The 3 Ways of Paying for Nursing Home or Assisted Living Care

 

Nursing homes and assisted living facilities can be very expensive but there are ways to make your long-term care dollars stretch. There are three primary methods of paying for nursing homes or assisted living facilities: (1) Private-paying with one’s own dollars; (2) using insurance that covers some or all of the cost of long-term care and (3) Medicaid and/or Veteran’s (VA) benefits.

Private-paying for care often means total indigence. The cost of nursing homes in Southeast Florida ranges from about $6,000 to $12,000 per month. Assisted living facilities are about half the cost of nursing homes but still too much for many to pay for without outliving their savings. Many people spend all of their savings in nursing homes and then have nothing left. Not a very good option!

Long-term care insurance works for some but most people considering nursing home care do not have long-term care insurance or enough and either cannot qualify for the policies or cannot afford the premiums.

This leaves Medicaid and Veteran’s benefits. In Florida, Medicaid pays for almost all nursing homes including the finest of facilities (you sometimes need to know the tricks to getting in!) and Medicaid increasingly covers assisted living facilities as well. But in order to qualify for Medicaid, applicants must be below $2,000 in savings and below $2,022 in income (2010 figures). Elder Law Attorneys can help people ethically and legally convert “countable” savings to “non-countable” savings, so that Elder Law clients can keep their savings and still qualify for Medicaid. This is done not out of greed but out of necessity so that the Elder Law client is not left indigent at the cost of long-term care. In the words of one court, “No agency of the government has any right to complain about the fact that middle-class people confronted with desperate circumstances choose [to do Medicaid asset protection planning] when it is the government itself which has established the rule that poverty is a prerequisite to the receipt of government assistance in the defraying of the costs of ruinously expensive, but absolutely essential medical treatment.”

When trying to decide among Elder Law Attorneys, know that The Florida Bar has already done a lot of homework for you. Any attorney can join The Florida Bar’s Elder Law Section and there are over 1600 members but only under a 100 are certified by The Florida Bar as specialists in Elder Law. These certified specialists do not necessarily cost any more than a normal attorney.

Scott Solkoff of Solkoff Legal, P.A. is a certified specialist in Florida Elder Law, a national author and is frequently quoted in the media on the subject of Elder Law. He may be reached at 561-733-4242 or at www.solkoff.com.

Wall Street Journal columnist, Rachel Emma Silverman, reports on Caregiver Agreements in the September 7, 2006 edition of the national publication. Our own Scott Solkoff provided background, client stories and is quoted in the article. Scott Solkoff co-counseled the successful appellate case which paved the way for the use of personal care agreements. The article follows or you can read the article and all of its links at www.wsj.com though you must be a subscriber.

WHO WILL MIND MOM?
Check Her Contract

Seniors Turn to Written Agreements to Compensate
Relatives as Caregivers; Reducing Estate Size
By RACHEL EMMA SILVERMAN
September 7, 2006; Page D1

Trish Richert recently signed a binding employment contract. In exchange for taking care of a 77-year-old woman — arranging and taking her to doctors’ appointments, doing her bills, keeping her house tidy — Ms. Richert, of Greensboro, N.C., receives a modest stipend that covers travel expenses and other costs.

Ms. Richert’s employer: her mother. The two recently entered into a so-called caregiver contract — a formal agreement, set up by a lawyer — in which Ms. Richert, 45, receives a small payment for the long hours she spends caring for her mom.

A small but growing number of families are setting up caregiver contracts, in which adult children or other relatives are hired, for modest salaries, to take care of elderly or disabled family members. These arrangements, which are also called personal-service or personal-care agreements, can help reduce the size of a parent’s estate and thereby improve their chances of becoming eligible for long-term-care coverage under Medicaid. They can also minimize battles between siblings and other family members. For many other families, the contracts simply help reward the significant amounts of time, effort and money that family members often spend watching over and taking care of an elderly relative.

There aren’t any national statistics on how many family members are compensated for caregiving. But a huge swath of Americans already provide long hours of voluntary care for family members and friends — and these numbers are likely to grow as the population ages and more people live longer. Some 44.4 million adult caregivers — or 21% of the U.S. adult population — provide unpaid care to seniors or adults with disabilities, according to a 2004 study by the National Alliance for Caregiving in Bethesda, Md., a research and advocacy coalition, and AARP, the Washington advocacy group for seniors. On average, those caregivers provide 21 hours of care a week; the average length of time spent providing care is 4.3 years.

Many caregivers have to balance their family duties with their real jobs. Nearly 60% of caregivers either work or have worked while providing care, the study found, with many having to make adjustments to their work life, including reporting late to work or even giving up their jobs entirely.

