Q. My 88 year old father still lives in his own home, alone. We worry about him falling and injuring himself. My husband and I have suggested that we sell both of our homes, and together purchase a larger home for all of us.  He is on Medi-Cal and we wonder whether he could retain his Medi-Cal once he sold his own home.  Any other considerations?

A. Your plan is both commendable and “doable”, but needs to be thought through carefully. Here are some of the considerations:

Medi-Cal Eligibility:  Once he sells his home he will have significant cash proceeds, which would normally make him ineligible for Medi-Cal by reason of the $2,000 resource cap for a single individual. However, Medi-Cal allows a six month grace period between the sale of one home and the purchase of another before the proceeds are counted. There should therefore be very clear documentation that the sale proceeds have been set aside, and are being held, for the purchase of a replacement home. Also, your father must receive an ownership interest in the new home equal to the value of his contribution and this interest must reflect on the deed.

Medi-Cal Estate Recovery: To avoid Medi-Cal “payback” upon his death for benefits received during life, his interest in the home would need to pass to his designated beneficiaries without probate, e.g. via a Living Trust or other non-probate transfer. Make sure that he creates an estate plan which does this.

Plan For Disposition of His Interest Upon His Demise:  If you and your husband are his only estate beneficiaries, then the job is easier. But if he has other children whom he would wish to share in his estate, then the matter becomes tricky. You may need to come up with a plan to value and purchase back his interest in your joint home when he dies, so that his other beneficiaries may thereby receive their fair shares of his estate. Also, there may be property tax implications to you, depending upon how this plan is arranged.

Co-Tenancy Agreement: It might be wise to create an agreement, setting forth your respective responsibilities for home repairs, mortgage payments, utilities, insurance and use of the common premises.

Anticipate Sale or Need to Borrow: You should anticipate future events, such as your desire to sell the home one day, or to borrow against it for major repairs, college expenses for your children, or other needs. If he is then unable to sign transaction documents, you could be in a pickle.  So, make sure that he creates a Durable Power of Attorney (“DPOA”) with comprehensive powers and that both this DPOA and Trust are in sync and allow for such events.

Plan for His Future Care Needs:  What if your father later needs to move to an Assisted Living Facility (“ALF”) or Nursing Home for care that you cannot provide at home?  How will that care be financed? Remember: Medi-Cal generally does not cover the cost of care in an ALF.   Will you commit to buying back his interest in your home in order to create funds for his care?

These are just some of the considerations that would be in play.  Essentially, you will need to think through this joint venture and anticipate change as you go along. To facilitate your good intentions, your father will need a solid estate plan which anticipates his possible incapacity, his need for higher levels of care in the future, and which fairly divides his estate upon his demise.  To assist in this effort, it would be wise to engage an attorney with special skill in working with elders.

References:  The six month Medi-Cal grace period for sale and repurchase of a home is found in 22 Cal. Adm Code 50426

If your father were also receiving Supplemental Security Income (SSI”), the grace period would only be three months. 20 CFR 416.1212(e).

Q. My wife and I mistakenly signed up late for Medicare Part B and were assessed late enrollment penalties, which continue for life. Is there any way to request that they be eliminated?

A.  Possibly, if you meet the criteria for forgiveness and apply by the new deadline of September 30, 2018.

Some background may be helpful:  Medicare generally requires that all persons turning age 65 sign up for Medicare Part B during their Initial Enrollment Period which is 3 months before and 3 months after their 65th birthday. If they fail to do so, Medicare assesses a 10% premium penalty for each year of delay, and the penalty continues for life.

By way of example, if you turned 65 in 2010 and delayed signing up for Part B until the year 2017, your monthly premium would be 70% higher. The standard base Part B premium of $134, boosted by this additional penalty, would now be $227.80 per month. That excess premium payment accumulates to over $1,125 per year.  Over the next 30 years it amounts to almost $34,000, and for you and your wife, together, it is double that amount. In a word, the cumulative effect of the late filing penalty is significant. Medicare’s rationale:  to encourage younger and usually healthier seniors to enroll when first eligible and thereby help stabilize the cost of the Part B program.

