- Who pays for nursing home care?
- Countable and Exempt Assets: What can you protect?
- Special Protections for Spouses: What can your spouse keep?
- Transfer Rules – Why can’t I just give my assets away?
- Estate Recovery – Can the State take my home or farm?
Medicare: Medicare is a federally funded and administered health insurance program for folks over age 65 years old. There are no financial qualifications for Medicare, just an age requirement. For a senior in need of nursing home care, Medicare may only pay for up to one hundred days of skilled care. This limited benefit applies only if you have had a minimum hospital stay of three days and if you have been transferred into a nursing home for skilled care, such as physical rehabilitation following a hip fracture. Only the first 20 days are completely covered. Thereafter, a deductible applies which may be paid under your Medicare Part B supplemental insurance policy, if you have purchased one.
Medicaid: Medicaid is a federally funded health insurance program administered by each state. Assuming that medical eligibility for nursing home care has been established, Medicaid will pay for nursing home care only if the senior meets certain financial requirements. Generally, you are financially eligible for Medicaid paid nursing home care if your countable assets are less than $2,000 and your monthly income is less than the monthly Medicaid reimbursement rate.
Generally, there is a “gap” between where Medicare stops paying and Medicaid starts paying. This “gap” is often filled by privately paying for care. This process is often referred to as “spending-down” the senior’s assets. Once the senior’s lifesavings has been spent down to $2,000, Medicaid will pick up the nursing home bill, unless a transfer penalty applies.
To determine financial eligibility for Medicaid, assets are split into two categories: Countable and Exempt.
Exempt Assets include: (This is what you can keep for now)
- Residence (equity less than $500,000 and intent to return home)
- Farm - if the farm is your residence (equity less than $500,000 and intent to return home) but limited only to all land contiguous to the residence
- Household goods and personal effects
- One automobile
- Cash surrender value of life insurance policies with a face value of less than $1,500
- Irrevocable prepaid funeral contract and burial trusts
- Burial spaces for applicant, spouse and immediate family
- $1,500 designated as a burial fund for applicant and spouse
- Certain types of Irrevocable Trusts
- $2,000 in countable assets as defined below
Countable Assets: (This is what you must spend)
- Generally, property, cash and financial assets that can be turned into cash are countable assets, unless they are exempt under the rules
- Cash, checking and savings accounts
- Money market and credit union accounts
- Stocks, bonds and mutual funds, including U.S. Savings Bonds
- Certificates of Deposit
- Revocable Trusts
- Cash surrender value of life insurance policies if face value of policies exceeds $1,500
- Individual Retirement Accounts (IRA) and Pension Plans (401K 403B)
- More than one car – All ATVs, motorcycles, boats, campers
- Real estate which is not your residence
- Promissory notes, mortgages, land contracts
Assuming you are medically eligible for nursing home care, once your financial assets have been spent down to $2,000, you will be financially eligible for Medicaid to pay the nursing home care bill, unless a transfer penalty is applied.
For married couples, the assets of both husband and wife are counted together to determine Medicaid eligibility when one spouse needs nursing home care. However, there are protections to prevent “impoverishing” the spouse remaining at home. For example, the at-home spouse is permitted to keep a minimum of $21,912 in countable assets up to a maximum of $109,560 in countable assets. The at-home spouse also gets to keep the home, an automobile and the household furnishings.
To determine how much the at-home spouse gets to keep, all of the countable assets are added together and divided in half. One half of the countable assets may be kept; the other half must be “spent-down”, unless the spouse chooses to purchase a Medicaid compliant annuity (more on this later).
Let us consider John and Rose’s situation. John has Parkinson’s disease and has moved into a nursing home because his wife, Rose, can no longer provide the care he needs at home. Together, they own a well built home which they have lived in together for thirty years, one three year old car and household furnishings. They also have life savings totaling $122,000 which is in a savings account at a local bank. Medicaid rules allow John to keep $2,000 of their savings. Rose is allowed to keep their home, the car, household furnishings and $60,000. This is one-half of the remainder of their life savings after setting aside $2,000 for John.
