Can you protect assets even after a long-term care crisis has occurred? You may be surprised to learn that the answer to this is often yes, you can.
When a spouse or parent needs to be placed in a nursing facility, panic often sets in for the family. Questions often arise about which facilities offer excellent care, and the family wonders if their loved one will be able to go home. In addition, the family’s financial decision maker(s) wonder how long Medicare might cover the room and board in the nursing facility and what, if anything can be done to protect the assets of the newly admitted nursing home resident at this juncture.
In many cases, an experienced elder law attorney can help work with the family to implement a plan to protect assets, even this late in the game. In fact, a significant portion of the practice of elder law involves strategizing to help families in the midst of long-term care crises. Some of these strategies are outlined below.
Regardless of whether the case involves a married couple or single individual, there are some assets that are not factored into the calculation to determine an applicant’s eligibility for the Medicaid long-term care benefit. These items include personal property (such as clothing, furniture, or other household items), one automobile, term life insurance, burial plots and markers, and irrevocable burial reserves.[i]
A Medicaid applicant’s primary residence is also an exempt asset provided an “intent to return” statement is signed by the applicant or on their behalf and the applicant’s equity in the home is not more than $552,000.
It is important to note that the home may still be exposed to the risk of long-term care costs through the Medicaid Estate Recovery program in the event the applicant is the sole owner of the property when they pass away.[ii] You can learn more about Medicaid Estate Recovery here.
In addition, the IRAs and 401(k)s of the community spouse are treated as exempt assets in Pennsylvania which can be a tremendous benefit to married couples.
Spend Down Strategy
One strategy families can use in a crisis is to spend down assets that would otherwise be exposed to the cost of nursing home care by purchasing exempt assets that the applicant or his/her spouse needs or wants. Typical spend down purchases may include new furniture, durable medical equipment that is not provided through insurance, and an irrevocable burial reserve for both the applicant and his/her spouse if one has not already been purchased.
Married couples may wish to spend the assets to benefit the community spouse and can spend on home repairs, clothing, more suitable furniture, household appliances, or even a newer vehicle.
The key in spending assets down in order to qualify for Medicaid is that the assets must be spent for the benefit of the applicant or his/her spouse. Paying for someone else’s college tuition, home repairs, etc. are not be an acceptable spend down expense and would instead likely run afoul of the Medicaid gifting rules.
For some Medicaid applicants, simply spending down on items they or their spouse need is not enough to get them close to achieving financial qualification. For these applicants, specialized planning using Medicaid qualifying annuities[iii] may be available to help them achieve their goal.
Annuity planning allows married couples to convert excess resources into an income stream for the community spouse. This works for two reasons: first, the current Medicaid rules do not count income of the community spouse against a nursing home resident spouse and secondly, the couple is treated as separate individuals financially after Medicaid qualification occurs. The end result is that resources that would otherwise be a roadblock to qualifying for Medicaid are converted to income to the community spouse, which he or she gets to keep separately.
Single individuals who wish to protect assets using annuity planning may engage in a slightly different plan that also includes a gifting component. In this plan, an individual may make a gift of some of their assets and spend down the rest by purchasing a Medicaid qualifying annuity. The annuity component is designed to cover the nursing home bill during the time period that the individual is ineligible to receive Medicaid due to the gift. This plan can also be used in situations where gifting has previously occurred and the Medicaid applicant is seeking to mitigate the potential damage of their penalty period.[iv]
It is important to note that annuity planning is extremely complex and this article is only meant to provide a general overview. This type of planning should only be undertaken with the advice of an elder law attorney – it is not the arena to go it alone.
You CAN Protect Assets Even After a Crisis
As you can see, there are numerous strategies that may help families in the midst of a crisis protect assets from the cost of long-term care. In addition, there are also a number of exceptions that, depending on the circumstances, families may be able to take advantage of that are not discussed in this article.
Whether the plan involves converting available resources to exempt assets and spending down or annuity planning depends on the particular case. In either scenario, it is best to meet with an elder law attorney for advice on how to move forward. It is important to understand that although a crisis has occurred, it is not time to panic – it’s time to plan. The outcome may very well be better than expected.
At Marshall, Parker & Weber we help families through nursing home crises. You may use any of the contact information on our website to contact us and schedule a consultation with one of our attorneys. We would be honored to meet with you to discuss your case.
[i] While irrevocable burial reserves are considered to be exempt, there are limits to how heavily they are funded. Each county in Pennsylvania has their own limit which is based on the average cost of funeral expenses in the county. A good practice is to meet with a funeral director and create an itemized list of items and services for the applicant so that these accounts are not too far over or underfunded.
[ii] Early planning techniques are the most effective in protecting the home from Medicaid Estate Recovery, however, crisis planning techniques involving annuity planning or legitimate purchases may also be available depending on the case.
[iii] Medicaid qualifying annuities must meet the requirements set forth in the Deficit Reduction Act of 2005 (DRA). These annuities must be irrevocable, non-assignable, have no balloon payment provisions, and in most cases name the Department of Human Services as the primary beneficiary to the extent of costs Medicaid has covered for the applicant.
[iv] The penalty period is the period of time the applicant will not receive Medicaid because of gifting. The penalty roughly corresponds to how much time in the nursing home the gifted funds would have paid for.