The Need for Planning
One of the greatest fears of older Americans is that they may end up in a nursing home. This not only means a great loss of personal autonomy, but also a tremendous financial price. In Southeastern Pennsylvania, nursing home costs average over $100,000 per year.
Most people end up paying for nursing home care out of their savings until they run out. Then they can qualify for Medicaid to pick up the cost. Careful planning, whether in advance of or in response to an unanticipated need for nursing home care, can help protect your estate, whether for your spouse or for your children by making sure you receive the benefits to which you are entitled under the Medicare and Medicaid programs. Veterans may also seek benefits from the Veterans Administration.
Medicare Part A covers up to 100 days of “skilled nursing” care per spell of illness. However, the definition of “skilled nursing” and other conditions for obtaining this coverage are quite stringent, meaning that few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for only about 9% of nursing home care in the United States.
For all practical purposes, in the United States the only government benefit plan for long term institutional care is Medicaid. Lacking access to alternatives such as paying privately or being covered by a long term care insurance policy, most people pay out of their own pockets for long term care until they become eligible for Medicaid.
Although their names are confusingly alike, Medicaid and Medicare are quite different programs. For one thing, all retirees who receive Social Security benefits also receive Medicare as their health insurance. Medicare is an “entitlement” program. Medicaid, on the other hand, started out as a form of welfare. So to be eligible for Medicaid, you must become “impoverished” under the program’s guidelines.
Also, unlike Medicare, which is totally federal, Medicaid is a joint federal/state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs. This complicates matters, since the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. This has most recently occurred with the passage of the Deficit Reduction Act of 2005 which significantly changed rules governing the treatment of asset transfers. To be certain of your rights, consult an expert who can guide you through the complicated rules of the different programs and help you plan ahead.
Those who are not in immediate need of long term care may have the luxury of protecting their assets in advance. This way, when they do need nursing home care, they will quickly qualify for Medicaid benefits. Giving general rules for so-called “Medicaid planning” is difficult because every client is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent. Still, a number of basic strategies and tools are typically used in Medicaid planning.
Congress has established a period of ineligibility for Medicaid for those who transfer assets during the five year “look back” period. While the look back period determines what transfers will be penalized, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in Pennsylvania, which currently is $7,235. For example, if the nursing home resident transferred $72,350, the penalty period would be 10 months. Furthermore, the 10 month penalty period will not begin until the person making the transfer has 1) moved to a nursing home, 2) has spent down to the asset limit for Medicaid eligibility, 3) has applied for Medicaid coverage, and 4) has been approved for coverage but for the transfer penalty.
For instance, if an individual transfers $72,350 on April 1st, 2008, moves to a nursing home on April 1st, 2009, and spends down to Medicaid eligibility on April 1st, 2010, that is when the 10 month penalty period will begin, and it will not end until February 1, 2011.
Transfers should be made carefully with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five year look back period elapses without first consulting with an Elder Law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.
Any transfer strategy must take into account the nursing home resident’s income and all of his or her expenses, including the actual cost of the nursing home. Also, be very, very careful before making transfers. Also, bare in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce, or law suit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.
In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren’s eligibility for financial aid for college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to inherit them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains then they would have if they had inherited it.
An alternative, which addresses the risks of giving assets directly to your children is to transfer the assets to a trust. Note, however, a “revocable trust,” commonly called a “living trust,” is one that may be changed or rescinded by the person who created it. Medicaid considers the principal of such trusts (that is, the funds that make up the trust) to be assets that are countable in determining Medicaid eligibility. Thus, revocable trusts are of no use in Medicaid planning. In order for the funds in the trust to be protected from Medicaid, the trust must be irrevocable. Irrevocable trusts can take many forms. It is advisable to discuss any trust options with a qualified Elder Law attorney.
Remember: Transfers should be made carefully, with an understanding of all the consequences.
Protecting the Home
Nursing home residents do not have to sell their homes in order to qualify for Medicaid in Pennsylvania. A home is considered a non-countable resource. However, after a Medicaid recipient dies, the state attempts to recoup from the nursing home resident’s estate whatever benefits it paid for the resident’s care. This is called “Medicaid Estate Recovery”. A critical part of any Medicaid planning is to make sure that the home does not end up in a nursing home resident’s estate. To accomplish this, the home can be placed in an irrevocable trust. If the home is sold, the proceeds would stay in the trust and continue to be protected from Estate Recovery. Furthermore, if properly drafted, the sale of the home while in the trust would allow the grantor to escape having to pay capital gains tax, an exclusion that would not be available if the owner had transferred the home directly to a child or another third party before the sale.
