For Home Care, Assisted Living And Nursing Home

How does the Medicaid Program provide for long term care costs.

Nursing Home

Medicaid has many programs, but the Medicaid we are talking about is the Medicaid program that provides long term care costs either at home, assisted living or a skilled nursing facility.

• It generally covers the full cost of nursing home care.
• It may cover a take out only of home or Assisted Living care.

There are times when Medicaid is the only option for a family to protect assets and preserve assets.

The Financial Test

In the case of a married couple in Florida, the healthy spouse (called the community spouse) is allowed to keep countable assets of up to $135,400. The sick spouse (the institutional spouse) can keep $2000. Anything over the $137,400 must be “spent down” in order for the patient to qualify for benefits. If the institutional spouse is unmarried, s/he can keep only $2000 in case, subject to the discussion below.

However, certain assets are “exempt” and do not constitute “countable assets”. These include:

• Principal residence value not in excess of $600,000
• One car
• Personal effects, jewelry, furniture etc.
• Life insurance with a cash value less than $2500
• Burial plots of any number
• Prepaid funeral plan
• Irrevocable funeral bank account not to exceed $2500

“Countable” (vulnerable) assets are the cash value of assets that Medicaid wants you to “spend down” before giving benefits. These include:

• Other real estate (vacation homes)
• Cash value of life insurance in excess of $2500
• CDs, checking, bank accounts, brokerage accounts, annuities, etc.

Inaccessible/unavailable assets are those assets that Medicaid allows you to keep because of the general inability to liquidate. These include:

• Rental real estate
• Assets out of the reach of the applicant
• Assets that cannot readily be converted to cash
• Assets paid to someone to care for applicant pursuant to a Personal Services Contract.

There are however “strategies” that Medicaid attorneys use to protect assets to avoid spend down. The general goal is to convert countable assets into inaccessible or exempt assets.

For example, a couple might use some of their cash to buy a primary home or prepaid funeral expenses. Or they might invest in income producing property.

Caution: Any “Medicaid protection” strategy used should be done only in conjunction with a full long term care plan put together by a Florida Elder Law Attorney taking into consideration the needs of all parties now or in the future as well as preparing any and all necessary estate planning documents (especially a Durable Power of Attorney).

Medicaid Myths and Legends

Medicaid is not money

As you can imagine, many clients come to my office with all kinds of misconceptions about Medicaid. But recently one woman at my seminar in Boca Raton and the other in my office in Coral Springs came with the same misunderstanding so basic that I have taken it for granted that everyone just understood this.

I think that there is a basic understanding about Medicaid that is in the fabric of elder law attorneys and allied professionals but is often misunderstood by the general public. This may seem very basic but I suggest that you not take for granted that you or the general public knows this.

Medicaid has many programs but the Medicaid we are talking about is the Medicaid program that provides long term care for “indigent” seniors based on a combination of federal and state law. The job of the elder law attorney is to legally protect and preserve assets either to pre-plan for the need for Medicaid down the road or in a crisis situation and avoid the mistakes that will make the senior ineligible.

Medicaid is not an additional source of money that you get once you run out of money or “spend down”.

It has occured to me why people think this. It is because they hear that you get Medicaid after you “spend down”. What’s missing is what Medicaid actually is.

Medicaid is not money. It is payment for services for long term care, generally in a nursing home and sometimes some help at home or in an ALF. (The diversion program)

If a person runs out of money and cannot pay their normal expenses than they are in a predicament. There is no government source of additional funds. *

*(There are some programs administered by the counties in Florida such as Broward, Dade and Palm Beach to provide services and “help” such as Meals on Wheels and Food Stamps for the indigent but again, this is not “money”).

With this in mind, clients can better understand why they must preserve their assets and not run out of money for a pot that doesn’t exist. Let us help stretch and preserve assets for our seniors and prepare for the need for long term care.

The “Lookback Period” and the Transfer Penalty

Background: This policy was established to prevent people from giving away their money and then immediately applying for benefits. There have been many changes to this policy in the last 20 years.

(When I talk about Medicaid I am only talking about one program: The Medicaid Nursing Home (ICP) and related home based programs such as the Diversion Program.)

What is it?: The lookback period is the 5 years prior to the application for Medicaid when the Medicaid office can “look back” at any transfers or gifts you made to persons other than a spouse.

That is all it is!

