Financial planning is essential to dealing with long term nursing home care costs. It is clear that the more directly and the earlier that you confront the issue, the more likely you will be able to make the right choices.?Further, your sense of being able to control your destiny will be enhanced and you will be more likely to be pleased with your decisions.
The first step in planning is to determine your net worth.?If you have not done so, begin a financial statement of what you own (and the form in which it exists) along with what you owe (and the nature of those obligations).?The surplus of difference between the two is your net worth. Assets include: cash, whole life insurance policies (which have cash surrender value), stocks and bonds, some types of annuities, pension accounts, real estate, notes and accounts receivable, cash value of business, household goods and automobiles.?Liabilities, or what you owe, usually take the form of accounts payable, promissory notes, credit card balances, mortgages, claims against you or your estate, and unpaid taxes.?Determining your net worth gives you a logical starting point from which you can plan your financial future. In addition, you need to calculate your total income, including wages, social security benefits, pension payments, annuity payments, and interest or dividends produced by your assets.
For Medicaid qualification purposes, assets are separated into three different categories: “countable,” “non-countable,” and “inaccessible.” Countable (vulnerable) assets are things that you must reduce to the resource eligibility limit (which is near $2000 in Oregon) before Medicaid assistance is made available to you. Such assets include: cash, stocks, bonds, individual retirement accounts (IRA’s), certificates of deposit (CD’s), some annuities, investment property, the sacrifice value of whole life insurance, vacation and rental homes, second vehicles, and all other assets not specifically listed as non-countable.
Non-countable assets are exempt; you are not required to reduce or eliminate these assets before applying for Medicaid assistance.?These items can be worth hundred of thousands of dollars but the government has chosen not to count them in determining eligibility for Medicaid. Non-countable assets include: a primary residence (as opposed to a vacation or second home), provided that the applicant intends to return to the home or a spouse, dependent child, an adult disabled child, or a sibling who has an equity interest in the home continues to live in the home; household goods and personal effects; wedding and engagement rings; one automobile; burial plots and irrevocable pre-need burial contracts (within certain limits); term life insurance policies (since they have no cash surrender value); cash surrender value of whole life insurance policies (if the combined face value of all the policies owned by an individual is below a certain value); and a minimal amount of certain income-producing property.
Inaccessible or unavailable assets are those assets which you have no legal ability to use or dispose of or cannot be liquidated.?Assets can also be made “unavailable” by giving them away.
The states are reimbursed for approximately 50 percent of their Medicaid expenses by the federal government. The federal government says that if a single person is in a nursing home for more than six months, the state has a right to terminate the non-countable status of the person’s residence and require the sale of that property to pay for the nursing home expenses.
Either you can afford to pay a nursing home indefinitely, so you do, or you cannot afford to pay, so Medicaid does when the eligibility requirements are met.?Obviously, you have the right to protect the assets you have worked throughout your lifetime to obtain.?There are many legal methods to protect your life savings.
Single persons have even less control over their assets than do married people.?The Spousal Impoverishment Act did more than any other legal action to ensure some sense of financial stability for married senior citizens.?Medicaid has changed its treatment of marital assets with the enactment of the Spousal Impoverishment Act.?Knowing about the Spousal Impoverishment Act offers some hope to one spouse when the other enters a nursing home.?No longer can a nursing or assisted living facility insist that all the joint assets be used to pay for the care of the ill spouse.
Here is the manner in which Medicaid eligibility is determined with respect to resources in a nutshell:?On the first day a spouse is institutionalized for a continuous period of 30 days (usually the date the spouse goes into a hospital or directly into a nursing home), the Medicaid representative takes a “snapshot” of all the countable assets the couple possesses.?The at-home spouse (the “community spouse,” for Medicaid eligibility purposes) is allowed to keep all the exempt or non-countable assets plus at least half of the total amount of the countable assets owned by either spouse on the snapshot date, within specific limits.?The federal guidelines for the year 2007 say that the spouse must be allowed to retain the first $20,328 of the couple’s total assets and no more than $101,640, if the couple’s countable resources total $203,280 or more on the snapshot date. The Oregon state minimum amount that the institutionalized spouse can have and qualify for Medicaid is approximately $2000.
