Why Life Estates May No Longer Protect Farmland: In re Schmalz

If you own farmland, chances are you’ve heard about life estates. Maybe your land is already set up in a life estate, or maybe your neighbor has land in a life estate. Or, maybe you’ve been advised to create a life estate to protect your farmland from nursing home costs by someone you know. But this summer, the Minnesota Supreme Court handed down a decision that significantly changes the landscape for the owners of a life estate and may make life estates less effective than before.

First, what is a life estate? A life estate divides real property into two parts across time. A deed gives a gift of a future interest in the land, often to children or other heirs, and then reserves ownership in the land for the life of the current owner (or, in some cases, for the joint lives of two co-owners). The current owners, called the “life tenants,” continue to own the property and receive all the rent as before, but when they die their interest automatically transfers to the owners of the future interest, known as the “remainder persons.” This transfer at death qualifies for a step up in tax basis under the tax code as well, meaning if the land is sold at death no capital gains tax is owed.

Why are life estates important for long term care planning? Medical Assistance (MA), the program that pays for long term care costs in Minnesota (also known as Medicaid), has historically treated life estate property as unavailable to the applicant and their spouse. Because a life estate is considered unmarketable (would you want to buy an interest in property that could extinguish at any moment when the life tenant dies?), state guidance provided that the value of a life estate interest did not count toward an applicant or their spouse’s asset limit. So, an individual or married couple could continue to own farmland in a life estate and qualify for (MA) benefits. In addition, the life estate interest could be transferred to the healthy spouse so that all the rent payments could be retained by them instead of having to be spent on care.

But a new Minnesota Supreme Court case, In re Esther Schmalz, may have changed all that. In this case, Esther and Marvin Schmalz owned farmland in Renville County and transferred the land to their children, retaining a life estate interest for their joint lives. Esther went into a nursing home, and Marvin applied for MA benefits. Renville County initially determined that the value of the life estate interest counted against Marvin’s community spouse asset limit making Esther ineligible for benefits. They appealed their case all the way to the Minnesota Court of Appeals where the court sided with Esther and Marvin, holding that Minnesota law requires the county to disregard the value of life estate property. The Minnesota Department of Human Services appealed this determination, and the Minnesota Supreme Court reversed the decision of the lower court, holding that Minnesota statutes require the county to count a life estate interest owned by the non-MA spouse against that spouse’s community spouse asset limit.

What might this mean going forward? We know that if the non-applicant spouse (i.e. the healthy spouse) owns a life estate interest at the time of application, the value of the life estate will be counted against that spouse’s asset limit, which at present is $128,640. The applicant spouse will not qualify for MA if their spouse’s total assets exceed this limit. Could the non-MA spouse transfer their life estate interest to the MA-spouse and qualify? Perhaps, but consider that the owner of the life estate interest holds all rights to income from the property, which means that any rental income would have to be spent on nursing home care in most cases.

Life estates were already falling out of favor with Elder Law attorneys since the law changed on August 1, 2003 to allow the state to put an MA lien on the life tenant’s interest in life estate property when they die. (Prior to that date, there could be no estate recovery on life estates because, technically, a life estate ceases to exist on the death of the life tenant.) Since this new court ruling, life estates no longer protect the income from farmland for the non-MA spouse. Life estates may no longer offer much promise as a planning tool for the future.

If you currently own valuable real estate, like farmland, in a life estate arrangement, consider speaking to a licensed attorney with experience in MA planning to advise you about alternative options to protect your assets from the cost of long term care.

Elder Law Basics Series: Medicaid Eligibility

In a prior post in the Elder Law Basics post, I explained the difference between Medicaid and Medicare. For elder law purposes, the main distinction is that Medicaid pays for long term care services whereas Medicare provides traditional health insurance and only pays for short-term nursing home stays. In this post, I’m going to address what makes a person eligible for Medicaid, or as we call it in Minnesota, “Medical Assistance.”

First, it’s important to understand that there is a distinction between income-based Medical Assistance (MA) for low-income adults and MA for long term care (MA-LTC). Qualifying low-income adults and children may receive health insurance benefits through MA and there is no asset limit to qualify. But if you have a disability and need a nursing facility level of care either in a skilled nursing facility, assisted living facility, or at home, then income-based MA will not cover what you need. In that case, you need MA-LTC or what is referred to as a “waiver program.”

