Elder Law

Proposed Settlement Could Expand Medicare Coverage

Proposed Settlement Could Expand Medicare Coverage

 A proposed class-action settlement may help tens of thousands of people with chronic conditions and disabilities qualify for Medicare coverage.

 Presently, Medicare guidelines indicate that coverage should be denied if a patient reaches a plateau and is not improving.  As a result, if a patient suffering from a chronic condition could not demonstrate a likelihood of medical or functional improvement, Medicare would not pay for home health care, skilled nursing home stays, or outpatient therapy.  Since many families could not afford these services out-of-pocket, many patients ultimately did not receive the recommended treatment.

 Under the proposed settlement, Medicare will pay for those services needed to “maintain the patient’s current condition or prevent or slow further deterioration,” regardless of whether the patient’s condition is likely to improve.  The focus would be on the patient’s need for skilled care, rather than his or her potential for improvement. 

 The proposed settlement was submitted on October 16, 2012 to the Federal District Court in Vermont.  If approved, it is expected that the court will takes several months to finalize the settlement, and that Medicare will take an additional year to formally implement the policy change.

Withdrawals from Qualified Plans for Those under Age 59 ½

Withdrawals from Qualified Plans for Those under Age 59 ½

Retirement plans often represent the largest asset an individual may own.   In these unsettling economic times, an individual may want to access this asset to pay bills or for other needs.   Typically, if an individual under age 59 ½ wants to withdraw monies from a qualified plan, the IRS will impose a 10 percent penalty.

There are a series of exceptions to the 10 percent penalty, but the exceptions can vary depending on whether the retirement plan is an IRA or 401(k) plan or other qualified plans.

The following rules for a penalty free withdrawal are the same whether the withdrawal is from an IRA or from a 401(k) plan, if the account owner: 

  1. Becomes totally disabled;
  2. Is required by court order to give money to a spouse as part of Divorce or legal separation (i.e. a QDRO);
  3. Has medical expense that exceed 7.5% of adjusted gross income;
  4. Is separated from service (through termination, permanent layoff, quitting or early retirement) in a year when the account owner turned 55 or later; or
  5. Subject to certain conditions, takes withdrawals in substantially equal amounts over owner’s life expectancy.

There are other means of penalty free withdrawals from IRAs, (but not 401(k)s): 

  1. To pay health insurance premiums during a period of unemployment lasting 12 consecutive weeks;
  2. To pay for tuition, room and board and books (net of scholarship) for spouse, child or grandchild;
  3. To pay up to $10,000 to purchase first home.

There are also hardship withdrawals from 401(k)s which would include costs  (subject to certain condition) related to purchase of principal residence not to exceed $10,000, payment of tuition, funeral expenses and the like.

Interestingly, an owner can take a loan from a 401(k) plan (but not from an IRA).  There are many conditions that must be met, but there are certain advantages; particularly, no credit checks, low interest rates, no financial hardship requisites, and interest paid on the account is paid to the account owner’s account, not to a bank or credit card company.  

Potential job loss poses the biggest disadvantage.  The loan must be immediately paid back (within 60 days) if account owner loses his or her job or changes employers.

For more information, refer to the IRS website, “Retirement Plans FAQs Regarding Hardship Distributions,” www.irs.gov/retirement/article/0,,id=162416,00.html  and “Retirement Plans FAQs Regarding IRA Distributions,” www.irs.gov/retirement/article/0,,id=111413,00.html.

2012 Increases in the Community Spouse Asset Allowance (CSAA) and Community Spouse Maintenance Needs Allowance (CSMNA)

2012 Increases in the Community Spouse Asset Allowance (CSAA) and Community Spouse Maintenance Needs Allowance (CSMNA)

Effective January 1, 2012, the Community Spouse Asset Allowance (CSAA) and the Community Spouse Maintenance Needs Allowance (CSMNA) will increase.  The CSAA standard will increase from $109,560 to $113,640.   This is the maximum amount a nursing home resident may transfer to a community spouse.  The actual amount a resident may transfer is determined by deducting non-exempt assets of the community spouse from the $113,640.   The CSAA applies with the Community Spouse is seeking the exempt transfer of non-exempt assets from the spouse residing in a long- term care facility.

The CSMNA standard will increase from $2,739 to $2,841.  This is the maximum amount of monthly income a resident may give to a community spouse.  The actual amount is determined by deducting any gross income of the community spouse from the standard of $2,841.

