the next one that I think a lot of people don’t really think about too much, is the purchase of household items. Any items that a person has around a house, other than things like expensive paintings, or jewelry, things like that, that would not be exempt. But if you have a house which needs new furniture, carpeting, countertops, things like that, stereo systems, televisions, computers, a wheelchair would be exempt, hearing aids are exempt, so there’s a whole list of items. Those things are all exempt, and it often makes sense to consider those asset restructuring strategies. I did have one client who spent between $80,000 and $90,000 on putting new items in the house and the state of Florida did not question that, so that’s another effective way to shelter assets for Medicaid planning lesser known asset protection strategies.

Attorney Pippen:

John, what would you tell someone who’s listening to all this and their thought is, “Well, that doesn’t seem right. I mean, you shouldn’t be able to buy a $70,000 car and go on Medicaid. I thought Medicaid was just for poor people.” I mean, I’m sure there’s some listeners out there who have that thought pattern going on in their head as we’re talking about this. I know what I would tell a person like that, but let’s hear what you would tell a person who questioned you about how you can do these types of things when Medicaid’s supposedly designed for poor people?

Attorney Frazier:

Well, I think there’s a number of considerations. One is that, it’s lawful. This is completely legal. It’s all based in the law, the Florida Department of Children and Families has its rules, which cover all of these things, so these are all spelled out in the rules/ And I have a background in tax law, and I think you can make potentially the same argument about tax law. You hear these stories about some very wealthy corporations not paying any taxes, and what those corporations are doing, is using the law to maximize their benefits, so that’s what we do. We use the law to maximize benefits. The other thing is, a couple of other considerations, the average cost of care now is about $9,700 a month, so in short order, if a person has $50,000, that that money is all going to be gone.

Also, an individual who currently has assets paid into the system during their lifetime, as opposed to an individual who really paid nothing into the system and is already qualified for Medicaid, would still be eligible for those same benefits, but paid much less into the system. I think that’s another consideration, that they’ve paid into the system and now it’s time to be repaid by the government, in a sense. Another thing I think to consider is, that most of our clients have some sort of an estate plan, so they’re going to name their children or whoever they want as beneficiaries. I have never seen a will or a trust that names a nursing facility or an assisted living facility as a beneficiary, so I think it’s important to consider we’re typically working with the Power of Attorney that we’re also implementing the estate planning considerations of the Medicaid applicants, because they oftentimes will have a will or a trust that actually names individuals as beneficiaries, so we are implementing the client’s wishes in that respect, also.

Attorney Pippen:

My standard answer to that question, John, generally is, “I’m an attorney and you’ve asked me how to do some Medicaid planning and what options there are. My job is to explain the options to you and I’m not suggesting one or the other, I’m telling you what your options are and for you to make the decision.” It’s always the client’s decision on if they want to do some of this planning, if they want to buy a $70,000 car, and so that helps qualify for Medicaid, that’s their choices. It’s not our choice, we’re just giving them their options. That’s how I generally respond.

Attorney Frazier:

Exactly, I agree 100% and I think most attorneys are actually trained in law school that they’re not really making decisions for clients, they’re presenting options and that’s the case, and any type of law. Whether it’s criminal defense, estate planning, elder law, marital family law, your job as an attorney is to present the options to the client and then let the client decide among those various options.

Attorney Pippen:

Yeah, I would say the higher percentage of clients are all for whatever can be done to maximize government benefits and maximize what the person can save in their estate as their legacy, more or less, that they want to pass on.

Attorney Frazier:

Exactly. I think also, we hear in the news, the amount of government expenditures on things, which I think many people would consider to be wasteful and we’re talking about huge amounts of money, trillions and trillions of dollars. On the other hand, here, we’re talking about typically an elderly, disabled individual who’s paid into the system and now simply wants to get something back based on what they’ve paid into the system during their entire lifetime. I think from more of a global, bigger picture perspective, there’s certainly nothing wrong with doing that.

Attorney Pippen:

Okay. John, tell us how people can reach you for more information, or maybe they have a possible pending Medicaid, or a person going into a nursing home, how would they contact you to discuss their options?

Attorney Frazier:

The office number is (727) 586-3306. I’m at extension 104. My cell phone is (727) 748-5374 and my email address is john@attypip.com.

Attorney Pippen:

Alright, John, I hope you have a great Sunday. Thanks for calling in.

Attorney Frazier:

Okay. You too. Thank you very much.

Attorney Pippen:

Alright. Thank you.

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Three Basic Criteria for Medicaid Planning

A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen

A complete transcript of the program begins below:

Attorney Pippen:

If you have a question for John, please call in also, and good morning Mr. Frazier.

Attorney Frazier:

Hey Joe, how you doing today?

Attorney Pippen:

I’m doing great. So what’s our Medicaid tip of the week this week?

