As we age, we have
to face an unpleasant reality of life - we are likely to need long-term care
services before we die.
“Long- term care”
means the type of care you need if you have a prolonged physical illness,
disability or severe cognitive impairment (such as Alzheimer’s disease) that
keeps you from living independently. As a result, you need assistance carrying
out basic self-care tasks, including feeding, bathing, dressing, personal care,
and transferring. Long-term care is sometimes referred to as “long-term services
and supports.”
The costs can be
overwhelming; the burdens on our loved ones enormous.
An elder law
attorney can help ease those costs and burdens. This article will discuss three
techniques that elder law attorneys use to help families protect themselves
against the financial cost of long-term care once the need for that care has
arisen. These strategies are just part of the planning arsenal that is
available. They can be used in a time of crisis. But, of course, it is best to
plan early, rather than wait for a crisis to happen.
The planning ideas
discussed below focus on qualifying for the government’s Medicaid program to
help protect the financial security of an individual (known as “the community
spouse”) who is married to a nursing home resident. But these techniques can be
adapted for unmarried individuals and for those persons, married and unmarried,
who are receiving care at home.
WHO PAYS
FOR LONG-TERM CARE?
The average cost of
nursing home care in Pennsylvania is now over $125,000 a year (in 2019). Not
many Pennsylvanians can afford to pay that kind of cost for long. Privately
paying for your care involves spending your savings and liquidating certain
other assets to pay the nursing home or in-home caregivers each month. At an
average cost of over $10,000.00 a month for care in a Pennsylvania nursing home
the assets that you have accumulated during your life can be quickly depleted.
When a married
couple is facing a spouse in a nursing home, to protect the financial security
of the “community spouse” (i.e. the spouse not requiring long-term care,), at
least some of that cost may be shifted onto a third party as soon as
possible. Potential third-party payers include Medicare, private
insurance, and Medicaid.
Most seniors have
Medicare financed coverage as their primary payer of health care costs. But
Medicare does not pay for long-term stays in a nursing facility. At a maximum,
and only after meeting certain qualifications, Medicare may pay up to 100 days
in a nursing home.
Another possible
payment source is insurance. While standard health insurance doesn’t cover
nursing home costs, healthy individuals can buy special long-term care
insurance that does. But few seniors have this kind of coverage. It’s expensive
and underwriting standards can be difficult to meet. And premiums have
historically continued to increase. As a result, few seniors are covered
by long term care insurance.
USING
ASSETS TO PAY OFF DEBTS AND EXPENSES
By using at risk
assets to pay bills prior to applying for Medicaid (but after the
institutionalization date to a skilled nursing facility, also known as the
“snapshot date”) the community spouse can reduce the demands on the assets he
or she needs to spend on care under the Medicaid spousal impoverishment rules.
For example, a couple may elect to pay off existing debts and/or to prepay real
estate taxes, insurance, or other large bills.
Example: John
and Marian Jones have a home and $100,000.00 of countable savings when John
enters a nursing home for a long-term stay. Under Medicaid spousal
impoverishment rules, Marian is allowed to keep $50,000.00 as her protected
allowance and John is permitted to retain $2,400.00. They have $47,600.00 in
excess resources that prevent John from being eligible for Medicaid.
After John’s
admission to the nursing home, Marian spends the $47,600.00 excess by paying
off the mortgage on the couple’s home, some credit card debt, and by making an
advance payment of real estate taxes. Because Marian now has only $50,000.00,
and John has only $2,400.00 left, John is eligible for Medicaid.
BUYING
ASSETS THAT ARE NOT COUNTED BY MEDICAID
Medicaid
eligibility rules do not count certain assets such as a home, one vehicle, and
personal effects. Therefore, in appropriate cases a community spouse might take
money from countable savings to buy a more expensive home; repair or improve an
existing home; or buy a new car, new household furnishings, or personal
effects. Medicaid rules do not restrict spending countable assets on
non-countable ones of equivalent value. Money spent on non-countable assets
needed for the community spouse’s use can accelerate Medicaid qualification.
Additionally,
irrevocable funeral and burial arrangements can be pre-planned and funded for
the institutionalized spouse and/or the community spouse. Medicaid does not
count these irrevocable funeral assets, provided that they fall under the
limits set forth each year.