Medicare has recognized that the reason many persons delayed enrolling was due to a misunderstanding about the enrollment requirement. Specifically, seniors who enrolled in marketplace health insurance plans obtained through Covered California believed that they were in full compliance with the need to enroll, or that enrollment in Part B was unnecessary since they had private insurance coverage.  This was especially true for those who received government subsidies to help with the premium cost, as the subsidies sometimes made their premiums cheaper than the basic Medicare Part B premium.

Medicare also became aware that seniors who inquired about this issue, or asked about the elimination of penalties, were mistakenly given inaccurate information by the staff at the local social security offices.

As a result, the Center for Medicare and Medicaid Services (“CMS”) previously created an opportunity for seniors to seek equitable relief from their inadvertent late enrollment. Applicants seeking relief were originally required to apply by September 30, 2017.  Just recently, that deadline was extended to September 30, 2018. As before, seniors seeking relief must be able to show that they were enrolled in a market place health insurance plan during their Initial Enrollment Period that began after April 1, 2013 (or their Special enrollment Period if they were working or disabled), that they actually enrolled in Part B during the General Enrollment Periods in 2015, 2016, 2017, or 2018, and are entitled to premium-free Part A Medicare Coverage.

The relief will be granted on a case by case basis and the rules are complex.  If you believe you may qualify, you should visit your local Social Security Office and bring with you evidence of your enrollment in a market place health insurance plan during the Open Enrollment Period around your 65th birthday.  To make sure that the folks at the Social Security office properly evaluate your application, it might be wise to bring along a copy of this article, the “Emergency Message from Social Security”  regarding this matter, and the CMS bulletin entitled  “Assistance for Individuals with Medicare Part A and Exchange Coverage Information for SHIPs and Exchange Assisters”.

Other References:  (1) Medicare Late Enrollment Penalty 

(2) Article in Reuters: “U.S. Medicare expands offer to reverse late enrollment penalties”

(3) To assist seniors in avoiding these penalties, legislation has been introduced in Congress to simplify the notification to seniors about their need to timely enroll in Medicare. The bill is known as the BENES Act (S.1909 / H.R. 2575)  which is short for the “Beneficiary Enrollment Notification and Eligibility Simplification Act”.

Q.  My IRA is a significant part of my assets, and I wonder if there are any special considerations when planning my affairs?

A. Yes. Consider the following:

Name Beneficiaries: Remember to name both primary and contingent beneficiaries. If you are married, the primary beneficiary would typically be your spouse, but name back-up beneficiaries as well. If you and your spouse were to die around the same time, or if your spouse predeceased you and you had neglected to name contingent beneficiaries, your IRA would then go to your estate and be subject to probate.

“Stretch” Your IRA: If you do not need the funds in your IRA for retirement, but would rather preserve them for the younger beneficiaries, consider “stretching” your IRA: defer the start of your own minimum required distributions (“MRD’s”) until age 70.5, your mandatory start date, and then take out only the required minimums each year thereby leaving more in your IRA to grow tax-deferred. When you die, your beneficiary can stretch distributions over his or her lifetime and even designate a second-generation beneficiary to continue the MRD’s. The younger the beneficiary, the smaller each distribution can be under IRS rules, allowing the remaining funds to grow tax-deferred. This is called “stretching” an IRA and can result in several generations enjoying the fruits of your IRA legacy.  However, make sure that your IRA custodian permits your first and second-generation beneficiaries to stretch-out their own distributions and also permits them to name their own beneficiaries.  If yours does not, you might consider moving your IRA to a new custodian who is friendly to the stretch option.

If Beneficiary Is a Spouse: If you are married, let your spouse know that he or she has options:  upon your demise, he or she can either (a) roll your IRA over into his or her own IRA and defer the start of (“MRD’s”) until your spouse’s own age 70.5, or (b) transfer the funds to an inherited IRA and begin MRD’s within a year of when you would have turned age 70.5.  In either case, your spouse can choose to “stretch” the MRD’s over his or her own lifetime, thereby allowing the IRA to grow for the later benefit of downstream beneficiaries, e.g. your children.  Another option:  if your spouse doesn’t need the IRA to live on, he or she can disclaim all or part of it, allowing that portion to pass immediately to your children who can then stretch the MRD’s over their longer lifetimes.

