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Bar News - March 16, 2012


Elder, Estate Planning and Probate Law: Medicaid Planning in New Hampshire, Massachusetts, and Florida

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As an elder law attorney, it is not uncommon for me to have clients who own properties and live in multiple states over the course of a year. For example, residents of New Hampshire and Massachusetts may spend their winters as snowbirds in Florida. Such clients often ask me which state is the most beneficial for them to live in for Medicaid planning purposes.

Understanding the similarities and differences of the respective law in the states most commonly encountered by New Hampshire attorneys is essential to answering the question. The purpose of this article is to briefly summarize (1) some of the similarities and differences between New Hampshire, Massachusetts, and Florida with respect to Medicaid planning and (2) common Medicaid planning instruments.

Comparison

In all three states, a discretionary testamentary trust which is created and funded through a Last Will and Testament may be used to try to preserve assets in the case where the surviving spouse is a Medicaid recipient. Such assets are not considered available to the surviving spouse and therefore will not affect Medicaid eligibility.

In New Hampshire and Massachusetts, an inter vivos Medicaid trust is an effective tool to protect assets provided the applicant has not applied for Medicaid benefits within the five-year period beginning from the funding of the trust, whether by the applicant or the applicant’s spouse. In Florida, such Medicaid trusts typically are not used because of the homestead protection.

Florida homestead law protects the residence from Medicaid reimbursement. If a Florida resident was a Medicaid recipient, upon death, the decedent’s home is transferred based on the terms of the decedent’s will or, in the absence of a will, intestacy, free and clear of any respective state claim against it. However, if the residence is sold during the probate process, the Florida homestead law protection is no longer available and the state may lay claim to the respective sales proceeds.

If a Florida resident believes that he may move to New Hampshire or Massachusetts in the event he becomes unable to care for himself, such a Florida resident may want to establish a Medicaid trust.

Long-term care insurance may be the best line of defense with respect to protecting assets from Medicaid reimbursement. Such insurance may be used to pay for at home care, assisted living, and nursing home care. In Massachusetts, if a Medicaid applicant owns such an insurance policy that pays at least $125 a day (far less than the otherwise private pay rate of two, three, or four hundred something dollars a day) for at least a two year period while he or she is in a nursing home, the residence is exempt from estate recovery (130 CMR 515.014 and 211 CMR 65.09(1)(e)(2)). Unfortunately, should the residence be sold during the applicant’s stay in the nursing home, the protection does not pass to the proceeds from the sale of the house. New Hampshire and Florida do not have a similar rule.

Last Wills and Testaments

Any inheritance which the applicant may receive, should it be from spouse, sibling, or child, should be held in a testamentary trust created by the decedent’s will. Such a testamentary trust may provide the trustee with discretion to pay income or principal in his or her discretion to surviving spouse or children (or some other beneficiary). It is not problematic that a surviving spouse discretionary beneficiary of such a testamentary trust either is or becomes a Medicaid recipient. The assets of the testamentary trust are not subject to Medicaid reimbursement for the spouse.

Medicaid Trusts

A Medicaid trust may be established by either an individual or a married couple. Such a trust is irrevocable. Typically, a residence, and any other real estate, is transferred to the trust.

The settlor typically retains an income interest in the trust. By doing so, the assets transferred to the trust during the settlor’s life receive a step up to date of death basis when he or she passes away. As such, any potentially otherwise applicable capital gain tax should be minimized or eliminated for the beneficiaries of the trust upon the settlor’s death if the trust property is sold in close proximity to such time. For example: Settlor transfers his residence to his Medicaid trust. Settlor purchased his residence a long time ago for $50,000. As of settlor’s date of death, his residence is worth $250,000. The beneficiaries of the trust sell the property for $250,000. They do not incur the potentially otherwise applicable $200,000 of capital gain ($250,000-$50,000).

Someone other than the settlor is the principal beneficiary of the trust (for example, his or her children). Since the trust is irrevocable, in the absence of providing otherwise, the beneficiaries and respective distribution cannot be changed. What if the trust provides that upon the settlor’s death the children are to take outright and one of the children is divorced or has been sued and has a judgment and an attachment against him or her?

In the absence of being able to change the trust, the creditor could take such child’s inheritance. To avoid such an adverse result, the settlor may retain a testamentary special power of appointment over the trust property. By doing so, the settlor may protect the child’s inheritance by providing through a codicil to the settlor’s last will and testament for it to be held in trust upon the settlor’s death instead of being distributed to the child outright whereby it could be taken away from the child.

An asset transfer to a Medicaid trust is subject to the five-year look-back period. If the settlor has to apply for Medicaid within a five-year period of transferring an asset to the trust, he or she will be subject to a respective disqualification period. A disqualifying transfer may be cured by the asset being transferred out of the trust to a principal beneficiary and subsequently from such beneficiary back to the settlor. However, such beneficiary has no obligation to return the respective asset to the settlor. Consequently, such a transaction should not be deemed problematic for Medicaid qualification purposes.

However, before proceeding as such, the settlor should do the math. For example: If four of the five look-back years have gone by since the asset transfer to the trust, and if the value of the trust property exceeds the then private pay nursing home rate for one year or less of nursing home care, if possible, it may be best for the settlor to try to find a way to pay for the one year or less of nursing home care instead of undoing the asset transfer to the trust since the value of the trust property is more than such required private pay nursing home expense.

If the trust property is sold while the five-year look-back period clock is ticking, as long as the respective sales proceeds remain in the Medicaid trust, the clock keeps ticking. The sales proceeds may be used to purchases a replacement home. There is no new five-year look-back period as to the new home.

Getting Out-of-State Help

To help to ensure that elder law work is completed correctly and to avoid legal malpractice, it is best for local counsel to engage out of state counsel to complete any out-of-state elder law work. Florida has made it a felony to practice law if counsel is not licensed there.

David M. Beliveau



David M. Beliveau is the managing attorney at Beliveau Law Group, LLC which has offices in New Hampshire, Massachusetts and Florida, and is a Certified Public Accountant and admitted to practice law in all three states.

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