Case Study No. 1
Medicaid Planning for Single People
Sally Johnson feels worn out. Four years ago her father died and for the past three years she has been caring for her aging mother.
At first, it was little things...grocery shopping, trips to the doctor, help with her medication, things like that. But as her mom's health deteriorated, Sally's burden has increased. The last six months have been brutal. That's because Sally had to move her Mom to a nursing home. Mom couldn't live at home any more.
Sally thought her job would be easier once the nursing home staff took over but it hasn't turned out that way. As the oldest daughter, Sally still feels responsible, even though technically someone else is now responsible for mom's care. Sally feels like she has to be there. So she visits her Mom six days a week.
Sally is running herself ragged and Mom is running out of money. Mom has about $50,000 left, and at $3,400 per month for the nursing home, Sally knows Mom's money won't last long. When the money runs out, who will be there to pay for Mom's nursing home? Sure, Sally has heard Medicaid will cover the nursing home, but she's also heard Medicaid won't cover everything. What then?
Sally is quite distraught. " Is there anything else I can do?" Yes, you tell her. There are steps she can take.
Perhaps given Sally's high degree of involvement, a personal care contract should be considered. Sally and her mom can enter into a formal agreement where Sally becomes Mom's care manager. Even though Mom is in the nursing home, if done properly, Mom can pay Sally for her care management services.
Division of Assets
Medicaid Planning for Married Couples
Division of Assets is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. It applies only to couples. The intent of the law was to change the eligibility requirements for Medicaid in situations where one spouse needs nursing home care while the other spouse remains in the community, (i.e., at home). The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
As a result of this recognition, division of assets was born. Basically, in a division of assets, the couple gathers all of their countable assets together in a review. The exempt assets which we discussed earlier are not counted.
The countable assets are then divided in two, with the at-home or community spouse allowed to keep one-half of all countable assets up to about $90,000. The other half of the countable assets must be "spent down" until less than $2,000 remains for North Carolina residents. The amount of the countable assets which the at-home spouse gets to keep is called the Community Spouse Resource Allowance (CSRA).
Each state also establishes a monthly income floor for the at-home spouse. This is called the Minimum Monthly Maintenance Needs Allowance. This permits the community spouse to keep a minimum monthly income ranging from about $1,450 to $2,200.
If the community spouse does not have at least $1,450 in income, then he or she is allowed to take the income of the nursing home spouse in an amount large enough to reach the Minimum Monthly Maintenance Needs Allowance (i.e., up to at least $1,450). The nursing home spouse's remaining income goes to the nursing home. This avoids the necessity (hopefully) for the at-home spouse to dip into savings each month, which would result in gradual impoverishment.
- The Home, no matter its value. The home must be the principal place of residence. The nursing home resident may be required to show some "intent to return home" even if this never actually takes place.
- Household and Personal Belongings such as furniture, appliances, jewelry and clothing.
- One Car, there may be some limitation on value.
- Burial Plot for you and your spouse.
- Cash Value of Life Insurance policies as long as the face value of all of policies added together does not exceed $1,500. If it does exceed $1,500 in total face amount, then the cash value in these policies is countable.
- Cash (e.g., a small checking or savings account) not to exceed $2,000 in North Carolina.
To illustrate, let's assume the at-home spouse receives $800 per month in Social Security. Let's also assume that her needs are calculated to be the minimum of $1,350. With her Social Security she is $550 short each month.
|$1,350 at-home spouse's monthly needs (as determined by formula)
|$800 at-home spouse's Social Security
|$550 short fall
In this case, the community spouse will receive $550 (the shortfall amount) per month from the nursing home spouse's Social Security and the rest of the nursing home spouse's income will then go to pay for the cost of his care.
Once again, this does not mean that there are not other planning alternatives which the couple can pursue. Consider the following case studies:
Case Study No. 2
Medicaid Planning for Married People
Ralph and Alice were high school sweethearts who lived in Greensboro, North Carolina their entire adult lives. Two weeks ago Ralph and Alice celebrated their 51st Anniversary. Yesterday Ralph, who has Alzheimer's, wandered away from home. Hours later he was found sitting on a street curb, talking incoherently. He was taken to a hospital where he is being treated for dehydration.
Alice comes to see you after their family doctor tells her she needs to place Ralph in a nursing home. She tells you they both grew up during the Depression and have always tried to save something each month. Their assets, totaling $120,000, not including their house, are as follows:
Money Market Account
Residence (no mortgage)
Ralph gets a Social Security check for $800 each month; Alice's check is $300. Her eyes fill with tears as she says "At $4,000 to the nursing home every month, our entire life savings will be gone in less than 3 years!" What's more, she's afraid she won't be able to pay her monthly bills, because a neighbor told her that the nursing home will be entitled to all of Ralph's Social Security check.
There is good news for Alice. It's possible she will get to keep nearly all of their assets . . . and still have the state Medicaid program pay Ralph's nursing home costs. While the process may take a little while, the end result will be worth it. To apply for Medicaid, she will have to go through the North Carolina Department of Social Services (DSS).. If she does things strictly according to the way DSS tells her, she will only be able to keep about half of her assets plus she will be entitled to a minimum monthly income to pay her expenses.
But the results can actually be much better than the traditional spend-down, which everyone talks about. Now that Ralph has entered the nursing home, Alice should purchase a "Medicaid qualified" annuity. By simply changing her investment to purchase the right type of annuity, Alice can keep nearly their entire savings, and there will be no spend-down, and Medicaid will pay for Ralph's nursing home. She also gets the income from the annuity each month. Not just any annuity will work for this purpose and it is important that Alice buy the right annuity, at the right time, and invests the right amount in the annuity.
