THE MEDICAID LOOK-BACK: A TRAP FOR THE UNWARY
Applying for Medicaid requires applicants to follow very strict rules and guidelines for eligibility. Two recent Illinois Appellate Court cases highlight the need to strictly comply with Medicaid rules to avoid imposition of penalty periods.
A brief summary of Medicaid eligibility rules is helpful. A person is not eligible for Medicaid benefits until he has spent down his assets to $2,000 or less. At the time of application, the Department of Health and Family Services (the Department) will review all transfers made by the applicant within the past 5 years, and will impose a penalty period (that is, a period during which no Medicaid benefits may be paid) if the applicant has made any gifts or transfers of property for less than fair market value during that time. The value of the transfer or gift is divided by the monthly private pay rate at the nursing home to determine the number of months of the penalty period. For example, John Q. Applicant is in a nursing home with a private pay rate of $6,000 per month. John gave a car worth $12,000 to his son within the 5 years prior to filing his Medicaid application without getting anything in return. This transfer would not be allowed by Medicaid, and John would receive a penalty period of two months ($12,000/$6,000=2). The regulations provide that the ineligibility period begins at the time of the application when the applicant has spent down to his last $2,000.
Prepaid Funeral and Burial Contracts
Certain transfers of assets for value during the 5-year look-back period are allowable. A prepaid burial contract funded with an insurance policy is one such allowed transfer. The two recent cases involved the purchase of life insurance policies intended to cover funeral and burial expenses and the problems that may be encountered when the Medicaid rules are not exactly followed.
The basic facts as reported by the court in each case were the same. The Medicaid applicant purchased a life insurance policy for $12,000 which was then assigned to create an irrevocable trust. The terms of the trust provided that upon the applicant’s death, the trustee of the trust was to pay all funeral and burial expenses that were presented to the trustee within a certain period of time. If the expenses were not presented within the required time period, the trustee was prohibited from paying the funeral and burial expenses and the trust assets would be distributed to the children of the Medicaid applicant. In both cases, the Department found the Medicaid applicant had not actually executed a contract for funeral and burial services but had only received an estimate of the cost of services which was approximately equal to the life insurance benefits of $12,000.
In both cases, the Department imposed a penalty period of three months (the private pay rate in each case was approximately $4,000 per month) due to the disallowed transfer of $12,000. The court ruled that in order for the purchase of a life insurance policy to be an allowable transfer, the applicant must actually execute a contract with a funeral home for the provision of funeral and burial services. In addition, the insurance proceeds must be actually paid for funeral and burial expenses.
Partial return of gifts
Another issue raised in one of the recent cases involved the partial return of non-allowable gift that resulted in the imposition of a penalty period. The Medicaid applicant allegedly claimed that no penalty should be incurred because part of the gift was returned. The Court upheld the penalty period. At the time, Illinois did not have any rules about partial returns of gifts. The court stated that even if Illinois had such a rule, it would not be able to eliminate a penalty period due to a partial return, but could only prorate the penalty period.
The Illinois Administrative Code was amended in 2012 to provide for partial returns of gifts, and application of the new rule will depend on the specific facts of a case. You should seek appropriate Medicaid planning with the assistance of an attorney well in advance of the time benefits are needed to help reduce the chances of incurring penalty periods after applying for Medicaid. Consider consulting a legal professional if you or a loved one might be in need of Medicaid benefits now or in the future.
COMMERCIAL LEASE CASE SHOWS THAT DETAILS MATTER
Many landlord/tenant disputes begin when an element of the property is in need of repair. A lease should address whether the landlord or the tenant is responsible for such repairs. A recent Seventh Circuit Court of Appeals decision required the court to decide whether the landlord or tenant had to pay for repairs to a concrete floor in a large commercial building.
The court decision stated the following facts: The landlord/owner of the building leased it to a company that operated an air cargo handling business. The business required the use of 15,000 to 30,000-pound forklifts. The use of the forklifts quickly damaged the building’s concrete floors. Each party each felt that the other was responsible for repairing or replacing the floors, the estimated cost of which was very expensive.
