Greenbaum Rowe Smith & Davis Newsletter

Asset Protection Planning For Nursing Home Care

by Michael K. Feinberg

 

The situation comes sooner or later to many families — an elderly, infirm, or disabled relative who requires nursing home care. The proposed patient and his or her spouse have some assets, but to apply them to costs ranging from $60,000 to $90,000 per year — without public assistance — would rapidly exhaust the couple’s resources, force the sale of assets, and quite possibly cause the spouse to live in poverty.

 

Medical advances have extended the life expectancies of many individuals. With increased longevity, however, comes the prospect of longer institutionalization and its oftentimes crippling costs. Although federal legislation attempts to protect elderly couples from this harsh result, it is important to understand the rules of Medicare and Medicaid eligibility and to consider nursing home planning as an integral aspect of estate planning.

 

Medicare is a Federal health insurance program for individuals 65 or older and for certain disabled individuals. Eligibility for Medicare is not dependent on an individual’s income or resources. Unbeknownst to most individuals, Medicare does not cover most nursing home situations. Additionally, most Medi-Gap insurance policies exclude coverage for custodial nursing home care.

 

Medicaid, on the other hand, generally has broader coverage for nursing home care. Eligibility for Medicaid is limited to needy and low-income individuals who are elderly (65 or older), blind, or disabled. In contrast to Medicare, the resources and the income of the patient must be considered in determining whether the individual qualifies for Medicaid. As such, planning for Medicaid eligibility involves making sure the patient’s resources and income do not exceed certain limits.

 

For a married couple, all assets owned by either spouse are taken into account in determining the Medicaid eligibility of the spouse applying for Medicaid, with the exception of the primary residence. Of the “countable” assets, the non-applicant spouse is only allowed to protect the lesser of: (i) one-half of the countable assets or (ii) $92,760 (this figure is adjusted annually). The balance of the couple’s assets are considered to be available for the payment of nursing home expenses.

 

If an individual is not married, then all assets in excess of $2,000, including in most cases the residence, are considered to be available for the payment of nursing home expenses.

 

In addition to limitations on the amount of assets, Medicaid also has rules that penalize transfers of assets for purposes of achieving Medicaid eligibility. Currently, Medicaid is able to question all transfers made within the 36-month period (“lookback period”) immediately preceding an application for Medicaid. If a transfer is determined to have taken place during the look-back period, then Medicaid will calculate a “penalty period.” The penalty period is a period of ineligibility for Medicaid and is currently calculated at the rate of one month for every $6,050 of assets transferred.

 

Although Medicaid provides for this lookback rule, this does not mean that all transfers made will result in a denial of Medicaid, nor does it mean that all penalized transfers will trigger a 36-month period of ineligibility. On the contrary, by utilizing certain planning techniques, some amount of assets can generally always be protected, even if nursing home placement is imminent or has occurred. Certainly, however, the opportunities to preserve assets is generally enhanced if the planning is done sooner rather than later.