IRA Charitable Rollover Provision Set to Expire 12/31/2011

IRA Charitable Rollover Provision Set to Expire 12/31/2011

Individuals 70 ½ or older are eligible to make a tax-free transfer from their Individual Retirement Account (IRA) to a qualified charity, but this opportunity is set to expire 12/31/2011.  The maximum amount which may be transferred is $100,000. Distributions must be made directly to the charity through the plan administrator and not to a philanthropic fund, split interest trust, charitable gift annuity or a supporting foundation.

Illinois And Civil Unions

Illinois And Civil Unions

Effective June 1, 2011, pursuant to P.A. 96-1513, Illinois will join several other states that permit registration of a civil union between two consenting adults of the same gender.   The law specifically states that a party to a civil union shall be included in any definition of the term “spouse”, “family”, “immediate family”, “dependent” and the like that denote a spousal relationship.    In addition, Illinois will recognize as civil unions similar relationships entered in other jurisdictions (other than common law marriage).  For example, some states recognize “same sex” marriage” or “domestic partnerships.”

From an estate planning perspective, partners in a civil union will receive the same protection as a spouse under the Illinois Probate Act, meaning that a partner will have priority to act as in matters related to intestate death administrations, the same rights as a surviving spouse to inherit intestate property and to claim against the will.

Tax issues will remain in flux.  The Illinois Civil Union Act stands in contrast to the 1996 federal Defense of Marriage Act.  For the time being, there will be continuing issues in connection with the different tax treatment afforded spouses at the federal level than will be available to partners in a civil union registered under Illinois law.

What and When to Shred

What and When to Shred

Certain documents should be shredded now, such as credit card applications or expired documents, including credit cards, passports, visas, and identification cards.

Tax returns and the supporting documentation i.e. cancelled checks/ receipts; charitable contributions, mortgage interest, retirement plan contributions, and records of tax deductions taken, should be kept at least 7 years.     The IRS has 3 years from your filing date to audit your return for good faith errors and 6 years to challenge a return for under-reported income.

For seniors, retaining these records will be critical if a loved one ever needs long term nursing care.  Medicaid can require five years of canceled checks, bank and brokerage statements, and other financial documents.

If you have made nondeductible IRA contributions, those records should be kept for as long as necessary to establish that you have already paid tax on the money when it comes time to withdraw.

Brokerage statements and other documentation such as purchase or sales slips from your brokerage or mutual fund should be retained until the security is sold so you can establish capital gain or loss.



On April 4, HUD published Mortgagee Letter 2011-16 which reinstates its original non-recourse policy for the Home Equity Conversion Mortgage (HECM) reverse mortgage program. Now the HECM borrower, as well as the Estate of a deceased borrower, are protected by the non-recourse provision of the program no matter who purchases the home at the time of repayment, even if that homebuyer is a surviving spouse, family member or relative. This is a very important change.     Non-recourse means that the lender cannot seek a deficiency judgment against the borrower, his or her estate, or a family member who might purchase the home from the estate. Mortgagee Letter 2008-38 (issued in 2008) limited this non-recourse feature to arms-length purchases.

An Irrevocable Trust that Protects your Assets from Probate, Creditors, and Medicaid

An Irrevocable Trust that Protects your Assets from Probate, Creditors, and Medicaid

Among the misconceptions, I hear from clients, the following is one of the more troubling: a revocable living trust provides not only creditor protection, but also serves to shield trust assets from being counted by Medicaid should they need long-term care. 

 Revocable living trusts serve a very important estate planning function, primarily as a device that shields trust assets from probate during life (adult guardianship) and probate at death.   Illinois law, however, does not protect assets held in a revocable living trust from the grantor’s creditors, and trust assets are fully countable when determining eligibility for Medicaid, the primary payer of long-term care when an individual no longer has countable assets.

 In its simplest form, an individual (the Grantor or Settlor) creates a revocable and amendable trust agreement naming himself as the Trustee and beneficiary.   This trust is sometimes referred to as a “revocable living trust” or RLT.    After the trust agreement is signed, the Grantor may “fund” the RLT by retitling assets to the name of the RLT.  For example, the Grantor tells his bank to change the name of the savings account presently titled in the Grantor’s name alone, to a new name:  “Grantor, as Trustee of the Grantor’s RLT.”   By taking this step, the Grantor is converting the savings accounts from “probate” ownership (an asset titled in his name alone) to “non-probate” ownership” (an asset titled in the name of his RLT.)   During the Grantor’s lifetime, the IRS ignores the RLT for tax purposes and the Grantor continues to control the trust assets.  Since the Grantor still benefits from the assets in the RLT, his creditors can still reach the assets and Medicaid will still count the trust assets as available to the Grantor.

