Few events are more devastating to families than the placement of a loved one in a nursing home or other long-term care facility. Most of us like to think that we would never even consider placing a parent, spouse, brother, sister or child in a long-term care facility. Once an individual develops a disease or condition that increases the likelihood of such a placement (for example, Alzheimer’s Disease, Vascular Dementia, Parkinson’s Disease, etc.), preparing for such a possibility is something that must be considered.
Regrettably, many conditions can rob people of their ability to care for themselves. Sometimes, the care that the person needs cannot be provided by family members. Accordingly, various legal and financial issues must be addressed, such as:
Can I afford to pay for the necessary
Will providing the necessary care
cause me to lose my home and/or
most of my life’s savings?
Are there legal ways of preserving
assets for the spouse who remains at
home or for other family members
while providing the necessary care?
When these and other questions relating to long-term care arise, a family needs clear and accurate guidance to ensure that personal tragedy is not followed by financial devastation. This article will attempt to acquaint visitors to this site with key concepts related to long-term care planning and examples of strategies used to shelter assets without compromising the affected family member’s care.
Long Term Care Insurance
A funding source for long-term care is long-term care insurance. Unfortunately, if a person does not already have such insurance in place prior to being diagnosed with a potentially disabling condition, he or she will not be able to be approved for such coverage subsequent to receiving such a diagnosis. Therefore, the focus of this article will be on another source of funding, Medicaid, and ways that Medicaid eligibility can be secured while preserving assets for one’s family.
Medicaid and Not Medicare
It warrants emphasis that the program that can provide long-term financial assistance to a person who must reside in an assisted living facility or nursing home is Medicaid and not Medicare. At most, Medicare may pay for all or part of care in a nursing home for no more than one hundred (100) days. Medicaid can pay a person’s care costs in a nursing home or assisted living facility for the balance of a person’s life. Another meaningful distinction is that a person can be eligible for Medicare regardless of the amount of his or her income or the value of his or her assets. The Medicaid program has strict income and assets limitations.
The amount of assets that a person is allowed to have in order to qualify for Medicaid depends upon whether the person is married or unmarried. An unmarried individual is allowed to have assets worth no more than $2,000.
If the Medicaid applicant has a spouse who is still living outside of a nursing home or assisted living facility, additional allowances are made for the spouse. First, Medicaid allows a spouse who remains at home to keep certain assets regardless of their value. For example, the value of a home and its contents, one automobile and personal property are deemed to be exempt and, are not subject to any dollar limit. Second, the spouse is allowed to keep a portion of the non-exempt assets, principally savings and investments, in excess of the $2,000 allocated to the person who is looking to be approved for Medicaid. How much the "healthy" spouse is allowed to keep depends upon the value of the combined assets of the husband and wife as of the first day of the first month that the husband or wife ceases to live at home. Based upon Medicaid regulations in effect for 2018, if a husband with Parkinson’s Disease leaves his home and begins residing in a nursing home on February 15, 2018, Medicaid will first determine the value of the combined non-exempt assets as of February 1, 2018. Medicaid then divides the February 1, total by 2, but caps that amount at $123,600. The product of this calculation represents what Medicaid allows the healthy spouse to keep. For example, if the combined assets are worth $300,000 on February 1, 2018, the procedure outlined above would be applied as follows:
$300,000 divided by 2 = $150,000.
$150,000 is subject to the $123,600 maximum, so Medicaid would allow the healthy spouse to keep $123,600. If, on the other hand, the February 1 total is only 100,000, the allowance would be calculated as follows:
$100,000 divided by 2 = $50,000. $50,000 is within the $123,600 maximum, so Medicaid would allow the healthy spouse to keep $50,000.
One of the goals of long-term care planning is to increase the amount of the assets that will be available to the person who needs Medicaid and his or her family above the limits discussed above.
Medicaid Transfer Penalties and Required Waiting Periods
Most transfers that are made as part of the Medicaid sheltering process must take into consideration the Medicaid penalty that the transfers will trigger. The Medicaid penalty is the period of time for which a person will be ineligible for Medicaid as a result of transfers into a trust made within sixty (60) months of the date of the submission of an application. The penalty or disqualification period is determined by dividing the dollar amount of the asset that is transferred by 12,895.15, the Medicaid penalty divisor. For example, in the case of a $100,000 transfer, the penalty would be calculated as follows:
$100,000 divided by 12,895.15 = 7.75
7.75 represents the number of months for which the person would be disqualified from receiving Medicaid if a Medicaid application is submitted within 60 months of the transfer of $100,000. If the amount transferred is $400,000, the penalty would be calculated as follows:
$400,000 divided by 12,895.15 = 31,019
31.019 represents the number of months for which the person would be disqualified from receiving Medicaid if a Medicaid application is submitted within 60 months of the transfer of $400,000.
