August 17, 2018
Author: Sandra L. Sherlock-White
Organization: Law Offices of Sandra Sherlock-White, LLC

Asset Transfers

The general rule is that if a transfer of assets for less than fair market value has occurred during the applicable “look back” period, a computation of a period of ineligibility for benefits is made unless the transfer fits within an exception to the transfer rule. The penalty period is determined by dividing the uncompensated value of the asset transferred by the average cost of nursing home care for a private pay patient in Connecticut. Presently at the time of the writing of this article the average cost of care as set by the State of Connecticut is $11,581.00. The resulting sum is the number of months during which the Medicaid applicant will be disqualified from receiving Medicaid benefits.

For transfers occurring on or after August 11, 1993, there is no longer a durational limitation or cap on the length of the penalty period. For transfers made before August 11, 1993, the maximum length of the penalty period is thirty months. The penalty period must not be confused with the “look back” period.

The “look back” period was previously set at 30 months for Medicaid applications made prior to March 1996. The “look back” period was extended incrementally by one month for each month between March and August 1996. As of August 1996, the “look back” period was 36 months. Regarding certain types of trusts created on or after August 11, 1993, the “look back” period was, and remains at 60 months. For transfers occurring prior to February 8, 2006, the penalty period begins running from the first day of the month in which the transfer was made. Partial month penalties are no longer dropped. In cases where multiple transfers have been made, the penalty periods run consecutively and not concurrently.

The Section 1115 waiver dated December 2001 previously sought by the State of Connecticut to (1) permit the State to extend the look back for transfers of real property and (2), to assess any penalty period starting on the first day of Medicaid eligibility has been withdrawn by the State following more than four years of intensive lobbying by the Elder Law Section of the Connecticut Bar Association. Section 1115 of the Social Security Act (added in 1962) provides the Secretary of the Department of Health and Human Services (HHS) broad authority to authorize experimental, pilot, or demonstration projects that are likely to assist in promoting the objectives of the Medicaid statute. Those objectives are to furnish:

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1. Medical assistance on behalf of aged, blind or disabled individuals whose income and resources are insufficient to meet the cost of necessary medical services and,
2. Rehabilitation and other services to help such individuals attain or retain capability for independence or self-care. (42 USC 1396)

The long history of 1115 waivers affirms their chief function for states to test and evaluate new ides for providing services otherwise not covered by Medicaid or expanding eligibility or delivering services more effectively and efficiently.

One explicit limitation is that only the provisions of Section 1902 of the Act may be waived. The transfer of assets requirements are contained in Section 1917(c) of the Act. No authority is contained within that section to waive the provisions of Section 1917. In a letter dated May 4, 2005 from Governor Jodi Rell to Department of Social Services Commissioner Patricia Wilson Coker, Governor Rell directed the withdrawal of the Connecticut Section 1115 waiver. While Governor Rell wrote:

“As our frail elderly and disabled citizens attempt to navigate the complexity of the health care system, measures in the waiver application to change the process could be perceived as hindering the ability of individuals to access appropriate nursing home care, and as negatively impacting the already fragile financial structure of our skilled facilities” and further wrote:

“The fact that the Centers for Medicare and Medicaid services did not expeditiously approve the State’s 2002 request is further indication that the waiver application may be viewed as problematic.”

It appears that she did foresee a change in federal law regarding the look back period and changes in the start date of the penalty period when she wrote:

“The subject of increasing the ‘look back’ and the penalty period for qualifying for Medicaid is starting to be addressed on the Federal level by President Bush and Congress. I believe it is more appropriate for Connecticut public policy to be formulated as part of the national discussion on this issue, rather than through the advocacy of an individual waiver of current federal law. The public policy discussions beginning to unfold in Washington and in state capitols will guide Connecticut’s future on this complex subject.”

Indeed Section 6011(a) of the DRA now extends the look back period for all transfers, whether to individuals or to trusts, to five years. The change in the look back period applies to transfers made on or after the date of February 8, 2006. No other guidance is given by CMS. CMS failed to take the opportunity to clearly state that the 60 month look back period would be phased in incrementally beginning in February 2009 until fully phased in, in February 2011. Connecticut phased in the look back period incrementally beginning in February 2009 until it was fully phased in, in February 2011 as they had done previously with OBRA’93.

If a sufficient sum is retained to cover the projected cost of care for the “look back” period, gifts made by the client before the “look back” period will not fall within the period of inquiry and therefore will not be subjected to an analysis for a penalty period. Therefore the timing for application for Medicaid may be critical.

In addition, Section 6011(b)(2) of the DRA now changes the start date for a period of ineligibility for transfers of assets made on or after the date of the enactment of the DRA. This section provides that the start date for the period of ineligibility is the first day of a month during or after which assets have been transferred for less than fair market value or the date on which the individual is eligible for medical assistance under the state plan and would otherwise be receiving institutional level care based on an approved application for such care but for the application of the penalty period, whichever is later and which does not occur during any other period of ineligibility.

In its letter to the states, CMS re-writes the pertinent language in Section 6011(b) to “The date on which the individual is eligible for medical assistance under the State plan and is receiving institutional level of care services (based on an approved application for such services) that, were it not for the imposition of the penalty period, would be covered by Medicaid.” (Emphasis added) This language requires that the individual actually be receiving Medicaid covered institutional level of care services in order to start the penalty period. This is the language that Congress deleted in the final Reconciliation of the bill, when it removed “and is receiving services described in subparagraph (C)” and replaced it with “and would otherwise be receiving institutional level care described in subparagraph (C)…but for the application of the penalty period.” CMS did clarify that once the penalty is imposed, it will not be tolled (i.e. will not be interrupted or temporarily suspended) even if the individual subsequently stops receiving institutional level care. This would mean that the individual must only be receiving institutional level care at the start but not necessarily for the duration of the penalty period.

CMS also stated that the imposition of a penalty period for new applicants for Medicaid requires a denial notice. This appears to mean that in order to start the penalty period, an application must be filed followed by a denial notice.