MA-LTC covers long term care services, which are skilled nursing services offered in a traditional nursing home setting. “Waiver programs” cover the same services, but in a community-based setting, such as assisted living facilities, memory care facilities, or at home. There are several different waiver programs offered in Minnesota for various needs, including the Community Access for Disability Inclusion (CADI) waiver for persons with disabilities under age 65 and the Elderly Waiver (EW) for disabled persons 65 and up. The financial eligibility rules for MA-LTC and all waiver programs are substantially the same even though each program is designed for people with different needs.

For MA-LTC and all waiver programs, there is an asset limit for both the person receiving benefits and their spouse, if they are married. For the person receiving benefits, the asset limit is $3,000. This figure has not changed in many years, and seems unlikely to change soon. For the person’s spouse, they are limited to $126,420, but unlike the MA recipient’s asset limit, the spousal asset limit is adjusted annually for inflation. Certain assets do not count toward either spouse’s asset limit, including their primary residence, one vehicle, and personal belongings (like clothing, electronics, furniture, etc.). All other property, however, does count toward the asset limit, including retirement accounts (IRAs, 401(k)s), most trust accounts, and all other real estate (farmland, cabins, etc.).

In addition, the MA recipient’s income is calculated and contributed toward the cost of their care, with certain limited exceptions, such as a personal needs allowance ($102 per month), and in some cases additional income may be given to the spouse to cover excess housing costs. The income calculation for waiver programs can be quite complicated, and some people may not qualify for a waiver program if their income exceeds their care costs. But the spouse of an MA recipient is not required to contribute their income for the MA recipient’s care, in other words, there is no “spousal income deeming” for MA. This makes possible certain asset protection strategies such as planning with Medicaid-compliant annuities.

In addition to the basic financial eligibility requirements, the MA applicant must meet additional criteria based on their needs. For example, they must require a nursing home level of care, which means they typically must be evaluated by a public health nurse as part of what is called the MNChoices Assessment. And for MA-LTC or MA-EW, they must be 65 and older; or, for CADI they must be under 65.

These are just the most basic elements of eligibility and because every person’s situation is different, even though you or your loved one may meet these basic criteria, there may be other considerations before you or your loved one should apply. For example, you may be ineligible for benefits if the applicant or their spouse gifted assets within the last five years. There are also special asset limit rules for families that own small businesses or farms. If you are looking for more information about qualifying for MA, please contact me to discuss your situation.

My Spouse Needs Nursing Home Care -- Do We Need to Divorce?

When I am asked about nursing home care for married people, one of the questions that almost always comes up is this: “Do we have to get divorced?” Or, in a similar vein: “Should we get divorced?”

There is a misconception about long-term care that has been around for a long time, which is that a married couple should or must get divorced when one spouse needs care. It’s like an urban legend that just won’t die. And it adds unnecessary stress in a situation that is already very stressful for families. So, let me put it to rest once a for all:

No, you don’t need to get divorced.

And, most people shouldn’t get divorced.

Here’s why: If you need to rely on Medical Assistance (also known as “Medicaid”) to help pay for long-term care in a nursing home, assisted living facility, or at home, the program requires the ill spouse to spend their assets down to just $3,000. But the program also provides for a community spouse asset allowance that is much greater than that. This year, the community spouse asset allowance is $126,420, and the figure is adjusted annually based on the rate of inflation.

In addition, there are certain benefits to staying married. For example, the well spouse can remain living in the marital home, and the home will not be counted toward either spouse’s asset limit. The well spouse may also receive an additional income allocation from the income of the ill spouse if the well spouse’s income is too low, which is helpful in situations where the ill spouse was the primary earner and may be receiving a larger amount in pension or social security income. The well spouse may also be allowed to keep additional income producing assets if their income falls below a certain minimum threshold. Moreover, the program allows married couples to annuitize assets, converting available assets to an income stream for the well spouse, and the well spouse’s income is not required to be spent on care costs. So, for all these reasons, staying married is often more advantageous than getting divorced.

So, why does the myth that people have to get divorced persist? It may be because in some unique situations, divorce is the best option. For example, in a second marriage where the couple signed a prenuptial agreement, a divorce may provide for an appropriate redistribution of assets that better protects and provides for the well spouse. But these cases are generally rare and require the advice of a knowledgeable attorney to determine if divorce is appropriate. In most cases, divorce is simply not the best option.

If you or someone you knows is in this situation and is wondering what to do, contact an experienced elder law attorney for advice.

What Is Elder Law?

When I introduce myself as an attorney practicing elder law, the next question I usually get is, “what is that?” Recently, someone asked, “what’s the difference between ‘elder law’ and ‘estate planning?’ Isn’t it the same thing?”

