Medicaid Planning Update

Confusion exists about the most effective way to protect the assets of Survivors of the Holocaust who have received reparations. This confusion has been compounded by a recent legislative directive concerning Medicaid estate recovery in New York State. The following will dispel the confusion on this issue and clarifies our position, based on years of research and experience, that a separate, revocable Trust provides the greatest benefits, both financial and emotional, to eligible Survivors and their families.

Periodically, New York State issues policy revisions to its interpretation of its own Medicaid guidelines. Recently, the New York State Department of Health revised its Medicaid estate recovery provisions to specifically exclude "government reparations payments to special populations."

This new directive is a decisive step in the campaign to ensure that reparation payments from Germany or Austria, if properly preserved, maintain their exempt status upon the death of the initial recipient and that such exemption can be passed on to a surviving spouse, children and future generations. Reparation recipients should view this as a call to action and plan as necessary to ensure that their hard earned savings are not jeopardized by the skyrocketing costs of long term care.

The passing of this Administrative directive (ADM) has caused many elder law attorneys to drop their guard and return to the simplistic approach of keeping reparation funds separate and identifiable in accounts merely designated as Reparation Accounts. However, this approach, while sufficient in a limited number of cases (e.g., those with de minimis assets or whose testamentary intent can be satisfied with a single joint account) is not advisable for the population as a whole, who generally require more detailed planning.

Reparation recipients who simply establish a reparations account may be courting disaster, for a major mistake in estate planning for such persons is the failure to utilize the benefits of revocable trusts. A properly drafted revocable trust, such as the Victims of Nazi Persecution Compensation Trusts®, can be an important and powerful tool in protecting reparation payments.
With careful planning a reparation recipient may maintain financial independence as well as:

  1. avoid financial devastation resulting from the high cost of long term health care at home or in a Nursing facility;
  2. bypass a Medicaid claim against their estate; and
  3. provide protection to a spouse, children and heirs by maintaining reparation exemptions on inherited reparation funds.

1. Avoid financial devastation resulting from the high cost of long term health care.

It is well documented that persons who receive compensation as a result of Nazi persecution are entitled to receive U.S. Governmental assistance for medical benefits, without spending down all of their assets to poverty levels normally required as a prerequisite to receiving Medicaid benefits.

Through legislation enacted by Congress in 1994, American citizens who were both victims of Nazi persecution and reparation recipients can receive Medicaid benefits while remaining in possession and control of their funds. This category includes even those whose assets would otherwise be considered too great to receive such governmental assistance without spending down or divesting themselves of their assets. Most importantly, during the lifetime of the recipient, these protected assets may be used at his or her discretion for supplemental care or whatever purposes he or she desires.

As a result, many Reparation recipients are, unknowingly, financially eligible for Medicaid despite the fact that their entire savings remain intact. Therefore, all necessary steps should be taken to ensure that assets are not needlessly wasted on nursing care which would otherwise be provided to them at no expense. This being said, there is a series of very detailed steps which must be taken to produce the type of proof and history required by Medicaid to create such an exemption. Researching a recipient's reparation history, making the proper calculation of said accumulated reparation and the segregation of these funds into the proper form of account is essential to insuring that funds are not wasted or lost. This is neither a brief nor minor undertaking. The research, correspondence, review and interpretation of up to 65 years worth of materials, and the calculation of receipts in a foreign currency, the value of which has fluctuated greatly during this time period, is an extremely complex task. Those who attempt to garner such evidence without expert assistance will likely face insurmountable difficulties.

2. Bypassing a Medicaid Claim Against The Estate.

The new ADM and the advent of specialized Medicaid planning for reparation recipients has made the issue estate recovery of reparations payments much more relevant and compelling. ADM 02 OMM/ADM-3 (release date 4/17/02) states as follows:

Reparation payments. No Medicaid recovery of government reparations payments to special populations should be pursued.

Prior to this new directive, reparation funds were not exempt from Medicaid estate recovery. Although reparation funds could be exempted during a persons life, such exemption did not preclude Medicaid from taking these funds upon the recipients death. In fact, with the exception of those who established Reparations Trusts, this was often the case. The survivors of those who followed the advice of simply establishing a reparation account, learned that this simplified approach had disastrous results.

It should be emphasized that, despite the favorable tenor of this New York Administrative directive, at the present time Medicaid continues to make claims against the estates of all Medicaid recipients whose estates are administered within the Surrogates Court. Thus, the heirs and beneficiaries of those reparation recipients who choose to exempt their assets in a manner which does not avoid probate or Surrogates Court administration (such as a simple "reparation account") will not be free to distribute their estate until Medicaids estate recovery division has investigated, been satisfied and has given their approval that the funds then remaining are in fact reparation. Once again, those advocating a simplified approach are courting disaster.

What is not yet known are the criteria which Medicaid will use to determine which funds will be subject to estate recovery. It should be noted that the directive dictates that no estate recovery should be pursued. This creates a great amount of uncertainty. Thus, leaving to the discretion of bureaucrats within the New York State Department of Health the decision of whether or not your estate will be subject to Medicaid estate recovery is foolhardy.