Attorney Frazier:

Well, today I’m going to talk about the three basic criteria for Medicaid planning. These rules apply to both assisted living and a resident of a nursing facility, and there are just three simple criteria. There’s a healthcare criteria which states basically that the person has to have a medical need to be either in the nursing facility or the assisted living facility. Then there are asset limits. Your Florida house and a car are exempt, and then outside of those two primary exempt assets an unmarried Medicaid applicant is allowed to have $2,000 in countable assets.

If there’s a spouse in the community, the spouse in the community is allowed to have $130,380 in countable assets, and if both spouses are applying for Medicaid, there’s a $3,000 countable asset limit. And then the third criteria is that there’s an income limit here in Florida, and this year the income limit is $2,382 a month in gross monthly income for only the Medicaid applicant spouse. Those are the three basic criteria, and the planning that we do is geared to meet them. When we evaluate a case, we make sure that we’re going to be able to meet these three criteria in every case, and if for some reason we can’t meet one of those criteria, we will not accept the case. That’s a basic overview of the three criteria.

Attorney Pippen:

You know John, a lot of people think they have to sell their homestead, to get rid of the home or sell the home or they choose to sell the home so they have money to pay for a nursing home. What do you advise a client like that, that has that thought?

Attorney Frazier:

That’s a very, very serious mistake. The Florida homestead is exempt up to $603,000, and that’s for an unmarried person. If you have a spouse living there, there is no limit on the homestead. It’s very, very important to speak to an attorney who knows these rules. Another mistake that I regularly see is for some reason we’re seeing a whole number of these cases right now, potential Medicaid recipients giving their house away to their children. There is a five-year look back on this type of a transfer, even though the house is exempt under the Medicaid rules. If you transfer the house within five years of the Medicaid application it creates a disqualification period, so what we end up having to do, and typically these individuals are not speaking with an attorney, they’re just going out and finding a quitclaim deed on the internet and not speaking with an attorney. The very first thing we do is we reverse that transaction and put the property back into the name of the Medicaid applicant. People have to be very, very careful about what they do regarding the homestead property.

Attorney Pippen:

John, what happens if some persons who’ve been in the nursing home and they maybe apply for Medicaid a little bit after they’ve been in the nursing home, but their house has been rented out and they’ve been collecting rent money to help pay for the Medicaid expense? Does that mess up the homestead in your planning because it’s no longer homestead because it’s been rented?

Attorney Frazier:

We have had a few people do that and it does not prevent the person from getting Medicaid, but it’s not necessary to rent the homestead. I think generally it’s not a good idea for several different reasons. If you have an unmarried person on Medicaid, the amount that you have to pay to the nursing facility is the monthly income of the person, so there is no reason… well, the monthly income minus $130, which is called the personal needs allowance minus anything for health insurance. You don’t want to do anything that would create extra income, so it’s unnecessary to do that because the Florida Medicaid program is going to pay for all of the medical costs and the cost of the facility in excess of the person’s income.

I think another potential problem is that you could destroy the status of the homestead protection when the Medicaid recipient dies and that would open the door for Medicaid estate recovery against the homestead potentially if that property goes through probate. However, if the property goes to the natural heirs, then as a general rule, if it’s a homestead property, the State of Florida can’t recover against that property. However, if it’s treated as a rental property, the State of Florida can recover against that property and to pay back Medicaid, so there are several downsides to renting the homestead property, and I advise people not to do that.

Attorney Pippen:

Yeah, well the excuse I hear from family members who want to rent the house after the mom or dad’s gone on Medicaid, is they’re trying to have money to pay taxes and maintenance and insurance cost of the home. They want to try to recover that because the homestead’s so big and that the parent’s in the nursing home, so that’s the excuse they use, but then I try to explain what you just said, that you’re messing up the homestead status and that could jeopardize the Medicaid and the homestead exemption and how it passes upon death and what claims can be made upon, all the things you just said come into play, and people never really even think about those when they thought, well, I need to make a little money to pay the insurance and real estate taxes.

Attorney Frazier:

Yes, and I do talk to clients about the three basic criteria for Medicaid Planning. Most of my clients end up selling the property if they’re concerned about paying for the ongoing expenses. In theory, you could rent it. If you do it properly it won’t cause a problem for Medicaid, but again, you’re converting an exempt asset into a non-exempt asset and creating the risk that the State of Florida could recover and obtain Medicaid payback on the entire value of that house, depending on the amount of money paid out by the taxpayer.

Attorney Pippen:

Is there an issue with a family member who moves into the house? Let’s say they move into the house, in my example here, they move into the house, the homestead, before the parent goes into the nursing home. Would they be allowed to generally stay in the house after the person goes into the nursing home, without any complications?