Kathy Nalven is in the process of drawing up a caregiver contract with her mother’s 88-year-old fiancé, Edward Campbell. Ms. Nalven, a Fort Lauderdale, Fla., real-estate broker who is in her 50s, has agreed to take care of Mr. Campbell, but “the parameters have to be really clear,” she says. “If it means that I can’t work because I’m busy taking care of him, which I’m very willing to do, I need to be compensated. I’m not a saint.” Ms. Nalven and Mr. Campbell both say that the terms of the arrangement are still being worked out.

Elder-lawyers and caregiver advocates say that more people are considering compensating family members for their efforts. In recent weeks, Jennifer Cona, a Melville, N.Y., elder-law attorney, has drafted five caregiver contracts. Before that, she had drawn up only three in the preceding couple of years. “We’re seeing a real increase,” she says.

“I know in my own practice they are definitely increasing,” adds Lauchlin Waldoch, a Tallahassee, Fla., elder-lawyer. “People are more receptive to them now.”

Qualifying for Medicaid

There’s another key reason for the uptick: Legislation passed earlier this year makes it tougher to qualify for Medicaid long-term-care coverage by making outright gifts to family members. The measures were passed to prevent seniors who have the means to pay for their own care from obtaining Medicaid, which is intended for poor patients. Lawyers say that if set up properly, caregiver contracts shouldn’t be considered gifts to children because the patient is receiving a real service in return.

Medicaid isn’t likely to “disqualify you for making those payments to your children if you have an arm’s length, commercially reasonable contract, in writing, ahead of time,” says Charles Sabatino, director of the American Bar Association’s Commission on Law and Aging in Washington. Scott Solkoff, a Boynton Beach and Miami, Fla., elder-lawyer, says he has drafted more than 250 caregiver contracts in recent years; about half of the arrangements, he says, have been “Medicaid-driven.”

Still, there’s a lot of stigma to overcome when recommending the idea to families, lawyers say. The main reason: “People are still uncomfortable with the idea that you are paying your kids,” says Palo Alto, Calif., lawyer Michael Gilfix.

Indeed, when Ms. Richert first heard about the contracts from her mother’s lawyer, A. Frank Johns of Greensboro, N.C., “it felt funny,” she says. “It’s hard to put a dollar figure when you are doing something for your mom.”

Advisers and family members say the deals are also smart because a formal arrangement, done ahead of time, can minimize feuds among siblings and other relatives. Oftentimes, one child serves as a primary caregiver and a parent may reward him or her by making informal gifts or by doling out a bigger piece of the estate in the will. Unfortunately, those arrangements can lead to family fights or will contests.

A formal caregiver contract, drafted ahead of time, makes the arrangement “more iron-clad,” says New York elder-law attorney Bernard Krooks. “You have a written document showing this is what mom wants you to do and what mom wants to do for you. It helps avoid family squabbles.” But lawyers say it’s important to discuss the contract with other siblings or relatives so they are aware of the arrangement ahead of time; that can help minimize family tensions later.

Terry Huffines, of Brown Summit, N.C., set up a caregiver contract with her aunt, who is 92 years old, to help avoid any estate problems down the road with her aunt’s 15 additional nieces and nephews. The agreement, set up by Mr. Johns, the Greensboro, N.C., lawyer, outlines the services Ms. Huffines, 72, will provide for her aunt, including driving her to the doctors, the grocery store and other household chores.

In order for a caregiver contract to be respected — and to pass muster with Medicaid authorities — it has to follow certain formalities. For one, you can’t pay the caregiver an inflated rate in order to shift lots of money out of your estate. Instead, you should specify what duties the caregiver is expected to perform and then contact local home-care agencies or geriatric-care managers to establish the market value of those services in your area. Such duties can vary from preparing meals, bathing and dressing to housecleaning and chauffeuring, as well as arranging doctor’s appointments and friends’ visits and overseeing medications.

Cost Varies Widely

The cost of care varies widely, depending on location and the services being performed, and can range from about $15 an hour to more than $100 an hour. Some families choose to pay a discounted rate to family caregivers, which is also acceptable, lawyers say. It’s also much better to set up the caregiver contract when the incapacitated adult is of sound mind, as the arrangements can become far more complicated if a person acting as power of attorney signs the contract.

The contract should also specify whether the payment will be done in one upfront lump sum based on the senior’s life expectancy — a technique often used for Medicaid-planning — or in regular weekly or monthly payments. It’s also wise to create safeguards to prevent a caregiver from taking the money and running, such as depositing paychecks into an escrow account rather than to the caregiver directly.

