Medicaid and Nursing Home Planning
Saving Your Assets If You Enter a Nursing Home
2016 Medicaid Update
At a cost of more than $8,000 per month or $96,000 per year, an extended stay in a nursing home can easily wipe out a nest egg that took a lifetime to acquire. This issue may be the number one concern for many senior citizens today. In this case, ignorance is not bliss! It is important to know the facts before the facts take you by surprise.
Except for a few months, Medicare won’t help and neither will your health insurance. Adequate long-term care insurance can help, and so can the Medicaid program. However, Medicaid is subject to complicated asset and income qualification rules.
What Assets Are Exempt?
Countable assets are subject to Medicaid spend down rules. Exempt assets can be kept. Exempt assets include: all personal belongings, one car, a funeral/burial account, home improvements, an asset allowance (discussed below), $1,500 of initial death benefit in a whole life insurance, all term life insurance, and certain jointly-held property (discussed below).
The home is exempt during the person’s lifetime, but the exemption may be lost after death if a Medicaid protective deed is not used. Michigan’s Estate Recovery program files a probate claim against homes required to be probated. Wisconsin’s Estate Recovery program imposes a Medicaid lien against the home and files probate claims (see below).
What Assets Are Countable?
Countable assets include bank and credit union accounts, CDs, mutual funds, bonds, stocks, cash value in a whole life insurance policy exceeding $1,500 in initial death benefit, an IRA, other retirement assets, non-homestead real property, boats, a second vehicle, recreational vehicles, land contracts, and assets in a revocable trust.
Jointly-Owned Cash and Investments?
Many clients add a child’s or other loved one’s name to accounts and investments to prevent probate upon death. This arrangement offers no protection from the Medicaid spend-down rules. Jointly-owned checking, savings, CD’s, mutual funds, bonds and similar assets are 100% countable when the Medicaid applicant has the right to cash in 100% without the consent of the other owners.
Jointly-Owned Non-Homesteads and Stocks (New rule on 4/1/11)
Jointly-owned stocks, which require all owners to sign off to transfer title, may be exempt if made joint for more than 60 months. A divestment penalty period will be triggered when a new owner is added (discussed later). However, on April 1, 2011, Michigan Medicaid ruled that the applicant’s share of a jointly-owned camp or other non-homestead will be countable even if owned that way more than 60 months. By contrast, the applicant’s share of a jointly-owned home will be exempt.
Spend Down Rules for Unmarried Persons.
An unmarried person is allowed to keep all exempt assets and an asset allowance of $2,000 in countable assets in both Michigan and Wisconsin. All monthly income must be spent down, except that you may keep a personal needs allowance and enough cash to pay health insurance premiums. You cannot use monthly income to pay for home expenses.
Spend Down Rules for Married Couples
All countable assets owned by either spouse, or together, or in trust, are counted in a “snap shot” on the date of admission to a nursing home or an earlier hospital stay. The good news is that at-home spouses may retain an asset allowance which is called the Resource Allowance. The Resource Allowance as of January 1, 2012, is the greater of (1) a minimum floor of $21,912 in Michigan or $50,000 in Wisconsin, or (2) one-half of countable assets not to exceed $117,000 in both Michigan and Wisconsin.
The use of a Sole Benefit Trust in Michigan or a special promissory note in Wisconsin can be used to protect assets that exceed the at-home spouse’s Resource Allowance.
As to monthly fixed income, the at-home spouse may keep the greater of (1) all of his or her monthly fixed income from whatever source or (2) a minimum income allowance which comes from both spouses’ collective monthly income. As of January 1, 2013, the minimum income allowance in Michigan is $1,939 and in Wisconsin it is $2,585.
The Spend Down Plan
If you have countable assets above the asset allowance, you can use legal and ethical strategies to spend them down to the asset limit. Allowable spend down actions include the purchase of exempt assets, such as a new car or funeral account, the payment of medical care and nursing home expenses, limited gifts, and other methods.
