Practice Note for Elder Law Attorneys: By Gene L. Osofsky, Esq .[i]
For purposes of determining the countable assets available to the individual applying for Medi-Cal, an asset which is “unavailable” enjoys – for the time that it remains unavailable – the same status as an asset which is “exempt”. We often think that an asset is unavailable during the time that it is listed for sale. However, there may be other circumstances wherein an asset may be unavailable within the meaning of 22 CA Code Regs 50402 (22 CCR 50402), which provides as follows:
“Property which is not available shall not be considered in determining eligibility.”
In this regard, I recently had two separate cases where we were able to take an otherwise countable asset “off the table” by establishing its unavailability: (1) one involved shares in a real estate investment trust that permitted only very limited redemption prior to maturity, and (2) another involved insurance company administrative delays in liquidating the cash value of insurance policies. In both instances, we were able to successfully assert “unavailability” and establish Medi-Cal eligibility without having to treat the assets as part of the client’s available resources.
(1) The Investment That Could Not Be Fully Redeemed Prior to Maturity:
A 79-year-old married client was seeking Medi-Cal LTC for his wife. He had previously been advised by a financial advisor at a well-known bank to invest approximately $75,000 of his $400,000 savings “nest egg” into shares in a real estate investment trust (“REIT”). The investment was carried on the couple’s bank brokerage account statement at the full purchase price. When I first examined their account statements, it appeared that we would have to include the full value of that investment in the amount of their “spend down” in order to bring the Community Spouse within the CSRA. However, we soon discovered that the investment was not liquid and that we would, therefore, not be able to access the proceeds in order to initiate the targeted spend down. Our concern: If our client were obliged to treat this illiquid investment as an available asset and therefore a part of his CSRA, he would then be obliged to spend down other liquid resources in order to bring himself within the CSRA and, thereafter, most of his remaining CSRA would then be comprised of this very same illiquid asset which would then not be readily accessible to him in the event of an emergency. What to do?
I decided to secure and read the prospectus. As anticipated, it clearly indicated that the investment would not mature until our client was 83 years of age, some four years down the road, that most of the shares could not be redeemed prior to maturity, that there was no public market for the shares, and that for California residents the sale or transfer of shares was restricted pursuant to various rules of the California Corporate Securities Law. The terms of the prospectus did, however, allow that up to 5% of an investor’s shares could, at the discretion of the board of directors, be redeemable in any one year at a price equal to the purchase price for the shares (or at a slight discount, depending upon the holding period).
Step 1: Using the prospectus, I first argued to Medi-Cal that 95% of the asset was unavailable, and that only 5% of the stated value was therefore countable toward the husband’s CSRA. While redemption of even that 5% was subject to the discretion of the board of directors of the REIT, I decided not to push that envelop.
Step 2: Next, and in order to give the Medi-Cal transfer rules their due, it seemed appropriate to acknowledge to Medi-Cal that the original investment in August, 2007, was – by reason of its then becoming unavailable – subject to analysis as a “transfer for less than full market value” and that the transfer penalty rules would therefore apply. 1 Conveniently, upon then applying those transfer rules, the resulting calculation generated a 12 month period of ineligibility, commencing on the purchase date in August, 2007, and ending in July, 2008, well before the requested eligibility onset date for Medi-Cal LTC in August, 2009. In other words, the disqualification penalty associated with the purchase had already expired by the time the Medi-Cal application was made.
Thus, we demonstrated that 95% of the value of the asset was unavailable and that the penalty period associated with the original investment had long since expired.
The result: no period of actual ineligibility attached to the purchase, 95% of the stated value of the asset was treated as unavailable, the spend down amount was thereby reduced, and the client’s resulting CSRA was comprised entirely of liquid and readily accessible funds which would be available to him in the event of need.