There are also tax consequences to consider. The compensation is considered ordinary income, so the caregiver has to pay income taxes on the payment. Also, depending on how the contract is structured, Social Security and other payroll taxes may have to be withheld.

Many lawyers say they generally only set up the contracts as part of more-comprehensive estate plans, including power-of-attorney documents and wills, but that the arrangements can cost anywhere from about $500 to several thousand dollars to create.

It’s smart to check whether there are other sources of funding you can use to pay family members. Some long-term-care insurance policies, such as those that pay lump-sum “indemnity” benefits, may be used to pay family members who provide care, says Jesse Slome, executive director of the American Association for Long Term Care Insurance in Westlake Village, Calif. If you already have a policy or are considering one, see if the coverage will allow you to pay family members for their caregiving services.

In addition, some state or federal government programs provide funding to compensate family members in what is known as “consumer-directed care.” For instance, a growing number of states have a “Cash & Counseling” program for Medicaid enrollees that allows participants to pay family members for their services. Contact your local agency on aging or department of social services for more information on government funding.

Write to Rachel Emma Silverman at rachel.silverman@wsj.com

We look forward to using our blog to share ideas and news and hearing what is on your mind.  Please post questions, comments or thoughts that you would like to share in our online community.

On Monday, May 1st, 2006 the United States Supreme Court set a new and helpful precedent in the resolution of liens in personal injury cases. The following article provides a summary of the case. A link to the actual text of the case follows the article. Solkoff Legal, P.A. does not seek representation in personal injury cases but we do a great deal of work helping trial lawyers and their clients. When a settlement or award is given to a Medicaid recipient, that person will lose his or her Medicaid health insurance and may well not qualify for any other insurance. Solkoff Legal, P.A. helps people to preserve their Medicaid while still getting the benefit of their settlement.

GOOD NEWS – AT LAST

The Impact of Arkansas v. Ahlborn on the Treatment of Medicaid Third Party Liability Liens
Rodolfo Suarez, Jr., Esquire and Daniel A. Terner, Esquire

May 8, 2006
——————————————————————————–
The unanimous decision of the Supreme Court of the United States, in Arkansas Dept. of Health and Human Services, et. al. v. Heidi Ahlborn, handed down on May 1st, 2006, will have a drastic impact on how personal injury attorneys handle Medicaid liens in their cases. Before this decision, a big concern for attorneys and their clients in whether or not to settle a personal injury case was the impact of the Medicaid liens. Generally speaking, in Florida, Medicaid has two types of liens which may affect a claim or lawsuit. The first is the Medicaid Third Party Liability Lien (TPL) and the second is the Medicaid Estate Recovery Unit Lien (ERU). The Supreme Court case, and therefore this discussion, only focuses on the TPL lien.

The Medicaid TPL lien is a lien asserted by the State against any recovery made in a claim where Medicaid paid any medical bills for care and treatment of injuries that were caused by the negligence of a third party, which gave rise to that claim. The typical third party liability lien arises when Medicaid claims they are entitled to reimbursement from the proceeds of a settlement or judgment, for any bills they paid relating to that claim. In the past, Medicaid has taken a very aggressive approach in recouping monies from settlements and/or judgments where they have paid medical bills on behalf of a Medicaid recipient, and that recipient later collected monies from the tortfeasor. In some instances, the monies recovered are far greater than the monies paid by Medicaid and therefore satisfaction of the Medicaid TPL lien is sometimes not an issue. In other cases, the monies recovered are far less than the monies paid by Medicaid. In these cases, Medicaid would apply an arcane “reduction formula” which will not be explained in detail here, but to oversimplify, it basically required a significant reduction in attorneys fees and allowable costs for the case and would then require payment of 50% of the balance in satisfaction of their TPL lien. It is in these types of cases which this new decision will have a dramatic impact.

Medicaid is required by the federal government to “ascertain the legal liability of third parties…to pay for [an individual benefits recipient’s] care and services available under the [State’s] plan; and to seek reimbursement for medical assistance to the extent of such legal liability,” As such, Medicaid took this as a directive to attempt to recuperate as much monies as it could from all aspects of a settlement or judgment, regardless of the amount of monies recovered and regardless of the allocation of the damages in the case. By way of example, under the old analysis, if Medicaid paid $50,000 in medical bills and a plaintiff recovered a total of $100,000 from the tortfeasor, Medicaid would seek recovery of their lien from the entire amount and the amount owed would be substantial. If not the full $50,000, it would be very close. Under the new case, however, there would be a dramatically different result, discussed further in this article. In your typical personal injury action, damages are sought against the at-fault party for, amongst other things, past medical expenses, loss of earnings, loss of earning capacity, future medical expenses as well as pain and suffering. In the past, Medicaid would attempt to, and was successful in recouping the monies they paid out for a Medicaid recipient from the entire amount of monies recovered. Ahlborn significantly changes this approach and has interpreted the federal anti-lien provisions as limiting Medicaid to asserting their lien only against the portion of the recovery that was related to payment of the past medical bills.