Example: In
the John and Marian example above, after John’s admission to the nursing home,
Marian could spend the $47,600.00 excess on a new furnace for their home, a new
car, and irrevocable funeral and burial expenses. Because of this allowable
spending John is now financially eligible for Medicaid.
CONVERTING
COUNTABLE ASSETS TO INCOME
Some strategies are
designed to convert excess assets into income for use by the community spouse.
In order to avoid a Medicaid penalty, the community spouse must receive
something of equal value in exchange for the converted assets.
A conversion
strategy that is frequently used involves annuities. Annuities are
contractual arrangements in which an individual pays a lump sum to receive a
future stream of income in return. They are offered in a variety of forms by
commercial financial entities, and can involve poorly understood consequences
and costs to the consumer.
Most annuities are
inappropriate vehicles for Medicaid planning. But there are particular
annuities that conform to the specific requirements of Medicaid law that can be
used to protect all of a couple’s excess resources for the community spouse.
Although savings are immediately and substantially reduced, the community
spouse’s income is increased by a more modest but recurring amount. The at-home
spouse can either spend that income or reinvest it, effectively recouping all
of the assets used to purchase the annuity.
In the typical
scenario, after the institutionalized spouse enters the facility, the community
spouse, acting under the guidance of an elder law attorney, liquidates the
couple’s excess resources and uses the funds to purchase an irrevocable,
non-assignable, non-transferable annuity that meets all of the requirements of
the Deficit Reduction Act of 2005. If done correctly, there is no transfer
penalty, and, since the annuity payments are payable to the community spouse,
the payments received are income to the community spouse and do not impact the
Medicaid eligibility determination.
Example: Let’s
go back to John and Marian. What if John and Marian do not have expenses to
pay, already have a brand-new vehicle before the nursing home admission, their
house was recently updated, and they paid for their final expenses years ago?
There is another choice rather than spending the $47,600.00 on care costs.
Annuity planning may be appropriate for John and Marian.
Marian could
purchase a Medicaid Compliant annuity that satisfies all of the requirements of
the law with the excess $47,600.00. The annuity will pay her equal installments
of income each month for a determined period. For example, she could receive
payments for 5 years of approximately $793.33 a month. These funds would be
saved from the cost of her husband’s care and allow her to maintain her
standard of living in the community.
Medicaid does have
a 5-year look-back for gifts, meaning gifts made within 5 years of applying for
benefits will create a penalty during which time you are not able to receive
Medicaid benefits. However, there is no penalty for gifts of assets between
spouses.
Additionally, with
a single individual, a variation of an annuity plan that includes gifts to
other family members can be completed if an individual has enough assets to pay
through a penalty for those gifts. This gift annuity planning is highly
specialized and should only be implemented under the supervision of an
experienced elder law attorney.
IMPORTANT
NOTES
Don’t try the
annuity conversion strategy or the other techniques mentioned in this article without
expert help from an elder law attorney who knows the rules in the Medicaid
applicant’s state inside and out.
The Certified
Elder Law Attorneys at Marshall, Parker and Weber understand these planning
techniques. In fact, Attorney Matt Parker was the attorney on the precedential
case of James v. Richmond in 2005 that HELPED established the use of Medicaid annuities.
It’s easy to make a catastrophic mistake by buying the wrong annuity or an
annuity that does not contain required special Medicaid provisions or which was
purchased at the wrong time.
Importantly, there
is different planning that can be done before a time of crisis to help protect
assets from the cost of long-term care. This planning can include irrevocable
Medicaid asset protection trusts. It also can include a financial power of
attorney that can allow someone else (your “Agent”) to step into your shoes and
complete any of the planning discussed in this article on your behalf.
Medicaid
qualification rules vary from state to state and change over time. This article
is based on Medicaid rules in effect in Pennsylvania as of October 2019. Be
sure to consult with a Medicaid experienced lawyer in the state where the
Medicaid applicant resides to find out about the rules in that state and
to help you get the planning assistance you need.
This article lists
just a few of the planning strategies available to you under the Medicaid
statute and regulations. Each family situation is different and the best
solutions for you will depend on your unique circumstances. Consult with an
elder law attorney who is experienced in Medicaid issues.
If the person in
need of care resides in Pennsylvania, Marshall, Parker and Weber can help. We
have been helping families get through the long-term-care maze for over 35
years.
(This is a 2019 update of
an article that previously appeared on this blog.)