Attorney Frazier:

I have not seen that be a problem. The State of Florida… As long as the person lived in the property basically I think for one day prior to going into the nursing facility, the State of Florida is going to treat that as an exempt asset, so I don’t really see a problem with a family member living there.

Attorney Pippen:

I’d have trouble with other family members who now have a person sponging off of not paying rent and living in the home, and we got to see that-

Attorney Frazier:

Yeah.

Attorney Pippen:

… come up between children. Just fighting between one another.

Attorney Frazier:

Yeah. Yeah, that could be an issue. I think if somebody is in a nursing facility though, when we’re talking about the value of these benefits, the average cost of care, actually historically for the past year or so, it’s been about $9,500. It actually just bumped up to about $9,700 a month. We’re talking about almost $10,000 a month in costs, and I’ve mentioned before on the show that there’s one facility in North Pinellas County charging $17,000 a month. So let’s say that the person has monthly income of $1,000 and keeps the 130 personal needs allowance in a health insurance. So you’re paying maybe $800 a month for a facility that may charge $17,000 a month. I think when you look at the financial analysis, and everybody realizes the great value of the Medicaid planning, most family members are not going to do anything to disturb the Medicaid benefits once they’re established if you talk to them about the value and the amount of money that the government’s paying out each month.

Attorney Pippen:

John, we’ve posted a number of these conversations like this one on three basic criteria for Medicaid Planning that you and I have had on Sunday mornings on your website, where people could go there and listen to multiple topics concerning Medicaid. Why don’t you give the audience your website address where they can get more information about Medicaid?

Attorney Frazier:

Well, I have my own specific website geared towards Medicaid planning and VA benefits, and that website address is www and then it’s a dot and then three words after that, estate, E-S-T-A-T-E, then the next word is legal, L-E-G-A-L, and then the next word is planning, P-L-A-N-N-I-N-G dot com, so www.estatelegalplanning.com, and then, of course, we have your main office website, attypip.com.

Attorney Pippen:

All right, and John, give us your contact information. Anyone who wants to call you and get more information directly. It may be about a current problem or a Medicaid situation, or maybe they’re on private pay and they see that 10,000 a month disappearing and they’re saying, “Well, maybe Mr. Frazier can help me save that and qualify for Medicaid, protect the legacy.” So how do they contact you directly if they would like to talk to you?

Attorney Frazier:

The office number is 727-586-3306 and I’m at extension 104. My primary cell phone number is 727-748-5374, and my email address is John, J-O-H-N, at attypip.com.

Attorney Pippen:

All right, John, Well I hope you have a great Sunday. Thanks for calling in.

Attorney Frazier:

Okay. You too. Thank you very much for bringing us the information on the three basic criteria for Medicaid Planning.

Attorney Pippen:

Right. Thank you.

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Understanding Skilled Nursing Facility vs. Assisted Living Facility in Florida

A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen

A complete transcript of the program begins below:

Attorney Pippen:

Let’s go to Attorney John Frazier. Good morning, John.

Attorney Frazier:

Hey Joe, how are you doing today?

Attorney Pippen:

Good. John is our Medicaid planning and VA Attorney. He calls in early on Sunday morning, to give us the Medicaid tip of the week. What are we talking about today, John?

Attorney Frazier:

Today I’m going to talk about the differences between a skilled nursing facility and an assisted living facility here in Florida (skilled nursing facility vs. assisted living facility). There are very many significant differences, and I think many of our clients are not aware of those differences. And I think some clients might even think that they’re actually the same thing. As a general principle, a nursing- yeah, sure.

Attorney Pippen:

John, first of all, why does that make a difference to somebody listening?

Attorney Frazier:

I’ve got about five to seven reasons why it makes a big difference. I was going to talk about all of those. I think the first distinction is that an assisted living facility is going to be more of an apartment-like setting. A nursing facility is going to be more of a hospital-like setting. And, some of the reasons for the confusion; I think one reason is that there may be different terminology in other states and we have many, many people here in Florida who have retired here from Northern states and other parts of the United States. And, I think that there’s different terminology in other states and different, possibly different classifications for these two different types of facilities. Another reason for the confusion is, for example, sometimes an assisted living facility is called Memory Care, and I’ve had a number of clients hear that term “memory care” and think it means nursing facility.

Here in Florida, Memory Care means assisted living facility, not nursing facility. Another term that you’ll sometimes hear is something called a “lockdown unit”. We see that only in nursing facilities. They may have an Alzheimer’s wing where there the doors are always locked. So, we have a “lockdown unit” which is another terminology issue that we see. There’s also different licensing requirements for the two different types of facilities. The licensing for hospitals, nursing facilities, assisted living facilities, clinical laboratories, hospice, residential treatment centers; that is all done by the Florida Agency for Healthcare Administration, also known as AHCA. And, nursing facilities and assisted living facilities actually have different types of licenses. It’s kind of like the difference between a doctor and a nurse; they’re both medical providers, but they have different training and different license, and they can only do certain things with those licenses.