The challenge is that Alice will have to get advice from someone who knows how to navigate the system. But with proper advice she'll be able to avoid the spend-down and keep everything she and Ralph have worked so hard for.
This is possible because the law does not intend to impoverish one spouse because the other needs care in a nursing home. This is certainly an example where knowledge of the rules, and how to apply them can be used to resolve Alice's dilemma.
Of course, proper Medicaid planning differs according to the relevant facts and circumstances of each situation as well as the state law.
Can't I Just Give My Assets Away?
Many people wonder, can't I give my assets away? The answer is, maybe, but only if it's done just right. The law has severe penalties for people who simply give away their assets to create Medicaid eligibility. In North Carolina, for example, every $4,200 given away during the three years prior to a Medicaid application creates a one-month period of ineligibility. So even though the federal Gift Tax laws allow you to give away up to $11,000 per year without gift tax consequences, those gifts could result in a period of ineligibility for North Carolina Medicaid of two months (the penalty period is rounded down to the next whole number of months).
Next consider the following case study:
Case Study No. 3
Can Financial Gifts to Children
Protect Your Assets from Medicaid?
After her 73-year-old husband, Harold, suffers a paralyzing stroke, Mildred and her daughter, Joan, need advice. Dark circles have formed under Mildred's eyes. Her hair is disheveled. Joan holds her hand.
"The doctor says Harold needs long-term care in a nursing home," Mildred says. "I have some money in savings, but not enough. I don't want to lose my house and all our hard-earned money. I don't know what to do."
Joan has heard about Medicaid benefits for nursing homes, but doesn't want her mother left destitute in order for Harold to qualify for them. Joan wants to ensure that her father's medical needs are met, but she also wants to preserve Mildred's assets.
"Can't Mom just give her money to me as a gift?" she asks. "Can't she give away $10,000 a year? I could keep the money for her so she doesn't lose it when Dad applies for Medicaid."
Joan has confused general estate and tax laws with the issue of asset transfers and Medicaid eligibility. A "gift" to a child in this case is actually a transfer and Medicaid has very specific rules about transfers.
At the time Harold applies for Medicaid, the state will "look back" 3 years to see if any gifts have been made. The state won't let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value which are uncovered in the look-back period will cause a delay in Harold's eligibility for Medicaid.
In North Carolina, for example, every $4,200 given away during the 3 years prior to a Medicaid application creates a one-month period of ineligibility. In Missouri, every $1,725 gift creates the same waiting period. So if Harold and Mildred give their daughter $10,000, Harold will be ineligible for North Carolina Medicaid for 2 months.
So what can Harold and Mildred do? They can institute a gifting program, save a good portion of their estate, and still qualify for Medicaid. But they have to set it up just right, the rules are very "nit-picky". Generally, if done properly, you can save about one-half of the assets this way. You should consult a knowledgeable advisor on how to set it up.
Will I Lose My Home?
Many people who apply for Medicaid benefits to pay for nursing home costs ask this question. For many, the home constitutes much or most of their life savings. Often it is all the couple has to pass on to their children.
Under Medicaid, the home is an exempt asset. This means its value is not taken into account when calculating eligibility for Medicaid benefits. But under a change made in 1993, (Omnibus Budget Reconciliation Act of 1993) states are required to set up an Estate Recovery Unit to seek recovery of all Medicaid payments from the estates of those who receive coverage. Because the home is the single largest asset which a couple can keep, while still qualifying for Medicaid, it is also the main target of estate recovery in most states.
Here's how the process works. While the community spouse (i.e., at home) is living in the home, it remains an exempt asset. But after the deaths of both the community spouse and the nursing home spouse, the Estate Recovery laws allow the state to demand repayment of benefits paid to the nursing home spouse. Under OBRA-93, the states have broad authority to seek payment for Medicaid services rendered from virtually any property owned by the Medicaid recipient.
Fortunately, there are ways to protect your property in North Carolina, as well as many other states. The solutions can range from re-titling assets to selling or even gifting them. Since the Medicaid rules are constantly changing, you will need to seek help from an experienced Elder Law attorney to help you in your planning.
As you can see, there are a number of strategies that you can use to qualify for Medicaid and still preserve some or all of the estate you've spent a lifetime building.
These strategies are legal. They are moral. They are ethical. Please be advised, however, that Medicaid planning requires a great deal of knowledge on the ins and outs of the system. Work with an experienced advisor who knows the rules and can advise you accordingly.
In the previous pages, we've talked about how to find the right nursing home, how to get good care there, and how to pay for it without going broke. But where do you actually start looking? Where should you begin your search?
To assist you, we've complied a list of the nursing homes and assisted living facilities in North Carolina, arranged according to county.
The listings contain the name and address of the facility along with the telephone number. We have also included information on whether the nursing home accepts Medicare (typically for rehabilitation purposes) and Medicaid. Finally, we have noted whether the facility has a specialized Alzheimer's unit.
Once you've determined which facilities you want to tour, then you can use the evaluation tool to help you compare them.
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The Elderlaw Firm of Dennis J. Toman, CELA, P.C.
Dennis J. Toman, CELA, J.D.
U.S. Trust Center, 301 N. Elm St.
Greensboro NC 27401
Certified Elder Law Attorney
National Elder Law Foundation