Discussion of Elder Law and Estate Planning and Missouri Medicaid eligibility.
As our population grows older, more and more families will face the need for long term care for their loved ones. The cost of a skilled nursing home care in Florida averages about $7,000 to $8,000 per month. That number increases each year.
Medicare does not cover the cost of skilled nursing home care (except for rehabilitation usually with a limit of 100 days of coverage). Beyond that limited coverage, the family must pay the full cost of skilled nursing home care.
Most studies suggest that the average family will exhaust the family's life savings within the first year of skilled nursing home care! Without long term care insurance, practically all nursing home residents will eventually end up needing Medicaid to pay for the nursing home care.
When faced with the reality of the cost of nursing home care, and the almost certain eventual need for Medicaid eligibility to pay for the nursing home, most families engage in actions that can result in loss of eligibility for Medicaid benefits, or a long penalty period in which Medicaid benefits are not available to cover the costs of the nursing home care.
In an effort to help families avoid costly mistakes, that can cause them to lose their life savings unnecessarily, we have compiled this list of 13 most frequest mistakes that families make when a loved one enters a nursing home.
1. Failure to Take Advantage of the Avalable Spend-Down Options.
Many families assume when they are told the family must "spend-down" the family's assets to qualify for Medicaid benefits to pay for nursing home care, that the spend-down must be paid to the nursing home. The fact is, there are more than a dozen strategies that can be used to meet the Medicaid requirement for spend-down, without spending the money on nursing home care. These strategies allow you to protect your assets from Medicaid and the cost of nursing home care.
2. Transferring Assets to Other Family Members or Friends Without a Plan.
Probably the most common reaction to the realization that you must spend-down your assets to qualify for Medicaid nursing home benefits is to gift the assets to other family members or friends. There are Medicaid rules and regulations that create negative consequences, sometimes severe, when gifts of assets are made in contemplation of applying for Medicaid benefits for nursing home care. These same Medicaid rules, however, when used properly, can result in the protection of substantial assets for the family. You must understand how to use those rules and regulations to make them work in your favor.
3. Assuming Your Existing Annuity Provides Asset Protection from Medicaid Spend-down.
Prior to the passage of the Deficit Reduction Act of 2005 (which became effective in 2006, "DRA"), annuities were widely used as effective planning to preserve assets from Medicaid spend-down. The rules changed dramatically with the DRA. Most all of the annuities that were effective prior to the DRA no longer provide asset protection. There are a few annuities that are "DRA Compliant" that can be purchased in today's market. These DRA compliant annuities can provide significant asset protection. If an annuity is not DRA compliant, it is not likely to provide any meaningful protection.
4. Having No Plan or Procrastinating Too Long to Take Action.
This year hundreds of millions of dollars will be lost to nursing homes or other long term care providers because families failed to take any action. Often this is a result of the family assuming, wrongly, that after the loved one is in the nursing home there is nothing that can be done. In almost all cases, most of the family's assets could have been saved for the spouse living at home, or other family members, if action had been taken immediately after the family member enters the nursing home. The reality is, the longer you wait to take action, the more money will be lost to the nursing home that could have been protected from the Medicaid spend-down.
5. Trying to Hide Assets from Medicaid.
Sometimes families try to hide assets from Medicaid. Sometimes they conveniently "forget" about some assets. How will Medicaid know about the family farm or vacation home in another state? Or, the coin collection in the safe deposit box? The reality is that Medicaid has access to all the real property records in the US, as well as access to the most sophisticated asset databases. Be aware that failure to disclose known assets is a federal crime (Medicaid fraud), conviction of which can result in signficant monetary fines and prison terms. Medicaid can also pursue legal action to recover the cost of the benefits paid to someone who procures Medicaid benefits through fraud. Do not ever seek to hide or otherwise perpetuate Medicaid fraud. There are legitimate and legal options that allow protection of signfiicant assets without violating the law.
6. Taking the Advice of the Medicaid Case Worker.
The Medicaid case worker, employed by the Department of Children and Families in Florida, has no interest in helping you preserve your family's assets from spending down those assets on long term care. In fact, the Medicaid case worker's responsibility is to process and evaluate whether you are eligible for Medicaid benefits to pay for nursing home care. The Medicaid case worker is not allowed to give financial or legal advice. To protect your family's assets as much as you legally can you need your own advocate - one who is looking after your best interests. The Medicaid case worker is not that person.