Also, we have very significant cost differentials; a nursing facility on average here in Florida costs about $9,485 per month. I see between $7,500 a month and up to $17,000 a month. On the other hand with assisted living facilities, I generally see costs ranging from a low of maybe $1,500 a month to a high of about $7,000 a month, so that’s another major difference. Also, there are very, very significant Medicaid differences. One difference is that virtually all nursing facilities in Florida accept Medicaid. That is not the case for assisted living facilities. Only a percentage of assisted living facilities accept Medicaid. So, some people wrongly assume that their assisted living facility automatically accepts Medicaid, and that is not correct. You have to verify that with the facility.

Another very, very significant difference is that here in Florida; we have a waiting list for assisted living and community Medicaid type programs. And, if a person is either in an assisted living facility or going to an assisted living facility, there is a process that must be followed first, which involves the Area Agency on Aging. There are a number of these organizations throughout the state of Florida. And the person must, or the representative; it’s usually the power of attorney or the spouse, must complete a form with an interview with the area agency on aging, and the name of that form is the 701S Form. In order to bypass the waiting list, you have to get a score of a five on that form. If you get a score of a five, the waiting list is usually just 30 to 60 days for, even if the person is financially eligible, there’s going to be a waiting list for an assisted living resident.

On the other hand, if the person is financially eligible in a nursing facility, there is no waiting list. One of the similarities is that the financial criteria for qualification, for an assisted living and a nursing facility are exactly the same.

Another difference, for example, in a nursing facility is the amount of reimbursement from the governments. So Medicaid is a federal and state program, and there is a cost sharing between the federal and state government. So, if you have an unmarried person in a nursing facility, their entire monthly income will cover the entire cost of their care. And what they’re required to pay is called the Medicaid patient responsibility, which is their gross monthly income minus $130, minus anything that they pay for their health insurance premium. On the other hand, the Florida assisted living Medicaid program only pays between a $1,000 and generally up to $1,400 a month. So there’s a very, very significant difference there.

Another difference is the interplay between VA benefits and whether or not the person is in an assisted facility or a nursing facility. The, the primary difference involves non-service connected pension, which I’ve spoken about in a recent radio show. This VA pension for a veteran is $1,936 per month. For a surviving spouse of a veteran it’s up to $1,244 a month. So the person can have both Medicaid and this VA pension, and those extra dollar amounts are very, very significant, if the person is in an assisted living facility. However, if the person is in a nursing facility, those numbers don’t apply. If you have an unmarried veteran or surviving spouse on Medicaid, in a nursing facility, the maximum amount they can receive for that VA pension is only $90 a month.

And then, I think the final difference has to do with service-connected disability benefits for a veteran. If a person is disabled 60% or higher, they then are eligible for free care in a nursing facility, as long as the nursing facility has a VA contract. So that’s the basic summary of the differences between assisted living and nursing facility here in (Florida Skilled Nursing Facility vs. Assisted Living Facility).

Attorney Pippen:

John does the nursing home… How do they accept clients? They have to be recommended by a doc, to a doctor to enter into a nursing home for some major reason?

Attorney Frazier:

Oh, yes. There’s a form. It’s a medical form that is required to be signed by the doctor. It’s called a 3008 medical form. And that is required, so a person can’t just check into a nursing facility. It’s like going to a hospital; you have to be admitted by a physician.

Attorney Pippen:

And would, would a doctor recommend a nursing home that had a lockdown feature? Sometimes if the person just had memory care-

Attorney Frazier:

I normally just see that when someone has advanced Alzheimer’s or because unfortunately, some individuals with Dementia and Alzheimer’s have a tendency to wander. And you even hear about the stories in the news. Sometimes you’ll have an individual with Dementia or Alzheimer’s still living in the community and they’ll wander off and you find them on the other side of the county. Sometimes we have tragic situations where they end up walking into a pond or something like that and drowning. So it’s very, very important for some of those clients to have locked doors, and that’s called a lockdown unit in a nursing facility.

Attorney Pippen:

So I’m just wondering if a spouse went to a doctor and said, “look, I’m trying to get my husband on Medicaid and I would prefer he’d be in a nursing home because of memory issues. And, would you sign a form to allow my husband to go to a nursing home that has locked down features.”  What would a doctor do in that case?

Attorney Frazier:

That’s very much a medical judgment. I think so. And it’s going to be on a case by case basis. I think Dementia and Alzheimer’s are really a continuum. Usually, at the beginning of the disease, the problems are not that significant and then, sometimes, those symptoms progress very slowly. Sometimes, they progress rapidly. So I think that, that would really be entirely up to the physician to make that determination (skilled nursing facility vs. assisted living facility), even regardless of what the spouse might want, it ultimately as a medical decision.