Designate Separate Accounts for Each Beneficiary.  If you designate, say, your three children as your contingent beneficiaries, your Beneficiary Designation form should direct your IRA custodian to create a separate account for each child when distributions begin.  Otherwise, the MRD’s will be based upon the life expectancy of the oldest child, thereby undermining the stretch option for the younger children.

Trust As Beneficiary? : In most cases, a trust would not be named as a primary beneficiary, but might be named as a contingent beneficiary. However, if your IRA is large or if you have special reasons for not wanting your beneficiaries to have unrestricted access to the IRA funds, you might ask your attorney to create a special trust, sometimes called a “conduit trust”, to be the primary beneficiary of your IRA.

An IRA can be a valuable part of your estate plan, but the rules are complicated. Consult with your financial advisor and your attorney to learn your options and encourage your beneficiaries to do likewise down the road.

 

Q.  My wife and I are struggling with the financial cost of paying our Medicare premiums, deductibles and copayments. I hear there may be some government assistance available for seniors in our shoes. Do you know anything about these programs?

A. Yes. You refer to the Medicare Savings Programs (“MSP’s”) available for low-income seniors to help them with monthly Medicare premiums, and other related costs such as deductibles, coinsurance and copayments. Eligibility is based upon income and resources, and each program has its own criteria. All are designed to help seniors with their health care costs.

Note:  When considering your resources, note that some resources are counted, while some are considered exempt and are not counted.  Resources that count:  Money in the bank, stocks, bonds, and rental property.  Exempts assets that do not count:  your home, one car, household goods, burial funds and certain other assets.

There are four MSPs, each with its own income and resource caps, as follows:

(1) Qualified Medicare Beneficiary (QMB): This MSP pays for Part A and Part B Premiums, and also helps with Medicare Deductibles, Coinsurance and Copayments: Monthly Incomes must be at or below: $1,032/single or $1,392/married. This program offers the most financial assistance.

(2) Specified Low Income Medicare Beneficiary (SLMB): This MSP pays for part B premiums only; Monthly Incomes must be at or below $1,234/single or $1,666/married.

(3) Qualifying Individual (“QI”): This MSP pays for part B premiums only; Monthly Incomes must be at or below $1,386/single or $1,872/married.

(4) Qualified Disabled and Working Individuals (“QDWI”): This MSP pays for Part A premiums only; Monthly Incomes must be at or below $4,132/single or $5,572/married.

Those enrolled in MSP’s numbered (1) – (3), above, also qualify for another program, called “Extra Help” (aka the “Low-Income Subsidy”) for assistance paying for Medicare Part D prescription drug costs. However, if you do not meet the eligibility criterion for one of those MSP Programs, you can still qualify for “Extra Help” with prescription drug costs if your income and resources are under the following, somewhat higher, limits:  monthly income up to $1,517.50/single or up to $2,057.50/married couple, with resources under $14,100/single and $28,150/ married couple. For enrollees, drug costs in the Extra Help program are no more than $3.35 for each generic or $8.35 for each brand-name drug.

Even though the MSP programs are in place to help with Medicare costs, the programs are administered by the state Medi-Cal program. Enrollment is therefore handled by the county Medi-Cal agency. To apply, persons in Alameda County should call the local Medi-Cal office at 510-577-1900 (Hayward) or 510-777-2300 (Oakland). To get a jump on enrollment, you may access the 3 page application by going on line to www.dhcs.ca.gov and searching for form MC 14 A.

Studies indicate that there is a very significant under-enrollment in these programs, which means that many eligible low-income seniors are missing out on available financial assistance. To encourage eligible seniors to apply, the Social Security Administration and the Center for Medicare and Medicaid Services is in the process of sending a joint letter to over 2 million persons who appear eligible based upon their income, urging them to apply through their local Medi-Cal office.  Even if you do not receive that letter, if you feel you might qualify you should apply by contacting your local Medi-Cal office.

References:  Article on Medicare Savings Programs by Justice in Aging;  Article on Medicare Savings Programs by National Center on Law and Elder Rights; Letter from CMS and SSA to seniors who may be eligible for MSP’s and Extra Help; ACWDL 18-03 setting forth the Federal Poverty Level Incomes for 2018.