Although there is certainly some overlap between the disciplines of estate planning and elder law, the two are not the same. In this post, I’ll briefly summarize the differences and why those differences are important.

Elder Law is Interdisciplinary

Instead of focusing on a field within the practice of law, elder law takes as its focus the whole person. Traditionally, elder law is a practice that crosses disciplinary boundaries. For example, an elder law attorney may have experience with estate planning, health care law, landlord/tenant law, real estate law, and personal injury. That’s because an elder client may present with a number of issues, such as a person who is injured in an assisted living facility, has issues with the facility’s housing agreement, and also has trouble paying for care. These issues cross over into personal injury law, housing law, and health care law. Not all elder law attorneys practice in all of these disciplines, and some may focus in a certain area, but often an elder law attorney has some familiarity with all of these issues and can help the individual client navigate similarly complex situations. By focusing on a client population instead of an abstract discipline, elder law attorneys gain skills and experience in the challenges that face this population and how best to assist clients who are similarly situated. With these unique skills, an elder law attorney can provide superior service to seniors and their families.

Estate Planning, Plus

In my practice, I sometimes think of elder law as “estate planning, plus” or “estate planning 2.0.” Increasingly, traditional estate plans are being complicated by the high cost and unpredictability of long term care. In part, this is due to demographic changes, like the fact that aging “baby boomers” are greatly increasing the number of people in need of long term care. And in part the change is due to the ever increasing cost of care. The average cost of nursing home care in Minnesota is over $7,000 a month, and for memory care it can be twice that. Estimates indicate that around half of all people will require long term care services, which means more and more people need to factor long term care costs into their retirement planning and estate plans.

A traditional estate planning attorney primarily deals with wills and trusts and is concerned mainly with minimizing the cost of transferring assets at death, which might include tax planning or probate avoidance. But a traditional estate planning attorney may not understand the impact that an illness requiring long term care may have on a client’s intentions to pass assets on to the next generation, and may not know how to leverage the resources available to minimize the financial impact of necessary care. That’s where an elder law attorney can make a difference. For a client who is concerned about the impact that the need for long-term care may have on their business succession plan or their wealth transfer objectives, an elder law attorney can provide invaluable guidance.

Peace of Mind

An elder law attorney can provide their clients with a sense of assurance that, if long term care is anticipated, all necessary care will be provided without totally derailing the clients’ other objectives, such as providing for a spouse or disabled child, or leaving a legacy for the next generation. When faced with a diagnosis like dementia or Parkinson’s, clients often fear that they will lose everything they own or will have to divorce their spouse. The elder law attorney can help the client in this situation to develop a plan to ensure that their quality of life will not suffer even though their cost of care increases dramatically. An elder law attorney can help clients navigate the maze of complicated healthcare programs, rules, and regulations, and provide guidance on care and housing alternatives to meet a client’s goal to age in place as long as possible. With the tools that an elder law attorney can provide, clients can feel empowered to take back control of the process and make a plan that suits them.

If you’re interested in talking with an elder law attorney to find out more, please contact me or someone at my firm, Fafinski Mark & Johnson, PA, for assistance.

How to Talk to Family About Long Term Care Needs

The holidays are fast approaching and soon we’ll all be gathering together with our families to share meals and spend rare quality time with our loved ones. It can be a fun, exciting, and stressful time of year. For many people, the holidays are when we first notice that there may be problems in our families, especially as parents or grandparents grow older. You may notice that the home is not as clean and tidy as you remembered, or that mom or dad is having a lot more difficulty moving around the house. Maybe the laundry isn’t getting done because it’s on a different floor that is no longer accessible. Or maybe there isn’t any food in the refrigerator because driving to the store is getting too difficult. Or perhaps important appointments or medications are being forgotten or skipped.

Most people need more support as they grow older, but because we live in a culture that emphasizes independence above all else, it’s extremely difficult for people to ask for help or even to accept help when it is offered. This can make it very hard for family members to raise concerns about health, safety, or isolation with their elder relatives. But the truth is that these conversations are too important not to have, even though they are difficult. Most people when asked say that they want to remain at home as long as possible and even die at home. But most people don’t die at home. Why? Because they don’t tell their loved ones what they want when they’re able to express their wishes, and they don’t develop a plan for making their wishes a reality. As the saying goes, if you’re not making a plan, then you’re planning to fail.

So, how can family members facilitate these important conversations around the holidays?