If you believe one of the common myths that the institutionalized spouse’s share of the countable resources must be “spent down” on his or her nursing home care you will end up spending much more on nursing home care then necessary.?For example, if you and your spouse have $300,000 in common resources, the spouse remaining in the community would be allowed to retain $101,640 , the spouse in the nursing home could retain $2,000 (for a total of $103,640), and the remainder of $196,360 would have to be spent before the spouse in the nursing home can become qualified for Medicaid.?The at-home spouse could choose to spend this entire amount on the cost of the nursing home medication, and incidentals, or the community spouse could convert the $196,360 into exempt resources or purchase items for his or her benefit.
Here is the manner in which Medicaid eligibility is determined with respect to income in a nutshell:?The at-home spouse is permitted to keep all of his or her salary if working, all social security benefits, and all other income derived from any source.?If the spouse in the community receives less that the Minimum Monthly Maintenance Needs Allowance (“MMMNA”), which must be at least $1,650 (as of July 1, 2006), the at-home spouse will be entitled to keep a portion of the institutionalized spouse’s income (a Monthly Allowance or “MIA”) and, under certain circumstances after a hearing has been requested, a greater portion of their joint assets. The institutionalized spouse may have no more then approximately $2,000 in monthly income. If the institutionalized spouse has greater income levels that cannot be converted into the income of the at-home spouse, an irrevocable “Income Cap Trust” may be utilized to qualify the institutionalized spouse for Medicaid benefits.
Adopting a Medicaid planning strategy that fits your needs is the best way to preserve your estate, for your well being and that of your family members.?More planning options are available to you if you begin the planning process before the first date of continuous institutionalization (i.e., the “snapshot date”).?As an example, assets can be used to purchase an annuity with a specific payment schedule and which meets other criteria, to produce income for the at-home spouse.
Before you consider an attempt to protect you assets by moving them from countable or vulnerable status to non-countable or protected status, there are two important points to consider.?The first major point to consider: If you transfer countable assets for less than fair market value within 60 months of applying for Medicaid (known of as the “look-back period”), it will be presumed that the transfer was made for the purpose of obtaining Medicaid coverage for the institutional care.?A period of restricted eligibility is imposed for this type of transfer.?The number of months of restricted eligibility is equal to the value of the property transferred divided by the average monthly cost of the nursing home care.?For example, if you transferred $60,000 to your children and the average cost of nursing home care is $5,000 per month, you would be ineligible for Medicaid benefits for nursing home care for a period of 12 months. The period of restricted Medicaid eligibility will now begin when the individual is otherwise eligible for Medicaid, instead of beginning when the first gift was made.
Under old law, the period of restricted eligibility started with the month in which the transfer was made.?Under the new law, the penalty period will start when an individual would otherwise be eligible for Medicaid.?Under the current law, an individual who transferred some funds within five years of applying for Medicaid and spent down his or her remaining funds appropriately, will still not be eligible for Medicaid when his or her funds (or if married, the couple’s funds) are spent down to below the asset limit for eligibility for Medicaid. There will be some exceptions and protections against “undue hardship” for individuals who are ineligible for Medicaid and cannot pay for their care, but the criteria for the exceptions may be very hard to meet.
Some asset transfers will remain exempt and do not result in a period of ineligibility.?Transfers to a disabled child or to a trust solely for the benefit of a disabled child are exempt transfers. Transfers of the house to a child who has resided in the home for at least two years immediately prior to the date of institutionalization and who has provided a level of care sufficient to keep the parent out of a nursing home during the two year period is also exempt.
The second major point to consider: You need an attorney who is familiar with the issues and decisions that concern you. Just as you would see a doctor for his or her medical knowledge and the treatment he or she would advise, so should you see a lawyer for his or her legal knowledge and the guidance he or she can offer you.?Do not base your planning solely on the experiences of your neighbors or friends (other than perhaps to learn the consequences of not planning for your future); your financial situation can be as unique and different from theirs as your physical condition is. Therefore, financial advice and planning recommendations must be based on your unique set of circumstances and objectives.
The primary goal in planning for Medicaid benefits is: (i) to take countable assets and spend them for the benefit of the community (at-home) spouse; (ii) to move countable assets into the non-countable or inaccessible status; and (iii) to convert countable assets into income of the at-home spouse.?Remember, Medicaid looks at the assets of both spouses regardless of how the assets are titled.
There are two major options for transferring countable assets (in particular, money) to your children: (i) giving outright gifts or transfers if the gift is made at least five years prior to the date of application for Medicaid; or (ii) paying children compensation for their help pursuant to a written agreement.
