Be Nice to Me—I Pick
Your Nursing Home!
How to Provide for Your Parent’s Care without
Going to the Poorhouse
or the Nuthouse
by
Yale S. Hauptman, Esq.
Copyright © 2011 by Yale S. Hauptman, Esq. All rights reserved.
Published on Smashwords
Originally published in trade paperback by WoodPecker Press
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To order additional copies of the book, visit www.HauptmanLaw.com.
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The stories in this book are provided as examples. The names have been changed to protect the privacy of those involved. Any resemblance to actual persons, living or dead, is purely coincidental.
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Printed in the United States of America
Hoboken, New Jersey
Cover design: Nu-Image Design, www.nu-imagedesign.com
On the cover: Andrew Hauptman
Dedication
Dedicated to the memory of my grandparents
and in honor of my parents, without whom I would not be
the person I am personally and professionally.
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Personal Note from the Author
The book you are about to read is a compilation of individual articles written over a three-year period, which have appeared on my elder law blog. I have grouped the articles together in chapters by subject matter. This book can be read cover to cover, as would a novel, or it can also be used as a reference manual.
If you would like to subscribe to my blog and have posts delivered directly to your e-mail box, I urge you to go to www.hauptmanlaw.com. You’ll find a link on the home page prompting you to provide your name and e-mail address, and we will immediately add you to our list.
If you live in New Jersey and would like to know more about how we can help you and your family, you can reach us by e-mail at contact@hauptmanlaw.com.
Best regards,
Yale
Table of Contents
The Difference between Elder Law and Estate Planning
How to Plan for the Future
Is the Recent Change in Social Security Policy
a Sign of More to Come?
Is Medicaid Really Biased?
Paying for Nursing Home Care
Frequently Asked Questions about Medicaid
Medicaid Myths
Medicaid’s Division of Assets—What Is It?
What Is the “DRA”?
Guilty until Proven Innocent: How the Medicaid System
Differs from the Criminal System
Medicaid: The State’s Bizarro World?
Hope for Haiti: Despair for Mom?
Spent Down? Well, Maybe Not
Why Good Recordkeeping is so Critical to Medicaid
The Relationship between Gift Taxes and Medicaid
Medicaid’s Disabled Child Exception
Does an Inheritance Count for Medicaid?
Married—Well Not Really
Civil Unions and Medicaid
NFL Seat Licenses and Medicaid—Huh?
If Dad Needs Nursing Home Care, Will the State Take Mom’s Home?
Chapter 3 Medicaid: The Application
The Risk of Going the Medicaid Application Process Alone
A Medicaid Story that Starts Out Badly but Turns Out Just Fine
Assisted-Living Medicaid—The Risks of “Going It Alone”
Why Pay Someone to File a Medicaid Application I Can Complete Myself?
Chapter 4 Medicaid—The Strategies
Crisis Planning—Nothing Left But the House
The Home—To Transfer or Not to Transfer
What is a “Step Up in Basis” and Why Do I Want to Keep It?
How Home Ownership Can Be a Benefit in a Medicaid Spend-Down Scenario
Some Married Couple Spend-Down Options to Consider
How Can the Government Tell Me I Can’t Help My Family?
How We Saved a Family $240,000
How a Call from Ann’s Attorney Saved Her $90,000
Can I Be Paid to Provide Care for Mom?
Is My Family Business at Risk Because of Long-Term Care?
Dad Gets German Reparations Money—Does Mom Get to Keep It?
Can I Add My Children’s Names to My Bank Account to Protect It from Medicaid?
Long-Term Care Insurance—How Does Medicaid View It?
The Right Way and the Wrong Way to Reduce a Medicaid Penalty
Chapter 5 Long-Term Care Planning
Home for the Holidays
The Long-Term Care Perfect Storm
The Team Approach to Long-Term Care Planning
What Families Need to Know Before a Crisis Hits
Is Remaining at Home Always the Best Option?
Long-Term Care Planning—A Real-Life Picture
Multigenerational Homes—A Long-Term Care Solution? Maybe
I’ve Got a Living Trust, So I’ve Got Long-Term Care Planning Covered
The Second Marriage and How It Impacts Long-Term Care
Retirement Accounts—Should I Take More than the Minimum Requirement Distribution?