The lease stated that the tenant was responsible for maintenance and repairs of “floors,” while the landlord was responsible for maintenance and repairs of the “foundation.” It was up to the court to determine whether the damage was to the floor or the foundation. Illinois principles of contract interpretation required the court to first look to the “plain and ordinary meaning” of the contract language. The court examined the dictionary definitions of floor and foundation in combination with the other terms of the contract to determine the parties’ respective repair responsibilities. Although the concrete slab functioned as both floor and foundation, the court found that the tenant was, in fact, responsible for the repairs because the damage concerned the slab’s use as a floor. It determined that the lease as a whole gave the landlord the duty to repair elements comprising the outer shell of the building (roof, foundation, exterior walls, etc.) while the tenant had to repair elements of the inner shell of the building (ceiling, floors, windows, etc.).
The court’s decision shows that even when parties extensively negotiate the contract terms, there can still be ambiguity about each parties’ responsibilities. This case shows how important it is to take care in the lease language used. Getting the assistance of an attorney can help minimize the chances that your lease will be subject to different interpretations resulting in disputes.
RESIDENTIAL REAL PROPERTY DISCLOSURES: BUYERS AND SELLERS BEWARE!
Sellers of residential property are required to provide the buyers with a disclosure report pursuant to the Residential Real Estate Disclosure Act (the “Act”). An Illinois case decided in March, 2014, clarified some of the rights and responsibilities for both buyers and sellers related to disclosure reports.
The required disclosure report contains multiple questions related to the condition of the property. In this case, the court reported that the seller allegedly failed to answer some of the questions, including one related to his knowledge of settling of the foundation. Further, he answered “no” to questions about his knowledge of material defects in the plumbing system or the condition of the walls.
Shortly after moving in, the buyers claimed there were major leaks in the basement shower and walls and foul odors coming from the furnace and air conditioner. They also claimed there were several cracks in the basement walls that had been covered with shelving and plaster. The buyers sued the seller for damages to repair the property, claiming that the seller violated the Act by filing a false and incomplete disclosure report.
The seller argued that the buyers waived their right to recovery by accepting an incomplete disclosure form. The court disagreed, stating that the Act requires sellers to complete the disclosure form. Allowing sellers to ignore that requirement would thwart the purpose of the Act, which is to provide a remedy for buyers of residential real property who suffer damages due to non-disclosed material defects in the home purchased.
In this case, the seller had reportedly made an insurance claim for cracks in the basement walls. Further, the court found that when the buyers contacted the seller about the shower leaks and foul odors, he advised them of the source of the problems and made suggestions for fixing them. The court decided that these actions proved that the seller had knowledge of the material defects, and that the buyer’s case against the seller could move forward.
Buyers should insist that the disclosure form required by the Act is completely filled out by the seller, and should obtain an independent inspection of the home prior to purchasing the home. Sellers can avoid future liability by truthfully answering all questions on the disclosure form. Being vigilant in following the early requirements of a real estate transaction may help prevent problems down the road for both parties.
"ASSUMPTION OF THE RISK” THEORY BARS HIRED MAN’S FARM ANIMAL INJURY CLAIMS
This rural community is home to many owners of farm animals, ranging from large farms and ranches with livestock or horses to individuals owning a few outdoor farm animals. The following facts as reported by the court in a recent case demonstrate the circumstances under which a farmer can be held liable for injuries to a hired man.
In the case, a young man was hired to care for farm animals while the owners were out of town. The worker had cared for the animals several times in the past. On those past occasions, the worker claimed to have been charged by and hit in the face by one of the animals; in this case, a llama. The llama had also pushed him into a wall of the barn.
The court noted that after the worker agreed to care for the animals on this occasion, the owners reportedly told him that the llama would not be penned but would be allowed to roam freely in the barn.
On the day he was injured, the teen arrived at the barn and noticed the llama was standing free in the barn’s hallway. The worker entered the barn and began to clean when he noticed the llama approach him. The worker claimed that he attempted to back away, but the llama charged him and bucked him over a fence as he was trying to escape, causing the worker to suffer a dislocated shoulder. The worker sued the owners, claiming that they violated the Animal Control Act and were negligent in not penning the llama.
As a defense, the owners reportedly asserted that the worker assumed the risk of being injured because he knew of the llama’s aggressive personality. Assumption of the risk is a defense that arises when the injured person’s conduct shows that he has consented to encounter an inherent and known risk. This conduct serves to excuse the defendant from exercising a duty to protect the injured person from harm.
In this case, the court concluded that the worker had, in fact, assumed the risk of injury and that the owners were not liable for his injuries. The court explained that the worker admitted the llama had been aggressive in the past and had injured him on previous occasions. In addition, the court found the worker knew that the llama would be free to roam while he cleaned the barn and cared for the other animals. Finally, the worker saw that the llama was in the barn and chose to enter the barn anyway.
