Case Study #1
Medicaid Planning for Married People
Ralph and Alice were high school sweethearts who lived in Smyrna, Georgia 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.
The family doctor tells Alice she needs to place Ralph in a nursing home. They both grew up during the Depression and have always tried to save something each month. Their assets, totaling $182,000.00, not including their house, are as follows:
Savings Account $30,000.00
CD’s $90,000.00
Money Market Account $50,000.00
Checking Account $12,000.00
Residence (no mortgage) $80,000.00
Ralph gets Social Security and pension checks totaling $1500.00 each month; Alice’s Social Security check is $450.00. If Alice and Ralph have to pay the private pay rate to the nursing home, their entire life savings will be gone in less than two years! What’s more, Alice is 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 and pension checks.
There is good news for Alice. It’s possible she will get to keep her income, most of his income and most 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 Georgia Department of Family and Children Services (DFCS). If she does things strictly according to the way DFCS tells her, she will only be able to keep her home and $111,560 ($109,560 for the community spouse + $2,000 for the applicant spouse) of their 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. Alice might be able to turn the spend down amount of roughly $75,000 into an income stream for her that will increase her income and meet the Medicaid spend down virtually right away. In other words, in handled properly, Ralph might be eligible for Medicaid from the first month he goes into the nursing home.
Please note that this will not work in every case. That’s why it is important to have an Elder Law attorney guide you through the system and the Medicaid process to find the strategies that will be most beneficial in your situation.
So, she will have to get advice from someone who knows how to navigate the system. But with proper advice she may be able to keep most of what 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 Ralph and 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.
Case Study #2
A Trust for a Disabled Child
Margaret and Sam have always taken care of their daughter, Elizabeth. She is 45, has never worked, and has never left home. She is “developmentally disabled” and receives SSI (Supplemental Security Income). They have always worried about who would take care of her after they die. Some years ago, Sam was diagnosed with dementia. His health has deteriorated to the point that Margaret can no longer take care of him. Now she has placed Sam in a nursing home and is paying $4,000 per month out of savings. Margaret is even more worried that there will not be any money left for the care of Elizabeth.
Margaret is satisfied with the nursing home that Sam is in. The facility has a Medicaid bed available that Sam could have if he were eligible. Medicaid would pay his bill. However, according to the information she got from the social worker, Sam is $48,000 away from Medicaid eligibility. Margaret wishes there was a way to save the $48,000 for Elizabeth after she and Sam are gone. There is.
Margaret can consult an Elder Law attorney to set up a “special needs trust” with the $48,000 to provide for Elizabeth. As soon as Margaret transfers the money to the trust, Sam will be eligible for Medicaid. Elizabeth won’t loose her benefits, and her security is assured.
Of course, all trusts must be reviewed for compliance with Medicaid rules. Also, failure to report assets is fraud, and when discovered, will cause loss of eligibility and repayment of benefits and perhaps even criminal penalties. Still, some people question making gifts before entering a nursing home.
I heard I can give away $13,000 per year. Can I?
As discussed earlier, many people have heard of the Federal Gift Tax provision that allows them to give away $13,000 per donee per year without paying any gift taxes. What they do not know is that this refers to a Gift Tax exemption. It is not an absolute right where Medicaid is concerned.
Having heard of the exemption, they wonder, “Can’t I give my assets away?” The answer is, maybe, but only if it’s done within the strict allowances of the law.
So even though the Federal Gift Tax allows you to give away up to $13,000 per donee per year without incurring tax, those gifts could result in a Medicaid period of ineligibility for months. Still, some parents want to make gifts to their children before their life savings is all gone. Next, consider the following case study:
Case Study #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.
The doctor tells them that Harold needs long-term care in a nursing home. They have some money in savings, but not enough. Mildred doesn’t want to lose her house and all their hard-earned money. She doesn’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.
Joan and Mildred wonder if Mildred can just give her money away to Joan as a gift, so that she doesn’t lose it when Harold applies for Medicaid. Joan asks, “Can’t my mother give away $13,000.00 a year?” That way Joan could keep the money for Mildred to meet Mildred and Harold’s future needs.
Joan has confused general estate and gift 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, for gifts made prior to February 8, 2006, the state will “look back” three years to see if any gifts have been made. Gifts made after February 8, 2006 will be subject to a five year look back. 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 addition to the changes in the look-back period from three to five years, the new law also states that the penalty period on asset transfers will not begin until the Medicaid applicant is in the nursing home and already spent down. This will frustrate the gifting plans of most people.
So what can Harold and Mildred do? They may be able to 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 new rules are very “nit-picky”. You should consult a knowledgeable advisor on how this may be done.