For instance, assuming in the example above, the personal injury case was resolved for $100,000 and the allocation of damages was $50,000 in pain and suffering damages, $25,000 in lost earning and lost earning capacity and $25,000 in past medical bills, Medicaid would only be allowed to assert their lien against the $25,000 in damages relating to the medical bills. In other words, where, in the past, they could collect close to their entire lien amount from the $100,000 settlement, under this scenario, they would be limited to asserting their $50,000 lien against only the $25,000 allocated for medical bills. Under this scenario, there are insufficient monies to pay for Medicaid’s lien. Clearly, if this is the case, on their very best day, Medicaid would only be entitled to recoup at most $25,000. In all likelihood, however, it would probably be significantly less once you reduce the amount collected by attorney’s fees and costs. (This example does not take into account the Medicaid reduction formula nor a reduction of the total amount owed for attorneys fees and costs. Likewise, at this point, Florida Medicaid has not yet determined how they will apply the reduction formula to arrive at a lien amount under these types of scenarios.) Needless to say, however, this will have a drastic impact on how much money is available to Medicaid in which to attach their TPL lien. Where they could previously attach their lien to the entire sum of monies collected, this case makes clear that the government is limited to only that portion of the monies collected relating to the medical bills.

What does this mean for the practicing personal injury attorney? Well, in cases where this issue exists, you will have to spend some time analyzing not only the hard damages (i.e. medical bills) but also the soft damages (i.e. pain and suffering). In working up the case, you want to try to obtain evidence as to these “soft” damages so that on the back end, when you are settling the case and dealing with the Medicaid TPL lien, you have support for your position. Once your case is ready to be resolved, the safest route would be to have a judicial determination of the allocation of damages in the case. You should provide Medicaid with “formal notice” of the hearing (by certified mail) and allow them an opportunity to object to the allocation of damages. This protects the practitioner and the client and affords Medicaid an opportunity to dispute the allocation of damages.

As a practical matter, the United States Supreme Court’s decision in Arkansas v. Ahlborn leaves more on the table for Plaintiffs, and this is good news indeed. For individuals with disabilities, in need of establishing a special needs plan to preserve their public benefit eligibility notwithstanding their receipt of settlement proceeds, the prospect of a smaller Medicaid lien (and, consequently, a greater net recovery) opens the door to the utilization of special needs planning options that might previously have been unavailable.

Solkoff Legal, P.A. represents injured parties through their trial lawyers using special needs trusts, qualified settlement funds, structured settlements, lien resolution strategies and other tools to help trial counsel resolve cases quickly and for more money. We are very pleased with the Ahlborn case and we wanted to get this information in your hands as soon as possible.

A “Pooled” Special Needs Trust is a big master trust which has many sub-trusts joined to it. Pooled special needs trusts have many of the same characteristics as individual special needs trusts but there are some significant differences. Like an individual special needs trust, a pooled special needs trust exempts trust assets from being counted towards eligibility for Medicaid and other needs-based benefits.

If a disabled person places many into a pooled trust sub-account, that money should not be counted as an available resource when the government is determining eligibility for needs-based benefits. By law, pooled trusts must be run by a not-for-profit trustee.

Lawyers with Solkoff Legal, P.A. have worked with eligible not-for-profit corporations in the creation and administration of pooled special needs trusts and have represented many disabled individuals in the use of a pooled trust. Because a pooled special needs trust commonly administers many sub-accounts at the same time, there are sometimes great efficiencies based upon economies of scale. Solkoff Legal, P.A. will help you evaluate the pooled trust option and many other options available to meet the special needs of our clients.

If your client receives a settlement award, the settlement award may hurt rather than help the client by causing the client to lose vital current and/or future government benefits.

Often, a client is receiving Medicaid, SSI, Food Stamps, housing assistance or other need-based government benefits. These benefits, particularly Medicaid health insurance, are often irreplaceable or have an incalculable replacement value. For example, clients who are receiving Medicaid may not qualify for any other health insurance by reason of their disabilities. Yet the settlement can cause the clients to lose their benefits because they would no longer meet the financial tests for eligibility. In order to qualify for Medicaid and other need-based government benefits, the clients must have under a certain amount of assets and be earning below a certain income. The settlement you worked so hard to achieve may therefore substantially harm the client by causing the client to lose his or her health insurance or other need-based government benefits. Some clients may not be on need-based government benefits at present but may require those benefits in the future. Often the client is not receiving the benefits because they simply did not apply or because the government improperly denied eligibility. Other times, the client may not now qualify but, due to the nature of the injuries and the prognosis for future care, the client may outlive the money and may require need-based benefits in the future. If the settlement did not contemplate this issue at the outset, it may be difficult or impossible to reverse the error in the future. Important benefits are therefore at risk due to the settlement award and the way it was delivered.