“But Mom Won’t Live to One Hundred—Or Will She?”
State Pension Crisis—How Will It Affect You?
If We Apply for Medicaid, Have We Given Up?
Why Do I Need a Will?
The Dangers of an Improperly Drafted Will
When Can an Alternate Executor Take Over?
If We Move to a New State, Do I Need a New Will?
Living Trusts
How Long-Term Care Can Destroy an Estate Plan
What Michael Jackson and Yung-Ching Wang Can Teach Us All
New Estate Tax Law in 2011
I Don’t Have an Estate Tax Problem—Do I?
Chapter 7 Estate Administration
What to Do When a Loved One Dies
Failing to Probate in a Timely Manner
How to Turn a Simple Estate Matter into a Complex Mess
How Harriet’s Estate Plan Destroyed Her Family
Why Edna’s Estate Plan Is No Better Than Harriet’s
We Don’t Owe Any Estate Tax, So What the Heck Is Inheritance Tax?
Chapter 8 Powers of Attorney, Health-Care Directives, and Guardianships
What Happens if My Bank Refuses to Honor My Power of Attorney?
Health-Care Directives—The Right to Make Medical Decisions
Understanding Life-Sustaining Measures
Guardianship as a Substitute for Poor Planning
Mom Needs Help but Won’t Accept It—Can We Apply for Guardianship?
The Big Difference between Medicare and Medicaid
Obamacare—What Do Seniors Need to Know?
I’m Turning Sixty-Five—Should I Enroll in Medicare?
The Best Kept Secret in Long-Term Care Planning
Can I Get Medicaid if I Already Get VA Benefits?
How VA Benefits Could Have Saved One Family
What Happens When a Veteran Dies While a Claim is Pending?
VA Extended Care Benefits
Chapter 11 The Effects of Alzheimer’s and Dementia
The Uncertainty of Alzheimer’s Disease
One of the Clearest Warning Signs of Dementia
Early-Onset Alzheimer’s
Alzheimer’s Disease and Government Shutdowns
Saving the Home
Reverse Mortgages
A Closer Look at Reverse Mortgages
Chapter 13 The Nightmare Stories
How to Lose Medicaid
Is a Child Responsible for Not Pursuing Medicaid for a Parent?
Transfer of Home Leads to Medicaid Mess
Assisted-Living Resident with No Money and No Medicaid
Declining Stock Market Leads to Long-Term Care Nightmare
“It’s Dad’s Money—He Can Do What He Wants with It, Right?”
Dad Owns His Home and Needs Care
The Right Way and the Wrong Way to Hire a Home Health Aide
Dangers of an Unlicensed Home Health Aide
Why Long-Term Care is a Woman’s Worst Nightmare
How $250,000 Went up in Smoke
The Second-Marriage Long-Term Care Problem
Laura’s Dilemma—Don’t Let It Be Yours
The Unmarried Sibling Problem
Jim’s Grandmother Owes Medicaid $50,000—Now What?
“But Mom Wanted Me to Have the Money”
Almost Divorced and then Tragedy Strikes
Better to Be Ahead of the Curve
How to Avoid Committing Medicaid Fraud
“I Was Just Following the Medicaid Caseworker’s Instructions”
No Money, No Penalty, No Medicaid
Danger of Acting on the Wrong Information
Tying Up Loose Ends
Chapter 14 Alternatives to Nursing Home Care
Continuing Care Retirement Communities
Dangers of Putting All Your Eggs in One Long-Term Care Basket
Adult Day Care
Respite Care
Chapter 15 Long-Term Care Insurance
Long-Term Care Insurance—The Basics
MetLife Drops Long-Term Care—What Does It Mean for You and Me?
The Government’s Latest Long-Term Care Solution
Chapter 16 Special Needs Planning
Disabled Child Receives an Inheritance—Will He Lose Government Benefits?
Should I Leave My Disabled Child’s Inheritance to Another to Hold?
Index of Essay Titles in Alphabetical Order
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Preface
Facing the enormity of long-term care, whether it be the financial, health-care, emotional, or psychological issues, is so overwhelming. As an elder law attorney, when I sit down with seniors and their families to explain how we can help them and guide them through that journey, we cover a lot of ground. There are so many factors and scenarios to consider. Planning for long-term care sometimes feels like trying to hit a moving target. Families rarely process it all in one sitting. It usually takes time and repetition to really understand what steps you need to take and why.
