The average cost of care in a nursing home is currently $8,282 per month, which is continually increasing. With the high cost of long-term care, it is no surprise that most families find themselves exhausting their funds within one year of a prolonged nursing home stay.
Contrary to popular belief, couples do not have to spend-down their assets in order for the spouse in the nursing home to qualify for Medicaid benefits. In fact, federal and state Medicaid laws provide a number of protections for a Medicaid applicant’s spouse (known as the “Community Spouse”). Unfortunately, too few people know of these protections and too many couples fail to take advantage of them. By not taking advantage of these protections, a couple can lose tens of thousands, or even hundreds of thousands of dollars unnecessarily, often placing the spouse still at home in danger of impoverishment.
Costly Mistake #1: Purchasing exempt assets before date of admission.
One major protection for the Community Spouse is called the “Community Spouse Resource Allowance” or CSRA for short. To understand the CSRA, you need to know that the State categorizes assets as either “countable” or “exempt.”
For example, a couple’s home, one vehicle, pre-paid funeral contracts (which meet certain criteria), burial space, household goods and furnishings, and a number of other items are considered “exempt” assets. Other assets, such as the couple’s checking and savings accounts, certificates of deposit, mutual funds, savings bonds, life insurance, and so forth, are typically considered “countable.”
Of these countable assets, a Community Spouse may keep one-half, up to the current maximum of $119,220, as the CSRA. For example, if a couple’s countable assets total $180,000, the Community Spouse would be allowed to keep $90,000 as the CSRA.
The most important thing to understand about the CSRA is how this amount is calculated. All of a couple’s countable assets are totaled as of the date of admission to a nursing or other medical facility (such as the first date in a hospital before going to a nursing home). Where people sometimes go wrong is by purchasing exempt assets before the date of admission, in anticipation of applying for Medicaid. By doing this, the newly purchased exempt assets will no longer be included in the CSRA calculation, which will significantly lower the protected amount the Community Spouse is allowed keep.
For example, a couple with $180,000 in countable assets buys two burial spaces (which are exempt assets) for $30,000 two days before the husband enters a nursing home. This purchase reduces their countable assets to $150,000, which would mean the CSRA would be $75,000. Had the couple waited a few more days to make the purchase, the CSRA would have been $90,000. Jumping the gun cost the couple $15,000 in guaranteed asset protection.
Solution: To avoid this mistake, do not purchase any needed exempt assets until after date of admission to a qualifying facility.
Costly Mistake #2: Not transferring your home to your Trust.
As we discussed, a couple’s home is considered an exempt asset for Medicaid. However, if the home is titled in the couple’s Trust, it is then considered to be a countable asset. An easy way to increase the CSRA, often times to the maximum amount allowed, is to transfer the home to the Trust before one spouse goes to the nursing home (or hospital prior to the nursing home). Once the CSRA has been calculated, the home will simply be transferred back to the couple (or Community Spouse) to make the home exempt.
For example, a couple with $100,000 in countable assets would have a CSRA of $50,000. However if they transferred their $150,000 home to their Trust before one spouse entered the nursing home (or hospital prior to the nursing home), their countable assets would instead be $250,000. The Community Spouse would then be allowed to keep the maximum amount of $119,220 as the CSRA. Once the home is transferred back to the couple (or to the Community Spouse), it would then be an exempt asset, making the couple’s total countable assets $100,000. As the total countable assets are below the CSRA of $119,220, the spouse in the nursing home is immediately eligible for Medicaid and the couple has protected all $100,000 of their countable assets.
Solution: A well-executed Estate Plan can help you qualify for Medicaid benefits with a minimum amount of stress, while protecting the maximum amount of assets for your spouse.
Costly Mistake #3: Spending down the remaining assets over the allowable amount.
One of the most common misconceptions we hear is that in order for the spouse in the nursing home to qualify for Medicaid benefits, a couple must spend-down all of their countable assets above the CSRA. However, there are many strategies to also protect the remaining funds for the at home spouse, including establishing a Medicaid exempt annuity. It is important to understand that this annuity must meet several criteria in order to be considered an exempt asset.
