It is no secret that medical care and especially long-term nursing care is expensive. Insurance Benefits and private resources can be depleted rapidly. Then what?
Then we turn to Medicaid. Most of us tend to think that we will never need Medicaid, but in fact it is a realistic possibility and should be considered an important part of estate planning for everyone.
The Martins, for example were a middle class couple with adult children. He had a long career in the Telecom industry and she was a mid-level manager in Computer Services. They owned a home and thought they were doing fairly well when they were nearing retirement age, but trouble was coming.
Mrs. Martin lost her job when the company was sold and the new owner moved the operation to another state. Then the Telecom bubble burst and Mr. Martin’s company went into bankruptcy. He was able to salvage his 401K, but gone were the health insurance, the Life insurance, and the Long Term Care insurance.
The Martin’s were lucky to be able to keep their home. They managed to invest wisely and keep a good part of their retirement savings. Medicare helped, but there were expenses that were not covered like dental work and hearing aids. They realize there is a high probability that one or both of them will need Medicaid to help with long- term care.
A competent Estate Planner who is well versed in both the law and the administration of Medicaid in Texas can do much to help make their situation better. For example, there is a maximum monthly income ($2199. in 2015) that an applicant for Medicare may have. If the spouse who is receiving Nursing Care has more, a trust can be created to hold the income so that eligibility requirement can be met. In some cases, some of the income can be diverted to a spouse still living in the community. That can be especially important if the community spouse needs extra help in order to stay in the home.
Depending on the income of the community spouse and other factors, it is possible for the community spouse to keep several hundred thousand dollars in assets and still get Medicaid eligibility for the spouse in long-term care.
Sometimes applicants and their families are advised to “spend down” in order to qualify for benefits. That is not always the best solution and an experienced elder law attorney should be consulted before going down that path.
It is also tempting to transfer assets to adult children or other family members. This can result in a penalty, keeping the applicant from qualifying for Medicaid. Effective February 8, 2006, transfers are subject to a five-year look-back period. If the transfer was for less that fair market value, the applicant would be penalized for the difference.
Even gifts to children, although there is an annual exclusion for gift tax purposes, are still subject to Medicare rules.
Accounts that are jointly owned with someone else are assumed to belong to the applicant unless proven otherwise. The assets of the community spouse also count as the assets of the applicant even if there is a prenuptial or postnuptial agreement.
Another important thing to consider is that if a Medicaid recipient inherits, his or her benefits could be lost. To prevent that, a Supplemental Needs Trust should be set up to receive any inheritance. Such a trust would ensure that additional needs, not covered by Medicaid could be taken care of by the trust.
Upon the death of their parents, Kathy became the primary caregiver for her sister Betty who is disabled. Each of the siblings received a small inheritance. Betty’s portion disqualified her for Medicaid and was rapidly depleted by the high cost of her special needs. In time the money was gone and she was approved for Medicaid. Sadly, there was no money to provide for the many needs that were not covered by Medicaid. Kathy still cares for her sister, and now she has become an active advocate for other families of disabled individuals, making sure they know about Supplemental Needs Trusts!
The Texas Medicaid Estate Recovery Program allows the state to make a claim against the probate estate of a Medicaid recipient to the extent that benefits have been advanced if the application for benefits was made after March 1, 2005. There are some exceptions, however and there are several planning methods to avoid the claim of the state against the home. The key to this is in the planning.
No matter how helpful Medicaid can be, it is sure to be complicated and even overwhelming, especially during stressful times. Planning ahead can protect you from costly mistakes and can make the process easier when the need arises.