LOOK-BACK PERIOD FOR ASSET TRANSFERS
A. Old Law - The look-back period was 36 months for most transfers. Certain transfers to/from trusts had a 60-month look-back period.
B. New Law - The look-back period is 60 months for all transfers. This is 60 months prior to nursing home entry or the date of the Medicaid application, whichever is later.
C. Significance - Persons making bulk transfers must now wait 60 months (rather than 36 months) to file a Medicaid application.
TRANSFER-OF-ASSET PENALTIES
A. Old Law - The penalty began the month in which the transfer occurred.
B. New Law - The penalty does not begin until the individual enters a nursing home, applies for Medicaid, and would be eligible but for the transfer.
C. Significance - Previously, a penalty period could begin and end prior to the Medicaid application. Now the penalty period cannot begin before the Medicaid application is filed.
HOME EQUITY
A. Old Law - There was no limit on home equity.
B. New Law - Home equity may not exceed $500,000. (This limit may be increased annually, beginning in 2011, based on changes in the consumer price index.)
C. Significance - An individual with home equity exceeding $500,000 will not be eligible for Medicaid to assist with nursing home costs.
LIFE ESTATES
A. Old Law - There was no prohibition against purchasing a life estate in someone else's home.
B. New Law - Purchasing a life estate in someone else's home is a transfer of assets, unless the purchaser resides in that home for at least one year (12 consecutive months) after the purchase.
C. Significance - An individual can no longer spend down assets and immediately qualify for Medicaid by purchasing a life estate.
ANNUITIES
A. Old Law - Annuities had to be actuarially sound.
B. New Law - The purchase of an annuity is a transfer of assets, unless:
- It is irrevocable/non-assignable;
- It is actuarially sound;
- It pays out in equal installments over the term of the annuity; and
- It names the state as remainder beneficiary.
C. Significance - Texas had already implemented the greater part of this new rule prior to the DRA 2005. Texas has long required that the state be the remainder beneficiary after the client in the nursing home (i.e., the institutionalized spouse). But now the state must also be the remainder beneficiary after the community spouse.
PROMISSORY NOTES
A. Old Law - A negotiable note is a countable asset; a non-negotiable note is a transfer of assets.
B. New Law - A note is a transfer of assets unless it is actuarially sound, pays out in equal installments over the term of the loan (no balloon payments), and the debt is not cancelled upon the owner's death.
C. Texas has longstanding rules on notes which are more restrictive than the new law. If a note is not a transfer of assets under the DRA 2005, then the old rules pertaining to notes still apply.
SPOUSAL IMPOVERISHMENT
A. Old Law - The amount of assets protected for the community spouse (the spousal protected resource amount or "SPRA") could be expanded (i.e., increased) if the community spouse's income alone (plus a $1.00 diversion from the institutionalized spouse) is less than the minimum monthly maintenance needs allowance ("MMMNA"- $2,541.00 in 2007).
B. New Law - The SPRA may be expanded only if the combined income of both spouses (less the $30.00 personal needs allowance for the institutionalized spouse) is less than the MMMNA.
C. Significance - Under the old law, the SPRA could be expanded (and the institutionalized spouse could qualify for Medicaid) without the couple having to spend down assets. Under the new law, there are fewer situations where the SPRA can be expanded, thus requiring the couple to spend down assets in order for the institutionalized spouse to qualify for Medicaid. Moreover, the community spouse is forced to become dependent upon the institutionalized spouse's income, which may dry up when that spouse dies. However, Texas had switched to the new methodology in September 2004, before it was mandated by the DRA 2005.
CONCLUSION
While changes required by the DRA 2005 are formidable, they do not eliminate Medicaid planning. There are numerous strategies available to elder law attorneys to qualify individuals for Medicaid despite these new requirements. Indeed, some of the new requirements actually open new planning opportunities. Thus, anyone contemplating future Medicaid eligibility should contact an elder law attorney.