Protecting the Healthy Spouse
The Medicaid laws provide special protections for the spouse of a nursing home resident to make sure he or she has the minimum support needed to continue to live in the community. In Medicaid jargon, the healthy spouse is known as the “community spouse.”
The so-called “spousal protections” work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of institutionalization, the day on which the ill spouse enters either a hospital or a long term care facility in which he or she then stays for at least thirty days. This is sometimes called the “snapshot date” because Medicaid is taking a picture of the couple’s assets as of this date.
The community spouse may keep one half of the couple’s total countable assets up to a maximum of $109,560 (in 2010). Called the “community spouse resource allowance,” this is the most that a state may allow the community spouse to retain without a hearing. The least that a state may allow a community spouse to retain is $21,912 (in 2010).
The income of the community spouse will continue undisturbed; he or she will not have to use his or her income to support the institutionalized spouse receiving Medicaid benefits. But what if most of the couple’s income is in the name of the institutionalized spouse, and the community spouse’s income is not enough to live on? In such cases, the community spouse may be entitled to some or all of the income of the institutionalized spouse. How much the community spouse is entitled to depends on what Medicaid determines to be a minimum income level for the community spouse. This figure, known as the minimum monthly maintenance needs allowance, is calculated for each community spouse according to a complicated formula based on his or her housing costs. If the community spouse’s own income falls below his or her minimum monthly maintenance needs allowance, the shortfall can be made up from the nursing home spouse’s income. If there is still a shortfall after shifting the institutionalized spouse’s income to the community spouse, the community spouse may be permitted to keep assets above the community spouse resource allowance.
Furthermore, it is often possible to get the actual minimum monthly maintenance needs allowance figure increased by filing an appeal with the Department of Public Welfare and going through a process known as a fair hearing.
Note that we usually encounter the circumstances described above during what is called “crisis Medicaid planning,” that is, where the planning is being done at the time the institutionalized spouse is being admitted to the nursing home or has already been admitted to the nursing home. One of the goals of crisis Medicaid planning is to maximize the income and assets retained by the community spouse.
If planning had been done earlier, before the crisis occurred, the community spouse would likely retain far more than described above.
Let Us Help
Do you need an attorney for Medicaid planning? The prudent answer would be “yes.” The social worker at your mother’s nursing home assigned to assist in preparing a Medicaid application for your mother knows a lot about the program, but maybe not the particular rule or rules that apply in your case or the newest changes in the law. In addition, by the time you are applying for Medicaid, you may have missed out on significant planning opportunities.
The best bet is to consult with an Elder Law attorney who can advise you on your entire situation. At the very least, the price of the consultation should purchase some peace of mind. And what you learn can mean significant financial savings or better care for you or your loved one. This may involve the use of trusts, transfers of assets, protection of the home, increased income and resource allowances for the healthy spouse, or other strategies unique to your situation.
If you are going to consult with an experienced Elder Law attorney, the sooner the better. If you wait, it may be too late to take some steps available to protect your assets.
How We Can Help
Levandowski and Darpino focuses its practice in Elder Law, a large part of which involves Medicaid planning.
Let us help you to:
- Plan in advance to limit the devastating expense of long term care.
- Protect your home and life savings.
- Preserve the financial security of your spouse and dependents.
- Legally transfer assets to protect them from nursing home costs.
- Minimize private payments of nursing home costs.
- Maximize public benefits from Medicare, Medicaid, and other programs.
- File the complicated Medicaid application and supporting documentation.
A number of basic strategies and tools are typically used in Medicaid planning. To determine what’s best for your individual situation, talk with Henry Levandowski or Maria Darpino. Home visits, visits to long term care facilities, and phone consultations are available. If you wait, it may be too late to take some of the steps available to preserve your assets.
How Does an Initial Consultation Work?
We need to know as much as possible about you to help you plan effectively. We ask that you prepare for your initial consultation and bring important documents and information along with you.
After you contact us to schedule your initial consultation, we will send you an appointment confirmation letter that will include a checklist of items you should bring with you. If you cannot find all the checklist items, do not postpone your appointment- bring what you can locate. We will be able to locate any remaining paperwork after the initial meeting.
When you are doing estate or long term care planning, delay can be your enemy. Thus, we recommend that all family members whose approval is required for you to move forward attend the appointment. Since the matters we discussed are complex, it helps if all the persons who will be involved in making a decision can hear what we have to say and have the opportunity to ask questions. If a family decision maker cannot attend in person, we can make sure they are available by telephone.
Let us help you to protect the assets you have worked a lifetime to acquire. Contact us today for a consultation.