This change differs dramatically from the prior law which stated that the ineligibility period began on the first day of the month of the transfer. Section 6011(b)(1) of the DRA retains current law in the case of a transfer of assets made before the date of enactment of the DRA, such that the start date for the period of ineligibility is the first day of the first month during or after which assets have been transferred for less than fair market value and which does not occur in any other periods of ineligibility.

Proposed UPM 3029.05 E Start of the Penalty Period policy provides that the penalty period begins as of the later of (1) the first day of the month during which assets are transferred for less than fair market value, if this month is not part of any other period of ineligibility caused by a transfer of assets (consistent with the DRA and pre-existing policy); or (NEW) (2) the date on which the individual is eligible for Medicaid (not “medical assistance” per DRA/CMS) under Connecticut’s State Plan and would otherwise be eligible for Medicaid payment of LTC services described in 3029.05 B [not “and would otherwise be receiving institutional care described in subparagraph ( C )” as per the DRA, and not “and is receiving institutional level of care services” as per CMS guidelines] based on an approved application for such care but for the application of the penalty period, (consistent with DRA) and which is not part of any other period of ineligibility caused by a transfer of assets” (consistent with DRA “and which does not occur during any other period of ineligibility under this subsection”).

This language is inconsistent with the plain language of the federal Medicaid statute, as amended by the DRA. The significant departure from the DRA provision found at 42 USC 1396p( c )(1)(D)(ii) is in the language “would otherwise be eligible for Medicaid payment of LTC services described in 3029.05 B”. This language when read along with the language in 3029.05 B is more restrictive than the DRA in that it could be read to require that the individual is actually receiving LTC services rather than the DRA provision that the individual “would otherwise be receiving institutional care” based on an approved application for such care, but for the application of the penalty period. The language of the DRA twice references the “institutional care” focusing on when the individual would be considered in need of such care (“institutional care” and “such care”). The reference to “an application for such care” would be a Medical Screening or Functional Assessment, and not an application for medical assistance or Medicaid. (It is interesting to note that the draft policy uses language which had been contained in the CT TOA 1115 Waiver in the provision “would otherwise be eligible for Medicaid.”) There is nothing in the federal statue, nor in the guidance from CMS, which employs the term “eligible for Medicaid payment” as the correct standard in determining the start date of the penalty period.

Proposed UPM 3029.05 B Individuals Affected policy provides as pre-existing policy provided that the policy contained in the Transfer of Assets Chapter pertains to institutionalized individuals and their spouses. [3028.05 B.1.; 3029.05 B.1.}, and further that:

1. An individual is considered institutionalized if he or she is receiving (emphasis added) (a) LTCF services; or (b) services provided by a medical institution which are equivalent to those provided in a long-term care facility; or ( c ) home and community-based services under a Medicaid waiver (cross reference to 2540.64 (HUSKY group as indicated above) and 2540.92). An individual who is applying for home and community-based services under a Medicaid waiver, and whom the department determines to be functionally in need of such services, is also considered institutionalized.

This proposed policy as to the date on which the penalty period will start requires that (1) an Application is filed (and in the case of Waiver home and community-based services, both financial and functional), (2) the applicant is financially eligible, and (3) the applicant is receiving LTCF services, or whom DSS determines to be functionally in need of such services.

UPM 3029.05 B is referenced in draft UPM 3029.05 E.2. Start of the Penalty Period. In that the DRA language found at 42 USC 1396p( c )(1)(D)(ii) provides that the penalty period commences on “the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care (emphasis added) described in subparagraph ( C ) based on an approved application for such care but for the application of the penalty period…”, this draft regulation does not meet the requirements of the DRA. The legislative history of the DRA does not support the conclusion that an individual must be receiving long-term care services in order to start the penalty period running. The DRA did not include the House provision that would have specified that the individual must be receiving long-term care services, and instead specified that the individual “would otherwise be receiving institutional care.”

In its Memorandum, DSS states that it believes that the proposed regulations accurately reflect the provisions of the DRA in Section 6011 (b)(1)(ii). DSS interprets this language to mean that the penalty period would commence as of the date that the Medicaid program would pay for the individual’s long term care services, but for the application of the penalty period. DSS states that this requires than an individual formally apply for Medicaid and be otherwise eligible for the payment of long term care services under the Medicaid program, but for the application of the penalty period. DSS finds support for its position in CMS’ guidelines. The plain language of the CMS guidance in not what DSS has proposed, and furthermore does not follow the federal Medicaid statute. DSS has replaced the CMS language, whether long term care services are covered by Medicaid, with a test that an individual is eligible for Medicaid payment. The DSS regulation confuses the concept of services covered by Medicaid with Medicaid payment. CMS refers to services that Medicaid determines to cover. The DSS regulation focuses on the individual’s financial eligibility. DSS states that, “For individuals residing in nursing facilities, the penalty will commence on the date that Medicaid would otherwise pay for institutional care under an approved application for Medicaid, but for the application of the penalty. For individuals applying for home and community based services under a Medicaid waiver, the penalty will commence on the date that the Department would have approved the payment of the services under an approved application, but for the application of the penalty period.”

The CMS guidelines provide that the penalty period commences on “The date on which the individual is eligible for medical assistance under the State plan and is receiving institutional level of care services (based on an approved application for such services) that, were it not for the imposition of the penalty period, would be covered by Medicaid.” This is a misinterpretation of the DRA. The DRA does not require the individual to be receiving institutional level services to begin the penalty period.

Proposed UPM 3029.05 F.4. does favorably and significantly provide in accordance with the CMS directive that “Once the Department imposes a penalty period, the penalty runs without interruption, regardless of any changes to the individual’s institutional status.”

