Monday, May 22, 2017

How to Deduct Long-Term Care Costs

Long-term care can be very expensive. Can you deduct the costs on your income tax return?
What is Long-Term Care?
“Long-term care” refers to the ongoing personal assistance you need when you have a prolonged physical illness, disability or severe cognitive impairment (such as Alzheimer’s disease). It may involve help carrying out basic self-care tasks, such as bathing, dressing or eating, which are called “Activities of Daily Living” (ADLs). And you may need assistance with “Instrumental Activities of Daily Living” (IADLs), including meal preparation, money management, house cleaning, medication management, and transportation.
The long-term supportive care may be provided in various settings including the care recipient’s home, a personal care facility, or a nursing home.  
Long-term care is expensive. The cost can quickly wipe out the financial resources of the care recipient.. Being able to deduct the cost of care to reduce income tax liability can help preserve funds and extend the taxpayer’s ability to meet future needs.  
Are Long-Term Care Expenses Tax Deductible?
Section 213 of the Internal Revenue Code allows for the deduction of unreimbursed medical expenses paid by a taxpayer for himself, spouse, and dependents to the extent that the expenses exceed 10% of the taxpayer’s adjusted gross income. Medical expenses are somewhat broadly defined to include costs like dental expenses, medical equipment and supplies, the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care.  Medical expenses are not deductible if they are reimbursed by insurance.
You can generally deduct medical expenses either when the services were provided or when you paid for them. If the care recipient has died IRC 203(c) allows medical expenses which are paid out of the taxpayer’s estate within a year of death to be treated as paid by the taxpayer at the time incurred.
Medical expenses generally include the unreimbursed cost of care in a hospital or skilled nursing facility if a principal reason for being there is to get medical care. This includes the cost of meals and lodging. 
But what about expenses incurred for long-term care provided by non-medical personnel at the recipient’s home or in a personal care home or assisted living facility? Can these expenses be deducted? The answer may be yes, depending on the situation and the taxpayer’s compliance with certain requirements of the Internal Revenue Code.
Section 322 of the 1996 Health Insurance  Portability and Accountability Act (HIPAA) allows taxpayers to include amounts paid for “qualified” long-term care services (QLTCS) as deductible medical expenses.
What Are Qualified Long-Term Care Services (QLTCS)?
QLTCS are defined in Internal Revenue Code Section 7702B(c) as follows:
(c)Qualified long-term care services For purposes of this section—
(1)In general The term “qualified long-term care services” means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which—
(A) are required by a chronically ill individual, and
(B) are provided pursuant to a plan of care prescribed by a licensed health care practitioner.
(2)Chronically ill individual
(A)In general The term “chronically ill individual” means any individual who has been certified by a licensed health care practitioner as—
(i) being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity,
(ii) having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or
(iii) requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
Such term shall not include any individual otherwise meeting the requirements of the preceding sentence unless within the preceding 12-month period a licensed health care practitioner has certified that such individual meets such requirements.
(B)Activities of daily living For purposes of subparagraph (A), each of the following is an activity of daily living: (i) Eating. (ii) Toileting. (iii) Transferring. (iv) Bathing. (v) Dressing.(vi) Continence.
 (3)Maintenance or personal care services
The term “maintenance or personal care services” means any care the primary purpose of which is the provision of needed assistance with any of the disabilities as a result of which the individual is a chronically ill individual (including the protection from threats to health and safety due to severe cognitive impairment).
(4)Licensed health care practitioner
The term “licensed health care practitioner” means any physician (as defined in section 1861(r)(1) of the Social Security Act) and any registered professional nurse, licensed social worker, or other individual who meets such requirements as may be prescribed by the Secretary.
Jeff’s Analysis
Can you deduct long-term care expenses? Frequently, the answer is yes. It’s not easy, but it may be well worth the effort.
Expenses paid to non-medical personnel for care provided at home or in a personal care home or assisted living facility can be tax deductible if they meet the QLTCS rules.  Internal Revenue Code Section 7702B(c) establishes a number of requirements that must be met in order for an expense to be a deductible QLTCS.
  1. The services must be necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later), that are 
  2.  required by a chronically ill individual, and 
  3.  provided pursuant to a plan of care prescribed by a licensed health care practitioner. [Emphasis added]

