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The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL You Can Find Good Nursing Home Care Without Spending Your Last Dime! Brought to you as a service of Mulder & Freedman, P.C. When Families Want To Legally Protect A Lifetime Of Savings For A Loved One Who Needs Quality Long Term Care The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL 4545 Mt. Vernon Houston, Texas 77006 713-721-5657 www.MedicaidHelp.net Introduction The decision to move a family member or a loved one into a nursing home is one of the most difficult decisions you can make. Perhaps the move is being made because the family member cannot care for him or herself, or has a progressive disease like Alzheimer’s, or has had a stroke or heart attack. No matter the reason, the family members involved are almost always under great stress. At times like these it’s important that you pause, take a deep breath and understand that there are things you can do. Good information is available. You can make the right choices for you and your loved one. The Consumer’s Guide To Medicaid Planning and Protection of Assets is designed to provide you with basic information and answers to some of the common questions we encounter in our Elder Law practice on a daily basis. Since Medicaid rules and procedures can be confusing, we’ve tried to keep this information as simple as possible, often using realistic stories to clarify key points. Our clients have found this guide to be a valuable resource. We hope you will find it useful, too. Robert Freedman James Mulder The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Americans are living longer than ever before. At the turn of the 20th century, the average life expectancy was about 47 years. As we enter the 21st century, life expectancy has almost doubled. As a result, we face more challenges and transitions in our lives than those who came before us. One of the most difficult transitions people face is the change from independent living in his or her own home or apartment to living in a long-term care facility or nursing home. There are many reasons why this transition is so difficult. One is the loss of a home - a home where the person lived for many years with a lifetime of memories. Another is the loss of independence. Still another is the loss of the level of privacy we enjoy at home, since nursing home living is often shared with a roommate. Most people who make the decision to move to a nursing home do so during a time of great stress. Some have been hospitalized after a stroke. Some have fallen and broken a hip. Still others have progressive dementia, like Alzheimer’s disease, and can no longer be cared for in their own homes. Whatever the reason, the spouse or relative that helps a person transition into a nursing home during a time of stress faces an immediate dilemma of how to find the right nursing home. The task is no small one. Families breathe a huge sigh of relief when the right home is found and the loved one moves into the nursing home. For many, another difficult task is just ahead: How to cope with nursing home bills that may total $3,500 to $5,000 per month or more? The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL How to Pay for Nursing Home Care One of the things that concern people most about nursing home care is how to pay for that care. There are basically four ways you can pay the cost of a nursing home: 1. Long Term Care Insurance – If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of a nursing home. Unfortunately, long-term care insurance is only now becoming a popular solution. Most people facing a nursing home stay do not have this coverage. 2. Pay with Your Own Funds – This is the method many people are forced to use at first. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately with nursing home bills averaging between $3,500 and $5,000 per month in our area, few people can afford a long-term stay in a nursing home. 3. Medicare – This is the national health insurance program primarily for people 65 years of age or older, certain younger disabled people, and people with kidney failure. Medicare provides short-term care assistance with nursing home costs, but only if you meet the strict qualification rules. 4. Medicaid – This is a federal and state funded medical benefit program that can pay for the cost of the nursing home. It requires that certain asset and income tests be met and is administered by each state. The first two methods of private pay (using your own funds) and long-term care insurance are self–explanatory, so our discussion will concentrate on Medicare and Medicaid. What About Medicare? There is a great deal of confusion about the differences between Medicare and Medicaid. