Rothman Gordon: Providing for Extended Care

Providing For Extended Care

Even the most carefully prepared estate plan can be affected by the cost of long-term care in a skilled nursing home. Very few people have assets available to them to pay for an extended stay in such a facility, and the amounts which are paid through private insurance are generally limited. As a result, many people are forced to seek government assistance to meet these costs.

The two major sources of government assistance are Medicare and Medicaid. Medicare is a federal insurance program, in which you pay for the insurance during your working years and become eligible for coverage when you reach age 65. Medicaid is not an insurance program, but is a federal and state welfare program for which anyone falling below certain income levels is eligible.

Neither program provides a "free ride". Medicare will pay the full cost of a participant's stay in a skilled nursing home, but only for the first 20 days, and only if the patient has been hospitalized for at least 3 of the last 30 days prior to admission to the nursing home. For the 21st to the 100th day, Medicare will pay the difference between the amount above $114 (2005) per day and the actual cost. Medicare pays nothing after the 100th day.

For Medicaid to provide the "free ride", your income and available assets must fall below certain income guidelines, and these are strictly scrutinized when you make an application. Moreover, on February 8, 2006, President Bush signed The Deficit Reduction Act of 2005 (DRA) which makes several major changes to long-term service policies. Among them, the "look-back" period for asset transfers has been extended from three years to five years. Furthermore, the start of penalty has been altered from the date of transfer to the date of Medicaid eligibility. These provisions are effective on the date of enactment, and do not apply to transfers made before the enactment of DRA. Medicaid will only pay those costs which cannot be paid using all income and assets available to you.

To be eligible for Medicaid assistance for nursing home costs, your available non-exempt assets (not including monthly income) cannot exceed $2000. Monthly income would be considered in addition to the asset value, but space prohibits discussion of that issue in this article.

If married, assets available to both spouses, regardless of how titled, are included in the calculation. This does not mean that your spouse will be left destitute. Rather, the community spouse (the spouse not being admitted to a nursing home) is entitled to retain a portion of the non-exempt assets. The community spouse is entitled to retain one-half of all non-exempt assets, so long as that value is between $18,552 and $92,760, respectively, in 2004. In making this calculation, the community spouse is entitled to at least the lesser of the actual total asset value or $18,552. If the total asset value is greater than $18,552, the community spouse is entitled to $18,552 plus one-half of the total value greater than $18,552, to a maximum of $92,760. The remaining asset value is considered available to the spouse seeking Medicaid assistance. For instance:

Example 1: Total Assets = $30,000. Community spouse share is $18,552 plus 1/2 of $11,448 ($30,000 - $18,552), for a total of $24,276. Remaining spouse asset value is $5,724.

Example 2: Total Assets = $200,000. Community spouse share is maximum of $92,760. Remaining spouse asset value is $107,248.

You may have noted that I referred to the assets being used in the calculation as "non-exempt" assets. Certain assets are exempt, and their value is not included in Medicaid calculations. Prior to DRA, annuities were exempt assets, but now are treated as prohibited asset transfers subject to penalty, unless the Medicaid applicant discloses the existence of the annuities and names the state as the primary beneficiary of the remainder at the death of the annuitant for at least the value of Medicaid assistance provided. Your home may be an exempt asset if you, your spouse, or dependent child are currently living in it, and you intend to return to it once you have been released from the nursing home. If, however, you are not living in the home, or do not intend to return to the home once released from the nursing home, your home's value will be included in the Medicaid calculation. Under DRA, individuals with home equity of $500,000 (or up to $750,000 at the statešs discretion) are not eligible for Medicaid. The exception to this is when a spouse or a child with a disability is living at home.

Similarly, the value of one car that you own is exempt, so long as it is clear that the car has not been purchased for investment purposes (e.g., an antique car). Also exempt is the value of any irrevocable burial fund you may have established for yourself or a spouse, so long as the value is not unreasonable in light of the actual burial costs which could be incurred.

Insurance can also be an exempt asset, but only if either the face or the cash surrender value meet certain guidelines. If the total face value of all life insurance policies on your life (and the life of your spouse) is not greater than $1,500.00, then those policies would be an exempt asset. If the total face value, however, is greater than $1,500, then the examiners look to the cash surrender value. The first $2000 in cash surrender value is an exempt asset, but any amount in cash surrender value greater than $2000 would have to be converted to available cash and "spent down" prior to becoming eligible for Medicaid.

All other assets which you (and your spouse) own will be considered in determining your eligibility for Medicaid. This can include second cars, vacation homes, boats, trailers, bank accounts, savings certificates, brokerage accounts and the like. If it is available to you and/or your spouse, then its value is generally included in your available assets.

As the above indicates, there are a number of subtleties in the Medicaid and Medicare assistance laws and regulations, making elder care a growing area of the law. If you would like more information regarding how you may take advantage of these benefits, you should contact your lawyer.

Articles are not intended to be comprehensive. Readers should not act upon any information herein without seeking specific legal advice from the Firm's attorneys.

We are required by Treasury Regulations to advise that this writing is not intended as a reliance opinion and cannot be used for purposes of avoiding IRS penalties.