It has been years since Ohio has seen the significant Elder law changes as it is seeing right now. There are changes to Medicaid and Veteran benefits all at once.
The Veterans’ changes are fairly drastic. The law has only been out for comment and the effective date is only in the rumor stages. The bottom line is this: There will be a look back for gifts made for the purpose of qualifying for VA aid and attendance benefits. The lookback will likely be 3 years and the penalty for gifting would be calculated by taking the gift and dividing it by the amount of the monthly award up to a maximum penalty period of 10 years. That means a $100,000.00 gift made to a widow of a veteran would be divided by $1,149.00 to create an 87 month penalty period. The same gift with a married couple would be divided by $2,120.00 and would result in a 47 month penalty period.
There are some rumblings that there will be spousal protections and protections for disabled children, but until the rule comes out definitively, there is no way to know the exact impact. Further confusing planning is when the rule will go into effect. The rumors are “spring”, whenever that is. It could be as early as March 1. Also unknown at this time is whether there will be a retroactive effect of the law or whether the law will grandfather in previous gifts.
For Medicaid, the changes are equally momentous. When Congress passed the Deficit Reduction Act of 2005, there were catastrophic changes to the planning strategies of Elder law attorneys. Prior to that law, the look back was 3 years and there were ways to gift and wait out penalty periods. The previous strategy was called “half a loaf” gifting. You would gift half of your loaf of bread and then hold onto half of your loaf of bread to pay for care during the penalty period created by gifting the first half. After that law, the elder law bar developed ways to counteract the draconian changes by reading the law and using “reverse half a loaf” gifting. That meant that now, the elder would gift everything to their child, and then the child would gift back a little at a time to help pay for the nursing home or other long-term care. Now, the law changed January 1, 2016, to take away that reverse half a loaf planning.
Does this mean there is nothing to do? Of course not. However, since that planning technique was a big part of our plans, we will have to meet with any client not currently on unrestricted coverage. So…If you are a Kabb Law Firm client, we will be in touch within the next few weeks with the next steps.
The other big change for Medicaid is that Ohio is switching from a 209b State to a 1634 State. What that means for our clients is that if a client’s income is over $2199.00 then the income must go into a special trust called a Qualified Income Trust (QIT). This applies to individuals and couples and the income will go into the QIT and then out to the same people. The money remaining in the QIT can be used for care but has to go to the State of Ohio upon the death of the Medicaid recipient and/or the community spouse. We will again, be in touch with all of those that will be affected by this law. This rule goes into effect on July 1, 2016.
The other big change to Medicaid applies to Spousal annuities after the snapshot or first period of institutionalization. This is not a change by statute, but rather one necessitated by a very confusing decision of the Supreme Court of Ohio.
One of the ways elder law attorneys protect the spouses in the community is by taking the healthy spouse’s assets, particularly their IRA, and annuitizing it for the benefit of the healthy spouse. Now, that plan will need to take place before the first period of institutionalization. This is, of course, difficult since most people don’t know when their personal catastrophe will happen. It is also a challenge since we want to protect the community spouse allowance that requires $240,000.00 in the couple’s name at the time of the snapshot. Needless to say, it will require more creativity and a careful balancing act by the elder law firm.
The one silver lining is that houses in a Revocable living trust had been causing multiple problems. The house in a trust was considered available and therefore count against the spousal asset allowance. On top of that, the house would be counted against the spouse in the nursing home when he or she transferred the house out of the trust.
We at the law firm are going case by case to make sure that we are adapting plans to the new changes. If you have questions about whether you are impacted by these changes, know that we are on top of it. You are also welcome to schedule a phone or in-person meeting.
For those that are wondering about other friends and relatives, the key is to plan early and hire a life care planning firm that keeps an ongoing relationship with their estate planning and elder law clients. We are here with you every step of the way, but the earlier the plan starts, the more options we have for protecting your dignity and legacy.
Rachel Kabb-Effron is a Certified Elder Law Attorney and the owner of The Kabb Law Firm www.kabblaw.com