In Parts 1 through 4 of this blog series, I discussed the different ways of paying for long term care in Pennsylvania and how Medicaid has grown to become the most common payment method. Medicaid functions as a government safety net for those who require 24-hour care in a nursing home and whose income and assets are insufficient to pay privately for that care. In order to qualify for Medicaid to pay for nursing facility services, your income and assets must fall below a certain threshold established by the State’s Medicaid rule (described in detail in Part 2 of this series).
Senior citizens have many different reasons for wanting to preserve their assets instead of seeing them spent down to qualify for Medicaid. Perhaps they are concerned about the financial resources of their spouse who remains in good health and continues to in the community. Or, perhaps they wish to leave a modest inheritance for their children. Whatever the reason, with proper advance planning, it is possible to protect your assets from the costs of nursing home care. Obviously, the earlier you take steps to preserve assets, the more assets you should be able to protect. However, even if you have already been admitted to a nursing facility, there are some limited options available which will leave you better off that you would be had you performed no planning whatsoever.
Advanced Planning Strategies
As discussed in Part 4 of this blog series, Medicaid applicants are required to disclose any gifts or transfers of assets they have made in the 5 years preceding their application and are penalized if those transfers are deemed to have been made in exchange for less than fair market value. Thus, to best protect your assets, you need to plan at least 5 years in advance of needing long term care.
Medicaid Asset Protection Trust – This planning option requires the future Medicaid applicant to place his or her assets, including real estate and investments, into an irrevocable grantor trust. The trust can be structured in whatever way makes the most sense give the settlor’s unique financial situation and needs. The most important aspect of this plan is that it be designed to enable the person to pay privately for at least 5 years of nursing home care following the creation of the trust. One benefit to such a trust is the fact that trust beneficiaries do not gain ownership over the trust assets until the trust’s settlor is deceased. This makes it more desirable than outrights gifts to family members due to its protection from the beneficiary’s creditors.
Gifting, Coupled with Long Term Care Insurance or Retained Assets – For seniors who are fortunate enough to have enough income to live comfortably on that alone, another option is to simply gift away the bulk of their assets to their family members, providing them with an “early inheritance.” However, the senior must still plan for the possibility that he or she may unexpectedly require long term care at some point in the 5 years immediately following the gift. Thus, either enough assets must be retained to supplement the person’s income should they need to pay privately for long term care for some period of time, or, they also need to use some of their assets to purchase a long term care insurance policy prior to gifting the remainder of their money away. The plan would be to determine some combination of income, insurance, and assets which could cover the costs of nursing home care for at least 5 years, should the need arise.
While it may be tempting to simply gift all of your money to your children assuming that you can trust them to not spend it right away and use it to pay for your nursing home care should the need arise, this tactic is highly risky and ill-advised in nearly every situation.
Late Stage Planning Strategies
While the best way to protect significant assets from going to the nursing home is to plan well in advance, the truth is that most clients fail to do that for many different reasons. However, reviewing your specific situation with an elder law attorney who is knowledgeable about Medicaid planning should at least help you optimize your situation.
Married Applicants – Those with spouses in the community have the most options available to them to preserve assets in late stage planning. One option is to covert excess assets to income for the community spouse by purchasing a specific type of annuity called a “DRA compliant annuity”. Another option is to use at-risk assets to pay down all debts, make home improvements, or purchase assets which are not counted by Medicaid, such as a more expensive home which is placed in the name of the community spouse, a new car, or purchase pre-paid funeral contracts or other necessary personal items. Money spent on disregarded assets is an easy way to decrease the assets which will be considered in determining Medicaid eligibility.
Unmarried Applicants – In the case of an unmarried Medicaid applicant, there are still a few ways to protect limited assets from going to the nursing home, even after the individual has already been admitted. Assets can be used to purchase pre-paid funeral arrangements and other necessary personal items such as hearing aids, glasses, clothing and other items that they’ll need in the nursing facility. While these items don’t preserve significant assets, they at least protect some money. In the case where a single person has more assets than can be depleted quickly, but still wishes to immediately qualify for Medicaid, one way to potentially preserve some assets for family members is to convert all available assets into a DRA-compliant annuity that pays income. That income together with Medicaid then pays for the person’s long term care. One of many requirements for such an annuity is that the State be named the remainder beneficiary of the annuity. In this case, after the purchaser’s death, the State will make a claim against whatever principal is left in the annuity to be reimbursed for the funds paid by the Medicaid program for the person’s nursing facility care. If after receiving that reimbursement there are still funds remaining in the annuity, those funds can be dispersed to the purchaser’s named beneficiaries. While it is not a guaranteed method of transferring an inheritance to your family, there is certainly no risk in trying it if you’ve missed other opportunities to conduct advanced planning.
The laws, rules, and legal cases applying to Medicaid are constantly changing. For that reason, none of the above listed asset protection strategies should be attempted without first consulting an elder law attorney who is up-to-date and knowledgeable on such techniques and the current state of the law.
This blog post was originally created by Joellen Meckley while she served in an “Of Counsel” position in our firm. While she no longer does that, we do maintain a professional relationship and if you have any Elder Law needs, I’d recommend you reach out to her firm Meckley Law. If you need Estate Planning, please reach out to us.