By Attorney Suzanne R. Sayward (May 2012)
In my practice I see many people who are worried about losing their assets if they need nursing home care. Given that the average cost of a nursing home in Massachusetts is more than $10,000 per month, and that long-term nursing home care is not covered by Medicare or other health insurance, such concern is valid.
Medicaid is a state and federally funded program that pays for nursing home care for individuals who are both medically and financially eligible. The Medicaid eligibility rules are complex and often misunderstood. Here are five common misconceptions about Medicaid and long-term nursing home care.
1. If my spouse has to go into a nursing home, we will lose everything. This is simply not true. There are fairly good protections in place for the spouse of a nursing home resident who is receiving Medicaid. Although the individual who is applying for Medicaid benefits must spend down his or her countable assets to $2,000, the spouse of a nursing home resident who is living in the community, may retain $113,640 of countable assets (2012). This amount is called the Community Spouse Resource Allowance (CSRA) and is indexed for inflation on an annual basis. Countable assets for Medicaid eligibility purposes include, among other things, bank accounts, retirement accounts, investments, and vacation property. Assets that are not counted include your home, one automobile, and personal property such as furniture, clothing and household goods. In many cases, the community spouse is able to retain more than the CSRA with proper and allowable planning.
2. Medicaid allows me to give my children $13,000 per year. Also not true. This is a common misconception which arises from confusing the federal gift tax rules with the Medicaid eligibility rules. Many people believe there is an amount that can be gifted each year without consequences. However, this annual exclusion gift is relevant only with respect to the federal gift and estate tax. There are no ‘freebies’ for Medicaid eligibility purposes. Medicaid considers all gifts to be disqualifying transfers that will cause a period of ineligibility for long-term Medicaid benefits if the gift was made within the five year period preceding the application for benefits.
3. My home will have to be sold if I go into a nursing home. Many are relieved to learn that this is not true, although there are financial challenges for homeowners. The home of a Medicaid recipient is a non-countable asset provided the value of the home is less than $786,000 (in 2012). That means that a single individual who has $2,000 or less in countable assets and who owns her home can qualify for Medicaid benefits to pay for her nursing home care costs.
However, this is not as good as it sounds since the nursing home resident will be required to pay all of her income toward the cost of her care and will not be able to use her income to pay the real estate taxes or other expenses of maintaining the home. If the home is rented, the rental income can be used to pay the expenses of maintaining the property.
Further, Medicaid will place a lien against a home owned by a Medicaid recipient so that the state can recover amounts paid on behalf the nursing home resident when the property is sold or at the death of the Medicaid recipient unless the situation meets one of the exceptions to the lien rule.
4. A joint bank account that has my child’s Social Security number as the primary number will not be counted as my asset for Medicaid eligibility purposes. Again, not true. A bank account with a Medicaid applicant’s name on it will be deemed to belong entirely to the Medicaid applicant regardless of whose Social Security number is associated with the account and regardless of whose name appears first on the account. The only way to avoid the account being entirely countable for Medicaid eligibility purposes is to provide evidence that the joint account owner contributed funds to the account. For example, if mother and daughter open a joint Christmas Club account and they each contributed $100 per month to the account, the money in the account would be deemed to belong one-half to each of them.
Other types of assets that are jointly held by the Medicaid applicant and someone other than a spouse are deemed to be owned proportionately. For instance, if mom has a brokerage account that has been jointly held with her son for more than five years, this account will be presumed to be owned one-half by mom and one-half by son.
5. I can give my assets away to become eligible for long-term Medicaid benefits. This is not true, unless you plan well in advance. Medicaid imposes a period of ineligibility for long-term care benefits if assets are given away by the Medicaid applicant or the applicant’s spouse within the five-year period preceding the application for benefits. The length of the ineligibility period depends upon the value of the gifted asset, which is calculated by dividing the value of the gift by “the applicable divisor.” The applicable divisor in Massachusetts for 2012 is $279. That means that a gift of $27,900 will result in an ineligibility period of 100 days ($27,900 ÷ $279 = 100). However, the 100-day ineligibility period will not begin to run until after the applicant has spent down his countable assets to $2,000. This means that unless the gifted money is returned, the applicant does not have the funds to pay for the 100 days, nor is he eligible for benefits – a bad situation.
For most people, the effect of the Medicaid transfer penalty rule is that they must plan at least five years in advance if they want to give assets to children or transfer them to an irrevocable trust to avoid having to be spent down on long-term care costs.
These five Medicaid myths represent just a sampling of the areas of confusion in this complex area of the law. An experienced elder law attorney can educate you on the laws that are relevant to your particular situation, help you plan for the future, or assist if an unexpected crisis occurs.
Attorney Suzanne R. Sayward is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information about estate tax planning, visit www.ssbllc.com or call (781) 461-1020.