Maintenance and personal care services. Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). [Note that this covers personal assistance provided by non-medical personnel.]
Chronically ill individual. An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.
1.   He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence, or
2.   He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Annual Certification. An individual is not a chronically ill individual for tax purposes unless within the preceding 12-month period a licensed health care practitioner has certified that such individual meets such requirements.
Licensed Health Care Practioner.  A physician, registered professional nurse, or licensed social worker/
The caregiver providing the QLTCS need not be a licensed healthcare professional. In Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from severe dementia and her doctor recommended that she get 24-hour-a-day care. Her brother hired personal caregivers to assist her. The Tax Court agreed that the payments to the caregivers were deductible medical expenses, even though the caregivers were not medical personnel, because a doctor had found that the services provided to Ms. Baral were necessary pursuant to the plan of care he was prescribing.
Deducting the cost of QLTCS (or any medical expenses) requires good bookkeeping. IRS regulations provide for substantiation of medical deductions: “In connection with claims for deductions under section 213, the taxpayer shall furnish the name and address of each person to whom payment for medical expenses was made and the amount and date of the payment thereof in each case.” 26 CFR 1.213-1(h). [Emphasis added]
In addition, each year you should get a new written certification from a licensed health care practitioner that the care recipient is a chronically ill individual. I also suggest that you consult with your tax advisor and elder law attorney to make sure you are complying with all the deduction requirements. On the taxpayer's 1040 deduct the expenses on Schedule A.
Additional Information:
Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011)

Thursday, May 18, 2017

Are You Liable for your Mother's Unpaid Nursing Home Bills?

[Can you be held financially responsible for your parent's unpaid hospital, nursing home, and other care costs? In some states the answer is yes. Here is an article on the subject written by Elizabeth White, Certified Elder Law Attorney* with Marshall, Parker and Weber. It is based on the current law in Pennsylvania.]
As an elder law attorney, I am often asked this excellent question: “If I cannot pay for my nursing home care, is my child required to pay my unpaid bills?”
In Pennsylvania, the answer to that question is “Yes”. However, there is a “But” that I will explain after I elaborate on the “Yes”.
The “Yes” part of my answer comes from a law in Pennsylvania called a Filial Support Law. The law states that a child is responsible for the care or the cost of care for their indigent parent.
The filial support law can be used by a parent to sue a child for care and support. It can also be used by facilities, such as nursing homes, to sue children to collect unpaid bills for their parent’s care. This happens frequently.
There are a few exceptions built into the law. One is for a child who was abandoned by their parent for at least 10 years of their minority. The second is for the child who does not have sufficient financial ability to support the indigent parent. However, the threshold for being deemed to have the financial ability to support a parent has been set very low. Courts have held children financially responsible to pay for their parent’s care even though the children have their own families to support as well.
When is your parent considered to be “Indigent?” There is no definition of indigent in the law, but courts have determined that a person is indigent if they have insufficient means to provide themselves with the care and support that they need.
The law imposes the filial responsibility on children even when there is no claim of financial wrongdoing by a child. Further, when there is a situation of a transfer of a parent’s assets to a child or another party, the law can be applied to any of the children, not just the child who benefited from the transfer.
In a family with more than one child, just being the “good” child does not shield you from liability. For example, assume that there are two children in the family and one child transfers his mother’s home or funds to himself (“bad” child). This kind of transfer can create a lengthy period during which Mom will be ineligible for certain government nursing home benefits. Unpaid bills can result. Under the support law the other child (“good” child) can be held solely responsible for the payment of the care costs for the indigent mother, even if the “good” child was unaware of and/or did not benefit from the transferred funds.
Finally, an explanation of the “But” part of the answer. The “But” is that proper planning can prevent a child from becoming personally responsible for the cost of their parent’s care. If correct planning is completed, there are programs, such as Medical Assistance and Veterans benefits, for which a parent may be able to qualify. These benefit programs can help pay for nursing home and other care costs. With this kind of expert planning in place the parent’s care costs get paid and children don’t end up getting sued.
* Elizabeth White has been Certified as an Elder Law Attorney by the National Elder Law Foundation