I know because I was once in their shoes—in your shoes. Nearly twenty years ago, I was a young attorney representing clients involved in motor vehicle accidents, what is known as personal injury law. I was a novice when it comes to long-term care and what was then a very new field of law called elder law. I also had the good fortune to have wonderful parents who paid for my college and law school education. Of course, this made my parents my clients for life for all legal matters, and that is how I stumbled on long-term care and the legal issues it raises.
My parents were caring, at the time, for both my grandmothers, who lived with them. When my paternal grandmother could no longer live at home, my parents were forced to move her to a nursing home. They turned to me for help getting through the daunting Medicaid process. A few years later, my maternal grandmother entered an assisted living facility, and for the next six years bounced from assisted living to hospital to nursing home and back again as her health steadily declined, until finally she, too, remained in a nursing facility.
That is how my family became my first client. I experienced the same sense of confusion and frustration that an increasing number of families suffer through every year, that my law firm and I help our clients with each and every day.
Yet, there are so many more Americans who we never reach, who don’t know that there is help out there and don’t know where to turn. It is for those people that I wrote this book. Many of the essays in each chapter are short real-life stories—some are what I would call success stories, and some nightmare stories. My purpose in telling them is not to provoke discussion or thought about long-term care, but to motivate you, the reader, to take action now. Providing care for an aging loved one can be one of the most trying times in anyone’s life, but it can be so much easier to get through if you are prepared for it and tackle it head on.
Finally, I want to acknowledge and thank all those who have opened up to me and shared their stories. It has been a privilege to work with so many who have allowed my law firm and me to be a resource for families facing an uncertain future due to long-term care needs.
Yale S. Hauptman
August, 2011
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Chapter 1
Introduction
The Difference between Elder Law and Estate Planning
When a new client comes to see us, very often the focus of attention begins with the will and estate plan.
Our clients will frequently say, “I want to make sure my assets pass to my family the way I want and that it be done with a minimum of taxes and other expenses.”
Sometimes, when I meet someone and tell them that I am an elder law attorney, they invariably reply, “Oh, you do wills and trusts, right?”
So I explain the difference between elder law and estate planning, as follows: An estate plan covers the scenario of, “What happens when I die?” In the case of your assets, how will they be distributed and to whom, and can we do it minimizing estate and inheritance taxes through the use of wills and trusts.
But in today’s world, increasingly, the bigger, more difficult question is, “What happens if I live?” By that I mean, what happens if I live but am not healthy and have increased health-care costs and need to rely on others for assistance, either temporarily or on a permanent basis. The estate plan does not address this need. An estate plan can help you answer the first question, but a long-term care plan can help you answer both the first and second questions.
Let’s put it another way. An estate plan insures that if you have assets when you die they will be passed in the manner you wish. The key word is “if.” The plan will not, however, guarantee that there will be anything left at that time to pass. Your assets could be mostly or entirely wiped out by a lengthy illness, hospital, and/or nursing home stay, leaving your spouse and other heirs with nothing. That is the dilemma in a nutshell.
So, when would you need an elder law attorney? And when would you need an estate planning attorney? If you have a level of assets sufficient to pay for long-term care under any scenario without running out of funds, then an estate planning attorney is most likely what you need. If, however, you cannot afford the $100,000 or more per year cost of nursing home care indefinitely ($200,000 or more per year in the case of a married couple), then you need an elder law attorney. In other words, can you pay that cost from your income—without dipping into your principal?
A real-life example can illustrate the dilemma. Mary and Jim live in a home valued at $400,000 and have $350,000 in additional assets. Jim is wheelchair bound and needs assistance, which to this point Mary has been providing. However, in recent months, Mary has shown signs of confusion and forgetfulness. She went to her doctor, who diagnosed her to be in the early stages of dementia.
An estate plan is important for Mary and Jim, but it won’t help them deal with the problems they are now facing. How will they afford the cost of nursing home care should either or both of them need it? Who will care for Jim—and Mary—when Mary’s dementia reaches a more advanced stage? Can they remain in their own home with assistance or will they need to go to a nursing home?
Mary and Jim need a life plan to meet their needs going forward, one that is tailored to their particular situation. Mary and Jim need to consult with an elder law attorney.