Attorney Pippen:

All right, John, how does someone contact you if they have Medicaid planning or VA questions? You give a free consult for a few minutes about issues like that. So how can they contact you?

Attorney Frazier:

The office number is (727) 586-3306, extension 104. My cell phone is area code (727) 748-5374. And my email address is John, john@attypip.com.

Attorney Pippen:

All right John, thanks for calling. I hope you have a great Sunday.

Attorney Frazier:

Okay. You too. Thank you very much.

Attorney Pippen:

All right, Thank you.

If you plan on hiring an attorney take a look at why you might want to hire Attorney Frazier.

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Medicaid Planning and Personal Services Contracts Issues

A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen

 

A complete transcript of the program begins below:

Attorney Pippen:

Let’s go to Attorney John Frazier. Good Morning, John.

Attorney Frazier:

Hey, Joe. How you doing today?

Attorney Pippen:

I’m doing great. So what are we talking about today?

Attorney Frazier:

Today I was going to talk about Medicaid planning and personal services contracts issues. The use of a personal services contract as a Medicaid pre-planning strategy for individuals who are still living in the community and want to continue to live in the community. Under Florida law, if you give assets away to a non-spouse, a child, a friend within five years of a Medicaid application, the state of Florida presumes that that was a transfer done for the purposes of obtaining Medicaid benefits, even though it may be for a completely different reason, like a birthday gift or some other sort of transfer or some other sort of gift. There’s actually a presumption against Medicaid applicants within five years of the Medicaid application.

However, under Florida law, we have something called a personal services contract, which is a payment to a caregiver. These contracts have a variety of different names, but they all really mean the same thing under Florida law. Sometimes they’re called a family caregiver contract. Some attorneys refer to them as a services contract, a personal care agreement, a caregiver agreement, and some people just abbreviate it PSC for personal services contract.

Under Florida law, we have a case, a 1998 case, Thomas versus the Florida Department of Children and Families, which authorizes these kinds of payments for family member caregivers. The state of Florida, the Florida Department of Children and Families, under this case law, there are several different criteria in order for this to work and be accepted by the Department of Children and Families if the person ever has to apply for Medicaid.

The first criteria is that the contract must be in writing and signed by both parties. If the client, the person who may apply for Medicaid, cannot sign, typically the power of attorney would be able to sign on behalf of the client. The contract also must be equal to or less than the life expectancy of the Medicaid applicant. The contract cannot be longer than the person’s life expectancy under the Actuarial Social Security Life Tables. The contract must also be for future services. A caregiver cannot be paid for services that they’ve done in the past for the person, and the payment price must be reasonable. DCS would take a look at the average cost of geriatric care managers, their hourly rate in the region, and as long as the payment price, for example, $25 an hour or $20 an hour, those would all be reasonable dollar amounts, based on the average cost or the average price that a caregiver manager or geriatric care manager would charge, at least in our area.

As an example, let’s say that you have an 80-year-old woman still living in her house, and you’ve got a daughter who’s spending lots and lots of time taking care of her mom. An 80-year-old person would have an 8.94 life expectancy under the Social Security tables. So we could do a seven-year contract and pay the daughter $25 an hour for 30 hours a week. Over the term of the contract, that would be $273,000, quite a bit of money, but the state of Florida would view that as reasonable. Then we could pay that caregiver, it would be $812.50 per week or $3,250 per month. And if the term of the contract was fulfilled, it would be a seven-year contract with a total value of $273,000. And the state of Florida would actually accept that.

This is a very powerful tool in Medicaid planning and personal services contracts issues. It’s not available in all states, and we’re actually very, very lucky that we can use this strategy here in Florida.

Attorney Pippen:

All right, John, suppose the circumstances are different, and we’re not really talking about a Medicaid case. We’re talking about a child moving in with parents. Maybe they gave up their job, and maybe they’re coming from another state, and the parent needs caregiving services. So you can’t really make a gift because a gift would disqualify you for Medicaid later. But the child has given up a lot and wants to be paid for their services in a home and stay in the home as long as they can. So how does a care contract work like that?

Attorney Frazier:

It would be a very similar to that example that I gave to you. We would always want to keep in mind that if you have a person who needs care in the house, they certainly might need care in an assisted living or nursing facility at some point. It would still really end up being the same thing, that the family member could be paid. We would draft a contract, which would outline an hourly rate and number of hours worked per week. And if we ever had to apply for Medicaid, we would just make sure that we would stay within those parameters of reasonableness. For example, we wouldn’t want to pay a family member caregiver a hundred dollars an hour, for example, unless the person were a licensed physician. So I think if you have a physician or a nurse who is a caregiver, you might be able to charge a much higher rate and transfer out quite a bit more money under those circumstances.

Attorney Pippen:

So the money paid to the caregiver in the home, say weekly or monthly salary, would not be counted against them when they go for the Medicaid contract later.