Proposed UPM 3028.15 E 3 and 3029.15 E 1 c add a disqualifying event of any gift of proceeds of a home equity loan, reverse mortgage or similar instrument by the community spouse after Medicaid benefits are granted to the institutionalized spouse. This provision has NO authority in the DRA. Nothing in the DRA applies to imposing a penalty on transfers of the proceeds of home equity loans or similar instruments. The DRA simply provides that in determining eligibility, home equity may not exceed a $500,000 cap or at state option, a greater amount not to exceed $750,000. Specific exceptions are provided as to the home equity cap where certain individuals reside in the home. Nowhere in the DRA is there language imposing penalties for transfers of the proceeds of home equity loans. Nor is there any reference to imposing penalties for transfers of home equity in the CMS directives. DSS asserts that, “CMS has advised states that transfers of home equity loan proceeds are subject to penalties.” Indeed the CMS Boston Regional office for Connecticut has taken the position since it issued a April 5, 2000 opinion letter that post eligibility transfers by the community spouse do not affect the institutionalized spouse’s Medicaid eligibility. A CMS Regional Office for Ohio has issued an opinion that states may elect to impose penalties on such transfer.

Section 6016(a) of the DRA provides that states are no longer allowed to round down the penalty period to the lowest whole number. Connecticut had already been imposing fractional penalty periods prior to the enactment of the DRA.

Section 6016(b) of the DRA gives states discretion to treat as one transfer, the total cumulative, uncompensated value of all assets transferred by the individual or spouse during all months within the look back period. The period of ineligibility begins on the earliest date which would apply under 42 USC Section 1396p(c)(1)(D). The general effective date provisions of Section 6016 apply to this change.

Section 17b-261a(a) signed into law on August 20, 2003 provides that any transfer of assets resulting in the imposition of a penalty period shall be presumed to be made with the intent to qualify the transferor for Medicaid eligibility. This presumption may be rebutted only by clear and convincing evidence that eligibility was not a basis for the transfer.

Section 17b-261a(b) provides that any transfer resulting in the imposition of a penalty shall create a debt due and owing by the transferor or transferee to DSS in an amount equal to amount of assistance paid on behalf of the transferor, but not to exceed the fair market value of the assets at the time of transfer.

This provision seeks to convert legitimate gifts into debts to the state. There are no limits on what transferees are subjected to this section. Innocent family members, charities, schools, and churches may all become debtors to the state. The concept that an innocent gift constitutes a debt is in conflict with federal Medicaid law and Connecticut creditor debtor law. This bill is a recovery bill. Applicable federal law has very explicit laws governing the recovery assets where Medicaid benefits have been properly or improperly paid, and federal law preempts state law with respect to Medicaid.

There is nothing in the DRA which alters the federal law on recovery of Medicaid benefits. Indeed the DRA leaves intact and unaffected the federal recovery rules found at 42 USC 1396p(b). Those rules limit when a state may seek recovery of benefits. The federal law limits permit recovery of assistance properly granted from the recipient of the benefits only after the recipient has died under certain well-defined circumstances. The “Transferee Liability” bill found at CGS 17b-261a(b) reaches well beyond the limits established by federal law, is inconsistent with federal law and therefore appears to be illegal. Therefore, the legality of this “Transferee Liability, bill” is in question.

B. Exempt Transfers

Certain types of transfers are not subject to a penalty period.

2. TRANSFER TO A SPOUSE

No penalty is incurred when interspousal transfers occur (See UPM 3028.10B) Former policy provided that ALL interspousal transfers whether before or after eligibility, were EXEMPT transfers NOT resulting in a penalty period. Policy released on 6-4-01 as part of Policy Transmittal No. UP-01-04 bearing an Effective Date of 2-13-01 provides that in or after the month of initial Medicaid eligibility, the institutionalized spouse may transfer without penalty his/her assets to the community spouse BUT the amount of assets transferred must be NO GREATER than the amount needed to raise the community spouse’s assets up to the CSPA. This policy does not affect pre-eligibility interspousal transfers. This policy imposes a penalty on POST eligibility interspousal transfers of assets in excess of the amount needed to raise the community spouse’s assets up to the CSPA.

2. TRANSFER OF HOME PROPERTY

Home property may be transferred without penalty to:

1. Spouse;
2. Child under age 21;
3. Child of any age if the child is considered to be blind or disabled under criteria for SSI eligibility;
4. Sibling, if the sibling 1) has an equity interest in the home and 2) is residing there for a period of at least 1 year before the date the individual was institutionalized;
5. Son or daughter who 1) was residing in the home for a period of at least 2 years immediately before the date the individual is institutionalized; and 2) provided care to the individual which avoided the need for institutionalization of him or her during those two years (See UPM 3028.10A)
   

Proposed UPM 3029.15 E 1 c and 3028.15 E 3 impose a penalty on transfers of the proceeds of home equity loans, reverse mortgages, and similar instruments by a community spouse following the establishment of Medicaid eligibility which would then disqualify the institutionalized spouse from that eligibility. Nothing in the DRA directs or permits the penalization of such post-eligibility transfers of proceeds of home equity by a community spouse.

This proposed policy will have a disproportionate impact on low income elderly women as they statistically represent the majority of community spouses with an institutionalized spouse. This proposed policy restricts the rights of these community spouses to do what they wish with the property that is protected for them under federal law, that is, their own home property after their spouse has been found eligible for Medicaid. Furthermore, this policy creates an automatic and complete disqualification for Medicaid regardless of the purpose of the transfer because it does not permit the community spouse to demonstrate that the transfer was an exempt transfer under the standard transfer of asset provisions. The standard transfer of asset provisions provide that if the applicant can demonstrate that a transfer was for a purpose of event to qualify for Medicaid, the transfer is exempt and no penalty will apply.

This policy will also leave nursing homes without payment for care provided to the institutionalized spouse who will then be ineligible for Medicaid, and who the nursing home will be unable to discharge. This proposed policy is entirely unsupported and unrelated to the DRA. In its Memorandum, DSS stated that it has consistently regarded the transfer of the community spouse’s home as a potentially disqualifying transfer that could affect the institutionalized spouse’s eligibility. It stated that this reflects a public policy that encourages retention of the property by the community spouse. DSS’ position is that it is logical to regard transfers of proceeds of home equity loans as equivalent to transfers of the home itself.