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How to Plan for the Future
In today’s ever more turbulent world, the idea of planning for the future can be daunting, but it has never been more important. But what does that mean? And is there a certain age at which it is more appropriate? The answer is that preparing a legal and financial plan is critical regardless of age or health status. There are some things to consider:
1. Update your estate plan. A good estate plan should include a durable power of attorney for health-care decisions and a living will, which is a set of instructions concerning what treatment you do or do not want in certain situations. An estate plan will also include a will and perhaps trusts, but should also include designations of beneficiaries for your assets that pass outside of your will.
2. Begin planning for retirement. It’s never too early. We’ve all been hearing about the bleak future for Social Security, which makes it all the more important to begin planning and saving far in advance of retirement. Sitting down with a financial planner to explore investment options is a first step.
3. Consider long-term care insurance. Become educated about long-term care insurance to be able to make an informed decision as to whether or not it is right for you. Keep in mind that it may not be necessary to insure 100% of the cost of long-term care. The younger you are when you buy it, the less it will cost. Wait too long, however, and you may be too old to qualify.
4. Discuss long-term care planning with your family. So many families wait until a crisis to discuss issues of long-term care planning. Don’t wait—do it now. Let your family members know your wishes (even if they are spelled out in your estate planning documents) and make sure they know where you keep your important legal and financial documents in case they need to access them in an emergency.
5. Consult with an elder law attorney. Good elder law attorneys who take a holistic approach to meeting their clients’ needs will not only make sure the proper legal planning is in place, but will also refer their clients to the appropriate professionals to take care of insurance, investment, and social service needs. Consulting with an elder law attorney is always a good place to start when planning for the future.
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Is the Recent Change in Social Security Policy a Sign of More to Come?
A recent decision by the Social Security Administration (SSA) to add new medical conditions to its list of “compassionate allowance” conditions, including forms of Alzheimer’s disease and dementia, may signal a change in how the government views and treats those illnesses from which a disproportionate number of long-term care residents suffer. Although this change will by no means solve the growing long-term care problem in this country, it just might be the beginning of a shift in thinking—maybe.
Social Security disability and supplemental security income benefits are paid to those who have been deemed disabled and no longer able to work. The application process, however, is a complex and drawn-out one, often resulting in initial denial and then an appeal process that can take years. However, approval often opens the door to other government benefits, such as Medicaid and Medicare. A decision of disability by the SSA is proof of disability for many other state and federal programs.
The “compassionate allowance” program is Social Security’s attempt to streamline the process and recognize certain conditions that clearly result in disability without extensive medical documentation, so that applicants can get much-needed benefits quickly. What is interesting is that early-onset Alzheimer’s disease (Alzheimer’s affecting those under age sixty-five) and mixed dementia (as in persons suffering from dementia with more than one origin, e.g., Alzheimer’s and vascular dementia) appear on the most recent list of thirty-eight new conditions that the SSA deems to be so serious that it considers people with these diagnoses to “obviously meet disability standards.” The complete list of 88 compas-sionate allowances can be found at:
http://www.socialsecurity.gov/compassionateallowances/conditions.htm
One of the problems with the long-term care system is that govern-ment benefits available to pay for care discriminate based on disease. Alzheimer’s, dementia, and the like, which affect mental capabilities, are so often treated differently from diseases and illnesses, such as cancer, which are physical. Medicare, for example, provides no coverage for long-term care, which is typically needed by sufferers of Alzheimer’s and dementia. This is a big reason why families so often become bankrupted by long-term care needs and why planning ahead is so critical. So, when a government agency decides to include these illnesses in its list of “fast track” diseases, it is noteworthy because it may mean these illnesses will someday be treated equally with cancer in terms of what Medicare and traditional health insurance may cover in the future. We’ll need much more than that to make a dent in the problem, but you’ve got to start somewhere. And Social Security is as good a place as any.
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Is Medicaid Really Biased?
So often, when families call in the midst of a long-term care crisis, their primary concern, they tell us, is to care for their loved one at home. For some, that will be impossible because their medical needs require nursing home care. But for others, home care is possible. Their problem, however, is Medicaid’s bias toward institutional care.