Attorney Frazier:

Exactly. It is also very important to remember that this would be considered income under the Internal Revenue Code. Section 61 of the Internal Revenue Code basically says that any form of payment or transfer to another person is classified as income, unless there’s another exception in the Internal Revenue Code. The biggest exception would be under Section 102 of the Internal Revenue Code, which talks about gifts and inheritances. That’s the plus side of gifting is if we give the assets away, there’s no income taxes on that transfer. And also if the person inherits the money, no income taxes on that either. So that’s another important consideration, income taxes. It’s very, very important to take a look at the income tax consequences of these contracts, especially if the person has some other form of income, and they’re already paying income taxes. But if the person, for example, is unemployed, that would be the ideal person to be a caregiver under a circumstance like this.

Attorney Pippen:

To think further on Medicaid planning and personal services contracts issues John, I think the trap some people fall into, let’s say a child has a power of attorney and healthcare surrogate, and they volunteer hour after hour after hour just because they love their parent, doing services for their parents, shopping for the parent, taking the parent here and there. They do spend a lot of time because the parent is unable to travel themselves or make appointments themselves or whatever.

So the power of attorney, the loving child power of attorney, does all of these services. And then at the end of the day, when parent dies, the power of attorney would come to me and say, “Hey, Joe, I’ve kept track of my hours. I was performing all these services. Can I get paid now?” I don’t know if you’ve heard that story or not, but I hear that a lot. And I say, “Well, look, did you have an employment contract? Did your parents sign an employment contract with you? Did you have an agreement in writing, something you’d be paid for your services? Because you can be a power of attorney. That doesn’t automatically, you do stuff using your power of attorney, you can get paid.”

And then sometimes the parents will just make a gift of gratitude for all the things the child has done. The problem is you don’t really get paid unless you have some type of an agreement, number one. Number two, if you make a gift, then you disqualified yourself for possible Medicaid benefits for a period of time. Have you experienced that?

Attorney Frazier:

I’ve experienced that whole scenario many, many times actually. Well, I think because you work primarily in estate planning, you would get that question much more than me. In my cases, most of my clients are looking to apply for Medicaid immediately, and we’re dealing with a family member in a nursing facility primarily. It is often the case that one person, typically the power of attorney, is doing all the work, for the most part. The other family members are not doing anything. And in those cases, pretty much most if not all of them, we will use a personal services contract to pay the caregiver at that time. It is something that I’ve literally done thousands of these contracts, and all of my cases have been approved up to this point. I’ve done over 3000 Medicaid cases. Thus I have deep experience in Medicaid planning and personal services contracts issues.

Attorney Pippen:

Well, I think the purpose of my wanting you to talk about this topic today was because there are many… I wanted it reach the caregiver child who’s in the home taking care of parent, their parent, knowing that it’s imminent, that it’s only a matter of time before the parent has to go into a nursing home. But they’re in there trying to help the parent to prevent that as long as they can by giving them care and transportation and assistance. There is a way they can get paid for that, and it’s all legit, on a monthly basis.

Attorney Frazier:

Absolutely,

Attorney Pippen:

And then when the time comes for Medicaid, yeah. It’s good to orchestrate a whole plan concerning this, I think.

Attorney Frazier:

Yeah. Yeah. I think it’s very important to think about those things. Often times our powers of attorney are actually employed working 40 hours a week and then spending another 20 hours a week dealing with their family member who’s having health problems, and the person, under those circumstances, you definitely want to be looking at this personal services contract so you can get paid for your time and effort. It’s totally permissible, totally legitimate.

Now, if you do the gift or the transfer, although there is a presumption that if it’s done within five years, it’s a presumption that it was done for Medicaid purposes, there is a rebuttable presumption. I don’t know that I’ve ever actually been successful as a result of the Deficit Reduction Act in 2007. The rules have become much stricter regarding transfers, so I think it would be very risky to just do a gift and think that you’re going to be able to rebut that presumption.

What the state of Florida does under those circumstances is they say… Well, let’s say there’s a $20,000 gift. The government is going to say, “well, you have to disclose that on the Medicaid application if it’s within five years.” The caseworker is then going to say, “Well, you have to return that $20,000.” And if you don’t return it, there’s going to be a penalty period, which is based on something called the divisor, based on the average cost of care in a skilled nursing facility, which is $9,485 per month. So you would take that $20,000 transfer, divided by the divisor of $9,485, and that would give you a little bit more than two months of disqualification. So it is risky just do a gift and not incorporate that into a personal services contract and then pay taxes on it. If you do it properly, that transfer, that $20,000 transfer, would be totally permissible. The downside, though, is the person would have to pay income taxes on it.

Attorney Pippen:

John, does a contribution to a church count as a gift on the look-back analysis?