7. Relying on Advice from Friends and Neighbors.
It is appalling how many people rely on their neighbors, hair stylist, insurance agent, or others who are not Medicaid professionals for Medicaid advice. Even more appalling is relying on information from friends and relatives who live in other states. The Medicaid rules and regulations have been referred to as the most complex laws in the country, second only to the Internal Revenue Code (tax law). To further complicate this area of the law, Medicaid is a federal program that is administered by the various states. Each state is free to establish its own rules and regulations, within certain parameters. The law is implemented differently by each state. What applies in New York, or Pennsylvania, or New Jersey or Ohio, does not apply in Florida. So not only do you want to restrict your source of advice to a qualified Medicaid professional, but you want to restrict your counsel to those within the state in which you reside. For those who are familiar and experienced with the particular state's rules and regulations, Medicaid asset protection can be quite effective.
8. Choosing the Wrong Attorney
In most cases, the family is going to need an attorney to achieve the most favorable outcome for preserving the family's assets. There are legal documents that are often required, such as a qualified income trust. Attorneys, like all professionals in other disciplines, usually have a specific area of the law in which they are knowledgeable and experienced. To obtain the proper counsel and advice you will want to work with an experienced elder law attorney to deal with Medicaid spend-down planning for asset protection. You do not want to rely on the advice of a divorce attorney, personal injury attorney, real estate attorney, corporate attorney, or attorneys who practice in other disciplines. Probably less than 10 lawyers out of a 100 have experience in elder law and Medicaid asset protection planning. Of those 10, probably only 2 or 3 of them have substantial experience over a number of years. Your most effective Medicaid spend-down plan for nursing home care will likely come from one of the elder law attorneys with substantial experience.
9. Making Transfers Without Authority
Some families, in a desperate attempt to protect the assets of a family member who is no longer legally competent, will transfer assets without the property authority. For instance, we sometimes find that deeds have been signed by the legally incompetent senior, or assets have been transferred un the authority of a power of attorney that does not include the authority to make the kinds of transfers involved. Such actions may be viewed as harmless (that's what Dad would have wanted) or convenient. However, those actions may actually be fraudulent, create title problems for future transfers of real property, or may be considered "financial abuse of the elderly" (which is a criminal act in Florida). Furthermore, such transfers may ultimately be challenged by Medicaid as uncompensated transfers that result in signficant penalty periods during which no Medicaid benefits can be received.
10. Mistakenly Giving $13,000 (or $10,000) Won't Impact Medicaid Eligibility.
The Internal Revenue Code (tax code) currently allows an individual to transfer $13,000 (up from the original $10,000) to another person as a gift, without incurring any gift tax liability. For Medicaid eligibility purposes, the tax code doesn't matter. ANY gift or transfer of property, including cash, to another person within five years of the date your loved one applies for Medicaid benefits to pay for nursing home care, will result in a penalty period during which the nursing home resident will not be eligible to receive Medicaid benefits. In Medicaid planning, if you are going to make any gifts, make sure it is according to a specific plan and that you have properly evaluated the potential consequences of the gfit.
11. Relying on a Revocable Living Trust to Protect Assets from Medicaid Spend-down.
Many people have used revocable living trusts as their primary estate planning tool, in an effort to avoid probate. Many believe that the revocable living trust provides some asset protection value for Medicaid spend-down plan purposes. Notwithstanding the benefits provided by revocable living trusts from the perspective of estate planning and probate avoidance, such a trust provides no asset protection - either from Medicaid spend-down planning, nor for any other purpose. Any and all assets titled to the revocable living trust will be considered available resources for purposes of Medicaid eligibility.
12. Applying for Medicaid Too Early.
Some families file the application for Medicaid eligibility for nursing home benefits for the sole purpose of determining whether they qualify for benefits. The belief is the worst thing that can happen is that the application is declined. However, the Medicaid rules and regulations have many issues that could result in an application that is filed too early to cause substantial penalty periods during which Medicaid benefits cannot be received by the applicant. These penalty period can be for a longer time than the 5 year look back period. You should never file a Medicaid application unless you fully understand the possible consequences of the application being denied.
13. Failure to Avoid Estate Recovery.
Often someone can qualify for Medicaid benefits to pay for nursing home care and retain the ownership of some assets. Each state has the right to "Medicaid Recovery." Medicaid recovery is a procedure where the state can recover from the estate of the person receiving Medicaid benefits, after the person has died. The State can recover the value of the benefits paid on behalf of the deceased person. Most states can recover only from the "probate estate." Other states have defined the "estate" to include assets that are not included in the deceased person's probate estate. To effectively protect assets from Medicaid estate recovery, you must first understand what constitutes the "estate" for a particular estate, and then understand how you can title assets to avoid estate recovery for the specific state that is involved.