3. TRANSFERS MADE IN EXCHANGE FOR OTHER VALUABLE CONSIDERATION

Any type of asset including cash and stock may be transferred to any person (related or unrelated) if made in return for other valuable consideration. Other valuable consideration must be in the form of services or payments for services rendered that are of the type provided by a homemaker or home health aide and essential to avoid the institutionalization of the transferor, for a period of at least two years. The services must either be provided by the transferee while living with the transferor or paid for by the transferee. Other valuable consideration may be received either prior to or subsequent to the transfer. Medical documentation should be available to support the condition that the care provided avoided the need for institutionalization.

Legislation passed effective July 1, 2001, Public Act No. 01-2§3(d) provides that the transfer of an asset in exchange for other valuable consideration shall be allowable to the extent the value of the other valuable consideration is equal to or greater than the value of the asset transferred. Medicaid policy was transmitted with an effective date of January 1, 2003 regarding this revision of other valuable consideration. Under the revised policy, the monetary value of other valuable consideration is equal to the average monthly cost to a private patient for long term care in Connecticut, multiplied by the number of months the transferee avoided the need for the transferor to be institutionalized. Other valuable consideration is still defined as the provision of homemaker or home health aide services that prevents the institutionalization of the transferor for at least two years. The transferee and transferor must be living together if the transferee is personally providing the services to the transferor. The computed value of the other valuable consideration must be equal to or greater than the value of the transferred asset.

The revised policy affects individuals who apply for Medicaid on or after January 1, 2003 or file a redetermination on or after that date AND have made a transfer on or after July 1, 2001. (See UPM 3028.10 G.: 3028.20 A.; 3028-20B.; P-3028.17 2.) Prior to the enactment of Public Act 01-2, no monetary value was assigned to the consideration.

Transfers made pursuant to the exception for other valuable consideration must be examined closely for income tax implications to the transferee.

4. TRANSFERS TO A BLIND OR DISABLED CHILD

Any type of asset may be transferred without penalty to a Medicaid applicant’s blind or disabled child as defined by SSI criteria for such disability.

Transfers of any type of asset may also be made to a trust established for such a disabled child under the age of sixty-five. In order for the transfer to be exempt, the trust must provide that the State will receive all amounts remaining in the trust upon the death of the individual, up to an amount equal to the total amount of Medicaid benefits paid on behalf of the individual. (See UPM 3028.10C)

5. TRANSFEROR INTENDED TO RECEIVE FAIR VALUE

Transfers may be made without penalty where the transferor can show with clear and convincing evidence that he or she intended to dispose of the asset at fair market value. Written care agreements may be drafted to fit this exception wherein the parties agree in consideration of the receipt of services provided, money or property will be paid. The transferor must intend to receive services at the time of the agreement and exchange. A Fair Hearing Decision was issued in 2012 finding that a legally enforceable agreement is a binding and credible arrangement, either oral or written, wherein two or more parties agree to an arrangement in consideration for receipt of money, property, or services and in which all parties can be reasonably expected to fulfill their parts of the agreement. (UPM 3000.01) The Fair Hearing Officer stated in the Discussion that she “found no language in the regulations that supports the Department’s assertion that ‘services performed by children for their parents are performed out of love and affection and not with the expectation…’”

Again, attention needs to be paid to the income tax implications to the care giver. (See UPM 3028.10F) It is likely that in light of the change of the transfer of assets rules pursuant to the DRA, that there will be an increase in the use of formal legal arrangements, such as care agreements, to reflect compensation for care provided. Indeed statistics reveal that between 75 to 90 percent of ALL long term care is provided in the community and is INFORMAL AND UNPAID. The cost of that care is estimated at $196 to $306 billion per year. This is in stark contrast to the statistic that paid care giving costs the public and private sectors approximately $173 billion per year, 25 percent of which is paid out of pocket by individuals and their families.

6. TRANSFERS MADE EXCLUSIVELY FOR REASONS OTHER THAN TO QUALIFY FOR MEDICAID

A penalty period will not be imposed when the transferor can show with clear and convincing evidence that the transfer was made exclusively for purpose other than to qualify for Medicaid. (See UPM 3028.10E) Prior to the DRA changes in the transfer of assets penalty rules, this exemption was not used in many cases. One reason for this was that in many cases the penalty period would have expired prior to the need for benefits. That is no longer the case under the new law that penalizes even small transfers years later. As a result, it is anticipated that there will be an increase in lawyers advocating for their clients at fair hearings arguing the purpose and intent the Medicaid applicant had in making gifts. A showing of evidence that demonstrates another specific reason for the transfer will need to be made. It is anticipated that these types of hearings will result in an increase in the administrative burden and cost to the state. Evidence, which could support this exception, includes some other specific reason for the transfer. This is particularly effective where the individual’s health was such that a need for long-term care could not be foreseen. (See UPM 3028.10E)

Proposed UPM 3028.15 D.3 and E, and proposed UPM 3029.15 D.3 and E provides that transfers made exclusively for reasons other than qualifying now excludes the proceeds of the home equity loan, reverse mortgages and similar instruments reducing the spouse’s equity. Again, there is not authority for these changes in the DRA.

In its Memorandum, DSS stated that each case should be evaluated independently and in its entirety to determine if the transfer was made exclusively for purposes other than qualifying for Medicaid.

7. TRANSFEROR SUBJECT TO UNDUE HARDSHIP

The existing regulations in the UPM provide that an institutionalized individual is not penalized based on the transfer of an asset if the Department determines that denial of payment for services would create an undue hardship. Proposed policy provides that undue hardship exists when the facility has threatened the individual with eviction due to nonpayment and the individual has exhausted all legal methods to prevent the eviction or the medical provider has threatened to terminate home and community based services being provided under a Medicaid waiver. The transferor must establish that the transferee is no longer in possession of the transferred asset and the transferee has no other assets of comparable value with which to pay the cost of care and there is no family member or other individual or organization able and willing to provide care to the individual. UPM 3029.25. In previous practice, it has been nearly impossible to obtain a hardship waiver unless an actual eviction proceeding had been instituted by the facility, and all appeal rights exhausted by the applicant. To the extent that Medicaid law prohibits a nursing home from evicting someone during the pendency of a Medicaid application, a nursing home cannot threaten an eviction prior to denial of Medicaid benefits. The caseworker would make the first determination as to whether undue hardship exists. The decision could then be appealed to an administrative fair hearing.

