long term health careLong-Term-Care Planning; Elder Law

Elder Law is our area of legal practice that addresses the issues of families and people regarding aging. Sometimes it is called Long Term Care Planning. People are usually thinking about “Nursing Home” care when they think of this issue. However, there is really much more to it than that. As people age and have medical problems, they may need help with their everyday affairs and activities. The need for this care, over an extended period of time (rather than a short stay at a hospital) is what we call Long Term Care. The necessary care can be provided at home, at some sort of residential community such as an independent or assisted living community, or in a medical facility such as a Nursing Home.

You need to think about the care that may be needed, where it will be provided, and the cost of that care. Most medical care is covered by health insurance of some kind. But, the Long-Term-Care we are talking about is not medical care, so is not covered by health insurance. A short stay in a skilled nursing facility may be covered by health insurance, but Long-Term-Care will not be.

When engaging in Long-Term-Care Planning, the primary goal is to see that the individual in question is properly cared for as needed. Secondary goals are to see that the individual can pay for the needed care without harming the family finances, or to see that the individual will qualify for government benefits in order to pay for that care.

The only government program that pays for long-term custodial care, is Medicaid. Medicaid is a welfare program only available to those with low assets and income. Often this means we engage in planning with the goal of properly qualifying the individual for Medicaid benefits while also preserving assets for the individual and the family. This is usually a difficult balancing act.

Care And Living Arrangements

You must consider the current and future possible living arrangements of the elder in question. There are many care and living options available. The first option is to stay in the private home, and have outside helpers provide whatever care or assistance is needed. This is a pleasant choice, since it will mean that the elder can stay where everything is familiar. However, a common problem with many private homes, especially older ones, is that they have significant hazards and barriers to safe living. They often have stairs and narrow hallways and doorways. They usually lack safety devices such as hand rails and adequate lighting. If you want your loved-one to stay at home, then you should ensure that the home is made as safe as possible.

If your aging family member does not need nursing home level care, then it is appropriate to consider other care options, and their costs. The basic options such as retirement communities, and assisted living facilities, generally only have one payment method – private-pay out of one’s own funds. So, the issue of Medicaid eligibility only comes into play when you are considering nursing home care, and the rules and regulations governing don’t apply until then (all though you may need to consider them now anyway).

These types of communities vary in style, quality and cost. There are some facilities called “Life Care” or “Continuing Care” communities. These usually have some sort of “buy-in” fee of many thousands of dollars (perhaps $100,000 to $300,000) and then a monthly fee of varying amounts. These facilities have in-house long-term-care facilities and can provide a continuum of care in the same place, usually at much less cost than a private nursing home (because of the buy-in fee). Many of these types of communities are quite luxurious and have many amenities that are quite desirable. However, these facilities are designed for people who have significant assets and income and they pre-qualify people financially. This is a good option if you have the funds to afford it.

There are also other stand-alone care facilities usually called “Assisted Living” communities. These provide a private apartment and regular services such as meals, cleaning and care. There is usually a small entry fee (perhaps $5000 or so), and then a monthly fee. Assisted Living monthly fees range from around $5000 to $8000 per month. With enough assets and income, one can afford living in a retirement community for quite a while without fear of running out of money. Of course, the cost issues should be considered carefully to ensure that this option is affordable in the long run.

Medicaid Qualification

Once an individual is in a nursing home, the cost can accumulate quickly. Private nursing homes generally cost around $10,000 – $12,000 per month in this area (with some costing even more). Most people are forced, sooner or later, to apply for Medicaid benefits to pay for their nursing home care. There are at-home Medicaid programs that can provide some care while a person resides in the community, but the following discussion is about nursing-home Medicaid benefits.

In determining whether someone qualifies, the Medicaid Office first looks at the “countable” assets of the individual. An individual does not qualify until she has less than $2000 in “countable” assets. Generally, the home is not counted as an asset. Personal clothing, jewelry, an automobile and basic household furniture and fixtures are also not counted. All other liquid assets (or those readily convertible to cash) are counted for eligibility purposes.

If there are assets greater than the limits, than the individual does not qualify for benefits and must spend her own money on any long term care costs. Funds may also be spent on other needs as well. Sometimes assets can be spent wisely to maximize the value received (a “smart-spend-down”). Funds can be spent to make a home more livable, and other necessary items such as insurance, taxes, and health care needs can be purchased. As long as the potential Medicaid applicant gets full value for the money there is no problem with spending it as she sees fit.

With a married couple, there are certain “spousal protections” for the spouse still at home. We call them the Community Spouse and the Institutionalized Spouse. Under the Medicaid rules the Community Spouse is entitled to a resource allowance of one half of the countable assets up to a federally proscribed limit. This limit is adjusted annually for inflation so is always a slightly unusual number.

The at-home spouse is allowed to keep all non-countable assets like the home, a car, and household furnishings. She is also allowed to keep one-half of the countable (cash and other liquid) assets, up to that proscribed limit. In Massachusetts, the rules are a little more generous and the at-home spouse can keep all assets up to the Federal limit even if it is more than half of the total.

Transfers

As you may know, there is a penalty for transferring assets (giving them away) in a potential Medicaid eligibility situation. The penalty is a disqualification for benefits for a period of time based on the average cost of nursing home care, and the amount transferred. When something is purchased, or something is received in return for assets it is not considered a transfer as long as full value is received. When an asset is put out of your reach, such as by placing it in an irrevocable trust, that is also considered a transfer for disqualification purposes.

