by Michelle K. Fossum, Sayre Sayre & Fossum PS
A good estate plan involves preparing for the possibility of disability and long-term care.
Very few families have sufficient financial resources to pay for more than a short period of nursing home or in-home health care; and spouses and children of individuals who have suffered from a stroke, or who develop dementia, cancer, Parkinson’s, Alzheimer’s disease, Huntington’s or similar disabling conditions may quickly find themselves facing devastating expenses. While certainly helpful, long term care insurance benefits may pay too little per month, or for too short a time, to cover the expense of long-term care. These expenses may be minimized with proper planning.
Medicare provides very limited long-term care benefits for a short duration for disabled seniors. When limited Medicare benefits end, you must cover these costs yourself. Such expenses can exceed $10,000 per month. Under appropriate circumstances, the state and federal government will provide long-term care assistance for you or your spouse in your home, in an adult family home or congregate care facility, or in a skilled nursing home under the Medicaid program.
To be eligible for long-term care Medicaid assistance, a couple must spend down to amounts established by federal law. To be eligible for Medicaid assistance with home care, assisted living, an adult family home or a congregate care facility, the well spouse may have no more than $58,075, and the ill spouse no more than $2,000, excluding exempt resources. If you need assistance for nursing home care, the well spouse is allowed half of all available resources, with a minimum of $58,075, up to a maximum of $130,380, excluding exempt resources. The ill spouse is allowed $2,000. For example, if you have a total of $100,000 in non-exempt resources and a spouse is in a nursing home, the well spouse will be allowed $58,075. If you have $300,000 in non-exempt resources, the well spouse will be allowed $130,380. A spousal transfer to the well spouse must be done, and the well spouse must spend down or acquire exempt assets to qualify. If you are single, you are allowed a maximum of $2,000, excluding exempt resources. The Department of Social and Health Services (DSHS) adjusts these figures periodically.
Exempt resources (assets) that do not count towards these figures include the family home (unlimited value if you are married, $603,000 maximum if you are single), one automobile, irrevocable burial insurance, burial plots, some income producing properties (such as an active farm or small business), certain Medicaid exempt annuities, pensions and retirement funds, and assets in very specialized trusts. Long-term care insurance policies are not resources (although their income will reimburse DSHS in a Medicaid case) and may increase the exempt cash set aside by the value of coverage.
For planning purposes, a couple may be able to transfer assets into the name of the well spouse without penalty, acquire an exempt resource (such as paying down a mortgage, buying a new car, or purchasing a Medicaid exempt annuity), then qualify the ill spouse for Medicaid services. Currently, the well spouse is allowed an income stream equal to all income in his or her name, or $2,156 per month from all sources. This figure may be increased if you have household expenses exceeding certain standards. For example, if the well spouse earns $2,500 per month and the ill spouse earns $600, the well spouse will keep all $2,500, but the ill spouse must contribute his or her income towards health care expenses. This is called participation. If the ill spouse is at home, the ill spouse must also contribute towards the cost of living before participating in health care costs. If the well spouse earns $1,000 and the ill spouse earns $1,500, the ill spouse will contribute $1156 per month to the well spouse, bringing the well spouse’s income to $2,156 per month. The ill spouse will then contribute the balance towards care costs and may retain some income if he or she is in a nursing home or the COPES home care program to cover living expenses.
There is no five-year lookback or penalty connected with transferring funds from one spouse to another, but if you transfer assets to a child before Medicaid is approved, the 60-month lookback applies, and draconian penalties await both spouses.
The gift penalty period is imposed at the time of application, which could be years after the gift was made. If you gift within five years of an application, a penalty is computed but imposed prospectively when you apply for help years after your gift, not when you made the gift. There are ways to minimize penalties in respect of transfers to children, but because of the horrible consequences of a carelessly planned transfer, no one should consider doing so without expert advice. Transfers from a well spouse to a non-spouse following placement of an ill spouse on Medicaid results in penalties only to the well spouse and should not affect care for the ill spouse. Transfers made prior to Medicaid eligibility affect both spouses.
DSHS has become extremely aggressive in collecting against Medicaid recipients’ estates and, in some instances, will place liens on your home even before you die. Recovery is limited to assets held by the disabled spouse at the time of death, so an interspousal transfer must be completed to prevent DSHS from taking your home or exempt assets upon your demise. Failure to transfer the home or other assets will spell disaster for your spouse and children. An effective Durable Power of Attorney granting power to transfer assets to your spouse or children is critical. Internet, stationery store or other “do it yourself” forms do not contain adequate powers to allow these transfers and may force you into a guardianship proceeding or contribute to the practical impoverishment of you and your loved ones.
With a proper Durable Power of Attorney, people can avoid or minimize the qualification spend down. Without this document, you can anticipate significant difficulties with accessing Medicaid to help you with the staggering costs of long-term care. You must be extremely careful who you grant this power to, however. Relatives with powers of attorney can help save your assets, but they can also steal them. Only give this power to people you trust with your life.
The well spouse should have a Will containing a special needs trust for the benefit of the ill spouse so that, if the well spouse dies first, the estate will pass into a special needs trust set up within the Will for the ill spouse. This trust will protect the ill spouse for the rest of his or her life. When the ill spouse later dies, a properly drafted trust will pay to named beneficiaries, not to DSHS. Only a Will can provide this protection for a spouse. A living trust cannot.
Strategies exist to help people retain their life savings and home; however, effectiveness depends upon estate size, the planning undertaken prior to illness, and the skills of the attorney you are working with to maximize exemptions. Find and consult an attorney familiar with these complex laws before you take action and be sure your Durable Power of Attorney and estate plan stays updated. If you can afford it and are healthy, the purchase of long-term care insurance should be considered, and can save you from the need to access Medicaid or provide you a significant safe harbor should you need Medicaid to help with the cost of care by providing an exempt credit for your policy’s value. This must be considered as part of an overall plan, but is not a solution in and of itself.
When you need a medical specialist, the best way to find that doctor is to ask other physicians. Finding an Elder Law attorney is no different. Ask your lawyer, doctor or accountant for a referral to an attorney experienced in Medicaid planning. Medicaid rules and regulations change frequently, and usually with little advance notice or fanfare. It is critical that the legal advisor has current knowledge of the Medicaid system. With qualified help, obtaining assistance with long-term care costs is possible, and could save you and your loved ones significant resources, allowing you to retire and receive care in dignity.