Chart by CMS showing MSP Income Limits for 2018; Medi-Cal Application Form MC 14A for the MSP Programs; Medicare’s short summary of the 4 MSP Programs; Article on the MSP Program eligibility requirements.

Medicare article on the Extra Help Prescription Drug Program; ; Application for Extra Help through the Medicare.Gov website;

Senior Resource Guide for Central Alameda County” (Castro Valley, Hayward, San Leandro, San Lorenzo), showing contact agencies and phone numbers.

Article by National Center on Law & Elder Rights highlighting 5 Facts You Should Know About the Medicare Low Income Subsidy.

Q. My wife and I have a Reverse Mortgage on our home. We have already pulled out about $100K on our loan and have another $150K available. If one of us needs nursing home care, will our Reverse Mortgage prevent us from seeking a Medi-Cal subsidy to help with the cost of that care?

A.  Not necessarily, but it all depends upon how you handle the loan proceeds from your Reverse Mortgage (“RM”). If you only draw what you need and fully spend those funds during the same month of that draw, then the RM would not prevent Medi-Cal qualification. The key is to avoid rolling over unspent funds into the next month.

If you still have unspent draws from your RM as of the 1st day of the following month, then these unspent funds will be treated as property and added to your other non-exempt resources for purposes of determining eligibility.  If they put you over the Medi-Cal resource ceilings, then they could make you ineligible, at least until they are spent.  The best plan: draw down only what you need and fully spend it in the same month as received.  Note:  Your remaining unused line of credit would not count as an available resource, so you are OK there.

HECM For Purchase:  There is a newer RM product designed to help seniors sell their existing home and purchase a replacement home.  It is called a “HECM For Purchase” or “H4P”.  Typically, seniors purchase a replacement home by putting roughly 50% down and use an H4P to pay the balance of the purchase price.  As with the traditional RM, the homeowners under the H4P program own their new home without any obligation to make mortgage payments.  Likewise, the H4P loan would be due when the seniors sell their home, move out or die. Since the H4P loan would help finance the purchase of an exempt residence, it would not adversely affect Medi-Cal eligibility.

Problem: Loan Due When Home Vacated: When the homeowner vacates the home to move into a care facility, and has been absent from the home for at least 12 months, the RM is due and payable.  This can force a sale of the home.  If the sale proceeds are more than the amount needed to fully pay the RM loan, the excess is then counted as a resource and could render the homeowner ineligible for Medi-Cal, at least until they are spent down on care. Alternatively, he or she might seek guidance from an Elder Law attorney to implement a transfer or conversion strategy to preserve or restore Medi-Cal eligibility.

Another Problem: Putting Home Into Trust: Under recent legislation, placing a home into a “Living Trust” will usually protect it from Medi-Cal “payback” after the death of the borrower. However, RM lenders may impose special requirements as a condition to allowing the RM loan to remain in effect after the home is placed into trust. So, make sure that you satisfy your lender’s requirements when you originate the RM loan and/or create your trust, so your lawyer can draft the trust in accord and secure the lender’s consent.

In short, if the RM draws are either fully spent in the month of draw or are used to purchase an exempt personal residence, you should be OK.  But, plan ahead to deal with anticipated excess sales proceeds when the home is eventually sold to repay the loan.

References:  All County Welfare Directors’ Letter No: 08-17 (4/25/2008); Medi-Cal eligibility Procedures Manual § 9D;  20 CCR § 50483.

Q.  My 91year old father has a substantial brokerage account and likes to manage it himself. Yet I worry that he could easily fall victim to financial scams. Is there anything I can do to protect him?

A. Yes, there may be. The Financial Industry Regulatory Authority (“FINRA”), which regulates firms and professionals selling securities in the United States,  recently received permission from the SEC to activate two new rules to protect senior investors:  One rule now requires member brokers to make reasonable efforts to ask investor clients, age 65 years and older, to designate a Trusted Contact Person” (“TCP”) whom the broker may contact if the broker reasonably believes that financial exploitation has occurred or may be attempted, or where the investor shows signs of dementia or diminished capacity.  Where exploitation is suspected, a companion rule authorizes the broker to place a temporary hold on disbursements of funds or securities from the customer’s accounts, pending further investigation.