In addition to filing appeals arguing that transfers were made for purposes other than to qualify for Medicaid benefits, elder law attorneys will be pursuing hardship waivers on behalf of their clients. This will also result in an increase in the administrative burden and cost to the state.

Section 6011 (d) of the DRA requires each State to provide for a hardship waiver procedure in accordance with 42 USC Section 1396p( c)(2)(D) to include a potential hardship imposed by the application of the transfer of assets provisions of Section 6011. The DRA provides that an undue hardship exists when application of the transfer of assets provision would deprive the individual of:

1. A) medical care such that the individual’s health or life would be endangered; or
2. B) food, clothing, shelter, or other necessities of life.

The process must include notice to recipients that an undue hardship exception exists, a timely process for determining whether an undue hardship waiver will be granted, and a process under which an adverse determination can be appealed. The undue hardship process must also permit the facility in which the institutionalized individual is residing to file an undue hardship waiver application on behalf of the individual with the consent of the individual or the individual’s personal representative. In addition, this section provides that while an application for undue hardship waiver is pending, provided the application meets criteria established by the secretary, the state may provide for payments for nursing facility services in order to hold the bed for the individual at the facility for a maximum of thirty days. The general section on effective dates found at Section 6016 applies to this section. Proposed UPM 3029.25A provides that an institutionalized individual is not penalized based on a transfer of assets made by the individual or his or her spouse if denial or discontinuance of payments for services would create an undue hardship, which exists if the individual would be deprived of: (1) Medical care such that his or her life would be endangered; or (2) Food, clothing, shelter or other necessities of life. This proposed policy does not conform with the DRA in that it does not include the “health” or life of the individual being endangered. In its Memorandum, DSS agrees that the undue hardship waiver applies when an individual’s health in endangered, although the proposed policy does not appear to reflect this change.

Proposed UPM 3029.25 B describes the conditions under which an undue hardship would exist for DSS not to impose a penalty. Under this section, the individual must actually be in a long term care facility, or the individual must be receiving home and community-based services under the CHCPE Waiver Program. The long term care facility or medical institution must be threatening eviction due to non-payment and the individual has exhausted all legal methods to prevent the eviction, or the medical provider has threatened to terminate the home and community-based services. This could include administrative hearings and appeals to court. In its Memorandum, DSS stated that it “believes that, in most cases, an individual will have ‘exhausted all legal methods to prevent the eviction’ by contesting the eviction at an administrative hearing. The Department, however, believes that situations may exist where resort to the courts is appropriate. Further, free legal representation may by available and an infirmed individual’s authorized representative would be authorized to contest the eviction.” This section further requires that the transferor (individual applying for the undue hardship waiver) to establish that the transferee is not in possession of the transferred asset, and that the transferee has no other assets to pay the cost of care for the applicant. Finally, the applicant is required to establish that there is no one else who can pay for the applicant’s cost of care.

These sections are inconsistent with the DRA, and impose requirements not authorized by the DRA. Under the definition of “undue hardship” in the DRA, any individual who would be deprived of medical care or food, clothing, shelter, or other necessities of life due to the imposition of a transfer of assets penalty is eligible to assert the undue hardship waiver. The proposed policy specifically limit the group of individuals eligible to assert an undue hardship waiver to “institutionalized” individuals, thereby excluding those who are not yet receiving services in a long term care facility or medical institution or home and community-based services. This overly restrictive and narrow application of undue hardship will effectively deny those applying for nursing home admission or services under the Connecticut Home Care Program for Elders where a transfer of assets may have occurred. Furthermore, the additional requirements of the proposed UPM is overreaching and is not authorized by the DRA. Indeed, the proposed policy defeats the purpose and intent of the undue hardship waiver process.

This proposed policy further requires that “the transferee is a family member or someone handling the transferor’s affairs, and that the transferor establishes that the transferee is no longer in possession of the transferred asset and the transferee has no other assets of comparable value with which to pay the cost of care.” However, the federal Medicaid law prohibits a state Medicaid agency from employing an eligibility standard that takes into account “the financial responsibility of any individual for any applicant or recipient of assistance under the plan unless such applicant or recipient is such individuals spouse or child under 21 or is blind or disabled.” 42 U.S.C. Sec. 1396a (a) (17) (D), known as the “anti-deeming” provision. In its Memorandum, DSS bases the proposed regulation on CGS 17b-261a(b) and on the premise that the Social Security Act does not expressly preclude recovery from the transferee. Proposed UPM 3029.25B also requires that there be no family member or other individual or organization able and willing to provide care to the individual. These provisions go beyond the scope of the DRA and are contrary to Medicaid law. This policy places an overly broad, burdensome, and seemingly limitless burden of proof upon the Medicaid applicant in order to invoke the undue hardship exception. Proposed UPM 3029.10I and proposed UPM 3029.11E provide that in cases where the department waives the penalty period associated with a transfer of assets because the department has determined that undue hardship exists, the department may pursue recovery against the transferee, if appropriate.

The LCO Report concluded that the undue hardship provisions appear to be inconsistent with the DRA. It stated, “Although the DRA allows states flexibility in deciding when not to impose penalties because of undue hardship, the undue hardship exception appears to be narrower under the proposed UPM section than under the DRA, which could lead to more frequent imposition of penalties.”

CMS stated in its guidance letter in regards to undue hardship that “as long as [states} adhere to the DRA criteria, States still have considerable flexibility in deciding the circumstances under which they will not impose penalties under the transfer of assets provisions because of undue hardship.” In its Memorandum, DSS defends its regulations as to the transferee’s possession of the transferred assets or their equivalent, and whether the transferee is willing or able to use the transferred funds or their equivalent for the individual’s care, to be in an area in which “the Department has flexibility,” and that the criteria are “reasonable and appropriate.”