The Look-Back Period

The State Medicaid Office may ask you about all of your financial affairs in the five years prior to your Medicaid application. This is the so-called Look-Back period. It was increased by the 2006 Federal Medicaid law changes, to five years from three. If you make any transfers (gifts) during the five year period prior to applying for benefits, you will be disqualified from getting benefits. If you want to give assets to your children or other chosen recipients, you should endeavor to do so more than five years before needing Medicaid benefits. This is, of course, a difficult thing to predict.

The Home

The home is a unique asset under Medicaid rules. It is considered a non-countable resource as long as a spouse lives there or if the person in the nursing home has an intent to return to the home. This means that the applicant for Medicaid may continue to own a house. However, if the house remains in the Medicaid recipient’s estate, after death the state has an automatic claim on the house to the extent of its expenses for nursing home care.

Asset Preservation Planning

It is generally a goal of most families to preserve as much assets as possible. If all assets are spent, the elder is usually left with few choices and quality of life can worsen dramatically. It is important to use the elder’s assets wisely so as to maintain quality of life.

The major risk to the elder’s assets is the cost of nursing home care. Even a short stay can wipe out a life-time of savings. Unfortunately, any assets left open and available to the elder must usually be spent on nursing home care if it is needed. The only way to preserve assets is to place a barrier between the elder and the assets. This can take the form of an Irrevocable Trust, or an outright transfer to another. Either of these choices limits the elder’s access to the assets and reduces future choices. But, the lack of access is what protects the assets. As stated before, this is often a difficult balancing act of preserving some assets while leaving choices open for the elder.

Asset Transfers

In order to protect assets from the cost of nursing home care, they must be transferred away from the senior to someone else. The senior must make a complete and irrevocable gift to another person or trust. There can be no strings attached to the gift. With an outright gift, the recipient will totally and completely own the assets and can do with them as he or she pleases. In a family context, a parent often will transfer assets to a child. The child is under no legal obligation to take care of the parents with the assets, but the parent has faith and trust in the child to do the “right thing” if necessary. Of course this is a risky choice for the parent, she has no assurance that the funds will ever be used in the way she would choose. But, the alternative is that the funds go to the nursing home, and are also gone forever. Many parents choose their children over the nursing home as the recipient of their hard earned money.

Of course, the child can use the money in any way he chooses, including paying for things that his parent cannot, such as medical and dental care not covered by Medicaid, or telephone service in a nursing home room, or cable TV to the room, or any host of other things that make life more bearable in a nursing home. The child does not have to do this, but there is a possibility that it could happen. If all of the parent’s money is spent on nursing home bills, there is no possibility that it will be used for the benefit of the parent.

Gifting Issues

Outright Gifts

If assets are given to another, they are gone from the control of the Elder. Any such gift will trigger a Medicaid penalty (ineligibility) period which can be calculated as mentioned above. Once the penalty period has passed, the giver (if otherwise eligible) can get Medicaid benefits, and the assets that were given away are safe in the hands of the recipient. An outright gift is an irrevocable transfer since the recipient will own the asset and can do anything with it that he or she wants.

Transfer Penalties and the “Look-Back” Period

Technically a disqualification period can go on for years. If you gave away a million dollars it would cause a disqualification period of about 10 years. But, the law is not that harsh. When applying for Medicaid, the government is only allowed to ask about transfers that happened within a certain period of time before the application is filed. This is called the “Look-Back” period. The 2006 changes to the Federal Medicaid laws made the period five years for all transfers.

Thus if you gave away a million dollars five and a half years before applying for Medicaid, you would not have to disclose the transfer on the Medicaid application, even though it should have created a 10 year disqualification period. But, if you gave away a million dollars, and then applied for Medicaid four years later, you would have to disclose the transfer, and you would be disqualified from getting Medicaid benefits for the entire 10 year period (starting at that time and going ten more years into the future – a much longer disqualification period than just the five-year look-back period). The law can be quite harsh if you make such a mistake!

Gift-Tax Issues

The United States has a combined Estate and Gift-Tax system. If there were no Gift-Tax, then everyone could give away all of their assets just prior to death and avoid the Estate-Tax. So, there is a potential tax on the maker of a Gift. However, the Gift-Tax system has two exemptions that work for most people. The first is the yearly exemption that many people have heard about. It was set at $10,000 for many years, but was then indexed to inflation a few years back.

There is also a lifetime exemption. It is now over $5 million and also indexed to inflation. If you give more than the yearly exemption amount to any one recipient, you will start to use up your lifetime exemption. Until you have reached the lifetime exemption limit, there is no tax due. If you go over the lifetime exemption you will start owing gift-tax on all further gifts above the yearly exemption amount.

If you make gifts over the yearly exemption amount (in any one year) you must file a gift-tax return (even though you don’t yet owe any tax.) The amounts of all of your lifetime gifts are tallied up (without any tax owed) until you reach the lifetime exemption limit. For those with less than $5 million in total assets, they can give away as much as they want as they shouldn’t ever reach the lifetime exemption amount.

Some people confuse the yearly gift-tax exemption with the Medicaid rules. These are two completely separate and different systems and have nothing to do with each other. There is no yearly gift exemption under the Medicaid program.

You must consider what type of Long Term Care you may need, now or in the future, and you must figure out how you will pay for it. You will have more options and be able to preserve more assets for your family if you plan well in advance. You must see an experienced Elder Law Attorney to help you engage in proper planning. Do not wait until it is too late!