 

The Solution

Settlement awards may be legally protected so that the clients keep their entitlement to public benefits and get the benefit of the settlement award.It is completely unjust for a disabled person to have won a court case but to then lose their government benefits; but that is exactly what happens if the settlement award is not protected. Fortunately, there are sound legal methods to protect the proceeds of civil actions. The goal of all settlement protection
planning is to provide a safe harbor for the money without jeopardizing the client’s need-based government benefits.There are certain trusts and transactions that the government permits (or has been forced to permit) to allow the disabled person to qualify or retain eligibility for need-based benefits while keeping the benefit of the settlement award. This outline will cover the basics of some of these settlement protection devices and will show you when and how to make referral to special needs counsel.

 

What Special Needs Settlement Protection Devices Will Not Do

Special needs settlement protection devices such as special needs trusts seek to preserve the client’s eligibility for government benefits.

But there is one important thing that settlement protection cannot do: No settlement protection device may defeat the government’s existing liens and claims. While special needs counsel may be familiar with the process of obtaining lien amounts and negotiating those liens and while special needs counsel may be able to assist the trial lawyer with the liens, the liens must be paid prior to the settlement being protected. Special needs trusts cannot be used to shelter assets from valid existing liens.

 

Criteria and Action for Special Needs Settlement Protection

The following clients may be suitable for special needs settlement planning:

1. Clients who were or are currently receiving need-based public benefits: These programs include but are not limited to: Medicaid, Healthy Kids, KidCare, Supplemental Security Income (SSI) (a.k.a. “Disability”), Nursing Home Program (Medicaid ICP), Medically Needy Program, Section 8, Housing Assistance, State Waiver Program benefits and other government (and quasi-government) programs that depend on financial need for eligibility.

2. Clients who are indigent but for the Settlement: If a client is indigent (usually defined as having less than $5,000 for a single person or as much as $90,000 for a couple), the client may be suitable for special needs settlement protection regardless of whether need-based benefits are now being received; OR
3. Clients with Expensive Care Costs: If a client’s care costs appear capable of “outliving” the settlement proceeds, special needs settlement protection seeks to preserve future eligibility options for needbased health insurance and other benefits. If the client meets any of the above criteria, arrange for a consultation with a qualified special needs counsel. Special needs counsel will arrange the planning or can prepare a waiver and acknowledgment to protect the trial lawyer and the trial lawyer’s firm. DO NOT LET THE SETTLEMENT SIT IN YOUR TRUST ACCOUNT!! (Ineligibility for benefits can result)

 

What Special Needs Settlement Protection Can Do

The goal of all special needs settlement protection planning is to preserve entitlement to need-based public benefits while helping to maximize the value of the settlement to the client. This settlement protection is accomplished through varied devices including special needs trusts. The value to the client can be incalculable. Medicaid benefits alone can mean a seven-figure value to a client’s life care. If the settlement causes the client to lose such important benefits, not only may it be malpractice but it can have a real life or death impact on the client. Money buys care. Without money or public benefits, people are routinely denied care. Special needs settlement protection preserves
entitlement to need-based benefits and that preservation can made a tremendous difference in your client’s life. Special needs settlement protection also protects the trial lawyer from malpractice claims and damage to reputation and revenue by serving as “due diligence” for practice standards.

 

Avoiding Malpractice by Identifying the Right Clients

Not every case requires special needs settlement protection but many do require the planning. The following practice insert is designed to assist you and your firm in identifying suitable cases. Photocopy this page, cut out the insert and distribute it throughout your firm. If posted near the desk, it may help to flag attention to the suitable cases and help to ensure that those cases do not get missed.

 

Special Needs Settlement Protection Devices (Or, “My Arsenal as Special Needs
Counsel”)

All special needs settlement protection devices share the common goal of protecting the client’s present and/or future eligibility for needbased government benefits. There is no one way of protecting settlements. There are many more options than special needs trusts though special needs trusts are a very important option for certain clients. Settlement protection planning depends heavily on the facts of each case.When examining various settlement protection options, we consider such factors as the client’s age, the type of benefits being received, the type of benefits the client may benefit from in the future, the family dynamics, the client’s care plan, the client’s and family’s expectations and needs and desires, the client’s living arrangements and numerous other factors bearing on the client’s special needs. All special needs settlement protection devices have pros and cons but all are infinitely better than doing nothing in the right cases.

