Clients come to me all the time to discuss their estate planning and in every meeting they ask me about protecting their home and assets. Protecting them from what you might ask? In most cases, from the reach of Nursing Home Medicaid, the nation’s public health insurance program. (Medicaid is called MassHealth in Massachusetts.)

 

Nursing Home Medicaid is for seniors who take up residency in a nursing home indefinitely because they require long-term skilled nursing care 24/7 and help with activities of daily living. For qualified recipients, it pays all the costs of a nursing home as well as any needed medical care and requires a patient paid amount (PPA) from the resident each month. The PPA is generally the patient’s income – less health insurance, prescription coverage and a state-set personal needs allowance – which by law must be paid monthly to the nursing home.

 

When someone needs nursing home care there are only four ways to pay for it: 

1) Medicare (potentially up to the first 100 days); 2) long-term care insurance; 3) private pay (meaning out of their own pocket); and 4) Medicaid. Most people don't have long-term care insurance and just can't afford to private pay around $10,000 a month for a nursing home. 

 

It’s easy to see why a lot of people worry about nursing home poverty, or in other words, planning ahead for Medicaid eligibility should they need a nursing home. For example, an estate valued at between $200,000 and $500,000 could easily be wiped out if the person had to enter a nursing home at a cost of $120,000 to $180,000 annually, and remain there for two years (the average stay) or longer.

 

Aside from losing their home and life savings, people are also concerned about leaving their surviving spouses penniless if all their marital assets are spent on one of the spouse’s care. The prospect of leaving loved ones without any type of inheritance is top of mind too – many parents just want to leave something to their children.

 

Nursing Home Medicaid eligibility rules are complex. As always, it pays to know them so you can plan and make informed decisions. Here are a few of the key rules covering eligibility in Massachusetts and based on our expertise in elder law, estate planning and life care planning over the decades. Keep in mind the rules are different for married versus single applicants. Remember, too, these rules don’t necessarily apply to Community Medicaid which is focused more on helping seniors remain in their homes.

 

In calculating Nursing Home Medicaid eligibility, the state designates some assets as countable and some as non-countable. The latter are commonly referred to as exempt assets and include your primary home, car and certain other items.  There are a number of actions people can employ to spend down their countable assets that Medicaid allows like a sole benefit trust called a Pooled Trust and other tactics.

 

Gifting involves getting assets out of your name and out of your control at least five years before entering a nursing home and applying for Medicaid. Note: Moving assets between married couples is allowed and does not start a five-year look back period – it only starts when a gift is made to children or to an irrevocable trust.

 

The Nursing Home Medicaid eligibility rules are clear. If they are in a trust and reachable by you, meaning you have the ability to spend them on yourself, then they’re not protected. To structure your estate so that you could potentially qualify for Nursing Home Medicaid in the future, you must give up control by either putting assets in other people’s names, such as your children’s, or transferring your assets into a type of irrevocable trust that you cannot change or control and where the terms provide that you have absolutely no access whatsoever to the trust principal for your needs for rest of your life.

 

Telling someone with a home and life savings that to protect assets from Nursing Home Medicaid they are going to have no control over what they have accumulated over their lifetime is a major stumbling block for people. While the first inclination to protect assets is to put them in the children’s name, once people realize the pros and cons, they can be less amenable. After all, they have no control over what will happen to those assets once they are transferred to the kids. Money could be spent or lost if a child gets divorced, goes bankrupt, has a judgment against them, has credit issues, uses the funds for themselves or dies before the parent.

 

Most IRAs, 401ks and 403bs are considered countable resources for Medicaid eligibility, putting individuals with sizeable IRAs well over the $2,000 asset limit. Additionally, an individual can’t transfer their IRA to other individuals or to a trust without taking the entire distribution from the IRA which is considered ordinary income and is taxable. For Medicaid eligibility you really can’t take a little out of your IRA at a time because the five-year look back period for transfers doesn’t start until a gift is made. If you make gifts over time, each gift is subject to a different five-year look back period.

 

Most people prefer the traditional practice of taking required minimum distributions that pay the least amount of income tax possible and allow the remainder of a traditional IRA to continue to grow tax deferred. Further, by using IRA funds for home care, assisted living, or private paying nursing home costs, they can also get the benefit of reducing or eliminating the income tax by taking a care deduction on their income tax returns.

 

Sometimes married couples want to get their assets out of their names because they think it will help them qualify for Nursing Home Medicaid faster. But occasionally, someone will qualify for Medicaid without having to move any assets around.

 

For example, let’s say a married couple has a primary home, an income property, a car, group and term life insurance (all exempt assets for Medicaid eligibility) and $120,000 in savings. The Community Spouse Resource Allowance (the amount of assets the well or community spouse can retain) in Massachusetts is $138,489 (2022). If that married couple makes a gift to the kids and gets assets out of their names, it could render them ineligible for long-term care Medicaid benefits. It may be better that they do nothing. If one spouse needs to go into a nursing home, the spouse would qualify since the community spouse can have a home, a car, income-producing property, life insurance with no cash value and assets of $138,489 or less. Remember there is no transfer penalty when moving assets between spouses so we would transfer title to the real estate, car, and all assets to the community spouse. The nursing home spouse will have less than $2,000 in their name and can be eligible. For more information, view my video on the topic.

 

You are allowed to own a home and qualify for Medicaid benefits. On death, however, the home would be a probate asset and Medicaid can recover against the value of your home, up to the amount of benefits paid on your behalf. This is called estate recovery.  In Massachusetts, Medicaid will waive its right to recover against the home of the Medicaid recipient in certain situations. For example, if an applicant had a qualifying long-term care insurance policy or a caretaker heir, or a blind or disabled child.

 

When I meet with clients, I look at their assets, income, fixed costs and then factor in the cost of various amounts of care. Then, I divide their assets by their monthly shortfall of care costs. What if they can afford a certain amount of care (let’s say live-in care, for example) for 11.8 years – is that enough for them? 

 

Should they transfer away and give up control of their assets when they can afford 24/7 care for almost 12 years? Gifting their assets so they are less than $2,000 and qualify for Nursing Home Medicaid in the future, may not make a whole lot of sense, especially when they can gift later if care is needed or someone has a diagnosis where they expect that care will be needed. 

 

What if the spouse has a $500,000 IRA?  Are they going to reduce it and pay the income tax now?  Most likely the answer is no. What if their spouse is in the nursing home and needs long-term care?  If they reduce the IRA to $100,000 and liquidate the rest – what is the income tax?  What if the tax is $80,000? Will the nursing home spouse, live longer than eight months and make it worth obtaining Nursing Home Medicaid now?  It all depends on many factors and each individual’s situation.

 

When you come to Almgren Law for your estate planning, we will help you answer questions like these and more. What’s your situation? Have you looked at your numbers? Are you really going to be eligible for Medicaid?  Do you have long-term care insurance (or should you get it)? Are you a wartime veteran or widow of one? Did your parent or other family member lose their home? Should you transfer your home to your children and reserve a life estate? Are there other actions to take now? Or do nothing?

 

Every client’s situation is unique and it’s always a personal decision. Knowing your options is everything. Give us a call if you’d like to learn more about what might work best for your situation and family. We know the rules.