The Medicaid caseworker told Rose that John will qualify for Medicaid once she “spends-down” $60,000 of their life savings. How Rose chooses to actually “spend-down” the $60,000 out of their life savings will have a dramatic effect upon her financial well-being for the rest of her life. For example, if Rose spends the $60,000 to pay for John’s nursing home care for ten months, at $6,000 per month, she will only have $60,000 in savings to live on for the rest of her life. Rose is only 73 years old and is in great health. Her mother and aunt lived well into their late 90s, and Rose thinks she will live into her late 90s, too. Another option that Rose could consider is spending the $60,000 to pay debts, such as the mortgage or unpaid taxes, trade in her old car in on a new one, buy new household furnishings and make repairs and improvements to her home, such as remodeling the kitchen and bathrooms, replacing the furnace and windows with energy efficient units, etc. Once all $60,000 has been spent, another application for Medicaid paid nursing home care can be submitted, and John should financially qualify for Medicaid at that time.
But what if “spending-down” $60,000 out of their life savings isn’t what Rose wants to do? Remember, she is only 73 and in good health and she expects to live into her late 90s. Even with a new car and a remodeled home, she has still lost half of her lifesavings. Plus, although Medicaid will pay for John’s care, John’s Social Security and pension check will have to be paid to the nursing home (more on this later). With the loss of John’s income and $60,000 from their savings, Rose is worried that she won’t have enough money to live on for the rest of her life.
Fortunately, there is another option available to Rose through an elder law attorney. Instead of “spending-down” $60,000 on nursing home care for John, a new car and improvements to her home, Rose could take $60,000 out of their lifesavings and purchase an annuity that complies with Medicaid’s restrictive rules on annuities. An annuity is an insurance product that is designed to provide the purchaser with a stream of income over a set period of time. The new Medicaid rules did away with the use of traditional commercial annuities. However, an elder law attorney can put clients in touch with insurance companies that sell these special annuities that comply with Medicaid complex annuity rules. A Medicaid compliant annuity allows the spouse living at home to receive payments over a set period of time. To comply with Medicaid, this type of annuity must be irrevocable, unassignable and must not have any cash value. Additionally, the annuity must name the state of West Virginia as the beneficiary for up to the amount of nursing home care provided to the spouse in the nursing home. The state would only have the right to receive this money if the at-home spouse were to die before the annuity finishes paying out. Thus, a short payout on the annuity is preferred.
In Rose and John’s case, by spending $60,000 to purchase a Medicaid compliant annuity, John immediately qualifies for Medicaid paid nursing home care in the month following the purchase of the annuity. Rose then receives three equal payments of about $20,000 per month for three months. At the end of the third month, Rose has received all of the $60,000 she had to spend down. Thus, with the help of an elder law attorney, Rose has been able to keep almost all of the couple’s life savings of $122,000!
Once the nursing home spouse qualifies for Medicaid paid nursing home care, Medicaid requires this individual to pay all but $50.00 of his or her Social Security check and pension check to the nursing home each month. However, Medicaid’s minimum Monthly Maintenance Needs Allowance (MMNA) will guarantee that the at-home spouse will have a minimum monthly income of $1,822 per month. To illustrate, assume that John, who is in a nursing home, has Social Security income of $1,200 per month and pension income of $500 per month. Also assume that Rose, who is at home, has Social Security income of $600 per month. In this case, Rose is $1,222 per month short of Medicaid’s MMNA amount of $1,822. Thus, John will only have to pay the nursing home $428 each month, after subtracting the $50.00 that John gets to keep each month. Please note that if Rose had a large mortgage on her home or if she had to pay fees to live in an assisted living facility, she may be able to keep more of John’s income to meet her living expenses.
If you are in poor health today
If you need nursing home care today, you generally can’t give your assets away today and qualify for Medicaid paid nursing home care tomorrow. Medicaid imposes severe Transfer Penalties for gifts and assets sold or transferred for less than fair market value. If you apply for Medicaid paid nursing home care today, gifts and transfers made at less than fair market value over the past five years are added up to determine if a transfer penalty must be imposed. For each $5,087 in gifts and asset transfers below fair market value, the senior is ineligible for nursing home care for one month. Here is how the Medicaid transfer penalty works:
Let’s assume that on August 31, 2004, Jean, a widow, sold her home to her son, Jim, for $1,000. Jim has allowed Jean to live in the home after he bought it. The fair market value of the home at the time of the transfer was really $100,000. Let’s also assume that Jean gave her daughter, Sue, all of her life savings of $60,000 on June 1, 2009. Sue deposited the money into her savings account to hold on to it for her mother, in case she needed it. The next month, at age 92, Jean has a stroke which leaves her paralyzed. After a brief hospital stay, Jean is transferred to a nursing home. Since Jean gave away her home and her life savings to her children, Jean is broke.