For example, a couple with $180,000 in countable assets has a CSRA of $90,000. The remaining $90,000 can be protected by transferring it into a Medicaid exempt annuity, which will now be considered an exempt asset. The $90,000 in the annuity will then be paid back to the Community Spouse over a set period of time. With this type of planning, the spouse in the nursing home is eligible for Medicaid and the couple has protected all $180,000 of their countable assets.
Solution: A couple should never simply spend-down their assets without investigating the many strategies available to protect their assets and qualify for Medicaid benefits.
Costly Mistake #4: Giving away money or transferring ownership of your assets.
Most people believe that they can gift $14,000 per year without penalty. This amount is actually based on a federal gift tax law and has nothing to do with Medicaid laws. Currently, for every $8,282 a person gives away within five years of applying for Medicaid benefits, they will be disqualified for Medicaid eligibility for one month. This is also broken down by day (currently, for every $276 given away, they will be disqualified for one day). Ultimately, the gift will result in a penalty period, during which time Medicaid will not pay for the nursing home costs. This penalty period will not begin until after the individual is receiving long term care, is asset eligible, and submits an application for Medicaid benefits.
For example, if a gift of $14,000 is made within five years of applying for Medicaid benefits, it will cause a penalty period of approximately 1 month and 20 days, during which time Medicaid will not pay for the cost of care. This means that the couple will have to pay out of pocket for the nursing home care during this time, which on average would equal approximately $13,800.
Solution: A couple should never give their assets away or transfer assets out of their names as it will result in an ineligibility period for Medicaid.
Costly Mistake #5: Missing opportunities for exempt transfers.
While simply giving away assets can result in a penalty period, the law does provide certain exceptions for transferring assets without penalty. One exception is gifting money or transferring the ownership of assets to a Medicaid applicant’s blind or disabled child, regardless of the child’s age or marital status. It is important to note that these gifts or transfers could have negative consequences to the disabled child if he or she is also receiving government benefits which is based on their assets.
Additionally, the home can be transferred to a child, regardless of age or marital status, who has lived in the home for at least two years prior to the owner entering a nursing facility, if that child has provided care that has kept the owner from being institutionalized sooner. Of course, these transfers must meet several criteria in order to be considered exempt transfers.
Solution: Get expert advice about exempt transfers that may apply in your circumstances before you spend-down assets to qualify for Medicaid.
Costly Mistake #6: Having an insufficient power of attorney.
Once Medicaid benefits have been approved, the couple has one year to transfer all assets owned by the spouse in the nursing home to the Community Spouse. At the end of this year, the spouse in the nursing home must have less than $2,000 in his or her name. If the spouse in the nursing home is unable to make these transfers themselves or does not have a power of attorney, then court approval will be needed to make the necessary transfers to maintain Medicaid eligibility.
If the spouse in the nursing home does have a power of attorney, does it have the needed provisions? Before you say, as many people do, “My power of attorney must have everything I need – it goes on for pages and pages,” look more closely. Does it contain gifting provisions? Does it allow you to transfer ownership? Does it give you authority to deal with certain types of assets, such as stocks, IRAs, or life insurance? If these and other important provisions are not included in the document, you may still end up needing court approval to transfer the assets to the Community Spouse.
Solution: A well-prepared power of attorney will ensure your agent has the ability to do the things necessary for you to qualify for Medicaid, even if you lose the ability to make your own decisions.
Paying for long-term care in a nursing facility has become complicated, and the system grows increasingly complex. Government benefits can help, but you have to know how and when to qualify. As you can see, there are many different strategies available to protect a married couple’s assets. Proceeding without the right advice could cost you and your family dearly, or lead to the eventual impoverishment of the Community Spouse.
The experienced Elder Law attorneys at SSR Law Office can help evaluate your circumstances and discuss how you can protect your assets from the high cost of nursing home care.