Going into a Costly Nursing Home for Long term Care? Pick the Correct Medicaid Asset Protection Planning Strategy.

By Anthony B. Ferraro

What is crisis planning for Medicaid eligibility in long-term care cases?

Crisis planning means that one is engaged in planning that will stop, as soon as legally and ethically possible, the payment of the monthly nursing home private pay fee. We call it crisis planning because the obligation of paying anywhere from $6000 to $14,000 per month in Illinois is usually a crisis for most middle-class taxpayers. Therefore, the goal of crisis planning is to stop this devastating financial cash outflow as soon as possible.

So how do you stop these very high private pay monthly nursing home costs?

First, you must remember that Medicare will be of no help. Medicare was never designed to be a subsidy to taxpayers for custodial care. Medicare only subsidizes taxpayers for acute care and some of the skilled rehab that follows acute care, usually resulting from hospitalization.

So, if Medicare doesn’t cover the cost, what does?

If you don’t have long-term care insurance, don’t feel bad, only 6% of the population is estimated to have long-term care insurance. Therefore, you either have to continue to pay privately or participate in the Medicaid program. One exception to this is that certain veterans have access to veteran long-term care facilities based on their history of service. But for most people that do not have a history of service in the military, Medicaid is the only government program that will provide relief for the devastating financial cost of long-term care.

How does Medicaid provide relief in long-term care crisis situations?

First, you must become eligible for Medicaid on both a health-based standing and financial-based standing. If someone has been assessed, and it is determined they need long-term care in a nursing facility or supportive living in a supportive living facility, Medicaid may step in to pay. However, there is one more hurdle that must be met before Medicaid will step in, and that is becoming financially eligible as the Medicaid applicant. To qualify for Medicaid – LTC (long-term care), an individual must be spent down to $2000 of assets.

Further, the Medicaid applicant once approved, is allowed to keep $30 a month of income. In the case of married couples, where only one spouse needs Medicaid for long-term care, the healthy spouse is entitled to keep the home plus $109,560. In such a case, the healthy spouse is allowed to keep their income and get a diversion of the ill spouse’s income if they don’t have enough monthly income to meet the $2,729 threshold. Thus, planning is required to meet these very low thresholds and still preserve assets so that quality-of-life can be maintained during many years of custodial care.

How do we protect assets in Medicaid long-term care crisis cases?

Again, the strategies will depend on whether the applicant is married or single.

How do you handle married cases?

In married cases, some of the strategies that you can consider are relying on are interspousal transfers, transfers to children or other persons with disabilities, and adopting the position of refusal of the healthy spouse to contribute to the cost of care of the ill spouse (based on very technical Medicaid regulations), conversion of excess assets to spousal annuities, redeployment of assets into non-countable resources such as the principal residence, an automobile, and prepaid burial arrangements. Finally, divorce is something that may be considered, but divorces have to meet specific equitable standards-based on Medicaid’s interpretation of the divorce laws.

♦ How do you handle cases where Medicaid applicants are single individuals?

In single cases, the goal is to redeploy excess countable assets into non-countable resources such as prepaid burial arrangements, and transfers to qualifying individuals such as disabled children. After that, the goal is to reduce an individual’s assets down to the $2000 asset limit through a redeployment of assets through either gifting to an asset protection trust or transferring assets to a self-settled “Medicaid payback trust” authorized under the Medicaid laws often referred to as OBRA. However, in many cases, the above transfers will result in penalty periods; therefore, enough money has to be reserved in the form of the income stream to pay through the penalty periods created by the transfers described above. The only way an income stream can be created that will not itself be considered a countable asset is to convert the reserve funds into an income stream under what is either a Medicaid compliant annuity or Medicaid compliant promissory note.

♦ Are there any other methods of handling assets to preserve funds in a crisis case?

Yes, there is. If there are enough assets available to carry either the single individual through the cost of long-term care for a five-year period or in the case of a married couple there are enough funds to carry both spouses through the cost of long-term care for a five-year period, then any assets in excess of the assets necessary to carry for the five year period can be gifted away. At the end of five years, the gifted assets will be beyond the five-year lookback imposed by Medicaid, and the transferors of the gifted money will now be eligible for Medicaid because their prior transfers are beyond the five-year look back.

♦ When do the strategies have to be employed?

If Medicaid asset protection strategies are going to be employed, we recommend that you consult with qualified legal counsel that has a thorough understanding of the Medicaid laws before embarking on anything described above. Once you have obtained the proper counsel, the above strategies must be employed before the Medicaid application is filed. Most strategies will not work after the Medicaid application is filed.

I hope this takes some of the mystery out of Medicaid asset protection planning for a long-term care cost crisis. I’ve described some of the asset protection strategies that we employ in our office. There are many other strategies that are too numerous to mention. Hopefully, this will explain, in a general way, how you can obtain some relief when in a long-term care crisis.


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