The Consumer's Guide to Medicaid Planning - Part 3
This week is part three of my Consumer's Guide to Medicaid Planning. Lets look at some case studies for qualifying for Medicaid:
Division of Assets: Medicaid Planning for Married Couples
Division of Assets is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. It applies only to married couples. The intent of the law was to change the eligibility requirements for Medicaid where one spouse needs nursing home care while the other spouse remains in the community, i.e., at home. The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
As a result of this recognition, division of assets was born. Basically, in a division of assets, the couple gathers all their countable assets together in a review. Exempt assets, as discussed in last week's blog post, are not counted. The countable assets are then divided in two, with the at-home or “community spouse” allowed to keep one half of all countable assets up to a maximum of approximately $129,000. The other half of the countable assets must be “spent down” until less than $2,000 remains. The amount of the countable assets which the at-home spouse gets to keep is called the Community Spouse Resource Allowance (CSRA). Each state also establishes a monthly income floor for the at-home spouse. This is called the Minimum Monthly Maintenance Needs Allowance. This permits the community spouse to keep a minimum income ranging from about $2,200 to $3,200.
If the community spouse does not have at least $2,200 in income, then he or she is allowed to take the income of the nursing home spouse in an amount large enough to reach the Minimum Monthly Maintenance Needs Allowance (i.e., up to at least $2,200). The nursing home spouse’s remaining income is owed to the nursing home. This avoids the necessity (hopefully) for the at-home spouse to dip into savings each month, which would result in gradual impoverishment.
To illustrate, assume the at-home spouse receives $750 per month in Social Security. Also assume that her needs are calculated to be the minimum of $2,200. With her Social Security, she is $1,450.00 short each month.
In this case, the community spouse will receive $1,450 (the short fall amount) per month from the nursing home spouse’s income and the rest of the nursing home spouse’s income, minus $60.00, will then have to be paid for the cost of his care.
This does not mean, however, that there are no planning alternatives which they can pursue. Consider the following case studies:
Case Study: Medicaid Planning For Married People
Ralph and Alice were high school sweethearts who lived in Flint, Michigan, their entire adult lives. Two weeks ago, Ralph and Alice celebrated their 51st anniversary. Yesterday, Ralph, who has Alzheimer’s, wandered away from home. The police found him, hours later, sitting on a street curb, talking incoherently. They took him to the hospital. Now the family doctor has told Alice that she needs to place Ralph in a nursing home. Ralph and Alice grew up very poor. They always tried to save something each month. Their countable assets, totaling $120,000, not including their house, are as follows:
Savings account: $35,000
Money Market account: $17,000
Checking account: $3,000
Residence (no mortgage): $100,000
Ralph gets a Social Security check for $1,400 each month; Alice’s check is $700. Her eyes fill with tears as she says, “At $9,000 to the nursing home every month, our entire life savings will be gone in less than two years!” What’s more, she’s afraid she won’t be able to pay her monthly bills, because a neighbor told her that the nursing home will be entitled to all of Ralph’s Social Security check.
There is good news for Alice. It’s possible she will get to keep everything all of their assets and all of the income...and still have the state Medicaid program pay Ralph’s nursing home costs. The process may take a little while, but the end result will be worth it.
To apply for Medicaid, she will have to go through the Department of Health and Human Services (DHHS). If she does things strictly according to the way the DHS tells her, she will only be able to keep about half of her assets plus she will be entitled to a minimum monthly income to pay her expenses. But the results can actually be much better than that. It is essential that Alice get advice from someone who knows the Medicaid rules. With proper advice, Alice will be able to avoid the spend-down and keep everything she and Ralph have worked so hard for.
This is possible because the law does not intend to impoverish one spouse because the other needs care in a nursing home. This is certainly an example where knowledge of the rules, and how to apply them, can be used to resolve Alice’s dilemma.
Proper Medicaid planning differs according to the relevant facts and circumstances of each situation as well as the current state law. For example, some children never gain independence – they remain dependent on their parents. What can be done in such a case?
Case Study: A Trust for a Disabled Child
Margaret and Sam have always taken care of their daughter, Elizabeth. She is 45, has never worked, and has never left home. Elizabeth is “developmentally disabled" and receives SSI (Supplemental Security Income). They have always worried about who would take care of her after they die. Some years ago, Sam was diagnosed with dementia. His health has deteriorated to the point that Margaret can no longer take care of him. Now she has placed Sam in a nursing home and is paying $9,000 per month out of their savings. Margaret is even more worried that there will not be any money left for the care of Elizabeth. Margaret is satisfied with the nursing home Sam is in. The facility has a Medicaid bed available that Sam could have is he were eligible for Medicaid. However, according to the information she got from the social worker, Sam is over $75,000 away from Medicaid eligibility. Margaret wishes there was a way to save the $75,000 for Elizabeth after she and Sam are gone.
Fortunately, there is. Margaret can consult an Elder Law attorney to set up a “special needs trust” with the $75,000 to provide for Elizabeth. As soon as she does, Sam will be eligible for Medicaid. Elizabeth won’t lose her benefits, and
her security is assured. Of course, all trusts must be reviewed for compliance with Medicaid rules. Also, failure to report assets is fraud, and when discovered, will cause loss of eligibility and repayment of benefits.
I Heard I Can Give Away $10,000 Per Year. Can’t I?