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Medicare is a federally funded health insurance program designed for older individuals (i.e. those 65 or older). It provides only limited benefits for long-term care. In general, if you are enrolled in the traditional Medicare plan, have had a hospital stay of at least three days, and are then admitted into a skilled nursing facility (often for rehabilitation or skilled nursing care) Medicare may pay for a limited period. (If you are a Medicare Managed Care Plan beneficiary, a three-day hospital stay may not be required.) If you qualify, traditional Medicare may pay the full cost of the nursing home stay for the first 20 days. It might continue to pay the cost of the nursing home stay for the next 80 days, but you are responsible for a daily deductible of about $124. Some Medicare Supplement Insurance policies will pay the cost of that deductible from day 21 through day 100, as long as you continue to meet the strict qualifying rules. In the best-case scenario, the traditional Medicare or Medicare Managed Care Plan may pay for up to 100 days for each “spell of illness”. In order to qualify for this 100 days of coverage, however, the nursing home resident must be receiving daily “skilled care” and generally must continue to “improve”. (Note: Once a Medicare/Managed Care beneficiary has gone 60 consecutive days without receiving a “covered level of care”, he or she may again be eligible for the 100 days of skilled nursing coverage for the next spell of illness.) While it’s never possible to predict at the outset how long Medicare will cover the rehabilitation, from our experience it usually falls far short of the 100 day maximum. Even if Medicare does cover the 100-day period, what happens then? What happens after the 100 days of coverage have been used? In either case you’re back to one of the other three alternatives, long-term care insurance, paying bills with your own assets, or qualifying for Medicaid. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL What is Medicaid? Medicaid is a benefit program funded by both the federal government and each state. It is administered by the state. The rules vary from state to state. One primary benefit of Medicaid is that, unlike Medicare (which pays for skilled nursing), the Medicaid program will pay for long-term care in a nursing home once you have qualified. Medicare does not pay for treatment for all diseases or conditions. For example, Alzheimer or Parkinson’s disease may cause a long-term stay in a nursing home, and even though the patient receives medical care, Medicare will not pay for the treatment. These stays are called custodial nursing stays. Medicare does not pay for custodial nursing home stays. In that instance, you will either have to pay privately (i.e. using long-term care insurance or your own funds), or you’ll have to qualify for Medicaid. Why Seek Advice for Medicaid? As life expectancies and long-term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $3,500 per month or more for the cost of a nursing home. If you can pay for a while you may find your life savings wiped out in a matter of months, rather than years. Fortunately the Medicaid program is there to help. In fact, in our lifetime, Medicaid has become a long-term care “insurance” for the middle class. To receive Medicaid benefits you must pass The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL certain income and asset tests. The reason for Medicaid planning is simple. First, if the patient is married, you need to preserve enough assets for the security of the spouse - they too may have a similar crisis. Second, the rules are extremely complicated and confusing. Without planning and advice, many people spend more money than necessary and jeopardize their family security. Some families spend virtually all of their savings on nursing home care. Medicaid, however, does not necessarily require you to do so. There are a number of strategies you can use to protect your family’s financial security. Exempt Assets and Countable Assets: What Must Be Spent? To qualify for Medicaid, applicants must pass some fairly strict tests on the amount of assets they can keep. To understand how Medicaid works, you first need to understand the difference between what Medicaid calls exempt and countable assets. Exempt assets are those that Medicaid will not take into account (at least for the time being). In general, the following are some of the exempt assets: Home, no matter what its value. The home must be the principal place of residence. The nursing home resident may be required to indicate an “intent to return home” even if this never actually takes place. Personal belongings and household goods. One car or truck. Burial spaces and certain related items. Up to $1,500 designated as a burial fund for applicant and spouse. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Irrevocable prepaid funeral contract. Cash value of life insurance, if the face value is $1,500 or less. If it exceeds $1,500 in total face amount, then the cash value of these policies is countable. Most other assets are countable. For example, each of these items is countable: Cash, savings, and checking accounts, credit union accounts. Certificates of deposit and money market accounts U.S. Savings Bonds Stocks, bonds, or mutual funds Individual Retirement Accounts (IRA) Keogh, 401K and 403B plans Nursing home accounts Prepaid funeral accounts that can be canceled Trusts (depending on the terms of the trust) Real estate (other than the residence) Mortgages held on real estate sold Oil and mineral rights Boats or recreational vehicles The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL While the Medicaid rules themselves are complicated and tricky, it’s safe to