 

Advantages of Special Needs Settlement Protection:

Some of the advantages to special needs settlement protection are as follows:

1. Stops Malpractice Claims: It may not be fun to contemplate, but a serious benefit of special needs settlement protection is to protect not only the client but the trial attorney as well. Huge lawsuits have been successful against attorneys who failed to take the proper steps toward special needs settlement protection.

2. Retention of Public Benefits: The obvious advantage is that the settlement award is sought to be excluded from countability when the government is determining whether the client is eligible for need-based programs such as Medicaid and “Disability.”

3. Leaves Benefit Options Available for Client’s Future: Whether or not the client is receiving benefits now, special needs settlement protection seeks to leave open the door to need-based benefits the client may want or require in the future.

4. Money Management Enhancements: While not the purpose of the planning, a major side benefit of special needs settlement protection is the fact that assets are often protected from foolish spending and mismanagement. For example, when trusts are used to protect the settlement award, the trust can include prudent investor provisions and protections against a family member wasting money or spending the money too early.

5. Creditor Protection: Special needs settlement protection planning often helps to protect the settlement award from future creditors

6. Structured Settlement Enhancement: Special needs settlement protection can work hand in hand with structures and other annuity pay-outs. By combining structured settlements (settlement annuities) with special needs settlement protection, the client and the client’s family may be able to protect even more of the settlement (see structured settlements as a settlement option below).

7. Savings on Cost of Care: Since there is a very large differential between the private-pay rate for medical services and the Medicaid rate, the cost of care can be greatly reduced without giving up access to the best of care. Even if a client’s estate may need to eventually reimburse the government, the savings is similar to the client paying wholesale as opposed to retail.

8. Avoids Costs and Anxiety of Guardianship: Special needs settlement protection devices can avoid the need for ongoing guardianship services. Certain trusts are deemed a substitute for guardianship by providing what Chapter 714 refers to as a “less restrictive means” to guardianship.

9. Creates New Payor Options: With special needs settlement protection, the client may choose Medicaid to pay for certain services while still being able to turn to other assets to cover other services.

 

Disadvantages of Special Needs Settlement Protection

Some of the disadvantages to special needs settlement protection are as follows:

1. A. Pay-back Provisions: Some special needs settlement protection devices require that the government be repaid, upon the death of the client, for monies it paid out for the client during the client’s lifetime. Most special needs trusts, for example, require a payback to the government if there is anything remaining in the trust upon the death of the client. Proper planning takes pay-back into consideration in such a way as to minimize or eliminate the client’s pay-back obligation but while still honoring the government’s entitlements.

2. Restriction on Availability of Assets: All special needs settlement protection devices restrict the availability of the settlement award to the client. Some planning options allow greater freedom and access than other planning options. For example, the trustee of a special needs trust cannot be the client and so the client himself cannot access the trust assets. Moreover, when using special needs trusts, there are significant restrictions on for what the money can and cannot be used. Other special needs settlement protection options can offer more flexibility than is available with special needs trusts.

3. Finding Good People: Sometimes, in special needs settlement protection planning, it is necessary for the client to secure good, trusted people (or entities) to play a role in the settlement protection. For example, a special needs trust requires a trustee and a personal service contract (discussed below) requires a care provider. It is sometimes difficult to decide who is best for the role.

4. Administration Costs: Administration costs can be notable in some special needs settlement protection planning. For example, special needs trusts must have a trustee and this trustee is usually a professional trustee which earns a fee.

 

Types of Planning

1. Special Needs Trusts (Individual or D4A): Individual special needs trusts are among the most widely-known and widely- discussed special needs settlement protection devices. Sometimes, individual or pooled special needs trusts are the only options discussed, apparently because counsel may not be aware of any other choices. Special needs trusts can be wonderful protections for settlement awards. Some of their attributes are as follows:

a. Individual special needs trust are authorized by federal law at 42 U.S.C. § 1396p(d)(4)(A). Due to their code section, these trusts are often referred to by special needs counsel as “D4A” trusts.

b. Federal and state rules and laws specifically exempt assets in a properly drafted special needs trusts from being counted towards eligibility for need-based government benefits.

c. Federal and state rules and laws specifically except transfers to special needs trusts from the government’s normal penalty rules. Ordinarily, transfers to truss are punished by making the person ineligible for assistance and the government can ordinarily “look back” five (5) years at such transfers. Transfers to qualified special needs trusts are excepted from the government’s transfer penalties.