First, it’s important to acknowledge that no two families are alike. What works for one person or family might not work for you. Consider how you have broached difficult issues in the past. What worked (or didn’t work) then? What can you learn from these past experiences that you can apply to this situation?

Second, remember that your elder relative is an independent adult, even if they now need help. There is a tendency in many families to treat their elders more like children than grown-ups simply because they may have developed some cognitive difficulties or may require assistance with activities of daily living. But with the proper support, our elders can still make appropriate decisions on their own. “Supported decision-making” is an emerging concept that seeks to balance respect for the autonomy the individual with the need to protect the individual’s health and safety. Remember, if we’re lucky we’ll all get old someday, and when it’s your turn, how will you want to be treated? Try to find a way to support your loved-one’s wishes while also ensuring their health and safety is provided for.

Third, if at first you don’t succeed, try again. It can be difficult for someone who may be struggling mightily to hide the fact that they need help to be confronted by a child or grandchild with an offer of assistance or a remark of concern. They may feel shame, sadness, or anger about their situation, which may cause them to be defensive or in denial. But by showing genuine concern and allowing the person time to process their emotions and reactions, you may make more progress than if you simply confront the person and never bring it up again.

Fourth, get help if you need it. Sometimes enlisting a trusted advisor or friend to speak with your loved one can help. Maybe your elder relative doesn’t want to talk to you about it, but they would talk with their pastor or rabbi, a close friend, their banker or lawyer, their physician, a different relative, or someone else they trust. Most people have at least one person that they trust and whose opinions they respect and admire — seek out that person to help you.

Finally, use “I” statements instead of “you” statements. Instead of saying, “you’re forgetting to take your medication and you’re driving me crazy!,” try saying, “when you forget to take your medications, I get afraid that you will become seriously ill and I’m afraid of losing you and seeing you suffer.” Using “I” statements shifts the conversation away from judgment and blame. And by depersonalizing the problem, “I” statements open up space for both sides to come up with creative solutions without anyone feeling defensive.

Once you are able to identify your loved one’s wishes for their care as they age, it’s important to take the next step and make a plan. How will you pay for care if they want to remain at home? Under what circumstances would you all agree that staying at home will no longer work? If transitioning out of the home, what housing with services options are the best for your loved one? Are there assets that need to be protected from long term care costs to provide for other family members? Engage the services of an elder law attorney to help you answer these questions and make a plan that honors your loved one’s choices and ensures that they’ll be safe and healthy.

And, may you and all your loved-ones share a safe, healthy, and happy holiday season!

Elder Law Basics Series: Medicare vs. Medicaid

This post is the first in a series that I’m calling “Elder Law Basics.” The idea is to give a brief introduction to the essential elements of a law practice focused on serving the needs of the elders in our community, and to help readers understand what is meant by the term “elder law.” Elder law encompasses many things because the practice is focused on a population not on a distinct set of laws. But because the practice spans so many disciplines that we usually think of as separate — like estate planning and landlord-tenant and healthcare — it can be confusing to understand what an elder law attorney actually “does.” (By the way, “agriculture law” suffers from the same form of confusion. It too is interdisciplinary in scope and focuses on a population — farmers — rather than a particular legal discipline. What can I say, I like to wear a lot of different hats!)

I’d like to start out this first post by focusing on a health-law aspect of my elder law practice, and a topic that generates a lot of confusion and misinformation in the broader community. I’m talking about Medicare and Medicaid.

A lot of people confuse Medicare and Medicaid, but they are two separate healthcare insurance programs that originate with the federal government and involve some administration at the state level as well. Medicare is a health insurance program primarily for people over 65, although people who are permanently disabled or have certain diseases may also qualify for insurance coverage through Medicare. Medicare has four parts: Part A, which is known as “hospital insurance,” Part B, which is known as the “health insurance” part and covers some preventive care; Part C, which is “Medicare Advantage,” a sort of hybrid of Parts A and B; and finally, Part D, which is prescription coverage. Medicaid is also a health insurance program, but it pays for healthcare when a person can no longer afford to do so. A person may qualify for Medicaid if their income is too low, or if they’re over 65 or disabled and require long term care but cannot afford to pay for it. There are income and asset limits to qualify for Medicaid, and I’ll discuss those in a later post.