The Medicaid office does not look back to see, and is not interested in, how you spent your money, how you invested it or anything else. They are looking back at gifts and transfers only to someone other than a spouse.

And….they are looking back from the time of the application only. There is no continuing governmental authority looking over your shoulder forever!

So what counts as a gift or transfer?
And what happens after they look back at these gifts/transfers?

Very important: A gift or transfer is giving something of value/money to someone other than a spouse. Transfers or gifts between spouses are simply ignored.

What happens to gifts or transfers to someone other than a spouse?

If there were gifts/transfers to someone other than a spouse this is very important and an arena where my clients can get into real trouble. This is because the Medicaid office will use a formula and will assess a period of ineligibility/penalty period and there can be no benefits until the period of ineligibility expires.

Once you get a period of ineligibility attached to you it is
very difficult to undo, usually very long and extremely punitive.
It almost always negates the possibility of ever getting on the Medicaid program.

So what do we do? It is very important that our clients disclose and that we discuss any gifts or transfers. This way we can review and employ the best and appropriate strategy to avoid a penalty period.

More Medicaid Myths

Is it true you can give $10,000 to each child without penalty? Can’t you just put your kids’ names on your accounts? Is it true there’s an annuity that allows you to “flip the switch” and solve all your payment problems?

The answers? NO! NO! NO! The $10,000 is now $16,000…and it’s an IRS rule relating to gift and estate taxes – not a Medicaid rule. Putting your children’s names on your accounts protects none of the money. Annuities? The laws have changed – and there is no magic switch.

(Since the gift and estate tax exemption has sharply risen over the years to over 1 million dollars this is no longer an issue for most of my clients)

Often, out of sheer frustration, clients tell me they’re going to solve the problem of qualifying for Medicaid by just giving it all to their kids. But that opens up other problems:

• The possibility of your kids’ problems – with their spouses, for example – impacting your money. My golden rule has always been, don’t give to your son or daughter what you wouldn’t give to your son- or daughter-in-law.
• Creating a look back period that will one day make you ineligible.

In addition, most retirees have no idea about the tax implications. For instance, transferring a house to a child changes the property tax classification to non-owner-occupied – and property taxes will go up and more importantly the step up in basis is lost.

Using an Irrevocable Asset Protection Trust –5 years is shorter than you think

For those families who want to protect assets, we often use a vehicle we call a Family Asset Protection Trust. This allows the client to immediately qualify for Veteran’s benefits and to wait out the 5 year look back period for Medicaid. The trust is also the senior’s primary vehicle for leaving a legacy for their family and protecting that legacy through provisions in the document.

Use of this vehicle allows the family to reap the following benefits:

1. The senior is entitled to all the income during life if they so choose.
2. The trustees can give principal to the beneficiaries for use by the senior, if necessary.
3. The trust can establish controls over how the funds are spent.
4. The senior chooses the trustee, the person in control of the trust.
5. Trust management is relatively straightforward and can be streamlined if all assets are in a brokerage account.
6. The senior (or trust protector) can change trustees and/or beneficiaries.
7. The trust can have a “trust protector” (sometimes the attorney) to make sure the senior is protected, change trustees etc.
8. The trust avoids risks associated with outright gifts to the children, such as creditors, bad marriages etc.
9. The family receives significant tax advantages by putting the money in a trust rather than outright transfers.
10. The income is taxed on the senior’s tax return, not the children’s. It is a tax neutral event.
11. The family receives a “step up in basis” at the death of the senior and does not have to pay capital gains on the increases of value.
12. The senior does not lose the “capital gains” exclusion upon sale of the home.
13. The trust allows us to shelter the home or other property and provide flexibility in case of the need to sell.
14. The trust allows the senior to live in the house for their lifetime.
15. The senior can request that gifts be made out of the trust that would otherwise cause a penalty period for Medicaid eligibility.
16. The trusts avoid the Medicaid office from recovering against assets at the death of the senior.
17. After 5 years, the senior would be eligible for Medicaid and any other available needs based program. For VA Aid and Attendance benefits, the senior is eligible immediately.
18. The trust is also the senior’s primary vehicle for leaving a legacy for their family and protecting that legacy through provisions in the document.

Sound confusing? Well, it is! But not for us ! So let us work with you.
The Elder Law Journey can be a very complex one – especially Medicaid. And no one should try to navigate this road alone. It’s too easy to crash and burn.