say that a single person will be asset qualified for Medicaid in Texas as long as he or she has only exempt assets plus no more than $2,000 in cash or other countable resources. Medicaid Planning for Married Couples: The Spousal Impoverishment Rules Prior to 1988, paying the nursing home costs for one spouse often led to the bankruptcy of the healthier non-institutionalized spouse. Thanks to the Spousal Impoverishment provisions of the Medicare Catastrophic Cost Act of 1988 qualified married couples now have rules that can protect both income and assets for the at- home or “Community Spouse”. Under these provisions, Medicaid divides the assets between the Nursing Home Spouse and the Community Spouse. Basically, in a division of assets, Medicaid examines the couple’s countable resources. Exempt assets are omitted from the calculation. Medicaid divides the countable assets in two. The “Community Spouse” is allowed to keep one half of all countable assets to a maximum of approximately $100,000. The amount the at-home spouse is allowed to keep is called the “Community Spouse Resource Allowance”. It may also be called the “Protected Resource Allowance”. The other half of the countable assets must be “spent down” to $2,000. Each state also establishes a monthly income floor for the at-home spouse. This is called the Minimum Monthly Maintenance Needs Allowance. In Texas for 2008, this amount is the lesser of their combined income or $2,610. If the Community Spouse does not receive at least $2,610 in monthly income, then he or she is allowed to divert a portion of the income of the Nursing Home Spouse to reach the “Minimum Monthly Maintenance Needs Allowance”. If the Nursing Home Spouse has any remaining income, it goes to the nursing home. This The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL avoids the necessity for the at home spouse to face gradual impoverishment by using up savings each month. Assume the Community Spouse receives $970.00 per month in Social Security. The Nursing Home Spouse receives Social Security of $1550 and a pension of $257 for a total of $1807. The Community Spouse is $1,640 “short” each month. $2,610 At-home spouse’s monthly needs allowance (per formula) - 970 At-home spouse’s Social Security $1,640 Amount of monthly short fall In this case, the Community Spouse will receive $1,640 (the shortfall amount) per month from the Nursing Home Spouse’s total income. The balance of $167 goes to pay the nursing home. Medicaid Planning for Married People Ralph and Alice were high school sweethearts who lived in Houston their entire adult lives. Ralph and Alice grew up during the Depression. They always tried to save something each month. Their total assets (shown below) come to $190,000. Their countable assets, total $120,000 (remember the home is exempt): Savings Account__________$35,000 CD’s_____________________$65,000 Money Market Account_____$17,000 Checking Account_________$ 3,000 The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Residence (no mortgage)__$70,000 Four weeks ago Ralph and Alice celebrated their 51st wedding anniversary. Two weeks ago, Ralph, who has Alzheimer’s, wandered away from home. The police found him, hours later, sitting on a street curb and talking incoherently. They took him to a hospital. The doctor is telling Alice she needs to place him in a Nursing Home for his protection and her health. Ralph gets a monthly Social Security check of $800. Alice gets $300. “Paying $4,200 to the nursing home every month, I will be broke in 28 months!” she tells us. “And my expenses don’t stop because Ralph is in the home. How can I survive?” “A neighbor told me, I have to turn all of Ralph’s social security check over to the nursing home”, she continued. “Is that true?” We have good news for Alice. It’s possible she will get to keep everything, all of their assets and all of the income, and still have Medicaid pay Ralph’s nursing home costs. It may take a little while but the end result is well worth it. To apply for Medicaid, Alice must contact the Texas Department of Aging and Disability (DADS). It is not the responsibility of the DADS to tell her how to protect her assets. Texas law provides several ways she can keep their entire savings. One approach allows her to keep not only 100% of their assets, but all the combined income, as well. However, she must proceed correctly. If done correctly Medicaid will pay for all of Ralph’s medicines and nursing home costs. Alice will have to get advice from someone who knows how to navigate the system. With proper advice, she’ll be able to avoid “spending down” and keep everything she and Ralph have worked so hard for. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL This is just one of the solutions made possible by the Medicare Catastrophic Cost Act of 1988. The law today does not intend to impoverish one spouse because the other needs care in a nursing home. You can see from this one example that knowing how to apply the rules can be used to resolve Alice’s dilemma. What constitutes suitable Medicaid planning differs from family to family. It is based on current state law and the relevant facts and circumstances of each situation. For example, some children never gain independence – they remain dependent on their parents. What can be done in such a case? 