 Alternatively, the Grantor could create an irrevocable trust, relinquishing his ability to amend or revoke the trust.  If the Grantor conveys assets to the irrevocable trust, the trust assets would avoid probate in the same way as assets in a RLT avoid probate.  However, under Illinois law, an irrevocable trust under which the Grantor retains access to the principal, as a beneficiary of the trust, would not be protected from his creditors and the trust assets would be countable when determining eligibility for Medicaid.

However, if the Grantor relinquishes his right to principal, then such assets held in the irrevocable trust would not be reachable by his creditors (provided there was no creditor issue upon the creation of the trust) and assuming the applicable look back period had expired, the trust assets would not be countable by Medicaid in determining eligibility for Medicaid to pay for long term care.

 Even though the Grantor beneficiary cannot benefit from the principal of the irrevocable trust, the grantor beneficiary can receive all the ordinary income (interest, dividends, rent, and royalties), and the right to live in any trust-owned real estate. The irrevocable trust can be drafted to assure that the Grantor can take the capital gains exclusion should the primary residence held in the irrevocable trust be sold.   The primary residence, vacation homes, or rental properties are often ideal assets to fund this type of trust, particularly those properties that the client intends to hold for many years..

 Sometimes this type of trust is called an “irrevocable income only” trust or more popularly, the Living Trust Plus™. 

Nursing Home States Cause of Action in Quantum Meruit for services rendered to patient despite there being no written contract as required by the Nursing Home Care Act, 210 ILCS 45/1-101 et seq. (West 2008)

Nursing Home sued husband and his wife for failure to pay for over $134,000 for husband’s care and treatment.  Neither the husband nor his wife signed the contract outlining the services to be provided and the costs.  The Nursing Home sued Husband for breach of contract and sued the wife under the Family Expense Act.   The Nursing Home also sued the Husband based on quantum meruit.  Quantum meruit is an equitable claim founded on the implied promise of the recipient to pay for valuable services rendered, or otherwise the recipient would be unjustly enriched.

The Appellate Court approved the lower court’s dismissal of the breach of contract claim finding that the Nursing Home Act (the Act) requires that a written contact between the facility and the patient be “executed” which was not the case here.    The appellate court also concurred with the lower court’s dismissal of the family expense complaint finding that the action against the Wife was dependent on her husband’s underlying liability under the written contract and since the unsigned contract was unenforceable under the Act, no action under the Family Expense Act could proceed.

The Appellate Court did allow the complaint in quantum meruit to go forward.  Courts have refused to allow recovery under quantum meruit if the underlying contract violated public policy, but an action in quantum meruit can proceed in a situation where the formation or execution alone makes the underlying contract unenforceable.  The court noted that there was no assertion that the care provided to the husband was unsatisfactory. Consequently, the case is being returned to the lower court to allow the Nursing Home to demonstrate the services it provided and the reasonable amount it seeks to recover.   The Carlton at the Lake, Inc., Plaintiff-Appellant, v. Robert Barber, Individual, Defendant-Appellee., No. 07 L 8747, on appeal from the Circuit Court of Cook County, Illinois, decided on May 20, 2010.

Health Reform for Americans with Disabilities

On March 23, 2010 President Obama signed the Patient Protection and Affordable Care Act into law, as amended by the Health Care and Education Reconciliation Act of 2010 (“Health Care Reform”).  Here are some highlights of the Health Care Reform legislation intended to provide greater access to health insurance coverage for individuals with disabilities. 

  • Health Care Reform legislation provides for a new, voluntary self-insured program to help families pay for community based supportive services if a family member develops a disability.   The Community Living Assistance Services and Support program (CLASS Act) is not intended to replace private long term care insurance or Medicaid, but is meant to provide a supplemental monthly cash payment to help defray the cost of non-medical services, such as home health care, assistive technology, or adult day care.

    Working adults will be able to make voluntary premium contributions either directly or through payroll deductions.  Your employer will automatically enroll you in the program, unless you opt out.  To be eligible for benefits, an adult would need to pay premiums for at least five years and have been employed during three of those five year.

    The CLASS program is effective on January 1, 2011, but payout of CLASS benefits will not take effect until 2017, leaving many people with disabilities and seniors without affordable options to finance long-term care in the short run.

  • Creates more options for the States to provide Medicaid funded home and community based services to enable more people with disabilities to access long-term services in a setting they choose. 
  • Makes improvements to the Medicaid Home and Community Based Services Option. 
  • For 2010, prohibits insurance companies from denying coverage to children based on pre-existing conditions.  Next year, insurance companies will be prohibited from denying coverage or charging more to an individual based on medical history. 
  • Provides access to health insurance through Exchanges to those without job-related coverage and premium tax credits to those who cannot afford coverage.
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