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Conclusion
These 13 mistakes cost families millions upon millions of assets every year that are paid to nursing homes when those assets could be preserved for the spouse or other family members. If you have a loved one in a nursing home, or about to enter a nursing home, there are many actions you can legally take to avoid spending down the family's assets for nursing home care.
Our attorneys can help you protect your family's assets from the costs of nursing home care.
During their marriage, Martha executed a quitclaim deed putting her home into the names of her and her husband, George. Later, she executed a power of attorney with George as her agent. Using the power of attorney, George later transferred Martha’s remaining interest in the home to him solely. Martha then applied for and was approved for Medicaid benefits. Until her death, the Department provided in excess of $100,000 in benefits. George had predeceased Martha and the personal representative of the estate sold the home for just over $81,000. The Department filed a contingent claim with the probate court for the amounts of benefits paid. The Department claimed entitlement under I.C. § 56–218, which allowed recovery from “any property which, at any time, had been the community property of the decedent and decedent's spouse, or which had been the property of decedent's spouse.This is why it is important, at least in Missouri, to get your assets into a trust! Missouri's Medicaid program has NOT expanded it's definition of "estate" to include trusts, but it might at some point. Most people don't really think about their property being at risk of estate recovery because Medicaid considers the applicant's homestead to be an exempt asset for eligibility purposes. HOWEVER, that does not mean that MO FSD cannot come after the homestead through Medicaid estate recovery in order to recover any money that it pays out on behalf of the applicant's medical care during their lifetime.
Both the probate and appellate courts denied the claim, finding that I.C. § 56–218 limited recovery to property in which the recipient spouse had an interest at the time of death. Since Martha validly conveyed her interest in the home to George via the power of attorney before that time, there was no estate recovery. The Idaho Supreme Court reversed. The court noted that while 42 U.S.C. § 1396p(b)(1) expressly allowed recovery from only “the individual's estate, it also allowed states to expand the definition of ‘estate’ to include any other property in which the individual had any legal title or interest “at the time of death.” Idaho had adopted this more expansive definition of “estate.” The court noted that the definition of “estate” in 42 U.S.C. § 1396p(b)(4)(B) included the phrase “other arrangements,” while the definition of “assets,” in 42 U.S.C. § 1396(h)(1) plainly included the resources of the recipient's spouse, as well as assets the recipient disposed of before death. The federal definition of “resources” included the home for purposes of recovery. In light of the ambiguously inclusive nature of 42 U.S.C § 1396p(b)(4)(B) and the plain definition of “assets” in 42 U.S.C. § 1396(h)(1), the court could not find that federal law preempted States from providing for recovery of assets from both spouses' estates under I.C. § 56–218(1), including assets that were community property during the marriage.
Estate of Perry, 2012 WL 3206771 (August 9, 2012)
Reversing a district court, a U.S. court of appeals holds that an annuity is an unavailable resource even if it is purchased in addition to the community spouse resource allowance, and that there is no transfer penalty for the couple's purchase of the annuity prior to a determination of Medicaid eligibility. Morris v. Oklahoma Dept. of Human Services (10th Cir., No. 10-6241, July 9, 2012).
The text of a Senate bill imposing asset-transfer rules on VA pension applicants is now available. S. 3270, introduced by Sen. Ron Wyden (D-OR) and Sen. Richard Burr (R-NC), would require the Secretary of Veterans Affairs to look back 36-months for any uncompensated transfers that a veteran, spouse, surviving spouse or child otherwise eligible for a pension may have made. As ElderLawAnswers reported, the bill comes on the heels a U.S. Government Accountability Office (GAO) report that found abuses among a small group of attorneys and financial planners who help veterans transfer assets in order to qualify for VA pension benefits like Aid and Attendance.Under the bill, the Secretary would look for any resource that was part of the “corpus of the estate” of the veteran and of the veteran’s spouse that the secretary considers would be “reasonable” to be consumed for claimant’s maintenance. The look-back period would commence on the date of the pension application or the transfer, if it is later. The legislation calls for the imposition of a penalty period if an uncompensated transfer has been made, and the penalty would be calculated by dividing the value of the transferred resources by the amount of the monthly pension the claimant would otherwise be entitled to. The panalty could not exceed 36 months.A pension will not be denied if transferred assets are returned or if the denial or discontinuance of payment would work an undue hardship.The legislation would take effect one year after enactment and apply to pensions applied for or redeterminations after that date.
