Medicaid planning draws many attorneys, financial advisors, and others who market strategies and documents which purport to protect your wealth from the government should you ever need government assistance to provide nursing home or long term care for you (and your spouse if you are married).
This type of planning is often called Medicaid Planning or Elder Law. This is due to the fact that the primary payer of nursing home care for persons who do not have means is the Medicaid system. The Medicaid system is funded by the federal government and those funds and the programs are managed by the individual states. In Washington this program is administered by the Washington Department of Social and Health Services (DSHS).
The fear these planners instill in people is that if you need the government to pay for your nursing home care or for that of your spouse, then the government will “take” your wealth and real estate. If you search the internet you will find a broad range of truth to myths that lead to a lot of confusion in the area of Medicaid planning.
For purposes of this article, I will lay out some of the essential facts and some tried and proven solutions. However, this article is not intended as specific legal advice for your particular case. I recommend that you seek the advice of an attorney who has experience in this area in order to obtain specific advice that directly relates to your personal situation.
Medicaid Planning Considerations
When I work with clients who believe they may need Medicaid to pay for their nursing home care at some point in the future there are two primary considerations (along with many other considerations). The first consideration is whether or not the individual or the couple will qualify for Medicaid. The second consideration is if they qualify whether they have wealth that DSHS can lien or take from them for reimbursement of their care expenses.
Medicaid has some very strict qualification requirements. The system is designed to evaluate both your income and your financial resources. When making application for Medicaid DSHS looks at your income and resources on the first day of the month.
For monthly qualifying income, the system is complicated. But, your monthly income must be less than the Medicaid rate for nursing home care plus your monthly medical expenses. The reason it is complicated is that the Medicaid rate for nursing home care varies for different nursing homes. The specific rate for a given nursing home can be determined by contacting Washington DSHS. For example, if a nursing home you are considering has a Medicaid rate of $5,000 per month and your monthly out of pocket medical bills are $275 then your monthly income must be less than $5,275 to be eligible.
If your monthly income level does qualify you then you are allowed to keep $57.28 per month for your personal needs. There are also other allowances for your monthly income to be used for certain types of monthly payments such as government obligations, court costs and dependent support. If a person is married and qualified for Medicaid, your unqualified spouse is allowed to keep all income paid in the unqualified spouse’s name. There are some instances where an unqualified spouse with lower income may be allowed to keep some of their qualified spouse’s income. Whether or not the unqualified spouse can keep some of the qualified spouse’s income depends on a number of factors.
The limit for a person’s resources to qualify for Medicaid change from time to time. Most recently the limit for resources (assets, property, savings, investments) a person can have is $2,000. There are certain exempt resources. Furthermore, a spouse who is not applying for Medicaid is permitted to have substantially more resources.
The rules permit a married couple to have up to $54,726 which is considered a community resource allowance. This would usually be cash, bank accounts or investment accounts. There are a couple of exceptions to the community resource allowance if the spouse seeking Medicaid is currently in a hospital or nursing home or if the combined income of the couple is below a certain amount.
Reducing Excess Resources
There are a few ways to reduce excess resources to permit a spouse to be eligible for Medicaid. Some include spending resources on medical care, home repair, purchasing exempt resources or on goods and services. Some persons also purchase an annuity that will provide a monthly income that will not cause excess monthly income for Medicaid eligibility purposes.
Some of the resources that are exempt from the qualification requirements include your home, household goods and personal effects, some real estate sales contracts, a single car, regardless of value, life insurance with a cash surrender value of $1,500 or less, burial plots, burial plans. However, the home is only an exempt resource if the spouse or another dependent will continue to reside there or if a nursing home resident intends to return to the home. The exemption does not apply though if the Medicaid recipient has an equity interest of more than $552,000 unless an exception applies.
One of the biggest myths that I constantly must correct with clients is the myth that someone can transfer resources to another in order to become eligible for Medicaid. Any transfer in violation of these rules may result in a penalty. The most common penalty is a period of ineligibility. The determination of the ineligibility period depends on several factors and a calculation formula prescribed by DSHS. It is best to consult with a qualified professional before making any transfer of resources to determine the consequences.
Here are the facts. A home may be transferred to a spouse, a brother or sister who has an equity interest and has lived there at least one year, or a child who has lived in the home and cared for the parent for two years prior to the parent’s institutionalization.
In addition to the rules about transferring a home, a person can transfer resources to a spouse or disabled child with no Medicaid penalty. This can be done before or after someone becomes eligible for Medicaid. A person can give away exempt resources (other than a home) to anyone without penalty. A person can give away anything they want, of any value, to anyone or anything prior to 60 months before applying for Medicaid nursing home care.
Finally, if a client can qualify for Medicaid we must determine whether DSHS can place a lien on resources or make a claim against the estate after the person has died. The amounts that DSHS may recover depends on a number of factors. DSHS may often settle with an estate for much less than is owed to them. The most important thing to remember is that DSHS may only make a claim against property owned by the Medicaid recipient after their death. No claim can be made against property solely owned by a spouse or a child. This last sentence is why it is important to consult with a qualified professional about permissible transfers of property.
As you can see from this brief summary of the Medicaid rules it is a complicated system of rules, exemptions, exceptions and formulas. I recommend that you speak with a qualified attorney to discuss all of these considerations.
Please check back for the next article, Medicaid Planning Part 2: Save Your Assets Through Sound Tools and Strategies.