On July 13, 2009 DSS wrote to the regional CMS office in Boston to seek CMS’ confirmation of its interpretation of federal law regarding its proposed regulations pertaining to these undue hardship provisions. CMS responded in a letter dated October 28, 2010 and stated that it would review the undue hardship provisions at a later time.

Public Act 11-76 was passed effective July 1, 2011 and reconciled Connecticut’s treatment of undue hardship with federal law. Undue hardship applies when:

• the life or health of an applicant would be endangered by the deprivation of medical care, or the applicant would be deprived of food, clothing, shelter or other necessities of life;
• the applicant is otherwise eligible for medical assistance under Connecticut law but for the imposition of the penalty period;
• if the applicant is receiving long term care services at the time of the imposition of a penalty period, the provider of LTC services has notified the applicant that such provider intends to discharge or discontinue providing LTC services because of nonpayment;
• if the applicant is not receiving LTC services, a provider of services has refused to provide such LTC services due to lack of a payment source; and
• no other person or organization is willing and able to provide LTC services to the applicant.

The statute provides that DSS shall not waive the imposition of a penalty period for undue hardship if either:

1. an applicant made a transfer of assets or assignment of assets to deliberately impoverish him or herself in order to obtain or maintain eligibility for medical assistance, or
2. the transfer or assignment of assets was made by the applicant’s legal representative or the joint owner of the assets.

DSS may waive the imposition of a penalty period, however, if:

1. the applicant suffers from dementia or other cognitive impairment and cannot explain the transfer or assignment of assets,
2. the applicant suffered from dementia or other cognitive impairment at the time the transfer or assignment of assets was made,
3. the applicant was exploited into making the transfer or assignment of assets due to dementia or other cognitive impairment, or
4. the applicant’s legal representative or the record owner of a jointly held asset made the transfer or assignment of assets without the authorization of the applicant.

The statute sets out notice provisions when DSS determines that a penalty period will be imposed as a result of a transfer of assets. A preliminary notice must be provided to the applicant. The notice must include a statement that the applicant may contest the imposition of a penalty period within 15 days after the postmarked date of the preliminary notice by:

1. filing a claim of undue hardship, or
2. providing evidence to rebut the presumption resulting in the imposition of a penalty period pursuant to CGS section 17b-261a(a).

DSS is required to grant one extension of the 15-day appeal period upon request, and, if reasonable, to grant additional extensions.

Where a long term care provider issues notice of its intent to discharge, to refuse to provide or to discontinue services due to a penalty period, the applicant has 60 days to file an undue hardship claim.

A nursing home may request an extension of time to claim undue hardship on behalf of an applicant if:

1. the applicant is receiving long term care services in such nursing home,
2. the applicant has no legal representative, and
3. the nursing home provides a physician’s certification that the applicant is incapable of caring for himself or herself or managing his or her affairs as defined in CGS 45a- 43 644.
   

DSS is required to grant an extension of time to permit a representative to be appointed for purposes of filing an undue hardship claim.

The law permits a nursing home to submit and requires DSS to accept an undue hardship claim if the applicant or his or her legal representative gives permission to the nursing home to file a claim.

RETURN OF TRANSFERRED ASSET

Existing UPM policy provides that if the entire transferred asset has been returned, no penalty is imposed. The penalty period which would have been imposed by the transfer of the asset ends as of the date that the entire asset is returned to the applicant. The proposed policy deletes the requirement that the entire asset must be returned “prior to the date on which Medicaid is requested” from the provision that “An institutionalized individual is not penalized based on the transfer of an asset if the entire asset has been returned.” If only part of the transferred asset is returned, the penalty period is adjusted and expires as of the later of the following dates:

1. The date that the partial asset is returned; or
2. The last day of the adjusted penalty period.

The adjusted penalty period is based on the uncompensated value of the original transfer minus the value of the part of the asset which is returned. (See UPM 3028.10H)

The proposed policy further provides that:

“The part of the asset that is returned to the individual is considered available to the individual during the time period from the date of its transfer to the date of its return, and remains available for as long as the individual has the legal right, authority or power to liquidate it.” (See proposed UPM 3028.10H.4.)

This section appears to deem the availability of the returned asset from the initial date of its transfer to the date of its return, thereby potentially resulting in the individual’s ineligibility during that time period. Read in context of proposed UPM 3029.05 E 2, this section, would, it seems prevent the individual from being regarded as “eligible for Medicaid” or from being “otherwise eligible for Medicaid payment of the LTC services” based on an approved application for such care but for the application of the penalty period. This additional language is not supported by any language of the DRA nor the CMS directives.

DSS has no authority to deem availability of the assets. The federal Medicaid statute provides that in administering the Medicaid program, each state must conform to federal law with respect to eligibility criteria. The federal law prohibits the state from using an eligibility standard that takes into account assets that are not available to the individual, with limited exceptions concerning the individual spouse. 42 U.S.C. 1396a (a) (17) (D). This federal statute prohibits states from “deeming” assets from most third parties to the individual applicant for Medicaid benefits. See Buckner vs. Maher,424 F. Supp. 366 (D. Conn.,1976) Furthermore, the effect of deeming availability of the transferred asset to the date of its return could be to delay the start date of the penalty period. When read in conjunction with 3029.05 E 2, the penalty period would not start until after the date of the return of the asset.

In its Memorandum, DSS claims that this policy reflects CMS State Medicaid Manual guidance and is implemented in response to states’ findings that estate planners “have used an oversight in the DRA to circumvent the intent of the law.” This statement is clearly a statement against the Department’s interests in that it admits that the regulations are not authorized by the DRA.

Citing the Buckner case, the LCO Report concluded that the proposed regulations may be in violation of the Supremacy Clause of Article VI of the U.S. Constitution, and that it does not appear that the DRA authorizes the treatment of transferred assets as required in the proposed regulation.. It stated, “By presuming the availability of a transferred asset during the period after it was transferred and before it was returned, the proposed regulation may conflict with this provision of federal law.”

