Navigating A Legal Minefield To The Uneducated, Medicaid Planning Can Be Fraught With Peril
It’s a question that millions of people approaching their golden years must address: how to pay for nursing home care?
Some who have the means can use their own resources, while many who have little income are supported by Medicaid. In between, however, are those who have significant assets — cash savings, a house, or other possessions and investments — who nonetheless worry about the rising cost of elder care and their ability to afford it.
The problem is that Medicaid sets asset ceilings to qualify for the state program; in Massachusetts, those figures are currently $2,000 for a nursing home resident and an additional $84,280 for a spouse still living in the community. Therefore, many people on the bubble, so to speak, are required to “spend down” their assets to qualify for the security that Medicaid provides.
Unfortunately, said Cheryl Dunn, an attorney with Bacon & Wilson in Springfield, too many of those people get advice from family and friends but not from tax law and elder care law experts, and they wind up making rash decisions and losing some of the assets they could have legitimately hung onto while still having their health care paid through Medicaid.
For example, many elders are unaware of disqualification periods for recent gifts — which could delay Medicaid-paid entry into a nursing home — or options such as the life estate, which is a relatively risk-free way of transferring property ownership to children.
“Many times, planning for Medicaid is done in a panic, but there’s no need for that,” she said. “People frequently think, ‘I’m going into a nursing home, so I need to give away everything I own,’ but that’s not the case.”
Negotiating the minefields of Medicaid and retaining as many assets as possible, Dunn told The Healthcare News, starts with taking the time to get educated on the nuances of elder care law — and, especially, to plan ahead.
Balancing Assets and Need
There is a misconception among some, Dunn said, that the federal Medicare entitlement will pay for nursing home care late in life and that there is no need to plan for that contingency, but that obviously isn’t the case — individual states instead use Medicaid to support residents.
“Medicaid is a needs-based program created for the poor,” she said. “You’re not entitled to benefits under Medicaid. You have to qualify by being poor.”
Simple enough. But it is easy to see how an individual or couple might not necessarily be poor enough to qualify for Medicaid but does not have a sufficient safety net to pay for their own nursing home care. In this situation, it’s common to spend down assets or give them away to family, friends, and charitable causes — but it can be a difficult decision.
“Let’s say I have $100,000 in the bank, and I might be going into a nursing home,” said E. Paul Amata, an attorney with Robinson Donovan Madden & Barry in Springfield. “I don’t want to give up that $100,000 or my house. Can I accept having to spend it down?”
Even if the answer is yes, because of gift tax laws and Medicaid’s own penalties for gifting, it’s easy to fall into traps. For instance, Medicaid in Massachusetts institutes a one-month disqualification period for elder care coverage for every $5,430 given away — counted from the time of the gift forward — so the sooner ahead gifts are planned, the better.
“Obviously, the worst-case scenario is when clients come in and say they got advice from their neighbor or mother or sister, who told them it was OK to do certain things,” Dunn said. “So they’ve transferred their assets and created all these penalty periods, and now they have to go to a nursing home.”
Part of the confusion often stems from the fact that the federal government sets the basic floor of Medicaid’s income restrictions, but individual states may set stricter guidelines. So, the rules vary from place to place — which can lead to bad advice from someone living across the Connecticut line, for instance.
“Here in Springfield, we’re so close to the Connecticut border that family members who have done Medicaid planning in Massachusetts often don’t realize that the laws are different across the border,” she said.
The Life Estate Option
In Massachusetts, as in other states, residents have multiple options for dealing with assets. For example, a life estate is one way for a married nursing home resident to protect those assets and still qualify for Medicaid. In a life estate, the homeowner deeds the principal residence to someone else — often a child or multiple children — but continues to live on the property (or, in a nursing home situation, the person’s spouse continues to live there).
The arrangement is permanent until both spouses have died; until that day comes, their only obligations are to pay taxes and insurance on the property. Not only does the home in a life estate not count against the income ceiling for Medicaid eligibility, Dunn said, but the house’s new deed holder cannot throw its occupants out.
That latter aspect makes the life estate a solid alternative to simply giving the children joint ownership of the home. Amata can cite multiple real-life examples of people who did this, only to see their children turn around and file suit against their parents for their share of the value of the home — thereby forcing the parents to take out a mortgage they had not had to deal with before.
“A life estate is a great tool,” Dunn said, adding that many people fail to see this option in the panicked rush to transfer their homes to their children when long-term care becomes necessary. “It protects the home against Medicaid and protects the elder because the kids will get the house only when the parent passes away.”
There are other pitfalls putting one’s children on joint accounts. “Even if you have good kids, if someone gets run over by your son, they can sue and go after your assets,” Amata said. Or the children’s creditors can go after those assets.
And simply giving children control of cash assets right now opens up other issues. For one, he noted, what’s stopping the children from blowing everything on frivolous expenses right away? A life estate, on the other hand, ensures that the children receive the benefits of their parents’ assets only after their parents are gone.
“If the kids take the money and go on a cruise, it’s gone,” Dunn said. “Then, if the parents need nursing home care and Medicaid says, ‘we’re not going to pay,’ you’ve given the money to the kids and can’t get it back. Now you’re going to a nursing home with no way of paying, and the nursing home isn’t going to let you stay for free.”
Sure, Medicaid planning can be a complicated business. But no one has to rely on anecdotal advice, considering the expertise available in the field of elder care law, Dunn said.
For instance, some assets, such as cars, pre-paid funerals, and limited burial accounts, don’t count against the Medicaid ceiling. Meanwhile, in consulting with experts, some might discover that purchasing long-term care insurance is a better path than relying on Medicaid.
For most people, she added, smooth sailing into retirement tomorrow is best accomplished through diligent preparation today.
“If you plan early, before a nursing home is in the picture, you won’t have to deal with penalties,” she said. “The idea is to think clearly and plan now instead of waiting until someone gets sick and a doctor is putting someone in a nursing home.”
That’s simple advice, to be sure. But considering the traps that so many elders have fallen into, from disqualification periods for gifts to unscrupulous children and unnecessary loss of property, following it could mean the difference between enjoying and sharing a lifetime of assets and asking for a world of trouble.