Further, we were not concerned about the later effect upon wife’s Medi-Cal eligibility of the anticipated maturation of the investment in the year 2011, as the availability of the asset at that time would then be considered “after-acquired CSRA” and would not affect the ongoing eligibility of the Ill Spouse, who would then have been long considered as comprising a separate budget unit (the so-called “snapshot” analysis).
By the way, the back-up plan was to argue that the initial purchase was made “exclusively for a purpose other than to qualify for [Medi-Cal]”, within the meaning of 42 U.S.C. 1396p(b)(5)(C)(2)(ii). Fortunately, we never reached that point and were not obliged to press that argument. However, had the investment been made at a time closer to the requested onset date for Medi-Cal eligibility, such that the penalty period had not already expired, we would likely have then been obliged to rely upon that argument. Perhaps in a future case we might need to develop that point further.
The lesson learned: if your client’s portfolio consists of an investment which may be illiquid and not fully redeemable, read the fine print in the accompanying prospectus. It may furnish just what you need to assert that the asset should be treated as unavailable and thereby avoid the need to spend down other available assets in order to bring your client within applicable resource ceilings.
(2) Administrative Delays in Redeeming the Cash Value of Insurance Policies
In another matter, our client had significant cash value in various insurance policies. We determined that we would need to access this cash value in order to initiate spend down, in this case the plan of choice being via intra-family gifting. However, when we attempted to redeem the policies we experienced administrative delays on the part of the insurance carriers. In fairness, the delays were not the result of malfeasance, but were more in the nature of just the way these insurance companies processed claims for redemption. There were administrative delays associated with their sending and later approving the necessary redemption forms, with their review and approval of our client’s Durable Power Of Attorney, and with the normal time required by them for their own internal processing (one carrier indicated it would take at least 30 days). Fortunately, we had created a paper trail of correspondence and faxes with the insurance carriers, demonstrating our persistent efforts to secure the proceeds. When we finally received the checks, one of them was large enough to require our client’s local bank to place a 10 day clearing hold on the proceeds (pursuant to Federal Regulation Z), which itself deferred access to the funds until the beginning of the next calendar month. The entire process took about 2.5 months.
When we finally tendered the Medi-Cal LTC application, we sought full retroactive eligibility for the prior three months. In support of that request, we attached copies of all correspondence to and from the insurance carriers, as well as a letter from the bank confirming the ten (10) day hold “required by Regulation Z”, all by way of demonstrating both our efforts to access the insurance proceeds and the actual unavailability of the proceeds during that interim. In doing so, we successfully demonstrated that the proceeds were not actually available during the three-month retro period, and our client was awarded Medi-Cal LTC benefits for the prior three months, as requested. Remember: demonstrating unavailability for even the last day of the earliest month will establish eligibility for that entire month.
The lesson learned: sometimes the period of “unavailability” can be only a matter of a month or two. However, even that short period of unavailability can be significant and result in a very tangible benefit to the client. In our case, it generated thousands of dollars of retroactive LTC benefit for the client, which more than covered the client’s legal fees.
- 1. See, 42 USC p ( c )(3), which provides: “For purposes of this subsection, in the case of an asset held by an individual in common with another person or persons in a joint tenancy, tenancy in common, or similar arrangement, the asset (or the affected portion of such asset) shall be considered to be transferred by such individual when any action is taken, either by such individual or by any other person, that reduces or eliminates such individual’s ownership or control of such asset.” [emphasis added]; See, also, HCFA Transmittal No. 64, § 3259.6 (G) [interplay between the transfer penalty rules applicable to trusts and the “availability” rules when considering the same asset; former take precedence so as to avoid a double penalty for the same transfer]; See, Medi-Cal Eligibility Procedures Manual Article 9J (V–IX) [“Property Held In Trust”]; and, 22 CCR §50489–50489.9 (Trust Transfer Rules in California). Although our client’s transfer in this case was to a “trust” (the REIT), it would appear that the transfer penalty analysis would be the same, even if the investment had been made to another form of investment vehicle, e.g. an LLP.