What do we mean by that? First of all, when we talk about Medicaid—the primary government program that covers long-term care—we aren’t talking about one single program. Medicaid actually consists of a number of different programs under the “Medicaid umbrella.” All are needs-based programs, meaning there are strict financial tests, but there are some significant differences in the rules from one to the next. An important difference is that when someone meets all the eligibility requirements for institutional Medicaid (care administered in a nursing home or state institution), the state must cover the applicant’s care costs.
That is not true for home-based and other community Medicaid programs. Most states limit the number of residents for whom those benefits will be provided, resulting in lengthy waiting lists. If you have spent all your money in order to qualify for Medicaid at home, you could still wind up on a waiting list. And if you can’t wait because your health is at risk, then your only alternative is to go to a nursing home. That is how the system drives people to institutional care.
In recent years, there has been increasing discussion about whether this bias is what the government really wants. Isn’t it less expensive to administer care at home, which would then cost the state less money? That is a debate that you’ll hear more of as the federal and state governments struggle with budget deficits and with trying to keep costs down. We have already seen, in the past five to ten years, an increase in state spending on home- and community-based programs. But some lawmakers fear what they call the “woodwork effect.” If they expand these programs, giving people what they want, more will be encouraged to apply, and the costs will thus rise. People will be “coming out of the woodwork,” so to speak. (Makes you wonder how much the government really cares.)
That premise is debatable. A 2009 University of California study found that expanding home-based care programs saved states money in the long run. There were additional “start up” costs for these new programs, but over time the additional expense paid for itself because, the study found, the cost of home care is cheaper than institutional care.
As we see 77 million baby boomers starting to turn sixty-five, the discussion will only intensify. The long-term care problem isn’t going away.
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Chapter 2
Medicaid—The Rules
Paying for Nursing Home Care
Paying for nursing home care is a huge concern for many people today. Not everyone has a long-term care insurance policy, nor do they have enough funds to privately pay for their care.
In a nursing home situation, Medicare might pay for skilled nursing care, but only for a short period of time. Most people in a nursing home are receiving custodial care. Medicare does not cover custodial care. That is when the Medicaid program becomes necessary.
What is Medicaid? Medicaid is a benefits program that is cofunded by the federal and state governments and administered by each state. The basic rules of the program are determined by federal law, but many other rules are left to the states to determine. For this reason, Medicaid programs vary, in many respects, from state to state.
The Medicaid program will pay for long-term care in a nursing home once you’ve qualified. That stay may be caused by Alzheimer’s or Parkinson’s disease, illnesses for which there is no known cure. The patient needs help with what we call the activities of daily living—eating, dressing, bathing, walking, and toileting. This is what we call “custodial care.” Medicare does not pay for custodial care. In that instance, you’ll either have to pay privately (i.e., use long-term care insurance or your own funds), or you’ll have to qualify for Medicaid.
Why seek advice for Medicaid? As life expectancies and long-term care costs continue to rise, the challenge quickly becomes one of how to pay for these services. Many people cannot afford to pay $8,500 to $10,000 per month or more for the cost of a nursing home, and those who can pay for a while may find their life savings wiped out in a matter of months—rather than years.
Fortunately, the Medicaid program is there to help. In fact, in our lifetime, Medicaid has become the long-term care insurance of the middle class. But the eligibility to receive Medicaid benefits requires that you pass certain tests on the amount of income and assets that you have. The reason for Medicaid planning is simple. First, you need to provide enough assets for the security of your loved ones—they too may have a similar crisis. Second, the rules are extremely complicated and confusing. The result is that without planning and advice, many people spend more than they should and their family security is jeopardized.
Elder Care Point: Many people cannot afford to pay $8,500 to $10,000 per month or more for the cost of a nursing home, and those who can pay for a while may find their life savings wiped out in a matter of months.
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Frequently Asked Questions about Medicaid
Q: Once I qualify for Medicaid, will the quality of care I receive be substandard?
A: No. It is illegal for a facility to discriminate against Medicaid recipients. By law, Medicaid patients must receive the same level of care as private-pay residents.
Q: Is a married couple always required to spend down half of their assets before qualifying for Medicaid?
A: Not always. In fact, oftentimes couples have over $100,000 and qualify for Medicaid benefits without spending a penny. Although couples must meet income and asset criteria before one of them qualifies for benefits, federal and state laws were written to protect individuals from becoming impoverished if their spouse needs nursing home care. Medicaid planning is like tax planning. Legislation has provided legal exceptions to the general rules, which, with good advice from a knowledgeable professional, can save families thousands of dollars.
