We follow your column religiously. Lately, we’ve noticed you have addressed the recent revisions for life estates.
Here’s our current question: We have a life estate that we established over ten years ago. How can it be that suddenly the life estate we set up can now be used for determining eligibility or liens against our estate? We thought we had everything completed and past the five-year look-back period.
Why is there suddenly a big change in how Medicaid values life estates?
– All of A Sudden
Dear All of A Sudden:
This bill was written in 2005 and signed into law in 2006 by then-president George Bush. One of the drastic changes that were made was how life estates are to be handled for Medicaid purposes by the new law.
Medicaid is a partnership agreement between the states and the federal government. As things go in government, each state was allowed to make its own rules regarding how the Deficit Reduction Act of 2005 was going to be applied. Most states continued on with using life estates as an income-only asset, rather than a countable asset for qualification for Medicaid. State Medicaid kept applying the ‘old rules’ until 2018.
When President Trump was elected, he looked into the old Obamacare health system and considered ways to save money on such programs as Medicare, Medicaid, and other health cost providers. One idea that came to light was to change the partnership from the Federal government and the individual states, to offer the states from a 50/50 deal to a ‘block grant’ arrangement.
Many states looked at this proposal and realized they could save a lot of money by not reporting everything to the federal government. This reporting alone likely adds 10-15% to each states’ Medicaid program.
Plus, they could run their Medicaid program independent of federal oversight, as long as they were approved for the ‘block grant’ by the Federal government. Under the block grant, once it was approved by the Federal DHHS, the states would run their own program and just get a check from the Federal up to the amount approved for their state.
So far, only one state has applied – but the Federal Department of Health and Human Services ‘block grants’ in February but has yet to be approved after three months – as of this column written on May 11, 2020.
Why would the Federal government keep using the old system of taking income from life estates rather than valuing them by lifespan for the past twelve years? Remember, this is the same government that didn’t know it had an FSA office down by Bowman with two employees, no accounts, and it was open for twenty-two years and the employees faithfully showed up to service no accounts for this time.
Medicaid is a program that if you go to three different offices for help, you’re likely to get three different answers with the caveat of ‘we could be wrong on that’ on all of them.
But, the pressure and the ‘carrot and stick’ really got amped up when Trump was elected. South Dakota and North Dakota began implementing this law regarding life estates about two years ago. To this day, very few estate planners know about this change.
I, myself, had to find out about it from a South Dakota attorney.
The problem is this: The law was passed in 2006, which makes all life estates entered into after the federal law was passed not ‘grandfathered in’ as past laws have been held to account. Life estates done prior to 2006 will be ‘grandfathered in’, as far as I know.
I am still researching the ‘sudden change’ that occurred almost fourteen years ago and how it took so long to be enforced.
The one thing we do know is this: Under the new law, any long-term care insurance you have will be deducted from the ‘life estate’ valuation. If you have an unlimited policy from back in the day, you’re good. If you have a policy that covers, say $350,000, that would be deducted from the Medicaid valuation of your life estate.