The Medicaid rules often cause a lot of confusion or misinformation. For example, hardly a day goes by that someone will come into our office assuming that they cannot do anything to protect their assets. In fact, clients are often astonished to learn that the Medicaid rules actually do provide a number of legal strategies to protect a person’s assets. This blog focuses on planning options for single persons who require nursing home care.
Recently, John (name changed for privacy) came into our office seeking help for his 84 year old father who had entered a nursing home after suffering a severe stroke. His father was a widower who had retired from General Motors and had lived in the same Flint home for 58 years. His assets consisted of his Flint home, one vehicle and $75,000 in checking, savings and CD accounts. Like so many clients, John was certain that all of his father’s money except for $2,000 had to be used to pay the nursing home. He was relieved to learn that the Medicaid rules allow him to save some of his father’s hard earned money. Here are a few of the options John made on his father’s behalf:
1. Prepay his funeral expenses.
Under the Medicaid rules, it is permissible to prepay funeral expenses. This is often referred to as converting countable assets into exempt assets. If done correctly – typically through a life insurance policy or irrevocable funeral contract, the prepaid funeral is an exempt asset.
2. Home maintenance/repairs.
His father’s home was in desperate need for some work. John said it had the same green shag carpet from 1975!!! Because the home is an exempt asset, it is permissible for John to use his father’s money to paint and carpet his home.
3. Medicaid gift and annuity.
I explained to John that once his father is approved for Medicaid benefits, his $1,500 pension and Social Security income would have to be paid to the nursing home (minus $60.00) as a Medicaid co-pay.
To help his father pay his bills for his home: taxes, utilities, insurance, etc., I recommended that some money be gifted to John so he would not have to pay these bills out of his own pocket. Of coures, due to the 5 year look back rule, Medicaid will impose a penalty if any money is given away. To best address this penalty, I suggested the following:
- A gift of $32,000. This will result in a penalty of 5.03 months (32,000/6362 = 5.03)
- A 5 month immediate annuity. (Medicaid compliant) which will pay $4,500 each month for the next 5 months.
This annuity income of $4,500 along with his father’s pension and Social Security income of $1,500 per month will generate sufficient income to pay the $6,000 nursing home expense during the 5 month penalty period. Once the penalty ends, John will then pay the nursing home the Medicaid co-pay and still have $32,000 to pay any home related or other expenses for his father.
4. Burial space items.
The Medicaid rules permit the purchase of burial space items for children and their spouses without incurring any penalty. Burial space items include burial plot, casket, vault, headstones, etc.
Please keep in mind that Medicaid planning is very fact-specific and not all of the strategies are advisable in every situation. Before spending down all of your assets, be sure to consult with an experienced elder law attorney.