This is the first post in a two-part series. Click to read part two.
Let me share with you a hypothetical case involving an aged woman now in a nursing home. We will call her Sandy Fitch, a widow. Her son, Don, became seriously concerned about his mother’s assets after the family made the hard decision to move mom into the facility. Nursing homes are incredibly expensive and what assets mom has left could quickly be depleted before Medicaid provides assistance.
Don contacted an elder law attorney to learn if there is a safe way to protect assets and more quickly get Medicaid to help pay for Sandy’s long-term care without her becoming completely impoverished and leaving no legacy for the family.
While there are a number of options available to Sandy, from exempt planning to spend down, most often we will discuss the concept of asset transfer in this situation.
Asset transfer can be very complex so the topic of this article is explained in basic and general terms. Every situation is different and we urge you to consult with an elder law attorney before transferring assets.
First, understand that in order to qualify for Medicaid, a single person cannot have more than
$2,000 in countable assets.
Anything more must be “spent down” until it’s gone and/or invested in an asset that does not count under the program.
Sandy can also give all her assets away as a gift. However, this can create a very expensive period of Medicaid ineligibility and all of those funds could still be depleted as the family pays for her care.
Another option is to consider converting the excess funds to a non-countable (exempt) asset under the Medicaid program.
Simply put, if Sandy had $100,000 of countable assets, she could reinvest these assets in an asset that is exempt under the Medicaid program. For example, Sandy could use her countable assets to purchase income producing real estate which is exempt under the Medicaid program so long as it meets certain criteria. Sandy, then would have a source of funds (the equity in the real estate) in addition to her Medicaid benefits. The downside to Sandy for this plan is that Medicaid has a priority claim against the real estate upon the death of Sandy. Nonetheless, to the extent that any asset may be exposed to estate recovery or lien, the amount that the State recovers is still usually far less than what would have been paid if Medicaid were not assisting. This results from a substantial “discount” given to Medicaid that is not given to private-pay patients.
Other examples of assets that are exempt include one car, personal items, income producing property, some pre-paid funeral plans, and certain US Savings Bonds.
Because of Medicaid’s right to recover assets of the recipient at his or her death, a better option for most single individuals seeking Medicaid assistance is to divide his or her estate into two shares, the “Gifted Share” and the “Nursing Home Share.” Although the gifted share is subject to a Medicaid transfer of assets penalty, it will be preserved as a legacy for the beneficiaries of the individual’s estate plan. The nursing home share will be used to provide a stream of income to pay the nursing home bill through penalty period. In general this plan protects about 50% of the individual’s estate.
So, assuming Sandy has $100,000, she gives her beneficiaries $50,000 now. She uses the other
$50,000 to purchase an annuity that produces monthly payments to her during the penalty period. She then applies for Medicaid benefits.
Since Sandy now has less than $2,000 in countable assets, she is otherwise eligible for Medicaid benefits upon application subject to the transfer of assets penalty period. The Medicaid agency will assess the penalty period immediately. If this is planned properly, payments from the annuity will pay the nursing home bill and would finish at the same time Sandy’s Medicaid eligibility for nursing home coverage begins. The end result is Sandy has protected about
$50,000. Since the protected $50,000 is not owned by Sandy at her death (she gave this amount away), it is not subject to Medicaid estate recovery.
IT IS IMPORTANT TO UNDERSTAND that all of the aforementioned are generalities. No two cases are alike. For this reason it is important to schedule a visit with Stinson Law so that we
can discuss your specific case. We caution you against trying to do any of the above transfers without the help of a qualified elder law attorney. Do it wrong and it could result in very severe penalties.
Many times, we can help you preserve most of the family’s assets while expediting the payment of Medicaid benefits for a person in assisted living situations.
Our goal at the Stinson Law Firm is to secure your present and future and leave you with the peace of mind you deserve. Contact us today.
Jeff is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a distinction held by only a handful of lawyers in Indiana. For almost 20 years, he has focused on elder law, estate planning, long-term care planning, Medicaid planning, Veterans Affairs benefits planning, special needs planning, guardianships, and estate administration.