Attorney Frazier:

Technically, it does. But I think that you would probably have a better chance of rebutting that presumption if you had a systematic… Let’s say that you gifted $5,000 a year to the church. I think you would be in a much better position to rebut that presumption. I do tell clients, and many of my clients will mention that. They say, “Well, I give a certain dollar amount to the church every month or every year.” I tell them that they would need to stop that at this point because they’re on notice now, when you’re applying for Medicaid, I’ve advised them that it’s considered a transfer for Medicaid purposes, and I advise clients at that point to stop that type of gifting, once they’ve contacted me for Medicaid planning.

Attorney Pippen:

So if they gave $10,000 to a church, they could be disqualified for Medicaid benefits for one month, basically.

Attorney Frazier:

In theory, yes. But again, I think if they had a systematic plan of gifting to the church, I think you would be in a much better position to rebut that presumption because, clearly, it was not done for the purposes of obtaining Medicaid benefits. Now what the government does, they have a form. If the person is looking to rebut the presumption that it was done for the purposes of Medicaid purposes, this DCF form asks about, “Well, what was the person’s health at the time of the gift?” They want to know all the circumstances surrounding the gift. And then you do have a possibility of rebutting that presumption. Again, I think the possibility would be much stronger if there was a pre-established gifting plan, and then, let’s say, the person had a stroke. At that point, if the family contacted me, I would say, “Well, you need to stop the gifting at this point, and I think we have a pretty good chance of rebutting the presumption because the person was held healthy up until the time of the stroke.”

Attorney Pippen:

We’re going to run out of time here in a few minutes. We stress on this show that it’s very important to have a durable power of attorney that gives the power to create this personal service contract. And it’s very important to update power of attorneys.

Attorney Frazier:

Absolutely. Absolutely.

Attorney Pippen:

What if a power of attorney goes to son or daughter? I mean, there are two people named in the contract, when they both have equal power. Can they both be named in a personal service contract?

Attorney Frazier:

Oh, absolutely. In one case, I did eight personal services contracts for eight different family members. They were small contracts, but the state of Florida did approve that. And I’ve done many, many cases where we’ve done more than one personal services contract, so totally permissible. And I do recommend when a person does a power of attorney, I think you probably do too, is to put that “or” language in there. If you have more than one attorney in fact, because if you say and, and you require the signature of both powers of attorney, can create a deadlock situation where you have a disagreement. And if it requires a signature of both, and I’ve actually seen that happen before. Power of attorney that said “and”, requiring both signatures, there was deadlock, and it resulted in the person being placed under a guardianship. Very important to think about that, I think, also.

Attorney Pippen:

John, can a person who’s granted a power of attorney create a personal service contract for someone who’s not granted the power of attorney.

Attorney Frazier:

Absolutely. We do that all the time too. And typically because my Medicaid applicants are having fairly serious health problems for the most part, I would guesstimate probably 50% of my Medicaid applicants have memory issues, often times dementia and Alzheimer’s. So it’s totally permissible for that power of attorney to sign on behalf of the Medicaid applicant. And that’s what we almost always do. With our power of attorney, that authority is included in the power of attorney. It’s totally permissible for the attorney in fact to sign off on personal services contracts for more than one person and more than the attorney in fact, also. So the other children, for example, could be paid too. That pretty much wraps it up for the topic of Medicaid planning and personal services contracts issues.

Attorney Pippen:

John, give us your contact information. Anyone wants to talk further about Medicaid planning.

Attorney Frazier:

Okay. The office number is (727) 586-3306, extension 104. My cell phone is (727) 748-5374. And my email address is John, john@attypip.com.

Attorney Pippen:

All right. Give me your cell phone number one more time.

Attorney Frazier:

(727) 748-5374.

Attorney Pippen:

All right. Very good.

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Medicaid Planning Issues with Prior Military Service Payments

A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen

A complete transcript of the program begins below:

Attorney Pippen:

We have attorney John Frazier on the line here. Good morning, John.

Attorney Frazier:

Hey, Joe, how are you doing today?

Attorney Pippen:

I’m doing great. So what’s up? Before we get started on your topic of the day, so I met with the client that we have both talked about a little bit, who has a mother who just recently within the last month came to Florida. And she has a rental home in New Jersey, close to the beach. So we discussed how that works in Medicaid. And maybe you can refresh the audience’s memory here in a few minutes. But the question I have, the mother is in a facility called The Crossing at Riverview. Are you familiar with that facility?

Attorney Frazier:

I believe that’s an assisted living facility but I’m not sure-

Attorney Pippen:

Well, no, it’s a memory care. She’s in a memory care part of the facility.

Attorney Frazier:

Okay. And in Florida memory care means assisted living, which means, unfortunately, waiting list. So we would have to navigate the assisted living Medicaid waiting list process with the Area Agency on Aging, and regarding the completion of the 701S form. And the goal of that planning would be to get a score of five. And we would only be on the waiting list 30 to 60 days, if the person is in an assisted living facility.