If a person believes that there is a reasonable chance that all of a significant portion of a 60 month period will elapse following the date a contemplated transfers, a strategy could involve transferring assets that the person desires to protect and waiting until at least 60 months plus one day pass before submitting an application for Medicaid benefits. Such transfers can by made by gifts to trusted individuals or to a trust.
Gift-Giving Versus Trusts
Gift-giving, as a means of divesting assets, is effective, relatively simple and, as a consequence, initially appealing. However, simple and effective is not always best for the person who transfers his or her assets because gift-giving is inherently risky. When gifts are made, not only does a person bear the risk that a gift recipient, could use the assets that have been gifted for his or her own purposes, but the gift-giver is also exposed to risks beyond the trustworthiness or lack thereof of the gift-recipient. Specifically, in addition to the fact that gifts to individuals can be spent by an individual for his or her own purposes, the gifted assets will also be vulnerable to claims of creditors, divorce actions or a gift-recipient’s own death or disability.
An alternative to gifting that can provide a higher level of security is the creation and funding of an irrevocable trust that allows distributions to be made to the client’s family members or friend. A properly structured trust can reduce or eliminate the risks associated with gifts and provide some tax advantages. Trust assets can be insulated from claims of creditors, an estranged spouse or the other third party risks which accompany gifts. As a means of reducing the risk of self-dealing by an individual trustee, the trust should require the consent of a co-trustee or other person prior to the distribution of principal. Please note that the trustee can be anybody whom the client chooses (except the client and his or her spouse) including a son, daughter, sibling or other friends or family members. Similarly, the person or persons who would be entitled to receive distributions from the trust can be anybody whom the client chooses, except the client and his or her spouse.
Planning Under Emergency Conditions:
Sheltering Strategies That Do Not Involve
Waiting Sixty Months
There are also sheltering options that are currently available that do not generate any disqualification period and can be utilized if it is not possible for a person to wait at least 60 months before submitting an application for Medicaid. The options include the purchase of exempt assets, such as a home, automobile or irrevocable burial trust, or by converting assets into a stream of income by purchasing an annuity.
Several of these options, particularly the annuity option, require adherence to exacting standards. Moreover, the State of New Jersey has been inconsistent in its recognition of the annuity exemption. Therefore a determination as to what options are truly available to a particular individual can only be made under the tutelage of an experienced Elder Law with state of the art knowledge of what techniques are working at a particular point in time.
In light of current fiscal conditions, it is reasonable to expect that the State and Federal government will continue to try to curtail sheltering opportunities. It is for this reason, that individuals and families impacted by a potentially disabling disease or condition should promptly investigate and consider sheltering options that are available to them, including those that can involve waiting 60 months before applying for Medicaid, as opposed to assuming that some short-term options (i.e., annuities) will continue to be available at some unspecified date in the future.
Similarly, it could be a costly mistake for individuals and families impacted by a disabling disease or condition who have not done any advance planning to continue to do nothing because they labor under the false premise that if they do not have a 60 month head-start, they are out of luck.
In conclusion, asset protection in the context of Medicaid is extremely fact-specific. The only way that an individual or family can determine whether any viable asset protection techniques exist for a particular individual or family is by consulting an attorney such as John J. Ross, Esq. requisite experience who, upon reviewing appropriate personal and financial information, can present sheltering options that are truly available to that individual or family.
In many cases, the answer is no.
Most people with whom John J. Ross meets do not understand sufficiently the extent to which they will be relinquishing control over a significant portion of their assets if they choose to shelter assets. Any time a person reduces or eliminates his or her control over his or her asset, the person increases the likelihood that the asset will not be available to use for his or her benefit, comfort or care in the future.
Starting with the initial consultation, John J. Ross not only advises clients as to sheltering options and their potential benefits, but also provides sober explanations as to the substantial risks that sheltering options pose. In other words, Mr. Ross does not just advise clients as to how to shelter assets; Mr. Ross helps each client (1) understand and assess the risks associated with sheltering assets and (2) decide whether or not it is best to forego sheltering assets and the risks associated with sheltering assets.