On August 15, 2009, Jean’s daughter, Sue, applied for Medicaid for Jean. Since Jean’s daughter applied for Medicaid in August, all gifts and transfers for less than fair market value made in the last five years are added together and a transfer penalty applied as follows:
- House $99,000 / $5087 = 19.46 months
- Cash $60,000 / 5087 = 11.79 months
Thus, Jean is ineligible for Medicaid paid nursing home care for 31.25 months. So if Jean has no home and no life savings, how will she pay for nursing home care and where will she go if she can’t pay for it? Remember, Medicaid won’t pay for Jean’s nursing home care for over 31 months!
If Jean’s daughter had sought the advice of an elder law attorney, she would have had a better outcome. First, the elder law attorney would have helped her with the Medicaid application and would have advised her not to apply for Medicaid until September 1, 2009. By waiting until September 1st, more than five years would have passed since Jean gave her home to her son. Thus, the home would be protected and Jean would not have a transfer penalty imposed for the transfer of the home. However, Jean would still be faced with an 11.79 month transfer penalty from the $60,000 she gave to Sue.
Next, Sue would have learned that the 11.79 month transfer penalty can be removed by giving back the cash that Jean gave her. Finally, Sue would have learned that not all of the $60,000 had to be given back. By letting the elder law attorney help with the Medicaid application, Sue would be able to keep about $24,000 of the money Jean gave her in June, and Jean would qualify for Medicaid after six months.
As you can tell from the examples given, the Medicaid rules are tricky. If a mistake is made in what you transfer, when you transfer it or when you apply for Medicaid, harsh penalties can apply.
There are some important exceptions where the transfer penalty rules do not apply:
- Transfers between spouses
- Transfer of the home to a child under 21 or to a disabled child of any age
- Transfer of the home to a child who lived with the senior and provided in-home care for the past two years which kept the senior out of a nursing home
- Transfer of the home to a sibling with an equity interest in the home who lived in the home for one year prior to nursing home care
- Transfer of assets to certain excluded Irrevocable Trusts
If you are in fair health today
If you are in fair health today, now is the ideal time to pre-plan your estate to protect assets from the high cost of nursing home care. Although there are currently some legal loopholes which allow an elder law attorney some ways to save assets for folks already in a nursing home, it is reasonable to expect that law makers will close those loopholes in the future.
The best result for protecting assets from the high cost of nursing home care can usually be achieved by planning at least five years before you or your spouse need nursing home care. The first item to consider should be how to protect your home or farm. As you will read below in the Estate Recovery section, the State may have the right to impose a lien against your home for Medicaid nursing home costs. If the State pays for two years of care at a cost of $100,000, this amount could be put against your home as a lien after your die. Thus, the home would have to be sold to pay off the state’s lien, unless an exception applies. If your home is worth less than the lien, your family has essentially lost the home.
Estate recovery can be avoided by changing the ownership of your home or farm from a probate asset into a non-probate asset. You can accomplish this by transferring ownership to a child, while keeping lifetime rights to use the property or by adding a child to the deed as a joint tenant. You could also re-title your home or farm into the name of a trust for your benefit.
The next item to consider should be how to protect cash, bank accounts, certificates of deposit, stocks, bonds, etc. Although you could transfer these items to a child or add a child as a joint owner on the account, you give up all or part of your rights to these assets. Another option is to transfer these assets to an Irrevocable Trust created for your benefit. An Irrevocable Trust is a legal agreement created by you to hold your property and assets for your benefit. It is managed by a Trustee. The Trustee’s job is to manage your money and pay the income earned on it to you. Your Trustee could be your child, sibling, financial advisor, accountant or bank. A Medicaid compliant trust is Irrevocable, which means it cannot be canceled once it is created. With a Medicaid compliant Irrevocable Trust, you will retain the right to receive the income earned on the assets you put into the trust, but the principal deposited into the Trust is protected if you need nursing home care five years down the road. However, to get this protection, you must agree to let the principal stay in the trust. Therefore, you should only put assets in this type of trust that you won’t need to use to pay for living expenses.