The advantage of making gifts to your children is that the transfer is simple to accomplish. You should consult with an attorney regarding the gift and estate tax implications of transfers.?The disadvantage is that you lose control.?A gift to your child means that the funds transferred belong to them, no matter what promises they may make to keep the funds intact during your lifetime.?The funds are vulnerable in the event of a child’s divorce, a lawsuit, bankruptcy, or the child’s decision to simply use the funds for him or herself.?One way to create protection against these possibilities after an outright transfer of assets to your children is for your children to establish a trust.?You could not, however, force your children to establish the trust if they changed their minds after you gave them the money.
You can pay your children for their services without worrying about the transfer prohibition rules if the payments are reasonable and made pursuant to a written agreement. You cannot pay $1,000 for two trips to the grocery store; the payments must be reasonable.?You must maintain documentation of the services provided and you should not pay any more for a family member’s services than you would if you had to hire someone to provide the same type of care and assistance.
An additional method to protect your assets is to change those that are countable into money and put that money in exempt assets: a residence, improvements to your existing residence, household goods, personal effects, a car, or property producing income for support. In spite of this protection for exempt assets, remember that the healthy spouse could die before the nursing home patient.?If the nursing home patient is the beneficiary of the healthy spouse’s will or trust (which is very common), almost the entire estate including previously exempt assets must be spent on nursing home care before Medicaid benefits will resume.
A couple’s home is an exempt asset regardless of the value; as such, it constitutes somewhat of a loophole in the Medicaid system.?It makes no difference whether a house is worth $40,000 or $250,000 – it is protected from the reach of a nursing home if there is a spouse or dependent child living there (A single person may have a disadvantage here).?Accordingly, you may want to purchase a more expensive home or upgrade your existing residence. Household furniture and furnishings, a car, and personal effects are also protected, offering another good method for sheltering assets. For example, jewelry and paintings may be worthwhile investments that add beauty and protect assets at the same time.
Purchasing an irrevocable annuity is a permissible way to change countable assets into an income system. As long as the annuity is irrevocable, actuarially sound, and is for a term of years less than the individual’s life expectancy, purchase of the annuity is considered a transfer of value. The monthly annuity payments are used towards the cost of nursing home care, but if the person dies before the expiration of the term, the spouse and then the state must be designated as the beneficiary of the annuity.
Second cars, business interests, and vacation homes are not considered protected assets. However, they can be transferred or given away as gifts to children or relatives you trust to keep them out of danger of having a lien placed on them to pay for nursing home expenses, as long as the transfers are made five years prior to the Medicaid application under the new law. Such assets may also be sold at any time by the at-home spouse to children, thereby converting countable assets into an income stream of the at-home spouse (which may be unlimited).
Even if you cannot make transfers outside of the look-back period, substantial assets can be preserved with proper advice.?Time can have a significant impact on the amount of assets saved, but the planning done after an individual unexpectedly enters a nursing home can still result in substantial savings.?However, with the change in the transfer rules; the substantial savings are more likely to be in the form of: (i) purchasing exempt assets; (ii) spending money on items and services that benefit the individual and (if married) his or her spouse; and (iii) turning countable assets into income producing assets of the community (at-home) spouse.
Many couples have homes that make up the bulk of their estates.?In fact, homes and other exempt assets may total hundreds of thousands of dollars.?Almost all married couples who have done any estate planning, whether through wills or trusts or other transfer plans, have named their spouse as the primary beneficiary.?If the nursing home patient inherits a previously exempt house that is valued at $100,000, it must be sold and the proceeds spent on his or her nursing home costs.?It is only when the proceeds are exhausted that the patient will receive further Medicaid benefits.?Many times (due to a medical condition), the ill spouse is not even aware he or she inherited anything. To protect these assets, it may be necessary to revise the healthy (at-home) spouse’s will. Alternatively, the at-home spouse can create a trust, a life estate, or some form of joint ownership with survivorship rights to avoid assets from going through a court supervised probate process.
It is important to remember that the first spouse to get ill doesn’t always die first.?This is especially true when the nursing home patient has Alzheimer’s or some similar disease.?Accordingly, planning for assets protection in the context of Medicaid eligibility can be a very tricky process and one that must be carefully considered.?If gifts become a portion of the asset protection plan, it is vital that the gifts be made as soon as is possible, to commence the five year time period.
This memorandum is intended to present a broad overview of the Medicaid eligibility process and some planning alternatives.?It is not intended to provide advice for any specific circumstance.?You will need to consult with your professional advisors to establish an asset protection plan that works in the context of your specific estate and needs.