The uncertainty of this process and the delays it will cause in the settlement of a reparation recipients estate, not to mention the increased legal fees of the attorney handling the estate, who must prove, argue and/or litigate the issue of the recoverability of these funds should be actively avoided. Reparation trusts continue to provide the most comprehensive method of planning for and safeguarding the assets of reparation recipients. It provides certainty not otherwise available through other planning methods. The advantage to establishing such a trust is that it will allow the recipient to diversify his accounts while remaining under the exemption umbrella created by the trust. In addition, it provides a means of fulfilling the Grantor's testamentary wishes and passing a Medicaid exempt legacy to his or her heirs.

3. Providing Protection to Children and Heirs by Maintaining a Reparation Exemption on Inherited Reparation Funds.

By exempting reparation funds from Medicaid estate recovery, the new legislation clearly opens the door for a much anticipated opportunity; the passing of Medicaid exempt reparation from generation to generation .

The concept that the exemption of these assets can survive the death of the recipient demonstrates that if properly structured, reparation assets, passed into the hands of a surviving spouse, "Second Generation Survivors" or more remote heirs, can also be exempt resources for the purpose of their own Medicaid eligibility. Thus, reparation funds should be specifically set aside by the recipient/survivor for the dual purpose of establishing his or her own eligibility and ensuring that such assets maintain their exemption in the hands of the heirs. The best means of achieving this goal remains the establishment of a Reparation Trust, which can, by its terms make these provisions. A properly drafted Reparations Trust extends the exemption of these reparation funds so that, at a later date, these assets will be protected from Medicaid even though vested in an individual other than the original recipient.

4. Separate Reparation Accounts

Reparation recipients should be encouraged to exempt the maximum amount of their current assets by identifying them as accumulated, co-mingled reparation payments. Once identified these reparation funds need to be segregated from the reparation recipients other funds. The type of account created is a critical and greatly misunderstood issue.

Reparation Accounts:

Simply titling ones account a 'reparations account is a grave error. As previously detailed herein, reliance on the generosity of the Department of Health in their interpretation and administration of the provisions of 02 OMM/ADM-3" is an unnecessary risk.

This should never be done .

Joint accounts:

While joint accounts (sometimes known as the "poor man's trust") can be useful in limited situations, they fail to adequately protect against the multiple contingencies that may occur. The following reasons may illustrate further why the Elder law community believes that joint accounts are not a sufficient form of estate planning:

  1. Creditor protection: Joint accounts are subject to creditor claims.

    If one joint tenant is a judgment debtor, a creditor claim can be made against at least half of this account because each tenant is presumed to be possessed of the whole. The claim can, in some cases, extend to the whole account.
  2. Disability of beneficiaries: The subsequent disability of a joint account holder can lead to court interference with the management of the property, which could further result in the use of such account for the benefit of the now disabled joint tenant. Court interference could incur increases in attorneys' fees relating to the transmission, use and management of the joint property.
  3. 3. Death of the joint beneficiary: Should the beneficiary of a joint account predecease the account holder, the account holder's testamentary intent could be thwarted due to the account holder's not being allowed to name a successor beneficiary on the account; the account holder's failure to subsequently name a new beneficiary; or the account holder's lack of capacity to do so on the death of the joint beneficiary. Similarly, situations may arise where the account holder may wish to benefit more than one party on an account. However, if one of the parties predeceases, the survivor obtains the whole account and none is preserved for the family of the predeceased beneficiary.

Reparation Trusts:

Unlike outright transfers, the funding of reparation trusts provide reparation recipients with the ability to maintain control over their assets. When assets are placed in a reparations trust which protects the Grantor from the cost of long term care expenses, such assets remain in the Grantor's control, whereas assets transferred via outright gifts to children or to joint accounts may be seen by the Grantor as those over which he or she has lost control.

5. Conclusion.

On the whole the Victims of Nazi Persecution Compensation Trusts® continue to be the most comprehensive means of ensuring that reparation recipients are able to take advantage of the unique regulatory assistance that has been made available to them. It provides them with the greatest measure of security, independence, and certainty as concerns their financial future and that of their heirs.

The creation of a Reparation Trust enables recipients of reparation and/or pension payments from Germany or Austria to receive Medicaid benefits while retaining the use and control of their own assets. It also protects the Grantor's assets for him or herself during their lifetime; and will likely protect the balance of these assets for the Grantor's heirs after his or her death thanks to 02 OMM/ADM-3".

Over the past several years our firm has been instrumental in establishing the standard for reparation exemption in the realm of Medicaid eligibility. While such work in this area has taken place largely in New York, it has also extended to numerous jurisdictions throughout the country.

In our experience, a simple plan is inadequate, for this is not a simple issue.

While the foregoing addresses Medicaid issues specific to New York State, you should be aware that each state has issues particular to that state. For example, Florida Medicaid has recently been making intense efforts to deny the legitimate exemption of Nazi victims compensation funds to Medicaid applicants. While account transactions during the 36-month waiting period are, of course, subject to review, Florida Medicaid has been trying to isolate those accounts which do not clearly and directly reflect the deposit of restitution funds.

While we have prevailed in such cases to date, this trend points out the urgency for eligible persons to establish Victims of Nazi Persecution Compensation Trusts® as quickly as possible to ensure the protection of legitimate compensation assets.

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