Atty. Karen Jackson: Know the rules and plan ahead now: Nursing home costs and Medicaid
The other day, a client pulled a copy of a bill from his wallet to show to me. It was the bill for his wife’s care in a skilled nursing home with a daily rate of $352. That’s $10,560 per month. He said he carries the receipt around with him because his friends don’t believe the cost is so high.
As an attorney who specializes in elder law and estate planning, I believed it, though. I help people to manage their assets and understand the rules of Medicaid – the federal program that appropriates funds to help families pay for skilled nursing home care, which is not to be confused with Medicare, health insurance for the disabled and people 65 and over.
Medicaid planning is the design of a plan to stop or avoid the $350 daily cost of nursing home care by qualifying to receive benefits from the Medicaid program – called MassHealth in Massachusetts – as soon as possible.
Medicaid planning requires knowing the rules.
Rule Number One: The applicant, the person in the nursing home, will not be entitled to receive MassHealth benefits if the applicant or the applicant’s spouse gave away any money or other assets at any time during the previous five years before the date of the application. This is referred to as “the five year look-back” rule.
Rule Number Two: Read Rule Number One! It is critical.
This means no gifts to children, grandchildren’s college funds, religious institutions, charities, etc. No gifts, with very few exceptions. One important exception: if a child of the applicant lived in the parent’s home and, as a result of the care provided, delayed the parent’s entry into a nursing home by at least two years, the parent can gift the parent’s home to the caregiver child.
If an application for Medicaid needs to be made, the impermissible gifts must be repaid to the applicant or to the applicant’s spouse. This is called “the cure.” What happens if the gift can’t be paid back? The applicant is denied benefits. MassHealth will not pay the nursing home bill.
After I have addressed the gift issue, I list my client’s assets – what they own – into three categories: what I call “non-countable”, which include the primary residence, one automobile and, for each spouse, a $1,500 burial account and a pre-paid irrevocable funeral.
The second category of assets is called, “inaccessible”, such as that parcel of real property or stock from a family owned business. As of the date of application, these assets will not be counted; however, upon approval, MassHealth will require a vigorous and genuine effort to continue to liquidate these assets. Once that occurs, the funds will be used to pay the nursing home bill The third category, “countable” assets are everything else, for example, money in the bank, the vacation home, the cash surrender value of life insurance policies, etc. A single person can keep up to $2,000 in countable assets and qualify for MassHealth benefits. The spouse of the applicant, the community spouse, can keep $115,920. This last number changes periodically.
Any amount of countable assets above these numbers are called “excess assets” because the applicant will be denied benefits until this money is “spent down.” To help you understand Medicaid planning, let’s use my client with the $352 daily nursing home bill as an example.
He can protect his assets by electronically transferring them into a triple-A-rated fixed annuity fund with a pay-out of five years of equal monthly payments to him. A day later, his wife will qualify to receive MassHealth benefits, and her care will be covered.
Once approved, the nursing home receives the applicant’s income, such as social security or retirement income, but the spouse at home is entitled to keep all of his or her income. In fact, that at-home spouse, called the “community spouse,” can request to receive some or all of the applicant’s income if the community spouse can show need.
The fixed annuity works because the excess assets have been converted into an income stream paid directly to the community spouse. It is usually more income than will be spent, so the community spouse holds the money in a bank or investment account separate from the applicant’s funds. This is a very powerful tool.
Life estate deed
Another important tool is the life estate deed. The homeowner signs a deed giving the real property ownership to the person or people the homeowner desires to give his or her home to upon the homeowner’s death, but the homeowner retains a “life estate.” This means that the homeowner continues to own the home for the owner’s life, retaining all benefits and responsibilities. At the life estate owner’s death, the home automatically passes to the listed beneficiaries in the deed without having to file a petition in probate court.
The life estate deed is important because it saves the home from having to be sold to pay MassHealth back after the death of the nursing home resident. This is called “estate recovery.” As long as the applicant or the community spouse is alive, the home cannot be taken through the estate recovery process.
However, if a nursing home resident received MassHealth benefits and dies leaving a home not previously deeded to the beneficiaries in a life estate deed, estate recovery will force the sale of the home to pay back the MassHealth program. This occurs through the probate court process.
Even though MassHealth pays the nursing home a daily rate lower than the private pay amount, the cost adds up quickly. A life estate deed signed more than five years before the date of the MassHealth application completely avoids this devastating result.
The life estate owner can obtain a mortgage or home equity loan. The beneficiaries sign documents acknowledging that they are aware of the loan and that upon the life estate owner’s death, the beneficiaries will receive the home subject to the loan. The beneficiaries’ creditors have no claim to the life estate owner’s home as long as the life estate owner is alive. It is a beautiful tool!
Karen Jackson is an attorney with Jackson and Torrone, PC, of Holyoke. She specializes in elder law and estate planning. She can be reached at email@example.com.