Attorney Pippen:

Okay. All right. Well, that’s good to know. So I need to pass that along to her and see how she wants to go from here. Okay. So what is the Medicaid tip of the week?

Attorney Frazier:

Today I was going to talk about the three types of monthly payments that we see associated with prior military service. The first one, and I think most people are probably familiar with this is a military retirement pay. And there are two general ways that you receive that. That would be 20 years of active duty military service, 20 years, or if you are medically retired from the military, you can also be eligible for that. That is paid by the Defense Finance and Accounting Service, also known as DFAS. And as far as Medicaid is concerned, that’s treated just like a social security or a regular pension, and all of that income would be countable for Medicaid purposes. In Florida, we have an income cap of $2,382 a month, so that would all be countable income. It is also taxable as far as income taxes are concerned.

The next one, and I think most people are familiar with this is service connected VA disability benefits also known as disability compensation. This is sort of a common sense thing where a person is in the military active duty and has an injury or illness that occurred while during military service or aggravated during military service. These payments are paid by the VA, the Veterans Administration. They’re non-taxable, and there’s a rating system that the VA has between 0% up to 100% service-connected disability.

One of the things about this that I think that many people are not aware of, if the person has a service-connected disability of 60% or higher, then the person then is eligible for free care in a skilled nursing facility. During the course of my career, I’ve done over 3,000 Medicaid cases, but I’ve had probably 10 clients, and I think that they were all 100% service connected. They were eligible for a free care in a nursing facility, and the facility has to have a contract with the VA, but their care was completely free. They were able to keep all their income and there was no asset limit, so that’s something very important to keep in mind.

The next program that we see, which I think people are not as familiar with is called non-service connected VA benefits, also known as pension. This is something that you have to financially qualify for. It’s got some similarities to Florida Medicaid. The house would be exempt, the car is exempt. There’s a accountable asset limit of $130,733. So if the person or the surviving spouse is within those asset guidelines, then the person is eligible. But military service criteria must be met. Prior to September 7, 1980, those military service criteria were very easy to meet. It was just 90 days of active duty military service, one day during wartime, and the discharge was other than dishonorable. And I think what most people don’t realize is that the surviving spouse of the veteran is also eligible for those benefits. Their surviving spouse can receive up to $1,244 a month in this VA pension, which is also non-taxable.

In the assisted living context, this is a very, very important thing to know about because if the assisted living facility charges $3,000 a month and the person’s income is only $2,000 a month, that VA pension of around $1,200 a month would cover the difference. So it’s very important to know about. As far as Medicaid is concerned, there are two parts of this payment. There’s a base pension, and then there’s a higher amount above the base pension called Aid and Attendance. And the base pension only counts towards the income limit in Florida, the income cap of $2,382 a month. So that’s a basic summary of Medicaid Planning issues with prior military service payments of the three programs that I see, which are related to military service.

Attorney Pippen:

All right. Let’s talk about Aid in Attendance. So a military person can get this extra benefit and again, kind of summarize how they would get that.

Attorney Frazier:

If their military service was prior to September 7th of 1980, which is most of my clients, the military service criteria are 90 days of active duty military service, at least one day during wartime, and the person does not have to be in-country. For example, didn’t have to set foot in Vietnam. They just had to serve during that time period. And the discharge is other than a dishonorable, usually honorable, but a general or medical discharge is typically sufficient also. And then the asset guidelines are that the house is going to be exempt, the car is exempt, and they’re allowed to have other assets in the amount of $130,733, and also their surviving spouse.

So let’s say that you have a Vietnam vet or a Korean War vet. And if the vet passes away and he is married at the time that he dies and the surviving spouse doesn’t get remarried, she will automatically be eligible for those VA benefits, even though she did not serve in the US military. And I think this is something that most people don’t know about. Oh, the other thing I wanted to mention is if you have an unmarried person on Medicaid in a nursing facility, the maximum benefit is only $90 a month. And the reason for that is the Florida Medicaid program pays for all of the person’s medical expenses.

Attorney Pippen:

All right, John, if anyone wants to know more information about this and contact you for more information, maybe set up a meeting, or for you to assist them, how do they contact you?

Attorney Frazier:

The office number is 727 586-3306 extension 104. My cell phone is area code 727 748-5374. And my email address is John@attypip.com.

Attorney Pippen:

All right, give the cell number one more time.

Attorney Frazier:

727 748-5374.

Attorney Pippen:

All right, John. Well, thank you so much for calling in with all this good information on Medicaid Planning issues with prior military service payments, and hope you have a great Sunday.

Attorney Frazier:

Okay. You too. Thank you very much.

Attorney Pippen:

All right Thank you. Bye-bye.

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