Tuesday, June 11, 2013

How No-Penalty Gifts can help you pay for Nursing Home Care



Many people think that you are not allowed to make any gifts if you need nursing home care. But this misunderstanding can cost your family dearly. The truth is that gifts are allowed in many situations, and may be pretty much required if a nursing home resident is married.
Nursing home care is very expensive. In Pennsylvania the average cost is around $100,000 a year. Medicare does not pay for most care in a nursing home, and few individuals have private insurance coverage. 
Gifts Can Help You Qualify For Medicaid Sooner
Medicaid is a safety-net program that does pay for nursing home care, but only after the resident’s assets have been reduced to poverty qualification levels. Until then, families are forced to pay privately for the care that is needed. The result can be financial devastation.  
But appropriate gifting can help you qualify for Medicaid without spending all of your financial resources on your care. The allowance of gifts is actually built into the Medicaid rules.  
By making gifts you reduce your financial resources to the level required to qualify for Government Medicaid assistance to help pay for the costs of your care. In some situations, gifts made within 5 years of an application for Medicaid can make you ineligible for benefits. But in other cases, there is no penalty period and Medicaid law actually encourages gifts as a matter of public policy.
For example, gift transfers are the means provided in Medicaid law to avoid impoverishment of the spouse of a nursing home resident. The law also authorizes gifting in many other situations such as transfers to a pooled trust, a caregiving child, or to a child with special needs.  
If you need nursing home care or require care at home or in other settings, you need to consult with an elder law attorney to find out whether gifts can help you get government financial assistance. Don’t put this off. Each day of delay can cost you hundreds of dollars.
Gifts are Allowed to Protect Your Spouse from Impoverishment
If you are married, it is important for you to understand that gifts can protect your wife or husband’s financial security in the event you need nursing home care. Here is how the law works.
When a married individual needs long-term nursing care, the cost of care can quickly jeopardize the essential financial security of the spouse at home. In order to limit the specter of “spousal impoverishment” both federal and state Medicaid rules are designed to protect some minimum levels of income and financial resources for the at-home (“community”) spouse. The amount of protected resources is commonly called the “spousal share.”
The spousal share is established based upon the level of a married couple’s available resources on the date that one of them is admitted to a nursing home. In 2013 the minimum spousal share is $23,184 and the maximum spousal share is $115,920.
Often, assets have to be gifted from the institutionalized spouse (IS) to the community spouse (CS) in order for the IS to obtain Medicaid eligibility. Such gift transfers are required because the IS is only permitted to have a limited amount of resources, typically $2,400, in his or her ownership. Assets in excess of this amount must be transferred to the CS as a requirement for Medicaid eligibility.
Asset transfers to the CS are also authorized in some situations to provide additional income for the maintenance needs of a low income CS. All transfers must take place in conformity with federal and state Medicaid spousal impoverishment rules. 
Here is a simple example (although most situations are more complicated):
John owns $15,000 in available resources (a bank account) when he has a stroke and enters a nursing home. His wife, Jane, owns $5,000 in her bank account. The couple’s total available resources for purposes of determining John’s financial eligibility for Medicaid long term care benefits is $20,000.
Since the total value of the couple’s resources is below the minimum spousal share, John should be immediately financially eligible for Medicaid except for the fact that he has more than $2,400 in resources.  In order for John to be eligible for Medicaid his resources must be reduced by transferring at least $12,600 from John’s bank account to Jane. 
Federal law (42 U.S.C. § 1396r-5(f)) and Pennsylvania Medicaid regulations (55 Pa. Code §178.125) specifically authorize you to make this type of gift  for the purpose of gaining eligibility for Medicaid. It is not prohibited and no penalty is applied – it is required to establish and protect the spousal share.  
Making Gifts to People other than your Spouse
There are other circumstances where federal and state Medicaid laws and policies authorize and encourage no-penalty gifts to persons other than your spouse. These include:
1.      Transfers to “pooled trusts.” For more on transfers to pooled trusts and Pennsylvania law see Lewis v. Alexander, 685 F. 3d 325 - Court of Appeals, 3rd Circuit 2012, http://tinyurl.com/llst88d, a case which held that various provisions of a Pennsylvania law (Act 42 of 2005) which attempted to restrict transfers to pooled trusts were preempted by federal Medicaid law.  
2.      Transfers of resident property to an individual’s child who is under 21 years of age, or blind or permanently and totally disabled. See 55 Pa. Code § 178.104.
3.      Transfers of resident property to a sibling who has an equity interest in the home and resided there for at least 1 year immediately before the date the Medicaid applicant became institutionalized. See 55 Pa. Code § 178.104.
4.      Transfers to a son or daughter of the individual who resided in the individual’s home for at least 2 years immediately before the date the individual became an institutionalized individual and who provided care to the individual which permitted the individual to reside at home rather than in an institution or facility. See 55 Pa. Code § 178.104.
5.      Transfers to a trust for the sole benefit of the individual’s disabled child. See 55 Pa. Code § 178.7(f).
The Importance of Planning in Advance
Gifts can protect your family by helping you qualify for Medicaid more quickly. But you need to do some advance planning - because you may not be competent to make a gift when you enter the nursing home. If you are not competent someone else needs to have the authority to make gift transfers for you.  
You can give your spouse, your child, or someone else this authority if you plan in advance and sign a power of attorney document that specifically authorizes gifting. You can restrict the gifts in any way you feel is best. For example, your power of attorney might say “I authorize my son as my agent to make gifts on my behalf in any amount provided that gifts may only be made to my wife.”  
Most power of attorney documents do not include this type authorization for gifts. And many lawyers don’t understand why it is needed. You need to make sure that you bring up the issue with your lawyer if your lawyer doesn’t bring it up first.
This article has discussed gifts that are authorized and which can be made without penalty for purposes of Medicaid eligibility. In other situations, gifts that do incur a penalty may also make sense as part of a plan to protect your family’s financial security. The rules are complicated and can change over time. It is best for you and your family members to discuss any proposed gifts with your lawyer before they are completed.   
The Bible says “It is more blessed to give than receive.” The Medicaid rules sometimes echo that sentiment.   

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