Q: Is it true that under current Medicaid laws a parent cannot make financial gifts to their children once they have entered the nursing home?
A: No. In fact, a proper gifting program can be part of a Medicaid planning technique. At the time an applicant applies for Medicaid, the state will “look back” five years to see if any gifts have been made. Any financial gifts or transfers for less than fair market value during the five-year look back may cause a delay in an applicant’s eligibility. A proper gifting program requires calculating the penalties before making gifts.
Q: Can’t I make gifts of $13,000 per year and still get Medicaid benefits?
A: No. The $13,000 per year gift people ask about when discussing Medicaid is a gift tax exclusion number. That same gift, however, could very well cause a Medicaid penalty or waiting period for benefits. Medicaid rules say we take the amount of the transfer and divide by the monthly average cost of nursing home care. Some states use one statewide average. A minority of states (New York is an example) break up the state into regions, and use a different number for each region. The resulting number is the “penalty.” Although a $13,000 gift will not cause you to pay gift taxes on it (from a tax-law perspective), it may cause a Medicaid transfer penalty.
Q: A Medicaid applicant’s house is considered “exempt” under Medicaid laws. Can an applicant give their house away without incurring penalties?
A: Probably not. Any assets that are given away (personal property or real property) are considered gifts. (Medicaid’s term is “transfer for less than fair value.”) If an applicant gives his house away, the state will assess a penalty, a period of ineligibility, based on the fair market value of the house at the time it was transferred. There are certain transfers that are exempt from the transfer rules. A qualified elder law attorney can review with you whether any of these exceptions apply to you and your family.
Q: Once my spouse is approved for Medicaid, can I gift my assets away?
A: It depends on your state’s laws. Once the “institutionalized” spouse has been approved for Medicaid, the “community” spouse’s assets are no longer a part of the ongoing continuing eligibility for the “Medicaid” spouse. This is called “division of assets.” A transfer of assets by the community spouse after the division of assets occurs would cause a Medicaid transfer penalty for the community spouse, but not the Medicaid spouse, although some states challenge this because the rules are a bit ambiguous.
There are a number of steps a Medicaid applicant can take to preserve their assets, including gifting strategies, personal care contracts, raising the community spouse resource allowance, etc. What you need to remember is that the laws are constantly changing, and the planning your neighbor did for their mother six months ago may not be proper for your mother tomorrow.
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Medicaid Myths
Medicaid was considered a complicated program when President Lyndon B. Johnson first signed it into law in 1965, and it has grown more complex each year. Although it is a national program, it is administered by each state. The rules and regulations are constantly changing, and can vary widely from state to state. So, it’s no wonder there are many myths and inaccuracies surrounding the program.
Let’s take a look at some of the common misconceptions we hear frequently about Medicaid.
“My mother heard about someone who...”
All too often, we meet people who have heard horror stories about Medicaid from well-meaning friends or family, filled with inaccuracies and half-truths that frighten people into spending every last dime on nursing home care before turning to Medicaid for help.
Similar stories have also prompted people to assume that what worked for a friend will work for them as well. So, they may give their house or all of their assets to a child in hopes that impoverishing themselves will immediately qualify them for benefits. Unfortunately, they soon find out that these transfers mean they are unable to receive benefits for months or even years after the money is gone.
“My father is already in the nursing home, so there’s nothing we can do now.”
It’s true that families often wait longer than they should to plan for long-term care, but that doesn’t necessarily mean it’s too late to establish a good plan. A good rule of thumb is that the earlier a plan is begun, the more assets can be preserved, especially with the most recent Medicaid changes that extended the look-back time to five years and delayed the start date of the Medicaid ineligibility period.
So, when is the right time to plan? If you are in your sixties and in good health, now is the time. Ideally, you want to put a plan in place while you are still healthy to ensure maximum asset protection. That includes having a power of attorney in place for financial and health-care decisions—before a gradual or sudden decline in mental competency occurs. It’s also important to make sure the durable power of attorney contains the right language so Medicaid planning is possible.
