Washington Elder Law Practice Report (#24) / New Medicaid gifting rules affect estate planning

December 3, 2014

Washington Elder LawThis is #24 in a continuing series of Elder Law Practice Reports.

Recent rule changes by the Washington State Medicaid program will affect how estate planning takes place.

Planning for the handling of an estate has long raised issues about how possible future needs for long-term care should be considered.

Activities taken years before can affect eligibility for Medicaid to help pay for long-term care at home, in an adult family home or assisted living facility, or in a nursing home.

Estate planning attorneys will now have to more carefully reconsider this issue.

For many years, Medicaid applications have had to disclose all transfers of assets (resources) within the previous five years, and all sources of income.

In addition, applicants must disclose all trusts that are in effect, no matter when they were established.

The recent rule changes described in Elder Law Practice Report #23 have indicated the new restrictions that are now being placed on any efforts to make gifts within five years of an application.

Transfers will not be considered to be gifts if some of the transferred funds are used to pay for the long-term care needs of the donor.

Instead, a “constructive trust” is established, with the funds still an available resource to the donor,

As a result, gifting to apply for Medicaid has been sharply restricted.

But the new rules go further. At the time of a Medicaid application, the program will now ask for information about all sources that are being used to pay for long-term care for an applicant.

Funds being paid directly to a care facility will be considered to be income to the applicant.

If assistance from the “outside” is “coming in” to help pay for care (above the applicant’s income), this source of income must be revealed.

If these funds are from a transfer made by the donor many years before (without any limit on the time period), such a transfer from the past may be ruled to have set up a constructive trust that is still in place.

Thus, decisions made during estate planning activities more than five years ago, involving the transfer of funds or property by a donor, may much later interfere with an application to Medicaid by the donor, for assistance in paying for long-term care.

Estate planning attorneys now have another major concern to relate to clients, and to accommodate in planning efforts.

More on Elder Law in Washington may be found in the “Elder Law” volumes of Washington Practice by Cheryl and Ferd Mitchell: Washington Elder Law and Practice (Vol. 26), the associated Elder Law Handbook (Vol. 26A), and the Washington Probate volume (Vol. 26B). These materials are available at www.legalsolutions.thomsonreuters.com under the tag Mitchell and Mitchell elder law. Additional updates may also be found on this blog under the tag Washington Elder Law Practice Reports.