These two rules are the result of a growing realization that financial exploitation of seniors is a very real problem, not only for the senior investors, but also for the brokerage firms when financial abuse is suspected. Previously, there were issues of privacy which prevented the broker from contacting family members when suspicious activity was detected, and prior FINRA rules prevented brokerage firms from halting suspected transactions without risking liability.  The scope of the problem became apparent to FINRA after it placed into service its Securities Helpline for Seniors in April 2015: during its first two years of its operation, it fielded more than 8,600 calls seeking help and recovered more than $4.3 million for seniors. For Senior Helpline, call 1-844-574-3577.

For now, the new rules only apply to new accounts or to accounts that are updated, but not yet to existing accounts. That said, it is anticipated that the rule will soon apply, as well, to existing accounts even without an update.

The new rules protect not only seniors, but also younger persons aged 18 and older, whom the broker reasonably believes has a mental or physical impairment which renders such individual unable to protect his/her own interest.

I sense from your question that your father might take offense if you asked permission to monitor his accounts. The nice thing about the new FINRA rules is that the request will come from the broker, rather than from you, and to that extent may be more palatable to your father and other senior investors. Unfortunately, in your situation and until the new rules are extended to existing accounts, your father may need to submit some kind of update to his brokerage account in order to trigger application of the new rules. Alternatively, he might just ask his broker to add you as a ‘Trusted Contact Person’.

Where the brokerage firm suspects financial exploitation, and initiates a hold on disbursements, it must immediately begin an investigation to determine whether the hold may be extended. The initial hold is limited to 15 days, but may be extended an additional 10 days if there is sufficient cause. In the interim, a hold can be extended further by court order where the facts so warrant.

Another option is to consider elder protection monitoring through services such as EverSafe. Monitoring would send suspicious activity alerts where accounts show unusual withdrawals, deposits, changes in spending patterns, changes in passwords, and identity theft. EverSafe also enables subscribers to designate trusted advocates to receive these alerts, and can assist with creating a recovery plan. For more:  www.EverSafe.com or call 1-888-575-3837.  Monitoring is on a paid subscription basis, and customers of some brokerage firms can qualify for a discount, e.g. Fidelity customers.

References:  FINRA Rule: Regulatory Notice 17-11 announced on February 5, 2018 and effective that date; Text of Rule Change

“Frequently Asked Questions Regarding FINRA Rules Relating To Financial Exploitation of Seniors”

Q. My Medicare Part D drug plan just denied coverage for my medication. Can I appeal its decision?

A. Yes. If your Medicare drug plan denies coverage for a drug you need, you don’t have to simply accept it. There are steps you can take to appeal the decision.

Background:  The insurers offering Medicare drug plans choose the medicines — both brand-name and generic — that they will include in their plan’s “formulary,” the roster of drugs the plan covers. This can change from year-to-year. If a drug you need is not in the plan’s formulary or has been dropped from the formulary, the plan can deny coverage. Also, plans may charge more for a drug than you think is fair, or may deny coverage if it believes you do not need that particular drug. If any of these things happen, you can appeal the decision.

Before you can start the formal appeals process, you must file an Exception Request with your plan. This usually will involve a statement from your doctor explaining your need for the drug. The plan must then respond within 72 hours, or within 24 hours if your doctor explains that you need an expedited decision for health reasons. If your exception is denied, the plan will send you a written denial-of-coverage notice, and the five-step appeals process then begins.

  1. The first step is to ask the insurer for an internal Redetermination, following the instructions it provides you. Submit the statement from your doctor explaining why you need the drug, along with supporting medical records. If your doctor informs the plan that you need an expedited decision for health reasons, the plan must respond within 72 hours. Otherwise, it must reply within seven days.
  2. If the redetermination is not satisfactory, you then have 60 days to request Reconsideration by an independent board. Again, follow the instructions on the written redetermination notice you received from your plan. An Independent Review Entity (IRE)will review your case and issue a decision either an expedited decision within 72 hours, or a standard decision within seven days. If you receive an adverse decision, you can continue the appeal process.
  3. The third level of appeal is to make a timely request for hearing before an Administrative Law Judge (ALJ), which will allow you to present your case either over the phone or in person. To request a hearing the amount in controversy must be at least $160 (in 2018). Your request for a hearing must be sent in writing to the Office of Medicare Hearings and Appeals (OMHA).[Phone: 1- 844-419-3358]. Following hearing, the ALJ will issue an expedited decision within 10 days or a standard decision within 90 days.
  4. If the ALJ rules against you, the next step is to request review within 60 days by the Medicare Appeals Council. [Phone: 1-202-565-0100]. The appeals council will issue an expedited decision in 10 days, or a standard decision within 90 days.
  5. The final step is to seek judicial review in Federal District Court within 60 days of the adverse decision by the Appeals Council. To qualify for judicial review, the amount in controversy must be at least $1,600 (in 2018), and you may need to engage an attorney for help.