You should immediately begin planning if you think that nursing home care will be needed by a loved one. This may be due to a diagnosis of a terminal or debilitating illness, such as Alzheimer’s, Parkinson’s, or ALS. These situations should be reviewed by an elder law attorney to determine the type of planning to be done.
“The Medicaid office can just give me the paperwork.”
Those who work in the Medicaid office cannot offer you legal advice. You may not learn about laws that may allow you to receive Medicaid and still keep part or all of your spouse’s income as well as your own. Nor can they represent you or give you advice on the laws that, depending on your specific situation, may allow you to keep all of your assets without spending down a single penny. Medicaid has rules and regulations in place to ensure families don’t lose everything to nursing home costs. An elder law attorney can explain how those laws may benefit you and your family.
“Our prenuptial agreement shows that everything belongs to my husband.”
We hear this often in cases of second marriages. The state generally does not take prenuptial agreements into consideration when determining Medicaid eligibility. All assets owned by either spouse are considered jointly owned and must be divided and spent down exactly as they would if there was no prenuptial agreement in place. The only way a prenuptial agreement is effective is if the couple actually divorces.
Proper estate planning and expert legal advice can ensure that the wishes of both spouses are honored regardless of which one needs nursing home care. The bottom line is that the new changes have made Medicaid planning more difficult—but not impossible. Individuals who plan early, while still healthy and years before nursing home care is needed, will be in the best position to preserve their hard-earned assets and maintain control of their financial affairs. Consult with an elder law attorney, who can help you navigate through the maze of rules.
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Medicaid’s Division of Assets—What is it?
Division of assets is the name commonly used for the method by which Medicaid attempts to protect the healthy spouse from becoming impoverished when the ill spouse needs to spend down in order to qualify for Medicaid. It applies only to married couples. The law intended to change the eligibility requirements for Medicaid in situations where one spouse needs nursing home care while the other spouse remains in the community (i.e., at home or in an assisted-living facility). The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
As a result of this recognition, division of assets was born. Basically, in a division of assets, the couple gathers all of their nonexempt (countable) assets together in a review. See box on the next page for a list of exempt assets.
The nonexempt assets are then divided in two, with the community (or at-home) spouse allowed to keep half of all countable assets up to a maximum of $109,540. The other half of the countable assets must be “spent down” until $2,000 remains. The amount of countable assets that the at-home spouse gets to keep is called the community spouse resource allowance (CSRA).
The maximum CSRA is $109,540 and the minimum is $21,912, meaning the community spouse gets to keep at least that amount, even if the couple does not have $43,824 ($21,912 ? 2). Some states don’t use the minimum, so the community spouse keeps the first $109,540, regardless of the total asset level. Also be aware that these numbers are adjusted for inflation each year; so, it is best to consult with a knowledgeable elder law attorney in your state.
Recognizing that assets fluctuate in value from month to month or day to day because of market conditions and spending, at what point in time does the state value the assets, or take its “snapshot of the assets?” The snapshot is taken as of the first day of the first month of continuous institutionalization. A stay in an acute-care hospital is generally not considered institutionalized. Residing in a Medicaid-certified nursing home, psychiatric hospital, or licensed special hospital is generally considered to be institutionalization under the regulations.
Because of the timing of the snapshot, opportunities often exist to maximize the amount the community spouse can keep under the CSRA, especially when institutionalization is anticipated because of rapidly declining health.
Elder Care Point: The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
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What is the “DRA”?
On February 1, 2006, the House of Representatives passed the 776-page Deficit Reduction Act of 2005 (DRA), which includes substantial Medicaid changes. President Bush signed the legislation on February 8, 2006, making the changes the law of the land. So, what exactly are these changes?
The first is that the Medicaid gifting or asset transfer rules have been changed so that the “look-back” period for all asset transfers is now five years. This includes any transfers made on or after February 8, 2006. Under the old rules, transfers that did not involve a trust resulted in asset transfer penalties of no more than three years. Now, under the new legislation, all asset transfers will have a look-back period of five years.
In addition, the start of the penalty period won’t begin until the Medicaid applicant is already spent down. For instance, under the old rules a gift of $65,000 would create a ten-month penalty (this penalty varies from state to state and is adjusted periodically) from the date of the gift.