The outcome of this case was based on its specific facts. However, it does apply to all livestock, not just llamas. Owners of farm animals do not automatically have an “assumption of the risk” defense. Concerns about claims related to animal injuries can be discussed with your attorney.
EMPLOYEE OR INDEPENDENT CONTRACTOR? 2014 UPDATE
The Illinois Employee Classification Act became effective in 2008. The Act is intended to prevent the misclassification of employees as independent contractors in the construction industry. Under the Act, all individuals performing services for a contractor are deemed employees of the contractor unless they meet very specific criteria showing that they are independent contractors. An employer who violates the Act by misclassifying a person as an independent contractor rather than as an employee faces stiff penalties.
Effective January 1, 2014, the Act was amended to 1) reduce its monetary penalties, 2) impose additional reporting requirements upon the hiring contractors, and 3) impose individual liability for officers or directors of the corporation for knowingly allowing an employer to misclassify a person hired to provide construction services.
Each taxable year, construction companies are now required to report the following information regarding individuals to whom payments were made for construction services but who were not classified as employees: 1) the construction company’s name, address and business identification number; 2) the payment recipient’s name, address and EIN; and 3) the total amount paid to the recipient during the applicable tax year. Failure to comply with these reporting requirements can subject the construction company to the same fines imposed under other sections of the Act.
The maximum fine for a first-time violation of the Act was reduced from $1,500 to $1,000 per violation (each day of noncompliance being a new violation). Subsequent violations within 5 years of the first violation carry a maximum fine of $2,000 (down from $2,500). Even the reduced fines can be substantial if the period of noncompliance is significant. Also more than one violation can result in a 5-year ban on the award of state contracts. Up to double the statutory penalties plus punitive damages equal to the penalties may be assessed for willful violations. A single willful violation is a Class C misdemeanor, and more than one willful violation in a five-year period is a felony.
Perhaps the most notable change in the Act is the imposition of individual liability on officers and agents of a corporation who knowingly permit an employer to misclassify employees in violation of the Act. If such persons are found to have violated the Act, they could be responsible for the penalties provided for under the Act.
Legal professionals can discuss concerns about properly classifying individuals as employees or independent contractors in the construction industry and can assist with structuring and documenting independent contractor relationships.
Ralph E. Elliott has served on the Board of Directors for the Freeport Community Foundation since January 2013, and also serves on its Marketing Committee. The Foundation administers endowed gifts given by local persons for its own fund and also the endowments of other local not-for-profit organizations. The funds are endowed funds, meaning that only the income can be used each year so the principal or original amount of the gift is preserved. The Foundation makes grants twice a year to local not-for-profit organizations. The grants are used for specific programs or projects for which the organizations might not otherwise have the funds.
Ralph also has the honor of serving as the chair of the Judicial Liaison Committee for the 15th Judicial Circuit of Illinois for the past two years, which is comprised of Stephenson, Jo Daviess, Carroll, Lee and Ogle Counties. The Committee makes recommendations to the circuit judges for changes to local rules and issuance of Administrative Orders and forms for use in the local courts.
Bridget Trainor is honored to be the 2014 Chair of the Freeport Area Chamber of Commerce Board of Directors. On March 13, 2014, the Chamber held its annual dinner, which proved to be its most successful to date with a sold-out crowd of 457 attendees. Bridget had the pleasure of addressing the crowd to give a brief “State of the Chamber” update, including the Chamber’s strategic planning efforts to create a path for continued future success. Our attorneys trace their continuous active involvement in Chamber governance back to 1982.
Legal assistant Heather Magee and her husband, Brian Magee, welcomed their son, Knox, into this world on March 20, 2014! Knox also joins his big sister, Veyah. We will miss Heather and wish her the best as she assumes her new role as a stay-at-home mother.
We are pleased to announce that Jessey Bozovsky joined the firm as a full-time legal assistant in January, 2014. Jessey brings a great attitude and administrative assistant experience to the office. Please welcome Jessey the next time you visit the office.
You can get other information and articles on our website at http://www.etpclaw.com. Please also visit Elliott & Trainor, P.C.’s LinkedIn and Facebook pages!
LAW NOTES is a publication of Elliott & Trainor, P.C., which is distributed free of charge to our clients and local business friends to provide news about developments in the law which may be of use. Nothing contained in this publication shall be construed as creating an attorney-client relationship with Elliott & Trainor, P.C., nor shall the content of this publication be considered as legal advice.