Monday, April 24, 2017

Concerns Raised about Aging Department Consolidation

Pennsylvania legislators are currently considering Governor Wolf’s proposal to merge four Pennsylvania human service agencies. The Governor would like to consolidate the current Departments of Aging (PDA), Drug and Alcohol Programs (DDAP), Health (DOH), and Human Services (DHS) into a unified Department of Health and Human Services (DHHS).  
In recent weeks legislators have heard testimony from Wolf Administration officials offering support for consolidation, and from groups and individuals who expressed various degrees of opposition. Many of the concerns relate to the impact of the merger on the Department of Aging.
The Pennsylvania Department of Aging (PDA) has a 40 year history in Pennsylvania. In 1973 an amendment to the federal Older American’s Act required states to establish Area Agencies on Aging (AAAs) to provide programs and services for older adults. In response Pennsylvania established a network of county or non-profit based local agencies. In 1978 the Legislature established the PDA as a cabinet level position.
The PDA currently has 117 employees. The agency coordinates and funds a broad range of programs and services that benefit older (age 60 and over) Pennsylvanians and their families and caregivers. Most of these services are made available through the 52 local AAAs. About 2/3rds of the PDA funding to local AAAs comes from the Pennsylvania lottery.  
The Wolf Administration states that consolidation of PDA with other human services agencies makes sense “in order to promote more effective collaboration and service delivery, enhance program effectiveness, and eliminate duplicative processes.” Seniors could benefit from having a single agency as their point of contact for state provided health and human services. The hope is that consolidation will reduce complexity and confusion for seniors and individuals with disabilities by providing one door to needed services instead of several. Consolidation has the potential to reduce red tape for providers. And it should result in modest, but ongoing cost savings. For more on the Administration’s rationales, see the Governor’s press release here. And the Administration has posted updated information on its "unification" proposal here.
Many organizations across the state have expressed reservations about the merger of the PDA into the new DHHS super-agency. Organizations testifying about concerns with this aspect of the proposal have included the PA Association of Area Agencies on Aging (P4A), the Center for the Advocacy for the Rights and Interests of the Elderly (CARIE), the Southwestern Pennsylvania Partnership for Aging (SWPPA). The Pennsylvania Association of Elder Law Attorneys, of which I am a past President, has come out against including the PDA in the consolidation. A number of legislators have also expressed reservations.
Here are some of the concerns being raised:
Loss of a cabinet level voice advocating for seniors. Since 1978 Pennsylvania seniors have had cabinet level representation. As expressed by House Aging and Older Adult Services Chairman Tim Hennessey at a House Appropriations Committee meeting: “What position do you think would be the most effective advocate for the elderly: a cabinet secretary sitting beside other cabinet secretaries with the governor; or a deputy secretary three levels down from the governor, as the consolidation plan proposes?”
Buried in Bureaucracy. Aging may get lost in the large DHS dominated super-agency bureaucracy. It could get “buried in bureaucracy” according to Representative Gene DiGirolamo, chair of the Human Services Committee. Aging has only 117 employees compared with the 17,000 total projected employees of DHHS.  
Potential reduction in lottery funding. As we often see noted in its advertising, proceeds from the Pennsylvania lottery go to support programs benefiting older residents. The PDA and AAAs use lottery funds for senior centers and meals, low cost prescription assistance (PACE and PACEnet), transportation, property tax and rent rebates, home and community based services and other care related services. They fund education and outreach activities, ombudsman services, protective services, family caregiver supports, the nursing home transition program and the OPTIONS program.
Approximately 78 percent of PDA funding comes from the Pennsylvania Lottery with the other 22 percent being derived from federal funds. The lottery funds are used by the PDA and AAAs to benefit older adults who are not on Medicaid. As described by Rebecca May-Cole, Executive Director of P4A, “the typical senior receiving services through an AAA is a 79-year-old widowed female living just above the poverty level; she is not eligible for Medicaid, but also has a very limited income.”
But lottery funds can also be distributed to the Department of Human Services and used to fund the state’s share of the cost of Medicaid long term care services. In other words, the lottery funds can be used to replace General Funds. The fear is that after consolidation lottery funding will be diverted from the PDA and AAAs to DHS and used reduce state General Fund outlays for Medicaid.
“If it ain’t broke, don’t fix it.” As noted by Chairman Hennessey there is no need to include the PDA in the DHHS merger because PDA already functions smoothly. DHS, on the other hand, has a recent record of failure with its assumption of handling enrollment in the Aging Waiver program. In 2016 the enrollment functions of the PDA Waiver program were removed from AAAs and outsourced by DHS to a private company. The transition was poorly implement and the failure has delayed critically needed services for untold numbers of seniors. This recent misadventure casts doubt on the ability of a DHS controlled super-agency to oversee PDA functions.  
Conflicts of Interest: There are potential conflicts of interest in having one super-agency (DHHS) handling federally funded programs which require separation of function. For example, is it appropriate to have the Long-Term Care Ombudsman Program (currently a PDA function) housed with the same agency charged with nursing home licensing and enforcement? Would this violate the federally mandated independence of the Ombudsman?  
Lack of Stakeholder Input: The consolidation proposal was developed without meaningful external stakeholder input.
Lack of adequate study: There has been no study to determine if the consolidation makes sense. More study should be required before moving forward with its implementation.
For all of these reasons legislative approval of the proposed consolidation seems to be in doubt. We may learn its fate in the next few months. If you want to provide your legislators with your opinion on the merger you can find their names and contact information here.  
A video of the April 17, 2017 Joint House Aging and Older Adult Services, Health, and Human Services Committees hearing on the consolidation is available here.