Generally, the Senior’s home is not counted as long as he or she intends to return home, or as long as the Senior’s spouse, disabled child, or child under age 21 lives at home. However, if none of the above exceptions apply, and if the Senior has received Medicaid paid nursing home care, the State has the right to place a lien against the home to recover care costs. This is called Estate recovery. See West Virginia Code Section 9-5-11c. The State’s right to recover assets is limited only to probate assets. If the Senior’s home is owned as a life estate, owned with another person as a joint tenant, or owned by an Irrevocable Trust, the home is a non-probate asset which is not subject to Estate Recovery. Thus, the home would pass to others without the imposition of a lien.
Unfortunately, the State’s Estate Recovery right also covers life insurance policies owned by the Senior which exceed $25,000 (See Senate Bill No. 322) and also covers any other probate assets, such as, cars, bank accounts, stocks, bonds, etc., titled only in the name of the Senior. Again, changing ownership of these assets is important to eliminate the State’s Estate Recovery rights in case Medicaid paid nursing home care is required during your lifetime.
Long-term care at home
For a Senior needing long-term care at home, Medicare pays for skilled care at home (therapy, rehabilitation) and end-of-life care, also called “hospice” care. Generally, Medicaid will pay for long-term care at home under the Home and Community Based Waiver Program if the Senior is medically eligible, has less than $2,000.00 in countable resources and has gross monthly income of less than $2,022 per month. However, the State may have the right to place a lien against the Senior’s home to recover care costs provided under the Medicaid program. Once again there is a “gap” in payment and many Seniors must spend their assets to pay for long-term care at home. Each County Senior Center administers the Light House and Fair programs which are designed to provide low cost home health aides for Seniors who need at home care. Services provided under the Light House and Fair programs may only cost as little as $1.00 per hour. However, there is usually a waiting list to get into these programs. Please contact your County’s Senior Center to learn more.
Fortunately, for Wartime Veterans and the spouses of deceased Wartime Veterans who need long term care at home or in an assisted living facility, there is help. The VA Pension Benefit, sometimes referred to as the VA Aid & Attendance Benefit, provides an income benefit of as much as $1,949.00 per month, to those who qualify. Generally, you may qualify for the VA Pension Benefit if your countable monthly income is less than the amount of the monthly VA Pension Benefit and if your countable assets are less than $80,000 for most couples or $30,000 for most individuals.
If your countable assets exceed the eligibility requirements, you may transfer excess assets into a special kind of trust to become eligible for this benefit. If you meet the VA’s medical definition of needing “Aid & Attendance” or being “Homebound,” your countable monthly income may be reduced, dollar for dollar by your monthly out-of-pocket medical costs and in home care costs, if these costs are likely to recur during the next twelve months. If monthly out-of-pocket medical and in-home care costs exceed your monthly income, you may qualify for the maximum Pension benefit. If you are receiving care in an assisted living facility, you may be able to use those monthly out-of-pocket care costs to qualify for the VA Pension Benefit.
An elder law attorney can help you plan your estate by setting up a special kind of trust to help you qualify for the VA Pension Benefit.
Plan now for incapacity
Planning for incapacity is important. What if you were suddenly unable to make financial and healthcare decisions due to a brain injury, dementia, stroke, coma, etc.? You have the power to sign legal documents appointing someone to make financial and healthcare decisions for you under a power of attorney in case you become incapacitated. A general durable power of attorney is used to give someone the power to make financial decisions for you and to have access to your financial assets. A medical power of attorney is used to give someone the power to make healthcare decisions for you. Without these documents, it may be necessary for someone to bring formal court proceedings to become your guardian or conservator if you are unable to make financial and healthcare decisions due to a brain injury, dementia, stroke, coma, etc.
An elder law attorney can help you plan your estate by setting up a general durable power of attorney.
Although advanced planning for nursing home care is best done while you are still healthy, there are ways that an elder law attorney can help protect assets even if nursing home care is needed today. You have worked hard to put away a lifetime of savings for yourself and your family. Consider your options. Do you want to keep your lifesavings in the family or pay it to a nursing home? It is your decision. Do something about it while you still have time to plan.
The laws governing estate planning, trusts, Medicaid and other governmental benefits are very complex. You should consult an experienced elder law attorney about your unique situation to obtain legal advice. Do-it-yourself Medicaid planning is not advised. Medicaid rules are so complex that many attorneys refuse to offer advice to folks about them.
This information has been provided to you for informational purposes only and does not constitute legal advice. A free initial consultation is available with an elder law attorney at the Van Deysen Law Office, PLLC. Contact Us.