November 2011Volume 99Number 11Page 550

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Attention estate planners: new Medicaid asset transfer rules finally adopted

New state regulations, passed in response to federal requirements after years of delay, make it harder for nursing home care recipients to both shelter assets and stay eligible for Medicaid.

The DRA Medicaid regulations tease is over.

Elder law and estate planning lawyers around the state have been watching and waiting for the Illinois Department of Healthcare and Family Services to adopt regulations implementing the federal Deficit Reduction Act of 2005, PL 109-171 ("DRA 2005"), since the statute was signed into law on February 8, 2006. The statute required states to adopt those regulations no later than June 1, 2007, and, indeed, Illinois has issued at least two sets of proposed regulations over the last five years.

But many concerned groups, including ISBA members whose practices focus on elder law, registered strong concerns about the fairness of the proposals. Until just last month, as this issue of the IBJ was going to press, Illinois had not adopted final rules.

"The whole point of DRA 2005 as it related to long-term care was to restrict eligibility for Medicaid," the federal welfare program for medical assistance, said Quincy lawyer William Siebers. To receive approval for Medicaid benefits, an applicant's income and assets must be at or below certain limits. For that reason, lawyers have long advised elderly people entering nursing homes to employ strategic gifting and spending down of assets before submitting their applications for Medicaid.

Such strategies require planning and projections, because the federal government imposes a "lookback period" during which any assets given away or sold for less than fair market value are deemed to have been available for payment of expenses that otherwise would have been covered by Medicaid. Medi­caid eligibility is deferred for those applicants for the period that the applicants could have paid for their nursing home expenses with the assets transferred. DRA 2005 increased the lookback period dramatically from 36 to 60 months. 42 USC sec 1396p(c)(1).

Retroactive application

Organizations including ISBA's Elder Law Section Council, the Illinois chapter of the National Academy of Elder Law Attorneys, and the Task Force for Sen­ior Fairness, an organization cochaired by Aurora lawyer Diana Law and Chicago lawyer Kerry Peck and composed of around 25 lawyers from around the state whose practices include elder law, participated in discussions with lawmakers and IDHFS to work out the new regu­lations. Quincy lawyer William Siebers, who was involved in the negotiations as a member of the task force and who, with Law, is preparing an in-depth analysis of the regulations for IBJ, explained and reviewed some highlights.

"The major issue was how are we going to implement these rules in a way that's fair for Illinois seniors five years after it's been mandated at the federal level," said Siebers. "There was a lot of concern about the retroactive application of the law."

The new rules will be effective Janu­ary 1, 2012. Key provisions addressing advocates' concerns about fairness, Siebers said, include those regarding waivers of the lookback penalty period for undue hardship.

Under subsection (r) of section 120.388, Property Transfers Occurring On or After January 1, 2007, an undue hardship will be found to exist when application of a penalty would deprive an institutionalized person either of medical care, so as to endanger the person's health or life; or of food, clothing, shelter, or other necessities of life. Additionally, under that section, applicants who attest that they relied on the rules in effect before November 1, 2011, in making transfers that otherwise would be penalized will be granted hardship waivers.

Siebers said the regulations also change the treatment of annuities for Medicaid eligibility, requiring the state to be named as remainder beneficiary up to the amount expended on care for the senior, and place a $750,000 cap on the amount of homestead property that will be deemed exempt from availability for payment of medical expenses. While that sum may seem large to many in the state, "that figure matters to those in the urban areas and also for downstate folks like farmers. The homestead is defined as the principal residence plus all contiguous land, whether two, 20, or 200 acres of farmland," Siebers said.

Though DRA 2005 and its associated regulations are still subject to much criticism - see, for example, Illinois attorney Catherine M. Reif's article, "A Penny Saved Can Be a Penalty Earned: Nursing Homes, Medicaid Planning, the Deficit Reduction Act of 2005, and the Problem of Transferring Assets" in the New York University Review of Law and Social Change, vol. 34, no. 2 (2010), available at - "the end result of the negotiations is a set of rules that will be fairly administered and not unduly harmful to senior citizens in Illinois," Siebers said.

At presstime, the rules were awaiting publication in the Illinois Register, whose archive is available online at

Helen W. Gunnarsson is a lawyer and writer in Highland Park. She can be reached at <>

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