d. A good D4A special needs trust is individually tailored to the client’s particular needs. When a specialist drafts special needs trusts, no two trusts are the same because each client has different special needs and each client may require a different mix of public and quasi-public benefits. What may disqualify one client from benefits may be helpful to another client.

e. Though there are exceptions, the Trustee of the special needs trust can use the money in the trust for those things that the government is not covering through the provision of public benefits. If, however, the trustee uses the monies for services the government is already providing, the client may suffer a diminution or loss of government benefits. It is therefore critical that the Trust not only be drafted properly but that it be administered properly. In many (but not al) instances, some of the things a Trust may provide are:

i. The purchase of housing or modifications/improvements to housing.

ii. The purchase of a specially-equipped van or other vehicle necessary to provide safe and comfortable transportation.

iii. The hiring of caregivers, some of whom may be family members.

iv. A private room in a nursing home rather than having to share a room.

v. Private nurses, nurse’s aides or other attendant care.

vi. Care management and/or guardian services.

vii. Attorneys, accountants or fees of other professionals.

viii. Family and mental health counseling not covered by government benefits.

ix. Medical procedures not covered by government benefits.

x. Most travel expenses.

xi. Entertainment expenses.

xii. Education expenses.

xiii. Most other expenses not covered by the client’s public benefits.

f. A D4A Trust must, by law, include a “pay-back” provision to the government. This means that, upon the death of the client, the government gets repaid from whatever remains in the trust up to the extent of what the government paid out for the client. This provision requires careful planning, drafting and administration to ensure the greatest benefit to the client while honoring the government’s recovery rights. If there is anything left after pay-back, the client’s beneficiaries get the money.

g. Can only be created for people who are under the age of 65.

 

2. Special Needs Trusts (Pooled or D4C): A pooled trust is very much like an individual (D4A) special needs trust but has the following unique characteristics:

a. Many people are a part of the pooled trusts, not just one person as with an individual special needs trust. There are many sub-accounts in a typical pooled trust.

b. All of the participants’ monies are “pooled” together for investment purposes though each account is separately administered and tracked.

c. The Trustee of a pooled trust must be a not-for-profit institution.

d. There is no age restriction on pooled trusts (as there is with individual trusts) though in some states a transfer to a pooled trust is met with a period of ineligibility for benefits.

e. Upon the death of the client, the trustee may retain whatever is left and use it for its charitable purposes including possibly contributing to the care needs of those subscribers who have run out of money. Anything that the Trustee does not retain must be paid to the government to reimburse the government for its expenditures spent on behalf of the client.

3. Special Needs Personal Support and Maintenance Agreement: This device allows the client to transfer settlement funds to a reliable family member, friend or caregiver in exchange for the promise of future care. A Special Needs Personal Support and Maintenance Agreement has the following characteristics.

a. Client transfers some or all of the settlement proceeds to a third party. This party may be a family member, friend or other caregiver. Because the transaction is deemed to be a “fair market value” transaction, the government cannot rightly impose a period of ineligibility for the transfer. In effect, the client is “paying” a caregiver for the promise of future care. Drafted as an executory contract, the Agreement is binding on the caregiver and allows the client to get money out of his or her name without causing a period of ineligibility.

b. The caregiver who gets the money may do whatever the caregiver wants to do with the money. The caregiver can take the money and go to Tahiti or the caregiver may choose to use the money for the special needs client for allowable expenditures.

c. I have won an appellate decision, on behalf of one of the my clients, which effectively forces the government to accept his planning option in a Medicaid context so long as we can prove that the client receives a “fair market value” exchange for the transferred assets. I have developed an approved formula and method for proving up this value in a special needs settlement protection context. This court victory allows for greater assurance when dealing with the government.

d. The agreement is a real deal such that the care provider will be performing care services and doing so in a way that is verifiable. Moreover, the transfer of assets to the care provider is deemed income to the caregiver for federal income tax purposes. With proper planning, it is possible to substantially reduce this tax burden.

4. Loans to Special Persons or Entities: The client may be able to loan some or all of the settlement proceeds to an entity or to another person.

a. Clients may successfully loan assets to trusts, corporations, family members or friends in such a way as to remove the assets from their names while keeping it accessible to the other person or entity.

b. Loans may be secured or unsecured depending on the situation.

c. The client may wish to forgive the loan(s) through his or her estate plan.

d. The borrower can do whatever the borrower wants with the money including using the money for the special needs client.