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 Supplemental Security Income (SSI). Who would take care of her after they die has always been a big worry for them. Some years ago, Sam was diagnosed with dementia. His health has deteriorated to the point that Margaret can no longer take care of him. Several months ago, she placed Sam in a nursing home. She removes $4,000 a month out of savings to pay the nursing home. Margaret can’t sleep at night worrying that there will not be any money left to care for Elizabeth. Margaret is satisfied with the nursing home that Sam is in and it has a Medicaid bed available for Sam. If he were eligible, Medicaid would pay his bill. However, according to the information she got from the Medicaid worker, Sam is $58,000 away from Medicaid eligibility. Margaret wishes there was a way to save the $58,000 for Elizabeth after she and Sam were gone. There is. Margaret can consult an Elder Law attorney and set up a “special needs trust” with the $58,000 to provide for Elizabeth. As soon as she does, Sam will be Medicaid eligible. Margaret no longer has to worry about paying Sam’s bill or be concerned that Elizabeth would lose her benefits. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Of course, all trusts must be reviewed for compliance with Medicaid rules so the attorney who drafts the trust must be knowledgeable about Medicaid’s regulation in this regard. Some Common Questions Why can’t I just give my assets away? Giving away assets could be a useful strategy, but only if it’s done just right. The law severely penalizes people who give away their assets to create Medicaid eligibility. In Texas, every $3,725 given away during the five years prior to a Medicaid application creates a one-month period of ineligibility. A gift of $12,000, for example, creates a 3-month penalty. But I thought I could Give Away $12,000 Per Year! You may have heard of the federal gift tax provision that allows you to give away $10,000 per year without paying any gift taxes (this limit has recently been raised to $11,000). Many folks believe this is an absolute right that supersedes Medicaid gifting rules. It does not. All gifts and transfers must comply with Medicaid’s strict rules. The Federal Gift Tax law allows a gift of up to $12,000 per year per recipient without having to file a state tax return. However, under Medicaid rules those gifts could result in ineligibility for a number of months. I’ve added my children’s names to our bank accounts. Do they still count? Yes. The entire amount is counted except to the extent you can prove the other account holder contributed some or all of the money. This rule applies to cash assets such as: Savings and checking accounts. Credit union accounts. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Certificates of deposits. U.S. savings bonds Some parents understandably want to make gifts to their children before their life savings have vanished. Let’s see how that might work. Financial Gifts to Children After her 73-year-old husband, Harold, suffered a paralyzing stroke, Mildred and her daughter Joan sought the advice of an Elder Law attorney. Dark circles had formed under Mildred’s eyes. Her hair is uncombed and she is frightened. During the entire meeting Joan holds her hand. “The doctor says Harold needs long term care in a nursing home.” Mildred begins, “ I have some money in savings, but not enough. I don’t want to lose my house and all of our hard earned money. I don’t know what to do.” Joan heard about Medicaid benefits for nursing homes, but she doesn’t want her mother left destitute in order for Harold to qualify for them. She wants her father’s medical needs met, but she also wants to preserve assets for Mildred. “Can Mom just give me her money as a gift?” she asks. “Can’t she give away $11,000? I could keep the money for her so she doesn’t lose it when Dad applies for Medicaid.” Joan has confused federal Gift Tax law with the issue of transfers and Medicaid eligibility. A “gift” to a child in this case is actually a transfer. Medicaid has very specific rules about transfers. With few exceptions, the state won’t let you just give away your money or your property so you can qualify for Medicaid. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL At the time Harold applies for Medicaid, the state will “look back” at least three years to see if any gifts have been made. Any gifts or transfers for less than fair market value that are uncovered in the look-back period will delay Harold’s eligibility for Medicaid. For example, three $12,000 gifts made during the three prior years to a Medicaid application could create a 10-month ineligibility period in Texas. So what can Harold and Mildred do? They can institute a Medicaid Estate Preservation plan, save a good portion of their estate, and still qualify for Medicaid. The plan may involve gifts. Or Harold and Mildred might take advantage of the Spousal Impoverishment Guidelines. If used, gifts must not violate Medicaid rules and must comply with Federal reporting laws. But remember, when it’s given away, it’s given away! To set up a plan that complies with the law and achieves your goals you should consult a knowledgeable