Saturday, April 15, 2017

What is the difference between a health-care power of attorney and a living will?

There is a lot of misunderstanding about living wills and health care powers of attorney. Even health care professionals can be confused. Here is my explanation of the major differences between these two forms of health care directive. 
If you are medically competent you get to make health decisions for yourself. But a problem arises if you are not competent to make your own decisions. In that case, who decides, and what can you do to make sure the decisions will be consistent with your intentions?That is where advance health care directives come in.
Two notable advance health care directives are the health care power of attorney and the living will. You can use these documents to help ensure that you always get the kind of health care treatment you want even if you are unable to speak up for yourself.
What are the differences between these two documents? Do you need to have both?
What is a health care power of attorney?
A health-care power of attorney authorizes another person to make health-care decisions for you when you cannot make them yourself. The person you choose is called your health care agent.
The document must be signed by you while you are competent. In it you can describe the types of treatment that you would and would not want to receive at the end of your life. But you do not have to do so. The document can give your agent the authority to make any and all health-care decisions you could make, if you were competent. It is important to note that the health care power of authority is only stand-by authority. You will continue to make decisions for yourself as long as you can do so.
What is a living will?
A living will is a written declaration that instructs your doctor regarding the use, withholding or withdrawal of life-sustaining treatment if you are terminally ill and lack the capacity to make decisions. A living will directs your doctor’s actions when the use of life-sustaining treatment would serve only to postpone the moment of death or maintain you in a permanent unconscious state, but would not provide a cure for the condition.
A living will applies only in the limited situation where you have an end-stage medical condition or are permanently unconscious. It is not relevant to other circumstances.   
Under Pennsylvania’s living will statute you may appoint someone to make decisions regarding life sustaining treatment for you if you are ever both incompetent and either terminally ill or permanently unconscious. This person is called a surrogate.
What is the difference between a health-care power of attorney and a living will?
One significant difference is that the health-care power of attorney is much more broadly applicable. A living will comes into effect only when the issue is whether to use a life-sustaining treatment to postpone the moment of death or maintain you in a permanent unconscious state. In that limited circumstance, a living will gives instructions regarding life-sustaining treatments. 
A health care power of attorney is not limited to terminal illness situations but can be used to address the broad range of health-care decisions that may arise whether you are terminally ill or not. 
Both documents allow you to select someone else to make decisions for you when you are unable to do so, but with a living will that person can only act if you are terminally ill. 
A living will forces you to anticipate the circumstances that will arise in the future and give your instructions before you have knowledge of your specific medical situation. A health care power of attorney can provide for better informed decisions because it allows your agent to evaluate the specific situation that has arisen and make a decision based on the actual circumstances.
Should I have both documents?
Ideally your advance directive will include guidance as to the medical treatments you would want to refuse in specific situations, and will name a person to make decisions for you in other situations or if your intentions are not clear. You can set forth your desires on these related but separate issues in separate documents if you wish, but it is also possible for you to combine your living will instructions and health care power of attorney appointment in one document.
It makes sense to use only one document so that health care professionals can find all of the relevant information in one place, and your health care agent will be fully aware of your specific instructions. I suggest that the best document for most people is a health care power of attorney that also provides some instructions regarding the use of life sustaining treatment in the event of your terminal illness.

I personally have just one document – a health care power of attorney. It gives my agent wide discretion in making decisions for me, including treatment at the end of my life. And I have talked to my agent and other family members about my philosophy towards end of life care. That communication is a key element in helping ensure that the appropriate decisions will be made for me.