Medicaid Planning is certainly one of the more complicated, misunderstood, yet critical areas of Estate Planning. As is highlighted in a recent article in Wealth Management:
When one spouse is facing a long-term care (LTC) need, a couple’s initial focus is generally on his health needs (the institutionalized spouse (IS)); yet, once the care needs have been determined and placement or home care is secured, the focus turns towards the needs of the healthier spouse (the community spouse (CS)). Without planning or education, it’s possible for all funds, including income and savings, to be expended on the IS, leaving the CS with little or nothing.
Generally speaking, when a married person entered a nursing home for LTC, payment will me made from personal assets and income, Medicaid, or LTC Insurance.
Long-term care expenses are running more than double the rate of inflation. A decent nursing home costs more than $100,000 a year.
Assisted living and home care are less expensive, but are not covered by Medicaid, which only kicks in if you’ve spent down most of your nest egg.
Long-term care is highly fragmented in this country, but there’s almost no public funding for it. Veterans can obtain some help and it really helps if you have a guaranteed pension.
Many expect Medicare to pay for long-term care, but it does not except in a very narrow set of circumstances and then only for up to 100 days.
The Genworth Cost of Care Survey for 2017 found the following median costs for long-term care in Alabama:
- Homemaker Services: $106 per day
- Adult Day Health Care: $26 per day
- Assisted Living Facilty with Private Bedroom: $36,684 per year
- Nursing Home, Semi-private room: $73,000 per year
- Nursing Home, Private room: $77,563 per year
Can your family cover these costs for 2, 3, 5 years? The average stay in a nursing home is 835 days, according to the National Care Planning Council. A separate statistic provided by the National Investment Center (NIC) in their 2010 Investment Guide cited the average length of stay in assisted living as 29 months. A few years of long-term care can easily exhaust the entire value of a family’s life savings. As suggested in the Wealth Management article:
Should one spouse need LTC nursing, then it’s wise to consider Medicaid as an option to assist in paying for care. Many have misconceptions about the Medicaid program, and there are numerous myths about Medicaid and nursing care. The reality for many is that Medicaid payment of nursing care expenses is the only way that both an IS and a CS can be cared for both physically and financially. Most importantly for married couples, federal Medicaid policy takes the needs of a spouse into account and offers financial protections specifically for the CS.
There are a number of requirements for Medicaid eligibility but of most concern are the income and asset requirements. Practically speaking, income is considered to be amounts paid regularly to the applicant, such as social security, retirement pensions or annuity payments. . .
Even more concerning than monthly income, is often what happens to a couple’s assets if one spouse has a LTC nursing need. As with income, federal Medicaid policy includes protections for a couple’s assets, ensuring that the CS may continue to have assets to use for his needs. Unlike with the income requirement for eligibility, Medicaid policy does consider the assets of both spouses for eligibility purposes. However, there are two key factors that protect the CS. The first is that certain assets are excluded when reviewing eligibility requirements; essentially, some assets just don’t count. A prime example and of great importance is the couple’s primary residence. Examples of other assets that don’t count are funerals or burial arrangements, the value of one vehicle, term life insurance, certain annuity contracts and certain loan arrangements. In addition to allowing certain assets to not count, the CS is allowed to keep a percentage of the couple’s combined countable assets up to a maximum of $126,420. There was some concern toward the end of last year that this community spouse resource allowance (CSRA) allowance would no longer apply to home and community-based services; however, Congress has agreed to continue to make allowances for the CSRA even in a home setting. Therefore, Medicaid policy allows a CS to continue to maintain countable assets up to the CSRA in addition to an unlimited amount of non-countable assets.
Don’t think you are out of the water by thinking your okay if your residence is excluded and all other assets don’t exceed $126K. What happens if both spouses enter the nursing home? The residence exemption is gone. And the regulation actually allows the CS to keep only half of the other countable-assets, not to exceed $126K.
I disagree with the author of the article when she says:
Unfortunately, many couples fear financial ruin of chronic illness and have considered drastic measures such as gifting away their property or getting a divorce; or, they mistakenly think that this type of planning needs to be done five years before nursing home placement. However, this advance planning isn’t necessary, and no such extreme measures are required to protect a CS.
At a certain point, I often recommend assets like real property be transferred out of the CS and Nursing Home Spouse. Medicaid counts all assets owned on the date of application. They also count all assets transferred for less than fair market value within 60 months. Accordingly, the earlier the planning, the better. I will often use a special-type deed called a Life Estate Deed for the marital residence. While its true, the residence I sometimes will recommend the family “transfer” assets to children for the services they are being provided by the children through a specially drafted Personal Service Contract. Medicaid is not something to mess around with.