For now, I want to highlight some things about Medicare that most people aren’t aware of. First, you might not know that if you’re 65 and receiving Social Security, you’ll be automatically enrolled in Medicare Parts A & B. But what about people who are still working at 65? Do they need to enroll? The answer is that it depends. If you’re actively working and receiving health insurance through your employer (or your spouse’s employer), and if the company has more than 20 employees, you do not need to enroll in Medicare. But, if the employer has fewer than 20 employees, Medicare will still be considered the primary payer, and you should enroll to avoid a penalty. If you’re 65 and not collecting Social Security yet, it’s a good idea to talk with a professional about whether you should be enrolling or not so that you don’t lose coverage or have to pay a penalty.

In addition, Medicare Part A pays for hospital stays (up to 150 days), and skilled nursing facility stays that follow at least a 3-day inpatient hospital stay (up to 100 days). When it comes to skilled nursing care, many people are told by their healthcare provider that Medicare will stop paying for skilled nursing care if the patient does not show improvement. That is not true. According to a recent settlement agreement with the Centers for Medicare and Medicaid Services, there is no legal requirement that a patient demonstrate improvement for Medicare to continuing paying for care. Medicare must continue to pay for care so long as it is medically necessary for up to a maximum of 100 days.

Many people also need home health care due to age-related illnesses or after a hospital stay. Many people and care providers don’t realize, however, that Medicare Part A also pays for in-home care. So long as the care is ordered by a physician and the patient is “homebound,” which simply means they need assistance with moving (for example, a cane, walker, or wheelchair), Medicare will pay for up to 28 to 35 hours of in-home care per week, and there is no limit on how long the person can continue receiving care at home.

One big issue that has come up in Medicare cases over the years is something called “observational status.” In order to qualify for Part A coverage for a hospital stay or for skilled nursing care following a hospital stay, the patient must be considered in in-patient (not out-patient) care. Many hospitals are categorizing patients as out-patient by putting them on “observational status.” Hospitals may be afraid that they will lose money on Medicare patients, so they avoid this by making the patient’s hospital stay not qualify for Medicare coverage. Since most patients have no way of knowing whether they’ve been admitted as in-patient or whether they are on observational status, all patients are entitled to a “Medicare Outpatient Observation Notice” (MOON) within 36 hours of hospitalization. Patients on observational status can and should dispute their status with their care provider.

If you or a loved one have questions about Medicare or Medicaid, feel free to give me a call or contact my firm for more information.

New Veterans Administration Pension Benefit Rules Went Into Effect October 18

The Veterans Administration just rolled out sweeping new eligibility rules for veterans and their spouses who require long-term care. The rules apply to needs-based pensions, such as Aid & Attendance, which is a program that helps veterans and their families to offset the cost of out-of-pocket medical expenses. For example, a veteran or their spouse who receives care at home or in a facility can receive additional money each month from the Aid & Attendance pension if their income falls below a certain threshold as a result of out-of-pocket medical costs.

Until this month, in order to qualify for Aid & Attendance, the government only took into account a family’s monthly income and medical expenses. Although there was a ballpark maximum asset amount a family could have, there was no hard and fast asset limit. Better yet, there was no lookback period for gift transfers and no gift penalties imposed, which made the program more attractive compared to Medical Assistance (Medicaid). Now, that is no longer the case.

The new rules establish a maximum “net worth” limit, which takes into account both assets and annual income of the veteran and their spouse. That net worth limit is pegged to the community spouse resource allowance under Medicaid, which this year is $123,600. If a veteran and their spouse (if married) have annual income (less out-of-pocket medical expenses) plus total assets in excess of this asset limit, they can no longer qualify for Aid & Attendance. They will have to either reduce assets or reduce income (keeping in mind that an increase in care costs can have the effect of reducing income), in order to qualify. The veteran or spouse’s primary residence, including 2 acres surrounding the home, is excluded from the asset limit.

In addition, the new rules impose a 36-month lookback period for transfers of assets for less than fair market value. (This is less stringent than the 60-month lookback period for Medicaid.) The penalty period is calculated by taking the sum of all gift transfers made within the lookback period and dividing it by the maximum monthly pension amount, which determines the number of months that the veteran or spouse is ineligible for VA pension benefits. A penalty period begins to run on the first of the month following the date of the last gift transfer. Only gift transfers that result in financial eligibility are penalized, however; if the veteran or spouse was already below the net worth limit, or if they were close to it, the penalty is reduced or can be zero depending on the circumstances.

The takeaway: Veterans and their families who are considering applying for Aid & Attendance benefits through the VA should consult a VA-accredited attorney like me as soon as possible to determine whether they need to wait to apply due to the new transfer penalty rules and whether they meet the new net worth limit. Please contact me if you have questions.