For more information, visit www.Medicare.Gov and go to “Claims and Appeals”,  and www.HHS.Gov and go to “Appeals Process”].

 

 

 

 

 

 

Q. My father suffers from advanced dementia and needs care in a nursing home. It costs about $9,500 per month, and we are rapidly spending down his savings.  I was told that he might qualify for a Medi-Cal subsidy to help with the cost once his savings are below $2,000.  Years ago he signed a power of attorney (“POA”) naming me as his agent.  Can I use that POA to gift his excess savings to myself and thereby accelerate his eligibility for a Medi-Cal subsidy?

A. The question may seem straight forward, but the answer is somewhat complicated. To get to a possible “yes”, there are a number of legal hurdles to overcome:

1) Is the POA “Durable”? The word “durable” means that the powers granted in the POA survive your father’s incapacity. If it is not durable, then it’s authorizations expired when your father lost capacity.  Fortunately, most of the POA’s that I see these days have been drafted as durable powers, and so it is likely that yours is also a durable POA.

2) If a “Springing” POA, Have The Triggers Been Satisfied?  Often POA’s are drafted to only spring into life when the signer loses capacity, usually then requiring one or two doctors’ letters so certifying. If this describes yours, make sure that you have secured the doctors’ letters in order to make the POA operative.

3) Is Gifting Expressly Authorized?  As your father’s agent (or, Attorney-In-Fact), you are a fiduciary and cannot give away your father’s assets, unless that power is expressly granted in the document; it cannot be implied.  If not expressly stated, the making of gifts might be considered a breach of your fiduciary duty and/or financial elder abuse.

4) Does the POA Set Gifting Limits? Very often, we see POA’s that do permit some gifting, but limit it by reference to an Internal Revenue Code (“IRC”) section, the import of which may not be immediately apparent.  Example: If the POA limits gifts to the maximum authorized under IRC§ 2503(b), then gifts would be limited to the amount of the Annual Exclusion Gift, currently $15,000 per year per recipient.

5) Can You Gift To Yourself?:    As your father’s Agent you are his fiduciary, and cannot make gifts to yourself unless the POA expressly so authorizes, usually by permitting what we call “self-dealing”. Sample Language to look for: “In exercising the power to make gifts of my assets, I hereby authorize my Agent to include himself/herself as a gift recipient, i.e. I authorize my Agent to self-deal.”

Also, sometimes, POA’s impose the aforesaid § 2503(b) gifting limit only upon gifts to the Agent, but not upon gifts to others. If so, know that there may yet be “work-a-rounds” to design a more generous gifting plan to all recipients, which is still compliant with the limits in the POA.

6) Gifting Prohibition By Medi-Cal: If you get over all of the above hurdles, remember the following over-arching caution: Medi-Cal does not like it when applicant’s give away their assets to qualify, and may disqualify an applicant for benefits based upon the value of the gifted assets. Nevertheless, there are lawful techniques that can still be used to give away assets without a loss of Medi-Cal benefits, but they should be designed and carefully supervised by an Elder Law attorney experienced in Medi-Cal planning.

Q.  My wife and I have a home equity loan. In the past, we have been able to deduct the interest we paid on our taxes. However, under the new tax law, I hear conflicting opinions as to whether those interest payments are still deductible. Do you have any word on that?