On July 13, 2009 DSS wrote to the regional CMS office in Boston to seek CMS’ confirmation of its interpretation of federal law regarding its proposed regulations pertaining to these provisions regarding the return of transferred assets. In its reply, CMS stated that DSS’ interpretation was not consistent with federal law. Specifically, CMS wrote that, “The DRA did not address the issue of availability of the returned funds. The DRA adjusted the start date of the penalty period, not the start date of Medicaid eligibility. It would be inappropriate to read these older SMM provisions in combination with the DRA in such a way that the State would have the option of starting a new, later penalty period based on an adjustment to the individual’s eligibility determination. This is, in effect, what we believe could potentially result from the State’s proposed regulation. Furthermore CMS wrote regarding “Alternative Approaches to Partial Cures.” “One permissible alternative would be for the State to choose not to recognize these partial returns and simply continue the penalty period uninterrupted an unaltered from the original calculation, absent full cure.” And notably, CMS wrote, “A second permissible alternative would be to shorten the original penalty period from the back end so that the period ends sooner, which approach is often referred to as the ‘reverse half a loaf strategy’.” CMS again wrote on December 16, 2010, “In the absence of formal CMS guidance a State may adopt any reasonable methodology for considering the availability of returned assets for the purposes of Medicaid eligibility. We do believe that the State is not required to count the fully returned assets as having been available to the individual from the date of the transfer.” See also Marino v. Velez (D.C. Civil Action No. 3-10-cv-00911) (3rd Circuit 1/10/11) finding that the appellant was not Medicaid eligible where a partial return of gift was made. N.B. case marked “NOT PRECEDENTIAL” Public Act 11-44 section 104, effective July 1, 2011, provided that only a full return of transferred assets will affect a Medicaid penalty period. It provided that an institutionalized individual would not be penalized for the transfer of an asset only if the entire amount of the transferred asset is returned to the institutionalized individual. The partial return of a transferred asset would not result in a reduced penalty period. The statute required that if there had been multiple transfers to the same or different transferees, a return of anything less than the total amount of the transferred assets from all of the separate transferees would not constitute a return of the entire amount of the transferred assets.

The Act authorized DSS to review the circumstances under which the transfer and full return of an asset was made to determine the intent of the individual, his or her spouse or his or her legal representative. If DSS concluded that the purpose of the transfer and return of the transferred asset was to alter the start of the penalty period or shift nursing facility costs that may have been borne by the individual to the Medicaid program, the entire amount of the returned asset would be considered available to the individual from the date of the transfer. If the individual demonstrated to the department that the purpose of the transfer and its subsequent return was not to alter the penalty period or qualify the individual for Medicaid, the entire amount of the returned asset was to be considered available to the individual from the date of the return of the transferred asset. The conveyance and subsequent return of an asset for the purpose of shifting costs to the Medicaid program would have been regarded as a trust-like device and would be considered available for the purpose of determining eligibility.

The Act law defined an “institutionalized individual” as an individual who was receiving:

• Services from a long term care facility;
• Services from a medical institution that are equivalent to those provided in a LTC facility; or
• Home and community based services under a Medicaid waiver.

An email from Marc Shok, Adult Services Program Manager for DSS, to DSS-DL Eligibility Staff dated June 22, 2011 directed staff on how to apply PA 11-44 beginning July 1st. It provided, in part, “In addition, you will no longer need to recalculate the start of a penalty in most situations as we will count returned assets as available only from the point of the return forward, except when the return was planned as part of a Medicaid estate planning strategy…Since the new law is expected to discourage the types of transfer-and-return strategies we’ve encountered, counting returned assets as continuously available from the time of the transfer should become the exception under the new law. Please contact Adult Services for advice if you encounter situations where the return of assets appears to be planned as part of a Medicaid estate planning strategy designed to ultimately pass assets to others.”

This law to the extent it deemed transferred assets as “available” to the individual was in violation of Federal law as the Legislative Review Committee concluded in March 2009. This concept was rejected by the Regulations Review Committee as being in violation of federal Medicaid law. Twice, CMS advised DSS that its interpretation of federal law was wrong. In addition, it provided a disincentive to make a return of transferred assets where anything less than the entire transferred assets can be returned by the transferees. This would have resulted in providers not being compensated for their services.

Public Act 13-218 (effective July 1, 2013) amended CGS 17b-261a to now provide for a “Partial Return.” It provides that the transferee “may” return any portion of a transferred asset to the transferor, and that DSS “shall” adjust the penalty period “to the extent permitted by federal law” provided the ending date of the penalty period as originally determined by the department shall not change.” It further provides that the department shall consider the entire amount of the returned asset to be available to the transferor only from the date of return of the transferred asset, and shall not determine the transferor to be ineligible in the month the transferred asset is returned, provided the transferor reduced the returned asset in accordance with federal law. It repeals the section of Public Act 11-44 that authorized DSS to review the circumstances under which the transfer and full return of an asset was made to determine the intent of the individual, his or her spouse or his or her legal representative. It further amends CGS 17a-261a to provide that the conveyance and subsequent return of an asset made exclusively for a purpose other than to qualify for the payment of long-term care services under the Medicaid program shall not be regarded as a trust-like device.

During the same 2013 legislative session, Public Act 13-234 was passed effective October 1, 2013. Section 128 of this Public Act amended 17b-261 which now provides for a statutory cause of action for a nursing home facility against a transferor or transferee to collect a debt for unpaid care given to a resident who has been subject to a penalty period, provided (1) the debt recovery does not exceed the fair market value of the transferred asset at the time of transfer, and (2) the asset transfer that triggered the penalty period took place not earlier than two years prior to the date of the resident’s Medicaid application. This statutory action is in addition to all other rights or remedies a nursing home facility has. The nursing home facility must prove, with clear and convincing evidence that the defendant incurred a debt to a nursing home facility by (1) willfully transferring assets that are the subject of a penalty period, (2) received such assets with knowledge of such purpose, or (3) made a material misrepresentation or omission concerning such assets. The nursing home facility may be awarded actual damages, court costs, and reasonable attorneys’ fees. If the defendant successfully defends the action or a counterclaim the court shall award, as a matter of law, to the defendant court costs and reasonable attorneys’ fees.

