Article of the Week: "An Elder Law Case Study – Medicaid and Estate Planning for Mr. and Mrs. Marlowe"

Dennis Duncan, Attorney at Law
The Law Offices of Dennis L. Duncan, P.C.
Macon, Georgia  31210
478-254-4232

Member of the national ElderCare Matters Alliance, Georgia chapter

The collective goals of Mr. and Mrs. Marlowe are to protect their family assets for the future benefit of Mrs. Marlowe, their grown children and grandchildren, and accomplished this while at the same time establishing compensability for Mr. Marlowe for Medicaid benefits.  The Marlowe family estimate that Mr. Marlowe will need to transition into a long-term skilled care facility in the next two to five years. 

FACTUAL HISTORY

Mr. Marlowe will be sixty-seven (67) years old in November and has been diagnosed with the neurological disorder: Progressive Supranuclear Palsy.  Mr. Marlowe retired from Georgia Power Company in May 1997.  He began receiving his regular Social Security as of the age of sixty-five (65), and he received his entitlement to Medicare on November 1, 2009.  Mr. Marlowe has health insurance through Blue Cross/Blue Shield and Medicare Part “A” and Part “B”.  He receives a monthly retirement pension of $425.00; however, once he passes, this retirement pension will not transfer to Mrs. Marlowe.  In addition, he receives $1,500.00 in monthly Social Security income benefits, for a total of $1,925.00 in monthly income.

Family assets include the family residence, located in Marietta, Georgia and purchased in 2007 for $257,000.00.  Of this amount, $130,620.00 constitutes equity in the property.  Property was assessed for tax proposes at a value of $226,822.00.  The property is currently owned by Mr. and Mrs. Marlowe and is titled to their names as a Joint Tenancy with Right of Survivorship (JTWROS).  Mr. Marlowe also has a retirement account with Merrill Lynch valued at $360,000.00.  Mr. Marlowe inherited 1,164 shares of Georgia Pacific stock valued at approximately $43,000.00.  Mr. Marlowe owns a term life insurance policy that name Mrs. Marlowe as beneficiary in the face amount value of $50,000.00.  The couple also have two joint-checking accounts; one at SunTrust with an account balance of $26,250.00, and the other at BB&T bank, with a balance of $6,000.00.  No vehicles are titled in the name of Mr. Marlowe. 

Mr. and Mrs. Marlowe have two grown children, a son named Jack Marlowe, age 44, and a daughter named Ashley, age 41.  Both grown children have young children of their own. Mrs. Marlowe is a retired school teacher. She currently draws a retirement pension of $1,664.84, and receives regular, monthly Social Security benefits in the amount of $1,214.00, equaling a total monthly income of $2,878.84. 

Mr. Marlowe currently has a Georgia Advance Directive for Healthcare, a Financial Power of Attorney, and a Last Will and Testament. With respect to his Financial Power of Attorney, the document is the standard Georgia Financial Power of Attorney; nonetheless, it does not provide a key element in regard to asset protection: the power to make gifts.  Lastly, the couples’ reciprocal Last Wills and Testaments are twenty-three (23) years old and lacking in adequate detail.  Thus, I advise that these Wills be replaced with more comprehensive and up-to-date documents.  Also, Mrs. Marlowe requires a Georgia Advance Directive for Healthcare, and the Georgia Financial Power of Attorney for Mr. Marlowe should be revised to allow for the power of gifting. 

Mr. Marlowe is currently the recipient of Medicare benefits, including Part “A” and Part “B”.  I recommend that the family look into obtaining a Medigap Plan “F” Policy through AARP.  The monthly cost of the plan is $165.00, and reduces the Applicant/Recipient’s income.  In addition to providing basic benefits, it also covers Medicare Part “A” hospital deductibles, skilled home nursing costs, Medicare Part “B” deductible, Medicare Part “B” excess charges, which will pay 100% of the difference between the doctor’s charge and the Medicare approved amount.  Additionally, I recommend the purchase of Humana Part “D” coverage, at a monthly expense of $27.50.  This monthly expense can also be used to reduce the Applicant/Recipient’s monthly income.  Humana Part “D” to some degree overlaps Medigap Part “F”; however, importantly it adds At-Home Recovery Care, which includes payment for skilled nursing care.  This coverage continues for eight (8) weeks after the Applicant/Recipient no longer requires skilled care and will pay up to $40 per visit, eight (8) visits per week, or a total of $1,600 per year. 

Mr. Marlowe should qualify for Medicaid benefits since his monthly income is less than $2,022.00, and he meets the over sixty-five (65) age requirement. Nonetheless, with regard to resources, in order to qualify an individual can have no more than $25,000.00 in resources and a married couple no more than $109,560.00 in combined resources (Community Spouse Resource Allowance). Medicaid planning has become more difficult since the Deficit Reduction Act of 2005 (DRA).  The DRA was actually enacted on February 8, 2006, and has made numerous critical changes to Medicaid Planning, including a five (5) year look back period, and an elongation of the time period for transferring assets penalty to commence, all of which work to delay eligibility for the Applicant/Recipient of Medicaid.  The DRA has also made changes with regard to annuity rules, promissory notes, and other financial vehicles which previously were used to shield assets.  In addition to the reduction of some of these planning options, there are also limits on residential equity, hardship waivers, and the income first rule.  Most of the major Medicare provisions of the DRA are included under sections 6011 through 6016 of the Medicaid Manual.  Fortunately, for the Marlowe family many of these changes will not greatly affect their planning. 