As discussed earlier, many people have heard of the Federal Gift Tax provision that allows them to give away $10,000 ($5,000 currently) per year without paying any gift taxes. What they do not know is that this refers to a Gift Tax exemption. Having heard of the exemption, they wonder, “Can’t I give my assets away?” The answer is, maybe, but only if it’s done within the strict allowances of the Medicaid rules. So even though the federal Gift Tax law allows you to give away up to $15,000 per year without incurring tax, those gifts could result in a period of ineligibility under the Medicaid rules. Still, some parents want to make gifts to their children before their life savings is all gone.
Consider the following case study:
Case Study: Financial Gifts to Children
After her 73 year old husband, Harold, suffers a paralyzing stroke, Mildred and her daughter, Joan, need advice. Dark circles have formed under Mildred’s eyes. Her hair is disheveled. Joan holds her hand. “The doctor says Harold needs long-term care in a nursing home,” Mildred says. “We have some money in savings, but not enough. I don’t want to lose our house and all our hard-earned money. I don’t know what to do.”
Joan has heard about Medicaid benefits for nursing homes, but doesn’t want her mother left destitute in order for Harold to qualify for them. Joan wants to ensure that her father’s medical needs are met, but she also wants to preserve Mildred’s assets. “Can’t Mom just give her money to me as a gift?” she asks. “Can’t she give away $10,000 per year? I could keep the money for her so she doesn’t lose it when Dad applies for Medicaid.” Joan has confused federal Gift Tax law with the issue of transfers and Medicaid eligibility. A “gift” to a child in this case is actually a transfer, and Medicaid has very specific rules about transfers. At the time Harold applies for Medicaid, the state will “look back” five years to see if any gifts have been made. The state won’t let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value that are in the 5 year look-back period will penalize Harold’s receipt of Medicaid benefits.
So what can Harold Harold and Mildred do? They can institute a formal gifting plan, save a good portion of their estate, and still qualify for Medicaid. However, the gifts must not violate the Medicaid rules. Generally, if done properly, you can often save as much as one half of your assets or more through a properly designed gifting plan. But remember, when it’s given away, it’s given away. Studies have shown that “windfall” money received by gift, prize, or lawsuit settlement is often gone within three years. In other words, even when the children promise that money will be available when needed, their own “emergencies” may make them spend the money. You must consult and experienced Elder Law attorney on how to set a plan that complies with the law and achieves your goals.
Will I Lose My Home?
Many people who apply for medical assistance benefits to pay for nursing home care ask this question. For many, the home constitutes much or most of their life savings. Often, it’s the primary asset that a person has to pass on to his or her children.
Under the Medicaid regulations, the home is an exempt asset. This means that it is not taken into account when calculating eligibility for Medicaid. But in 1993, Congress passed a little-debated law that affects hundreds of thousands of families with a spouse or elderly parent in a nursing home. That law requires states to try to recover the value of Medicaid payments made to nursing home residents. This is called Estate Recovery. Estate Recovery does not take place until the recipient of the benefits dies. Then, federal law requires that states attempt to recover the Medicaid benefits paid. Michigan finally enacted estate recovery legislation in September 2007 and several years ago, began enforcing the law. Since Medicaid rules are constantly changing, you should seek assistance from an Elder Law attorney.
Aging persons and their family members face many unique legal issues. As you can tell from our explanation of the Medicaid program, the legal, financial, and care planning issues facing the prospective nursing home resident and family can be overwhelming. If you or a family member needs nursing home care, it is clear that you should seek expert legal help. Where can you turn for that help? It is difficult for the consumer to be able to identify lawyers who have the training and experience required to provide expert guidance during this most challenging time.
Generally, Medicaid planning is an aspect of the services provided by Elder Law attorneys. Consumers must be cautious in choosing a lawyer and carefully investigate the lawyer’s credentials. How do you find an Elder Law attorney that has the knowledge and experience you need? You may want to start with recommendations from friends who have received legal help with nursing home issues. Who did they use? Were they satisfied with the services they received? Hospital social workers, Alzheimer and other support groups, accountants, and other financial professionals can also be good sources of
recommendations. In general, a lawyer who devotes a substantial part of his or her practice to Medicaid planning should have the knowledge and experience to address the issues properly. Don’t hesitate to ask the lawyer what percentage of his practice involves Medicaid planning. You may want to ask how many new Medicaid planning cases the attorney handles each month. There is no correct answer. But there is a good chance that an attorney that assists with at least 3-4 nursing home placements each month is likely to be more up-to-date and knowledgeable than an attorney that helps with two placements a year. Ask whether the lawyer is a member of any Elder Law organizations. Is the lawyer involved with committees or local or state bar organizations that have to do with Medicaid planning? Does the lawyer lecture on Medicaid planning? If so, to whom? (For example, if the lawyer is asked to teach other lawyers or professionals about Elder Law and nursing home planning, that is a very good sign that the lawyer is considered to be knowledgeable by people who should know.) If the lawyer lectures to the public, you might try to attend one of the seminars. This should help you decide if this is the lawyer for you.
In the end, follow your instincts and choose an attorney who knows this area of the law, who is committed to helping others, and who listens to you and the unique wants and needs of you and your family.
This blog post is written by Brett A. Howell, Certified Elder Law Attorney. The blog is written as a service of The Elder and Estate Planning Law Firm, P.L.L.C. This information is for general informational purposes only and does not constitute legal advice. For a consultation to address specific questions, please call (810) 953-3846.