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Medicaid Planning Update 2002 Fiorentini Law Office Dear Valued Client: I recently attended a terrific seminar on Medicaid Eligibility and Transfer Rules sponsored by the Massachusetts Chapter of the National Academy of Elder Law Attorneys. This letter is a brief summary of changes in the Medicaid planning field I learned about in the seminar. I have deliberately oversimplified things in this newsletter because of space limitations. Background—Medicare vs. Medicaid The cost of nursing home care in Massachusetts is between $60-$70,000.00 per year. The Federal Medicare program will the first 100 days. After that, the nursing home patient must either pay himself, have long term care insurance (very few people have this) or turn to the Federal Medicaid program. Medicaid pays for nursing home care for persons age 65 and over or who are blind or disabled but only if they meet the financial eligibility rules. Financial Eligibility Rules for Medicaid Currently, the Medicaid applicant is allowed to keep $2,000.00 in countable assets. However, Medicaid does not count "non-countable assets" or "inaccessible assets". The key to Medicaid planning is to transfer assets from countable assets to non-countable or inaccessible assets. Non-Countable Assets
Inaccessible Assets Inaccessible assets are assets that the applicant has no legal right to obtain at the present time. Among these are irrevocable trusts set up with someone else’s money and an inheritance that has been received. Two Spouse Families Planning is easiest when both spouses are alive and only one needs nursing home care. The spouse who needs nursing home care is called an "institutional spouse". The spouse who is healthy and stay at home is called the "community spouse". Medicaid allows the community spouse to stay in the principal residence and keep an additional $89,280.00. Example Tom and Mary are both in their 80’s. Tom has had a stroke and will need long term nursing home care. Mary is still healthy and able to stay at home and wishes to do so. They have a home and $300,000 in a bank account. Mary is able to keep the house in her name and can keep $89,280. This is called the "community spouse allowance" or the "community spouse resource allowance". Tom can keep $2,000. The balance of the bank account has to be used to pay for the nursing home, unless the community spouse allowance can be increased. Increasing the Community Spouse Allowance Careful Medicaid planning allows you to increase the community spouse resource allowance if the community spouse needs more than $89,280.00. There are several ways to do this. One is to show that the community spouse needs more income in order to meet basic expenses. Under those circumstances, the community spouse makes an argument that she needs additional assets in order to be able to generate sufficient income to meet the monthly needs. This can only be done on appeal at a fair hearing. Example Suppose, in the example above, that Tom and Mary have $300,000.00 in assets plus their home. Mary receives a Social Security check every month of $700.00. Mary is going to be able to keep $89,280.00 if her husband goes into a nursing home. However, assume that her Social Security check combined with the income from the $89,2880.00 is not enough to meet her basic needs. Under those circumstances Mary might able to keep some assets in excess of the $89,280.00 in order to be able to generate an income stream sufficient to meet her monthly needs. Again, this is a very oversimplified summary. Transferring the Home Most of our clients want to save the marital home in the event they need nursing home care. An elderly couple is allowed to keep the marital home so long as either of them wishes to live in it. Upon the death of the Medicaid applicant, the State can put a lien against the home. Transfers and 3 Year Lookbacks Although the marital home is an exempt asset, transferring the marital home to a child (which is what most clients want to do) results in the State being able to "look back" at the transfer and consider it in the elder person’s ownership for up to 3 years (5 years if the transfer is to a trust.) This is called a "disqualifying transfer". There are several times you can transfer a house without it being a disqualifying transfer. You are able to transfer the house to a handicapped child, a child on Social Security Disability or SSI, a child who has resided in the house for 2 or more years to care for the Medicaid applicant, or a sibling who has part ownership in the house all without disqualification. Medicaid Planning Techniques We continue to recommend our clients consider several strategies. If you are 55 or over, we suggest you consider Long Term Care Insurance. We do not sell long term care insurance. I have carefully avoided any involvement with insurance brokers so as to avoid any conflicts of interest. Long-term care insurance pays for Medicaid or nursing home care. It becomes cost prohibitive at around age 70 and above so you need to plan early. However, if you have long term care insurance you are often able to avoid the need for Medicaid planning. Transfers of House to Children We continue to recommend that clients consider transferring their marital home to their children but reserving a life estate for themselves. A life estate means that you are allowed to live in the home for the rest of your life and no one, not even your children, can take it from you. A life estate also means that your children get what is known as a "stepped up basis" at your death. It is preferable to simply putting the house in the children’s names. Half a Loaf Strategy This is a term used by estate planners and is something to consider if an elderly couple have many assets and one family member is about to enter into a nursing home. Under this strategy (again, I am oversimplifying) half of the assets are transferred either to the children or to an irrevocable trust and the other half are used to pay the nursing home during the disqualification period. This is a complex strategy and should not be undertaken without professional guidance. Annuities as a Strategy The purchase of annuities can mean that a Medicaid applicant takes countable assets and uses them to purchase an annuity for himself. The income gained from the annuity is counted as income but the value of the annuity does not count as an asset. You are only allowed to do this with certain annuities, and, again, it is an extremely complex strategy that should not be undertaken without professional guidance. Example Tom and Mary are both in their 80’s. Tom is ill and needs to go into a nursing home. Mary is staying home as a community spouse. They have $300,000.00 in assets. Mary is allowed to keep $89,280.00. Tom takes $100,000 and uses it to purchase a qualified annuity that will pay him $1,000.00 per month. The $1,000.00 per month must be used to help pay for the nursing home but the $100,000 cost of the annuity is now considered a non-countable asset. It is not a disqualifying transfer. If Tom goes into the nursing home and dies within a year the balance of the annuity goes to his wife.
If Tom lives for 10 years then he will use up the entire annuity and the strategy will have failed.
Since annuity payments are based up actuarial life expectancies, they should be considered when the applicant has a life expectancy substantially less than the actuarial tables. Disclaimer As always nothing in this update newsletter should be considered as legal advice. To keep the newsletter within a reasonable length I have deliberately oversimplified. If you would like specific advice please feel free to contact us at 978 374-0596 and we would be happy to meet with you or your parents. Contact Fiorentini Law Office with question, click here Return to Fiorentini Law Office home page, click here |
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