5. Structured Settlements and other Annuities: The use of annuities either through a structured settlement or even after the settlement is made can help to protect the settlement proceeds.

a. Annuities have a special significance in public benefits planning. Annuities are special because some annuities cannot be counted as assets for government benefit eligibility determinations.

b. Structured settlements make use of annuities and can offer great flexibility in how the payments are designed to pay out to the client. If the annuity is funded by the defendant and specially structured in a tort case, the proceeds may be exempt from federal income tax.

c. Annuities can themselves be used as an asset protection device or can be used in conjunction with a special needs trust. In combining annuities with special needs trusts, great financial rewards can be had. In some cases, the rewards can equate to six and seven figure savings to the client’s beneficiaries and/or estate.

 

How to Protect Yourself and Your Client

The cost of the client losing government benefits can be very high, often in the hundreds of thousands or millions of dollars. The big costs are usually those of health and longterm care. By protecting the client against the loss of government benefits, you are performing a huge service – you may be helping the client to save the only health insurance that the client may be able to get or cash payments or housing assistance and so forth. But you are not just giving a value-added service. When discussing special needs settlement protection, you may be saving the client from great harm that could have come by the loss of benefits. If the settlement you obtain for the client ends up causing that client to lose his or her government benefits and you could have avoided that loss by protecting the settlement or by just making a referral, you have a serious malpractice issue with which to contend. Major settlements have been had from trial lawyers who failed to take public benefits into consideration for the client. Not only does the client lose from a failure to protect the settlement, but so too does the trial lawyer and his or her firm.

If you have concerns about a case or if you believe that the client fits the criteria detailed in the cut-out practice insert, consider making a referral to special needs counsel. With special needs counsel, just as with a trial lawyer, the difference among attorneys can make a tremendous difference. Few attorneys regularly practice in the area of special needs settlement protection. There are only a handful of attorneys in Florida who are so qualified. At present, some of the most well-known practitioners in the special needs arena are EAGLE members of the Academy and can therefore be easily identified. Another way to find qualified special needs counsel is to call my office. If I cannot myself assist you, I can refer you to someone who can.

If your client does not go forward with the planning, it is advisable for you to secure a “Waiver, Release and Acknowledgment” so that you are protected against a future claim that you did not adequately guide the client. In addition to the waiver, some special needs attorneys will provide the trial attorney with a letter for the file that further evidences the trial lawyer’s due diligence.

 

Summary

Bottom line – Consider the client’s present and future entitlement to public benefits when considering a settlement. Form a relationship with an attorney specializing in special needs settlement protection planning.

For questions or comment, please feel free to contact the us at 561-733-4242.

ACE provides opportunities for adults to enhance their daily lives through classes, lectures, discussions, seminars, and special events. There will be an unlimited choice of courses with no grades or assignments. Members will choose to attend classes that interest them. The ACE program is an adult education life long learning experience.

To learn more about the course offerings and how to become a member, visit the JCC – Academy of Continuing Education.

These Caregiving Tips & Treasures are designed to assist people who are caring for an elderly or disabled person, often a family member. In this video Attorney Scott Solkoff shares the fundamentals of a plan for aging and incapacity. By spending some time now, with the proven format suggested by Scott, you better your chances for remaining independent longer and achieving a higher quality of life. With this video comes a special bonus — Peace of Mind. Because each person is different, because laws and rules change and vary from place to place and because this is a very summary view, you should not rely upon any information in this video as legal advice. Seek out a good Elder Law Attorney in your state. To learn how to find the right Elder Law Attorney for you, read the free article at www.solkoff.com. This video was recorded in historic St. Augustine, Florida during the Board Retreat of the Florida Council on Aging in 2008.

The Caregiving Tips & Treasures series provides support for people who care for the elderly or disabled. In this video, Elder Law Attorney Scott Solkoff provides 10 Tips and Treasures on Advance Health Care Directives including living wills, health care surrogate designations, health care proxies, health care powers of attorney and other documents. Nothing in this video should be taken as legal advice for a particular person or circumstances since there are too many factors which could well alter this advice and not enough time here to cover the topics fully. Speak to a qualified Elder Law Attorney in your area. For the full text of this article, go to www.solkoff.com. This video was filmed at the historic Casa Monica Hotel in St. Augustine, Florida during the Board Retreat for the Florida Council on Aging.

These “Caregiving Tips & Treasures” videos provide support for people who care for the elderly or disabled. In this video, Elder Law Attorney Scott Solkoff gives family caregivers permission to re-take control of their own lives. Scott shares Tips & Treasures on how to be a better caregiver without losing one’s sanity, health and identity. Nothing in this video should be taken as legal advice for a particular person or circumstances since there are too many factors which could well alter this advice and not enough time here to cover the topics fully. Speak to a qualified Elder Law Attorney in your area. The firm provides free articles on caregiving and Elder Law at www.solkoff.com. This video was filmed at the historic Casa Monica Hotel in St. Augustine, Florida during the Board Retreat for the Florida Council on Aging.