Other Issues-Powers of Attorney/Tax Consequences

TRANSFERS MADE PURSUANT TO POWER OF ATTORNEYS

Durable Powers of Attorney

1. DEFINITION

General - A written instrument by which one person, as principal, appoints another as his agent, known as an “attorney-in-fact”, and confers upon him the authority to perform certain specified acts on behalf of the principal. 3 AmJur.2d, Agency, “Powers of Attorney”. An agent, including an attorney-in-fact, is a fiduciary within the scope of his or her agency. 3 AmJur.2d, Agency, “Powers of Attorney”.

No form is required for valid POA; however, CGS §1-42 - §1-56 authorize the creation of a statutory short form power of attorney which must in writing, duly acknowledged by the principal, and contain the exact wording:

\"In my name, place and stead in any way which I myself could do, if I were personally present, with respect to the following matters as each of them is defined in the Connecticut Statutory Short Form Power of Attorney Act to the extent that I am permitted by law to act through an agent:

(Strike out and initial in the opposite box any one or more of the subdivisions as to which the principal does NOT desire to give the agent authority. Such elimination of anyone or more of subdivisions (A) to (L) inclusive shall automatically constitute an elimination also of subdivision (M). To strike out any subdivision the principal must draw a line through the text of that subdivision AND write his initials in the box opposite).

(A) Real Estate Transactions; ( )
(B) Chattel and Goods Transactions; ( )
(C) Bond, Share and Commodity Transactions; ( )
(D) Banking Transactions; ( )
(E) Business Operating Transactions; ( )
(F) Insurance Transactions; ( )
(G) Estate Transactions; ( )
(H) Claims and Litigation; ( )
(I) Personal Relationships and Affairs ( )
(J) Benefits from Military Service ( )
(K) Records, Reports and Statements ( )
(L) All other matters. ( )

(Special provisions and limitations may be included in the statutory short form power of attorney only \"NOTICE: THE POWERS GRANTED BY THIS DOCUMENT ARE BROAD AND SWEEPING. THEY ARE DEFINED IN CONNECTICUT STATUTORY SHORT FORM POWER OF ATTORNEY ACT, SECTIONS 1-41 TO 1-56, INCLUSIVE, OF THE GENERAL STATUTES, WHICH EXPRESSLY PERMITS THE USE OF ANY OTHER OR DIFFERENT FORM OF POWER OF ATTORNEY DESIRED BY THE PARTIES CONCERNED.\"

CGS §45a-562 provides for the creation of a \"Durable\" POA wherein the subsequent disability or incompetence of the principal shall not revoke or terminate the authority of the attorney-in-fact acting under a POA if the POA contains the following language: \"This Power of Attorney shall not be affected by the subsequent disability or incompetence of the principal\" or words to that effect.

The subsequent appointment of a conservator of the estate of the principal or the death of the principal shall terminate the durable power of attorney.

1. C
2. UNDUE INFLUENCE FOUND IN TRANSACTIONS PURSUANT TO POA

a. presumption of undue influence arises in transactions, contracts, and transfers between persons in fiduciary relationships. The fiduciary relationship includes that of principal and agent. A written POA constitutes a formal contract of agency and creates a principal/agent relationship. Therefore, in transfers made by virtue of POA where the agent is the beneficiary, the presumption of undue influence will arise, and the presumption is against the attorney-infact.

The presumption imposes on the attorney-in-fact as the one receiving the benefit from the particular transaction, contract or transfer the burden of proving it was bona fide and not obtained by undue influence.

Accordingly, transactions and contracts may be avoided on the grounds of undue influence.

b. Rebuttal. The presumption of undue influence arising from transactions between those in fiduciary relationships may be rebutted by competent evidence. An attorney-in-fact has no power to make a gift of his principal's property unless that power is expressly conferred upon him by the instrument.

c. Ratification. Since such transactions made under undue influence are not ordinarily void but merely voidable, they may be ratified.

Clearly competence must exist at the time of the ratification in order to be operative. Since ratification of an unauthorized act is the equivalent of prior authority therefore, it must be done in the particular mode or form necessary to perform the act in the first place. The principles regarding the presumption of undue influence in self-dealing transactions by attorneys-in-fact manifest themselves in the Connecticut Department of Social Services Uniform Policy Manual, Transfer of Assets Chapter, Sections 3025 through 3028. Essentially, the regulations state that if a transfer of assets for the purposes of establishing Medicaid eligibility occurs within the applicable periods, the transfer will not cause ineligibility if the transfer occurred as a result of undue influence. However, if the Department makes a determination that undue influence or a breach of fiduciary duty has occurred, then a referral is made to the Resource Unit for investigation and/or possible action legal action and the possibility of recovery of the asset. In order to establish eligibility, the transferor, if competent, or the transferor's conservator, if the transferor if incompetent, must provide detailed information about the circumstances to the Department's satisfaction.

The transferor's cooperation is required if the Department initiates legal action against the transferee. The State may enforce an action such as the principal may have.

1. CONNECTICUT STANDARDS OF TITLE 6.5. The principles regarding POAs and undue influence are also reflected in the Connecticut Standards of Title Standard 6.5.

SPRINGING POWERS OF ATTORNEY

Public Act 93-203 provides that the Statutory Short Form Power of Attorney (CGS§1-43) may take effect upon the occurrence of a specified contingency, including 1) a date certain; or 2) the occurrence of an event, provided the instrument, requires that a person named in the instrument executes a written affidavit that such contingency has occurred. This type of springing power of attorney shall take effect upon the written affidavit of the person named in the instrument that the specified contingency has occurred. A common contingency is incapacity of the principal. An instrument containing an incapacity contingency should tie in to a definition of incapacity. The statutory standard for incapacity for an involuntary conservatorship of the estate may be used. Also incapacity as determined by the principal's attending physician may also be used.

It may be appropriate in certain cases to name someone other than the named attorney-in-fact to execute the affidavit establishing that the contingency has occurred. A Springing Power of Attorney is terminated by the appointment of a conservator of the estate.