Under the new law, that period of ineligibility will not begin until the gift has been made and the spend down has been completed. Only then will the penalty period begin, meaning that the gifted funds may have to be given back to pay for care. You can imagine the nightmares this might cause for unsuspecting nursing home residents and their families.
In addition, the new law makes any individual with home equity of more than $500,000 (or if the states elect, they can raise this to $750,000) ineligible for Medicaid. In other words, under the old law the home was an exempt asset. Under the new law the home may be an exempt asset, but only so long as the home equity is not greater than $500,000 (or $750,000). This limitation does not apply if the spouse continues to live in the home.
The new law changes the annuity rules. Annuities will be treated differently under the new law. In addition, the law will require the state to be named as the remainder beneficiary on annuities.
Partial penalties are no longer rounded down. Under the old law, if a transfer resulted in a partial month penalty, that number was rounded down to the lower whole number. Now, all fractions are counted. This is significant where penalties of less than one month result. Previously, they carried no penalty. Now they do.
The bottom line is that the new law greatly complicates the Medicaid application process. Individuals may find that inadvertent transfers may prevent them from qualifying for Medicaid. The advice of an experienced elder law attorney has become more important than ever under these new rules.
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Guilty until Proven Innocent: How the Medicaid System Differs from the Criminal System
“Mom and Dad have always been big believers in paying cash for everything. They don’t use credit cards,” John tells me.
“Don’t buy on credit,” they always said. Although that’s a pretty sound financial approach, it can get Mom and Dad into hot water when it comes time to apply for Medicaid. That’s because the Medicaid system works very differently from the criminal system. Let me explain.
First of all, you need to understand some basics about how Medicaid works. In order to qualify, one must spend down assets first. When essentially all your money is gone (in the case of a married couple the healthy spouse gets to keep a small amount), then Medicaid will kick in. However, if you have made transfers for less than fair value, what most people would call gifts, then you won’t be eligible for Medicaid. The greater those transfers are, the longer your ineligibility period will be.
And before the government will step in and pay for your care, it will insist that you show how you spent your money. And by “show,” I mean on paper, by producing each and every financial statement dating back five years from the date you apply for benefits. So, this is where my reference to the criminal system comes in. Everyone knows from grade school the concept of “innocent until proven guilty.” With Medicaid, however, that concept is turned around. You are “guilty” until proven “innocent” when it comes to transfers for less than fair value. By that, I mean to say, if you can’t prove what you have spent your money on, then Medicaid will consider it a transfer for less than fair value, a “gift” in essence, causing a denial of benefits.
Let’s now go back to John’s parents. As we know, cash is hard to trace. Think about it. If Mom and Dad have been withdrawing cash for their spending needs, how hard is it going to be to prove, going back as many as five years, what they spent that money on? All we’ll see on their bank statements are cash withdrawals. No explanations. Who keeps all those receipts? Hardly anyone. But that’s what Mom and Dad must do in order to preserve their eligibility for government benefits.
So, how do they avoid this potentially catastrophic result? They must better prepare themselves for the possibility of needing long-term care—well before they need it—and consulting with a knowledgeable elder law attorney, who can tell them how to spend down their assets and establish a clear paper trail while preserving their ability to qualify for government benefits, would be a wise move.
Elder Care Point: With Medicaid…You are “guilty” until proven “innocent” when it comes to transfers for less than fair value… if you can’t prove what you have spent your money on, then Medicaid will consider it a transfer for less than fair value, a “gift” in essence, causing a denial of benefits.
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Medicaid: The State’s Bizarro World?
You may be a fan of Superman or, like me, Seinfeld, and in that case, are familiar with the term “bizarro” The term is part of popular culture. Wikipedia’s definition of bizarro is a weirdly mutilated version of anything. I am fond of telling clients that entering the “Medicaid world” means one must throw out logic and lifelong habits, which can get you in trouble when attempting to obtain Medicaid benefits. I explain to our clients that much of what we tell them to do is necessarily counterintuitive to what they have done their whole lives because they are entering the bizarro world of Medicaid. Allow me to explain.
I had a conversation last week with a married couple for whom we are preparing a Medicaid application. John is in a nursing home, and Mary is healthy and living at home. I explained to them that Mary can keep half of their countable assets, in their case $75,000, but that they must spend down to below that dollar amount by the last day of the month directly preceding the month we want to qualify John for Medicaid.