8 Feb 2017
With the cost of long term care in a skilled nursing center in Westchester running upwards of $400 a day and as much as $150,000 a year, most people cannot afford this level of care, especially for a prolonged period of time. So many people plan in advance for this type of care: either by purchasing long term care insurance or by implementing certain legal maneuvers, such as asset-protection trusts, to safeguard their assets, enabling them to apply for Medicaid.
Ideally, this is done with some forethought as there is a five year look-back period when seeking Medicaid benefits for nursing home care. This means that Medicaid will require all financial statement for all accounts held within the past five years, including a review of federal tax returns. The Medicaid office will scrutinize these financial documents line by line and can request further information on any transaction of interest; more specifically, they look at anything over $2,000.
While a $14,000 annual gift is allowable by the IRS, it is not allowable for Medicaid. Any such gifts made to family members in the last five years can trigger a penalty period in establishing eligibility and coverage will be denied for a period consistent with the amount. For instance, if you gifted $24,000 to two nieces three years ago and the cost of the nursing home is $12,000 a month, you will need to cover an additional two months of nursing home expenses before Medicaid will kick in.
Your house is also counted as an asset by Medicaid and must be liquidated, though there are some circumstances whereby your home doesn’t need to be sold, such as: 1) you have an adult child who has been living there for more than two years as your primary caregiver; 2) you have a spouse who remains there; 3) your home is co-owned by someone else and they refuse to sell; or 4) your home is co-owned by a sibling who lives there.
To further complicate matters, there are exclusions and loopholes for certain situations that can affect Medicaid eligibility, as described below:
Scenario 1: Mary is entering a nursing home. She has $300,000 in the bank and owns her home. Her son, who is 50 years old, is collecting Social Security Disability. Mary can transfer all of her assets including her home to her son with no penalty due to the fact that he is disabled. Mary will immediately qualify, although she will still be subject to disclosing the five years of financials.
Scenario 2: Mary is entering a nursing home, but her spouse John will remain at home. He can keep the home, all of their retirement assets from their IRAs (as long as they are in “distribution” status), approximately $75,000 in non-retirement assets, and $2,980.50 per month of their joint income. This strategy is called “spousal impoverishment,” which enables John to continue to live independently. In this scenario, Mary’s share of their $75,000 must be below $14,850, while John can have the balance of the $75,000. If their joint monthly income is below $2,980, there would be no income contribution from John. However, if their income is greater than $2,980, John may have to contribute some of their income towards Mary’s care.
Scenario 3: Mary enters a nursing home but the couple has assets and income that well exceed the spousal impoverishment limits in Scenario 2. They can transfer all of the excess assets to John’s name and Mary could qualify for Medicaid. This strategy is called “spousal refusal” and does not come without risks. The county can pursue John legally to force some contribution to her care. Again, the IRAs are exempt, but the income Mary gets may need to go to the nursing home.
Scenario 4: Mary enters a nursing home and has the $300,000 and her home. She has no spouse, no disabled child, and she did not preplan. Mary and her family can work with an elder law attorney to utilize a “gift/note” strategy. This strategy can usually protect about 40-50% of the assets.
One of the most valuable tools in allowing for any planning or strategy is to have a power of attorney (POA) which offers the surrogate the power to act on behalf of the person needing care. A POA is essential to successfully manage the Medicaid planning process.
There are many more details and strategies that need to be determined based on the individual situation of the potential applicant.
Anyone considering this route should speak with a Medicaid specialist and/or an elder law attorney to make sure they are utilizing every possible option to protect their assets.
For information on Community Medicaid which covers care at home, instead of in a nursing home, for those who qualify, go to this article.