MEDICAID PLANNING OPTIONS

Certain resources are exempt from Medicaid’s qualification process, these include the home residence, individual retirement accounts (IRA), one vehicle, personal effects, burial plots, burial space items, burial funds, funeral contracts and life insurance.  The two major assets of the Marlowe estate are the home residence and Mr. Marlowe’s IRA.  These items along with the $50,000.00 term life insurance should be exempt from the Medicaid qualification calculations.  Additionally, the Marlowe family can reduce their resources up to $10,000.00 each by purchasing a funeral contract and burial plot.  Thus, in this case, I would recommend that the Georgia Pacific stock be sold and the proceeds used to purchase a funeral contract and burial plot for Mr. and Mrs. Marlowe. The balanced could be used to supplement the purchase of an annuity for the benefit of Mrs. Marlowe.  

With respect to the joint bank accounts at SunTrust and BB&T bank, the combine balance equals $32,250.00, which creates an equal divisional share of resources to Mr. Marlowe in the amount of $16,125.00.  Since this amount is within the $25,000.00 individual resource rule with a cushion of $8,875.00, these accounts may remain as they are.  

As mentioned above, life insurance policies are exempt, so the $50,000.00 term life insurance will not come into play with respect to Mr. Marlowe’s qualifications for Medicaid.  Additionally, the life insurance will also pass outside of any probate of his estate upon his passing. 

Upon review, it appears that the above measures constitute the bare minimum in ensuring Mr. Marlowe qualifies for Medicaid.  Nevertheless, one must also take into account Medicaid’s estate recovery, which will seek reimbursement for benefits paid to Mr. Marlowe from his estate.  Plans “A” and “B” below address these concerns. 

PLAN A

Mr. Marlowe should transfer his share of the JTWROS to Mrs. Marlowe since there is no penalty for spousal transfers.  Mrs. Marlowe would then hold the principle residence in Fee Simple (See Medicaid Manual, Section 2324-2).  Next, Mrs. Marlowe’s Last Will and Testament should leave all of her property to her children and grandchildren.  Should she die before Mr. Marlowe, the property should pass directly to the Marlowe’s children and grandchildren.  On the other hand, if Mr. Marlowe should pass first, then the Marlowe’s family assets will be exempt from Medicaid’s estate recovery since his separate assets will be worth less than $25,000.00. 

Thus, even though Mr. Marlowe will likely qualify for Medicaid without the transfer of this share of the principle residence, upon his passing if he still holds a JTWROS, Medicaid will seek an estate recovery to the extent of all benefits paid to him or on his behalf.  In order to shield his one-half ownership in the home residence, I recommend that Plan “A” be implemented.

PLAN B

I recommend the purchase of a Medicaid annuity for Mrs. Marlowe.  Medicaid annuities are used to convert excess family assets into income for the community spouse, and in this case, for Mrs. Marlowe.  The purchase of an annuity can also expedite Medicaid eligibility for the Applicant/Recipient.  The purchase of an Immediate Annuity for a period certain, say, two to four years, would benefit Mrs. Marlowe, and shield excess resources from Medicaid’s estate recovery. In order for an Immediate Annuity to qualify as a proper transfer, the payments must be made monthly and of equal amounts throughout the term of the annuity.  Also, the State of Georgia must be named as the beneficiary of the annuity, and the annuity must be actuarially sound.  Lastly, the Immediate Annuity must be irrevocable and non-assignable. 

The annuity is not considered a resource since it cannot be cashed in or sold.  By Mr. Marlowe purchasing an Immediate Annuity for Mrs. Marlowe, this would reduce their marital resources below the maximum.  Mrs. Marlowe’s income will not affect Mr. Marlowe’s Medicaid eligibility, and thus an annuity for her benefit is a very effective way of converting excess assets into income for her, since she is not seeking Medicaid assistance.  Except for the risk that the beneficiary of the annuity may pass within the term of the annuity, this technique is a safe and quick way to protect assets and qualify for Medicaid assistance.  In sum, the positive features of a Medicaid or Immediate Annuity are that there are no transfer penalties on gifts between spouses, and the community spouse’s income does not affect the eligibility of the Applicant/Recipient’s qualification for benefits.

CONCLUSION

In light of the forgoing, the above-referenced suggestions appear to me to be the most viable and practical in terms of asset planning opportunities, and with respect to Medicaid planning.  Since one of the key goals is to protect family assets, one must be sure that while planning for Mr. Marlowe’s successful qualification for Medicaid, one must also consider preserving and protecting the family assets from subsequent estate recovery by Medicaid.  Of course, if it appears that the family may actually have five (5) years before Mr. Marlowe will require placement in a long-term care facility, the family may make whatever transfers it desires, and simply wait out the five (5) year period.  Sometimes, however, this option is not very practical given the intangibles of the real world.