Medicaid and Nursing Home Planning
Saving Your Assets If You Enter a Nursing Home
2012 Medicaid Update
Introduction-At a cost of more than $7,000 per month or $84,000 per year, an extended stay in a nursing home can easily wipe out a nest egg that took a lifetime to acquire. This issue may be the number one concern for many senior citizens today. In this case, ignorance is not bliss! It is important to know the facts before the facts take you by surprise.
Except for a few months, Medicare won't help and neither will your health insurance. The Medicaid program, however, will help after you have spent down your assets.
The wealthy don't have to worry because they can afford long-term care insurance or can simply pay their own way. It is the middle and lower income people who stand to lose the most after working hard all their lives to save for their retirement years. The Medicaid program which they have financially supported will not be available to them unless they meet certain criteria.
This article will cover 2012 Medicaid changes.
What Assets are Exempt?
Countable assets must be spent-down for cost of long-term care in order to qualify for Medicaid. Exempt assets can be kept. Exempt assets include: all personal belongings, one car, funeral/burial accounts, a $2,000 exemption applied to countable assets and other assets. The home is tentatively exempt.
What Assets Are Countable?
Countable assets include bank and credit union accounts, money market accounts, mutual funds, bonds, stocks, cash value in a whole life insurance policy exceeding $1,500 in initial death benefit, an IRA, other retirement assets, non-homestead real property, boats, a second vehicle, a home in a revocable trust.
Jointly Owned Assets?
Many senior citizens add a child's or other loved one's name to accounts to prevent probate upon death. This arrangement offers no protection from the Medicaid spend down rules. Jointly owned checking, savings, CD's, mutual funds, bonds and similar assets are 100% countable since the Medicaid applicant has the right to cash in 100% without the consent of the other owners.
Michigan counts your share of jointly owned stocks and real property. Wisconsin does not. A divestment penalty period will be triggered in such an event (discussed later).
Spend Down Rules for Unmarried Persons
An unmarried person is allowed to keep all exempt assets and $2,000 in countable assets in both Michigan and Wisconsin. All monthly income must be spent down. You cannot use monthly income to pay for home expenses.
Spend Down Rules for Married Couples
All countable assets owned by either spouse, however titled, are counted in a snap shot on the date of admission to a nursing home or an earlier hospital stay. The good news is that at-home spouses may retain an asset allowance which is called the Resource Allowance. Resource Allowance as of January 1, 2012 is the greater of (1) a minimum floor of $23,000 in Michigan or $50,000 in Wisconsin, or (2) one-half of countable assets not to exceed $113,640 in both Michigan and Wisconsin.
As to monthly fixed income, the at-home spouse may keep the greater of (1) all of his or her monthly fixed income from whatever source or (2) a minimum income allowance which comes from both spouse's collective monthly income.
The Spend Down Plan
If you have excess assets, you must spend them down for you care or any other personal expenses. Medicaid allows you to use countable assets to purchase exempt assets, such as a new care or funeral account. There are many other legal and ethical strategies.
Giving Assets Away-Divestments
Giving away your assets is perfectly legal. However, when you do this, a divestment penalty period of Medicaid disqualification results. It is a common misconception that this penalty period is 60 months. Rather, the monthly penalty period is the value of the assets given away divided by the applicable state average monthly cost of nursing home care. If the published state average monthly cost of care is $7,000, then a gift of $70,000 would result in a penalty period of only 10 months, starting when an admission to a nursing home occurs and your assets have been spent down.
The 60 month period is the look back period during which you must report whether any gifts were made. The 60 month look back period starts on the date of the filing of the Medicaid application, usually after a nursing home admission, and looks back 60 months into the past to see if any gifts were made.
Because a gifting strategy is complicated and can lead to certain tax problems, gifting should only be undertaken under the guidance of an experienced Elder Law attorney.
Asset Protection Strategies
The legal and ethical strategies permitted under Medicaid law include either crisis or proactive preplanning strategies. Crisis planning includes last minute purchase of exempt assets, small gifts, prepayment of income taxes, and purchase of annuities.
Pre-planning strategies include the purchase of long-term care insurance, deeding the home and other land to a special trust, with retained life estate or joint interest.
Importance of an Investment Representative
Since the use of only legal strategies to preserve assets cannot offer a full solution, the advice of an experienced investment representative is important, especially in designing a long term care insurance.
Estate Recovery, Medicaid Liens, and Your Home
Michigan and Wisconsin have probate-only Estate Recovery and Wisconsin also imposes a lien on an unmarried person's home, and upon death the state can sell the home to recover its Medicaid assistance.
The best way to prevent the loss of the home and other real property to Medicaid estate recovery is a Medicaid protective deed, either a joint tenancy or a life estate deed with a retained power of sale. This strategy can be more fully explained with an appointment with one of our attorneys.
Medicaid Success Stories
Using legal and ethical strategies, our firm has successfully qualified 510 clients for Medicaid assistance, and saved these clients and their families $2.8 million (as of January 2012).
Can Any Planning Be Done After A Nursing Home Admission Has Happened?
Yes. Assets can still be saved using legal and ethical strategies even after nursing home admission has occurred. On the average, we have been able to save between 60% and 80% of the remaining assets for our clients. But act now. Every month of delay will result in asset loss.
Six Common Mistakes in Applying for Medicaid
• Filing too early when there are excess assets. A denial of benefits will result.
• Filing too late. This can result in lost benefits.
• Filing a defective application due to a lack of supporting financial documents. This can result in lost benefits.
• Making too large of gifts which create too long of a penalty period.
• Not seeking the advice of an experienced Elder Law attorney with at least 400 Medicaid successes.
• Take actions which result in negative tax consequences.
The Importance of a Comprehensive Financial Power of Attorney
Designing an asset protection plan will not work unless a trusted family member or friend has the authority to implement it when a disability occurs. This is accomplished by a comprehensive Financial Durable Power of Attorney which specifically authorizes gifting for Medicaid qualification, annuitization of annuities, and other strategies. The Financial Power of Attorney prepared by The Elder Law Firm of Anderson Associates, P.C., contain these important clauses.
How to Get Started
Call and make an appointment with one of our attorneys. You should bring deeds, tax bills, and asset information and fill out our fact finder before the meeting.
Due to Public Act 141 of 2012, FPOAs need to be updated as of October 1, 2012.