Today people are living longer, and many individuals look forward to enjoying their retirement years. You have worked hard for a long time, and retirement is when you should enjoy vacationing, spending time with family, and doing activities that you love. It is important, however, to properly plan in the event an extended illness or long-term care need arises.
Medicaid Planning & Asset Preservation
INTRODUCTION
LONG-TERM CARE PLANNING
The high cost of long-term care, whether for medical or non-medical needs, is a serious concern for many people. While some people mistakenly believe that Medicare will cover these costs, this program only pays for limited services that do not include skilled care provided at home or in a nursing home. Seniors also often require non-skilled care and assistance with daily tasks such as dressing, feeding, shopping and light housekeeping. By failing to adequately plan for these needs, many seniors risk depleting their savings.
LONG-TERM CARE INSURANCE
One option for those who qualify is long-term care insurance which covers the cost of services for personal and custodial care in the home or in an assisted living or skilled nursing facility. This insurance is becoming more expensive, and the type of coverage varies greatly among insurers. Attorney Elisabeth Hall can help you review different policies and make sense of the many features available with coverage options.
MEDICARE PLANNING
Long-term care insurance can be expensive and some seniors may not qualify. Another option is Medicaid, the largest payer of nursing home care in the country. This is a federal program run by the states that is designed to provide medical assistance to low-income individuals, and those who are 65 or older. Qualifying for these benefits can be difficult because some seniors may have financial resources that exceed the eligibility threshold. There are many planning ideas available that may help protect important assets from the Medicaid spend-down rules.
Idea #1: Transferring your home to protect it for Medicaid purposes
If you transfer your home more than five years before you apply for Medicaid to pay for nursing home costs, your home will not be counted as one of your assets for Medicaid eligibility purposes. This allows you to “preserve” the asset and allows your home to be passed on to the next generation.
In that case, your child would own the home and you have no further legal rights to it. You would lose your STAR exemption for school taxes, and, if your child later sells the home, they may have to pay significant capital gains taxes because they would be using your cost basis in the property.
You will retain your STAR exemption. In addition, your child will receive a “step up” in basis equal to the home’s value at your death, thereby potentially reducing capital gains if they later sell it. Despite these advantages, there are disadvantages. You would need your child’s cooperation if you wanted to sell the home during your lifetime. If a sale did occur, you would need to receive some of the sale proceeds, which could result in you having too many assets to qualify for Medicaid.
You will retain your STAR exemption and your child will receive a “step up” in basis at your passing. The trustee of the trust could sell the home during your lifetime, without the concern that part of the sale proceeds would flow to you. The sale proceeds could be used to invest in assets that you receive income from or they could be used to purchase a new home for you to live in.
Idea #2: The impact of gifting on your Medicaid eligibility
In the normal course of their lives, older people often make monetary gifts to their family and friends. It may be as simple as a $50.00 check to each of the grandchildren during the holidays or it might be a more significant gift of $10,000.00 to a child who lost their job and needs money to pay their mortgage and provide for their family.
Most gifts, be they large or small, generally have very little to do with Medicaid Planning by the senior. They are made out of love, gratitude, or a desire to help someone during a difficult time. Regardless of the motivation, however, if the gift is made within five years of a Medicaid application by the senior seeking to pay for their nursing home care, the gift may result in a “penalty period”. The five-year period before the Medicaid application is known as the “look back period”.
During a penalty period, Medicaid is not available to pay for nursing home costs. If Medicaid is not available and the senior no longer has funds of their own, then no money is potentially available to pay the nursing home bill.
Idea #3: Preserving assets if your spouse applies for Medicaid
Medicaid rules allow you (as the “Community Spouse”) to retain the following assets as “exempt resources”:
- A limited amount of cash (including invested assets)
- the family home
- all the tangible personal property within the family home
- irrevocable pre-paid funeral arrangements
- one car
If you have more assets than is allowed under Medicaid rules, you will need to “spend down” those assets. You “spend down” by paying privately for nursing home costs, until you reach the allowable level. There are some alternatives to “spending down” that can be explored. Talking with Attorney Elisabeth Hall can help you identify these areas.
Yes, you can. That is known as a spousal refusal. If you file a spousal refusal, then the Medicaid authorities may seek to force you to provide the resources by litigating the matter in court. If you file a spousal refusal, the Medicaid authorities must evaluate the eligibility of your spouse as if you had no such resources.
No, if you have items of specific intrinsic value, such as a coin collection or valuable pieces of art, they would potentially be considered non-exempt.
The Community Spouse is entitled to a specific monthly income allowance that changes each year. If the Community Spouse does not have that amount in their own name, they are entitled to income from the Institutionalized Spouse to reach the stipulated level.
HOW MEDICAID LOOK BACK AND PENALTY PERIODS WORK
The Medicaid look back period is the period of time for which you have to provide financial records if you apply for Medicaid to pay for nursing home care.
The look back period is five years from the date of a Medicaid application. If you apply for Medicaid to pay for nursing home care on January 1, 2022, you would need to provide the Department of Social Services (DSS) with financial records going back to January 1, 2017.
It depends, but generally all your financial statements, i.e. bank statements, annuity statements, retirement account statements, and any other statements you receive that show the details of your financial history for the prior five years. Additional required records may include items like copies of checks, statements of sale for real property, or cash value statements for insurance policies.
A penalty period is an amount of time which will delay the onset of your Medicaid coverage.