A.  Thanks to a recent IRS guidance on topic, I believe I do. Responding to many questions received from taxpayers and tax advisors, the IRS recently released a statement to help clarify the issue. The guidance statement advises that, despite the new restrictions on home mortgage interest contained in the Tax Cuts and Jobs Act, taxpayers can often still deduct interest on a home equity loan, provided that the loan proceeds were used to “buy, build or substantially improve the taxpayer’s home that secures the loan”. However, if the equity loan proceeds have been used to pay credit card debt or other personal expenses, the interest is no longer deductible.

Further, if the equity line was taken out after December 15, 2017, there is also a dollar limitation: the sum of the loans to purchase the home, plus the new home equity loan, may not exceed a total of $750,000 in order for all of the interest on both loans to be deductible.  If the combined loans exceed $750,000, only a percentage of the interest payments will be deductible.

A bit of further good news for taxpayers with two homes: the new dollar limit applies to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and a second, vacation home.

Also, for the interest to be deductible, the home equity loan must be secured by the individual property which receives the benefit of the loan proceeds. Thus, if the home equity line is to be used to buy or improve the vacation home, it must be secured by that particular property.

All of these changes sunset at the end of year 2025.  What the rule will be thereafter is presently unclear.

The recent IRS Guidance [identified as IR-2018-32, Feb. 21, 2018] contains three examples which help illustrate the effect of the new law, and can be viewed on the IRS website, by an Internet search as follows: Start at www.IRS.gov, then go to “Tax Reform”, then go to “IRS News Releases & Statements”, and scroll down to this topic.

References:  IRS Guidance;  Tax Cuts & Jobs Act [Scroll to Section 11043 {“Limitation on Deduction for Qualified Residence Interest”], on pages 33–34; Internal Revenue Code Section 163 [“Interest”], and scroll to page 642; 

Q. I need to qualify my mother for a Medi-Cal subsidy to help pay for her nursing home care, due to her progressive dementia. However, she has about $20,000 in a bank account with just her name on it, and no power of attorney in place to allow me to draw upon it. I was told that these funds will place her over the Medi-Cal resource ceiling and prevent eligibility. What can I do?

A.  It is unfortunate that your mother had not previously arranged for you to have access to that account, and now with her dementia she likely does not have sufficient mental capacity to arrange for your access now. That said, recall the old expression: “If life deals you lemons, turn them into lemonade”! That adage may have particular application to your situation. Here’s why:

As you may know, Medi-Cal typically divides the world of resources into two (2) categories, i.e. those which are exempt [such as a home, furnishings and the like], and those which are countable [such as savings and a second home].  In order to qualify an unmarried individual for a Medi-Cal nursing home subsidy, the applicant’s “countable” resources must be less than $2,000. Note: In this analysis, countable resources determine eligibility, and monthly income is only considered afterwards in calculating applicant’s co-pay (“share of cost”).

But, in fact, there is a little known third category, which embraces resources which are considered “unavailable”. If an asset is unavailable, it is – during the period that it remains unavailable – treated the same as an asset that is exempt! Most social workers, and even many Medi-Cal eligibility workers, either are not aware of this third category or forget to apply it in appropriate situations, such as yours.

An asset is unavailable when it cannot be readily accessed to pay for the care of the proposed beneficiary.  This rule would apply to your mother’s situation, and here’s why: (1) she previously set up her bank account so that only she can access the funds and she does not have the capacity to do so now, on her own;  (2) there is no existing power of attorney in place to permit you to access it on her behalf; and (3) she does not now have sufficient mental capacity to either add your name to the account or to sign a Durable Power Of Attorney to allow you access. Under these circumstances, it would be deemed “unavailable” under relevant Medi-Cal regulations. Further, for so long as it remains unavailable, it would be treated the same as an exempt asset and not counted toward her $2,000 Medi-Cal resource allowance.

There are indeed other situations where ‘unavailability” may come into play. Examples: where an asset, such as a second home or a promissory note, cannot be readily redeemed for cash and must be first marketed for sale; and, where the applicant owns only a partial interest in a rental property and the other co-owners refuse to sell.

For cases like yours, it is best to engage a knowledgeable elder law attorney for assistance, as it may be necessary to first lay appropriate groundwork to justify the claim of “unavailability”, to then educate the Medi-Cal eligibility worker as to its application in the particular case, and to thereafter shepherd the Medi-Cal application through to approval.