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Effective: August 1, 2007 |
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19.40.25ar2 - Determining Uncompensated Value (Archive) |
Archived: October 1, 2007 |
This section elaborates on the policy used to determine if a client has received adequate compensation for a transfer of income or assets. Transfers that did not receive adequate compensation must have a transfer penalty determined. The value used to determine the penalty is the uncompensated value.
Determine the uncompensated value of an improper transfer made during the appropriate look back period.
Purchase of Promissory Note, Loan or Mortgage.
There are no transfer provisions for MinnesotaCare or GHO.
To determine the uncompensated value of:
l An annuity, see Annuity Transfers.
l A life estate, see Life Estates - Transfers or Purchase of Life Estate.
l A trust, see Trusts – Transfer into a Trust.
l The purchase of a promissory note, loan or mortgage, see Purchase of Promissory Note, Loan or Mortgage.
To determine the uncompensated value of all other transfers follow these steps:
1. Determine the fair market value (FMV) on the date the transfer took place.
2. Subtract all encumbrances (money owed) on the asset at the time of transfer.
3. Subtract any compensation received by the client.
n Count services provided to the client as compensation if:
m The care or services directly benefited the person.
m The amount of compensation was reasonable, meaning it is consistent with a charge for a similar service performed in the community.
n If a relative provided the care, require a notarized written agreement signed and dated by the parties involved on or before the start date of the care/service. The agreement must include all of the following:
m An itemized list of services provided.
m The time allocated for each service.
m The period of time the agreement covers.
Exception: Do not require a notarized statement if the payment for the care or service to the relative is made within 60 days after the care/service was provided.
n A notarized statement is not required if a non-relative provided the care.
Purchase of a Promissory Note, Loan or Mortgage
For information on how to determine if the purchase of a promissory note, loan or mortgage is an improper transfer see Purchases as Transfers.
Follow these steps to determine the uncompensated value for these types of transfers:
1. Determine the life expectancy of the purchaser based on the gender and age of the purchaser on the date of purchase using the Annuity Life Expectancy Table.
2. Determine the annual payment amount. Multiply the amount of each payment by the number of payments in a year to get the total annual payment.
3. Determine the expected return value of payments that will be received in the lifetime of the purchaser. Multiply the total annual payments (Step 1) by the life expectancy figure.
4. Subtract the expected return value from the purchase price to get the uncompensated value.
5. Subtract payments the purchaser has already received from the uncompensated value. This is the amount of the transfer.
Example:
Josiah, age 75, applies for MA on August 15, 2006. He was placed in an LTCF on August 10, 2006. At application Josiah reported purchasing a contract-for-deed from his brother on July 18, 2006. He purchased the contract for $150,000 and will receive a $550 monthly payment. The contract is not actuarially sound.
Action:
Determine the uncompensated value:
1. Josiah’s life expectancy is 9.58 years, based on the Life Expectancy Table for a man age 75.
2. The annual payment amount is $6600 ($550 monthly payment X 12 months).
3. The expected return amount based on Josiah’s life expectancy is $63,228 ($6600 annual payment amount X 9.58 years – Josiah’s life expectancy).
4. The uncompensated value of the purchase is $86,772 ($150,000 - $63,228).
The uncompensated value for the purchase of a life estate interest in another person’s home is the purchase amount. For more information on determining whether this type of purchase is an improper transfer see Purchases as Transfers.
Note: Do not reduce or prorate the purchase amount to reflect the time spent as a resident of the property if the residency is for less than 12 consecutive months.
Example:
Lucia purchases a life estate interest in her son’s home on July 5, 2006 for $100,000. She moves in the next day but is admitted permanently to an LTCF on August 15 after a car accident. She applies for MA on August 17.
Action:
The purchase of the life estate interest is considered an improper transfer because Lucia did not live in the home for 12 consecutive months. Count the entire purchase amount of $100,000 as the uncompensated value.