It is risky and unwise to attempt spend down without the help of a Certified Elder Law Attorney. Advice from non-lawyers is not only unreliable but it is also an unauthorized practice of law, which is subject to civil penalty to the non-lawyer.
Giving Assets Away: Divestment
Giving away your assets is legal. However, when you do this a divestment penalty period of Medicaid disqualification results. It is a common misconception that this penalty period is 60 months. Rather, the penalty period is the value of the asset given away during the prior 60 months, divided by the applicable state average monthly cost of nursing home care. For example, if the state average monthly cost of care is $6,000, then a gift of $60,000 would result in a penalty period of 10 months, starting after admission to a nursing home and when assets are below the asset limit, and ending 10 months later.
The 60-month period, by contrast, is the look-back period during which you must report whether any gifts were made. The 60-month look-back starts on the date of the filing of the Medicaid application, usually after a nursing home admission, and looks back 60 months into the past to see if any gifts were made.
Because a gifting strategy is complicated and can lead to certain tax problems, gifting should only be undertaken under the guidance of a Certified Elder Law Attorney.
New Rules Restrict Annuities
Deferred annuities are 100% countable. Immediate payout annuities are treated under the more favorable income rules, but the State must be named as a beneficiary of such annuities. This means that the State may be able to recover its Medicaid payments after your death. Beware of annuity salespersons who incorrectly claim to sell “Medicaid-friendly” annuities.
Asset Protection Strategies
The legal and ethical strategies permitted under Medicaid law include either crisis or proactive strategies. Crisis planning strategies are complicated. Contact a Certified Elder Law Attorney (see below).
Proactive strategies include the purchase of long-term care insurance, the use of Medicaid protective deeds, and the creation of a Medicaid Asset Protection Trust to implement a gifting strategy and start the 60-month look-back period running in your favor.
Importance of an Investment Representative
Since the use of legal strategies to preserve assets cannot offer a full solution to asset protection, the advice of an experienced local investment representative is important, especially in designing a long-term care insurance plan.
Estate Recovery, Medicaid Liens, and Your Home
In 2013, the State of Wisconsin adopted expanded estate recover in addition to Medicaid liens and probate Estate Recovery. Michigan has probate-only Estate Recovery but is consider-ing Medicaid liens and expanded Estate Recovery.
The best way to prevent the loss of the home and other real property is the use of a joint ownership deed, a life estate, or an irrevocable trust. The strategy best for you can be more ful-ly explained by a Certified Elder Law Attorney.
Can Any Planning Be Done After a Nursing Home Admission Has Happened?
Yes. Assets can still be saved using legal and ethical strategies even after nursing home admission has occurred. On the average, an experienced Elder Law firm can save between 60% and 90% of countable assets. But act now. Every month of delay will result in further asset loss. Time is your enemy.
Seven Common Mistakes in Applying for Medicaid
- Filing too early when there are excess assets. A denial of benefits will result, often months later, resulting in large unpaid nursing home bills.
- Filing too late. This can result in lost benefits.
- Filing a defective application due to a lack of supporting financial documents. This can result in lost benefits.
- Making large gifts which create a long penalty period.
- Not seeking the advice of a Certified Elder Law Attorney.
- Take actions which result in negative tax consequences.
- Not reporting gifts within the 60-month look-back period
How to Get Started
Schedule an appointment. You should bring deeds, tax bills, and asset information and fill out our fact finder (Estate Planning Guide – below) before the meeting.
Please contact Anderson, Brogan and Yonkers at 148 W. Hewitt Avenue, Marquette, Michigan 49855 (906) 228-6212 or toll free at (877) 304-3119. You can email us: email@example.com. We have offices in Marquette, Escanaba, Iron Mountain, Houghton, Sault Ste. Marie, and Menominee/Marinette.
Download our Estate Planning Guide (EPG) to begin!