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Planning for long-term nursing home care

It's a matter of assets, 'spend down' rules, knowing what's exempt

Kyle Wilcox, Simmons Perrine Moyer Bergman PLC
Kyle Wilcox, Simmons Perrine Moyer Bergman PLC

You have probably read statistics about the rising cost of nursing homes.

It is not uncommon to see monthly fees of $6,000 to $8,000 per month for skilled nursing home care. This additional monthly expense is often an unsustainable financial strain. For many, financial resources will be depleted, and Title 19 (Medicaid) remains their only option.

Knowing the rules and planning for Medicaid qualification well in advance can help protect assets and provide peace of mind to aging individuals and their families, especially their spouses.

Basic Rules

Generally, to qualify for Medicaid benefits, an individual must be over the age of 65, blind or disabled. An applicant must also have less than $2,313 of monthly income and “countable” assets of $2,000 or less. Only the applicant’s income is calculated.

If an applicant’s monthly income exceeds the $2,313 limit, a “Medical Income Assistance Trust,” commonly referred to as a “Miller Trust,” can be created. All income is assigned to the Miller Trust and then used for the applicant’s care, paid to the spouse or used for nursing home expenses.

As such, the income limit is not typically an obstacle for Medicaid qualification.

COUNTABLE ASSETS

The second qualification, having “countable assets” of $2,000 or less, requires more analysis. Countable assets include cash and savings accounts, IRAs and retirement accounts, most annuities, stocks, bonds, real estate, life insurance with cash value, and similar items.

Assets that are not counted include a home and surrounding land, one car regardless of value, household goods and personal items, prepaid funerals and burial plots.

Often, qualification requires an applicant to “spend down” assets to arrive below the $2,000 threshold.

If a Medicaid applicant is single, purchasing a prepaid funeral, burial plot and personal items can be advisable.

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The goal is to acquire, before all assets are exhausted on monthly nursing home expenses, non-countable assets that will benefit the applicant or the family.

For married applicants, the rules are more complex.

The Department of Human Services, which administers Medicaid, includes both the applicant and the spouse’s countable assets, regardless of ownership.

The DHS then allocates one-half of the assets to the applicant and one-half to the healthy spouse. The healthy spouse is entitled to retain at least $25,284 but no more than $126,420 of countable assets.

As such, after a Medicaid application is submitted, it often will be necessary to “spend down” a significant sum before the applicant will qualify for Medicaid.

In addition to the prepaid funerals, burial plots and personal items, married couples may consider improving their house (replace the roof, carpet or mechanicals, or make improvements) and upgrading the vehicle for the healthy spouse.

Also, the use of a Medicaid-Compliant Annuity (which is not a countable resource) can convert the applicant’s allocated countable assets into an income stream for the healthy spouse.

Five-Year Lookback

When spending down assets, it is important to know that assets can be spent and used to buy non-countable assets, but they cannot be used to make gifts.

Any transfer or gift made within five years of entering a nursing home will be assumed to have been made with the intent of qualifying the applicant or spouse for Medicaid.

Any such gift will prevent the applicant from receiving benefits for as long as the applicant would have been able to pay for his or her care had the gift not been made.

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Furthermore, DHS may seek the return of any such assets, and there could be criminal implications for the applicant and person receiving the gifts.

There are some exceptions to the rule against gifts. Transfers between spouses are not considered gifts; in fact, it is often prudent to transfer assets to the healthy spouse.

An applicant is also permitted to transfer a house to a child who lived in the house with the parent for at least two years immediately before the applicant entered a long-term care facility.

it’s complicated

The qualification and spend down rules are complicated.

Proper planning can have significant financial implications for the applicant, the family and, especially, the spouse.

Moving a loved one to a long-term care facility is stressful enough.

Hopefully, understanding the Medicaid landscape and good planning will provide some peace of mind.

Kyle Wilcox is a lawyer with Simmons Perrine Moyer Bergman in Cedar Rapids. His practice focuses on estate planning, probate, tax and general corporate and business law.

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