No one wants to think about being old and needing constant assistance. No one wants to see their assets depleted by the cost of in-home care or nursing care that lasts for several years. Nor do most people wish to go through divorce. Fortunately, a viable strategy does exist to help supply the needs of both the person needing nursing care and the spouse left in the community.
The current average cost of in-home or nursing care in Texas is $6,000 per month; this increases to more than $15,000 per month in 20 years, assuming a 5% annual increase in the cost of care. Those ultimate charges would come to $180,000 annually.
Help from Medicare and Medicaid
Medicare provides some help, paying for up to 100 days of nursing home care, no more than that, and only if the care is necessary immediately after a three-day stay in a hospital. This applies to those who are over age 65 or have been qualified for Social Security disability for at least one year.
Most people pay for long-term care out of pocket until assets are depleted, unless they have long-term care insurance. After depleting assets, you can possibly qualify for Medicaid. Medicaid is the federal-state welfare program that steps in only after you have depleted your assets to $2,000 or less, and covers the cost of long-term care. However, there are also income limits. If you have a large pension, you wouldn’t qualify for Medicaid. That is where Medicaid Planning comes into play, for figuring out how to achieve asset protection for the spouse still living in the community, and for heirs.
Some individuals wish to gift assets to children or others in order to qualify for the program; however there is a 60-month look back period for all such transfers.
How to Make It Work
Depending on the amount of assets, if a person is already receiving custodial care, one possible strategy is to give away half of the financial assets and spend the other half over five years to pay for care out of pocket. This would qualify the gifted assets because the 5 year look back has been satisfied.
There are exceptions to the transfer rule, with the following gift recipients exempt from the look back or penalty:
- Your spouse (although, this may not help since the same limit on both spouse’s assets applies)
- Your disabled or blind child
- A special needs trust for the benefit of a disabled person under age 65
- Your child who is under age 21
- Your child who has lived in your home and taken care of you for at least two years, allowing you to avoid custodial care.
Some Cautionary Measures
The drawback to securing asset protection in this manner is that you no longer own the assets and may not have access or control of their investment or use. A better strategy is to gift the assets to a trust. This special needs trust must be irrevocable in order to qualify, since Medicaid ignores revocable trusts. The latter is simply an alter ego of the creator of the trust.
With the irrevocable special needs trust, you will not have access to the funds, so this requires that you have ample liquid assets outside of trust.
Spending down assets is often a viable method of qualifying for Medicaid, such as:
- Paying off your mortgage
- Making repairs to your home
- Buying a new automobile (assuming your current one is old)
- Buying a new home
Protecting the “Community” Spouse
These steps assume there is a “community” spouse as well as one in nursing care. Spending down should occur after the beginning of nursing care, since the community spouse will receive a “resource allowance” based on remaining assets for her use.
The following assets are not counted when determining Medicaid eligibility:
- Cash value life insurance
- Term life insurance
- Family business
- Mineral interests up to $6,000
- Federal income tax refunds
- Some annuities
- Automobile necessary for work
When one spouse remains in the community, a minimum monthly needs allowance of $2,739 applies. There is also a “protected resource amount” equal to half of the couple’s countable resources, not to exceed the maximum federal limit of $109,560 (PRA for 2009). There is also a minimum PRA of $21,912. If the community spouse has monthly income below the $2,739, the PRA is increased.
In general, the income rules are inapplicable to the non-institutionalized (at-home) spouse; this spouse is entitled to keep all of his or her periodic income and is under no obligation to contribute to the institutionalized partner’s care. Therefore, if a pay check has the name of the wife, then the income is hers alone. The monthly needs allowance pertains to income of the institutionalized spouse. However, this rule doesn’t address the issue of whether or not the institutionalized spouse has any income at all with which to pay for his care. He would need to deplete his assets to pay the bill if no income source was available.
Medicaid Cost Recovery
Governor Perry signed a bill into law in 2003 allowing recovery of funds spent on Medicaid nursing care from the estate of that person, including his home value above $100,000. If heirs earn more than three times the state poverty level, this $100,000 home exemption is taken away.
Divorce may be one alternative to assure asset protection for the community spouse, using a Qualified Domestic Relations Order to award a qualified plan to her. A disabled husband’s share of the estate could be contributed to a Supplemental Needs Trust that would provide additional support above Medicaid basics. Note that any balance in this trust must be given to Medicaid upon his death.
The disabled husband may qualify for SSI due to his impoverished financial condition, and for Medicaid as well. The Supplemental Needs Trust could provide additional special comforts and doesn’t count toward his resources. With qualification for Medicaid, the husband would also qualify for Medicare Part D low-income subsidy program (prescription drug program).
For certain individuals, qualifying for Medicaid and use of Medicaid Planning may be a viable strategy for guaranteeing asset protection. However, we suggest consulting an elder law attorney in order to assure that Medicaid planning is completed in an efficient, yet compliant manner.