advisor. Generally, when properly handled, you can often save as much as one half of your assets. Sometimes, even more. Will I Lose My Home? For many Texas elderly, the home constitutes much or most of their life savings. Often, it’s the only asset that a person has to pass on to his or her children. Under Medicaid regulations, the home is an exempt asset and is not taken into account when calculating eligibility for Medicaid. A nursing home resident can own a home and receive Medicaid benefits without having to sell the home. But, upon death, the state may make a claim against the value of the home in The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL order to recover the cost of Medicaid payments that were made. With planning, the effect of “Estate Recovery” can be managed or avoided. Prior to March 2005 Texas did not seek to recover the amounts paid to a Medicaid recipient from his or her estate. That changed when the governor signed into law a statute requiring the state Medicaid agency to comply with the Federal “Estate Recovery” rule. How you protect your home depends on a number of factors, including whether the patient is single or married. The best way to protect your home for your family is with assistance from an Elder Law attorney knowledgeable about these rules. The elderly and their family members face a number of unique legal issues. As you can tell from our discussion of the Medicaid program, the legal, financial, and care planning issues facing the prospective nursing home resident and family can be complex, confusing and frustrating. If you or a family member needs nursing home care, expert legal help can protect your life savings, reduce your worries and give you peace of mind. Where can you turn for that legal help? It is difficult for the consumer to be able to identify lawyers who have the training and experience required to provide skilled and, knowledgeable guidance during this most difficult time. Typically, Elder Law attorneys provide nursing home planning and Medicaid planning services. You should be cautious in choosing a lawyer and carefully investigate the lawyer’s credentials. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL How do you find a law office that has the knowledge and experience you need? You may want to start with recommendations from friends who have received professional help with nursing home issues. Who did they use? Were they satisfied with the services they received? Hospital social workers, Alzheimer’s and other support groups, accountants, and other financial professionals can be good sources of recommendations, as well. 4 Questions To Ask An Attorney What percentage of his or her practice involves nursing home planning? You can expect a lawyer who devotes a substantial part of his or her practice to nursing home planning to be better equipped to address the complex issues involved. How many new nursing home planning cases does the law office handles each month? There is no correct answer. A law office that assists with two nursing home placements a week is likely to be more up-to-date and knowledgeable than an office that helps with two placements a year. Is the lawyer a member of any Elder Law planning organizations? The leading national organization of Elder Law attorneys is the National Academy of Elder Law Attorneys (NAELA), 1604 North Country Club Road, Tucson, Arizona. Membership in the academy is open to any lawyer. Mere membership is no sure sign that the attorney is an experienced Elder Law Practitioner. Membership does demonstrate that the lawyer has some interest in the field. You may want to look for an attorney who is a member of the NAELA and regularly attends its educational sessions. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL In the end follow your instincts and choose an attorney who knows this area of the law, who is committed to helping others, and who will listen to you and the unique wants and needs of you and your family. Mulder & Freedman, P.C. is a Houston, Texas based law firm that emphasizes Elder Law, Medicaid Planning and Estate Planning. James C. Mulder is Board Certified in Estate Planning and Probate Law, as well as Tax Law, by The Texas Board of Legal Specialization. Robert M. Freedman is a member in good standing of the National Academy of Elder Law Attorneys. Unless noted, not certified by Texas Board of Legal Specialization. The Texas Board of Legal Specialization has made no designation for a Certificate of Special Competence in the area of Elder Law. The Consumer’s Guide To Medicaid Planning and Protection of AssetsNOT FOR DISTRIBUTION DRAFT COPY 02/11/03 Page 1 of 10 CONFIDENTIAL Disclaimer: This publication is not intended for use as a source of legal or accounting advice. Medicaid rules are complex. Results are highly fact specific. This booklet addresses general rules provided by statute, regulation or otherwise. It does not address all facts that might affect the application of these general rules. This information is subject to change at any time by various government agencies. All readers should retain counsel competent in Medicaid issues to determine how state and federal laws, regulations and policy apply to their particular situation.
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