There is no question that long-term nursing care is prohibitively expensive. The average cost for one person in a nursing home, in a semi-private room, averages around $5,000 a month and that is for the bare essentials. This cost can easily deplete a savings account that a senior has worked to accumulate over the years if he or she has to stay at a nursing home for any length of time.
It is estimated that at least 70 percent of seniors over age 65 will need some type of skilled nursing home care or long-term care in a nursing home with advancing age. Unfortunately, many seniors do not consider long-term planning ahead of time and when they are suddenly forced to make drastic decisions, like long-term care, it can cause significant distress and chaos.
Coming up with $5,000-$7,000 every month for nursing home care can put a huge strain on finances and can mean selling the home, vehicle, or even liquidating nearly all assets.
The fact is that with proper Medicaid planning assistance, seniors can avoid a lot of stress and also preserve at least a portion of their assets.
How Can a Senior Pay for Long-Term Nursing Care?
For seniors who will need long-term nursing care, the options for payment include the following:
- Pay out of pocket (you pay privately from your savings).
- Purchase long-term care insurance (This is only viable if you purchased the policy a long time ago and maintained the premiums. If you proceed to buy a new long-term care policy when you are old, the premium can be exorbitant.)
- Utilize Medicaid benefits.
Of the three choices, Medicaid is ideal for many seniors, but the caveat is that retirement should be planned well ahead of time. For example, with Medicaid, there is a cap on income and the number of assets you can have. You cannot have more than $2,000 in assets or you will not be eligible.
If you have saved $250,000, you need to restructure your assets so that you become eligible for Medicaid. However, you simply cannot give the money away to your spouse or child at the last moment because Medicaid will do a thorough look back at all your finances for at least the last five years to ensure that you have just not given your money and property to someone to keep.
To help with Medicaid planning strategies and a plan to restructure your assets to help you become eligible for Medicaid long-term care, you need assistance from a Medicaid lawyer – a specialized attorney knowledgeable about Florida Medicaid laws and senior care.
How Does Medicaid Work?
The basic philosophy behind the Medicaid program is that it provides healthcare coverage for people with low income and limited assets. Every application is thoroughly scrutinized by Medicaid because it has to ensure that the money goes to those who really need it.
For example, in Florida, to be eligible for Medicaid long-term care, you cannot have more than $2,000 in assets; and on top of that, your monthly income is also assessed. As of 2021, Florida has an income cap of $2,349 if you wish to receive Medicaid benefits.
What If You Have Too Many Assets?
It is only natural that seniors want to preserve their savings and assets with the intention of passing them to the surviving members of their family when they die, but to become eligible for Medicaid, large savings are not permitted. Medicaid prefers seniors spend their own money on long-term care before asking for financial assistance.
If a senior gives away money and assets to other family members to qualify for Medicaid, the agency has a “look back” period of the last five years to ensure that this has not happened. If they determine that someone has done this to qualify for Medicaid, they can be deemed ineligible for a period of time, or they could even be charged with fraud.
That is why seniors need robust financial and legal Medicaid planning strategies to help with Medicaid planning assistance that can help preserve their savings and yet still become eligible for Medicaid benefits.
Medicaid Planning Strategies
There are legal Medicaid planning strategies to help protect your assets, while still qualifying for assistance from Medicaid. The methods and regulations are diverse, and it is highly recommended that you seek help from a lawyer who is knowledgeable about planning for Medicaid.
Asset Trust Protection:
This method is often used by applicants who wish to apply for Medicaid. The reason is that the applicant is only allowed to have a certain amount of assets in his or her name. Transferring assets to friends or family members come with risks. The first risk is showing that you are not trustworthy.
The second problem occurs if the individual to whom you passed the assets passes away before you do, and then you have lost everything. However, with a trust, the assets can be transferred to the family member(s) without any issues, and you can also avoid capital gains taxes.
At the same time, even if you transfer your home to a trust, you still have the right to reside in it until you die. An asset trust transfer is permanent (you cannot undo it) as it no longer belongs to you and is out of reach of Medicaid.
However, the trust transfer has to be done early before you apply for Medicaid; otherwise, the agency may consider it to be illegal if it was arranged within the five-year look-back period.
Before one can become eligible for Medicaid benefits, one has to meet the Medicaid income cap requirements. If the applicant makes more than the Medicaid income cap, two options are to create a pooled income trust (PIT) or a qualified income trust (QIT). The QIT (also known as a Miller Trust) is designed so that it holds the applicant’s excess income.
A trustee is usually appointed to manage the distribution of funds for any allowed expenses. The PIT is similar to a QIT but is more specific for disabled or handicapped individuals. The trust is usually managed by a non-profit organization who then disburses the funds on behalf of the individual.
Medicaid always looks back over the applicant’s financial history for the past five years from when you apply. Any transfer of assets that occurred just to meet Medicaid eligibility criteria can be met with a penalty or charges of fraud. Hence, the timing of the promissory note is vital.
If it is done within the five-year look-back period, Medicaid will impose a time-based penalty where you will have to pay for the cost of nursing care from your own pocket for 1-3 years (they have a calculation for it). The principle behind the Medicaid compliant promissory note is that it can create a cash flow from the applicant’s assets to pay for the nursing home care during a relatively short penalty phase.
However, this may not always work as Medicaid has the right to deny payments if it feels that fraud was committed to becoming eligible for benefits.
One other option to reduce the assets and meet the Medicaid cap is to spend down. The money can be spent on things such as:
- Home improvement and modifications for specific reasons (e.g., chair lift, wheelchair ramp)
- Buying a hearing aid or paying for dentures
- Putting money down for funeral and burial expenses
- Paying off credit card debt
- Paying off the home mortgage
Within reason, one can spend down to become eligible for Medicaid benefits, but it is vital not to sell assets at below market value because, during the look-back period, Medicaid may penalize you or regard this as fraud.
In addition, the home improvements have to be practical; for example, you cannot erect a new deck or put in a jacuzzi as this would be considered luxurious spending. The expenditures need to be legitimate because Medicaid will check.
One way to meet the Medicaid eligibility criteria for the couple is to legally terminate their marriage and let the community spouse keep everything. This lowers the countable assets for the applicant. However, in some states, Medicaid divorce is not permissible as it is considered fraud.
Plus, if you divorce at the last minute, Medicaid will penalize you with a large monetary penalty. Medicaid divorce is best done after obtaining advice from a Medicaid professional as it may not work in every state.
This is a complicated topic but should only be used as a last resort. Basically, the healthy spouse would refuse to pay for the care of the ill spouse and Medicaid would then come into play. This is an option only in Florida and New York, and it should only be used with legal counsel’s advice. (For more information, please read our blog on this topic.)
One other option for Medicaid planning is to have a caregiver agreement in place, where the applicant needs extra services that are not usually provided by Medicaid. These services can be rendered by a family member who is paid.
This strategy also allows the senior to be cared for in his or her own home. When these payments are made legally, they can reduce Medicaid’s countable resources. But for the caregiver agreement to be an option, it should meet the following Medicaid guidelines:
- There should be a contract detailing the services and the total number of hours worked.
- The caregiver must be assigned and named.
- Determine the amount of money to be allocated to the caregiver.
- Maintain a daily log of the hours worked and services provided.
- At the time of death of the applicant, all unearned money must be paid to Medicaid for the amount of service rendered.
How Much Does Medicaid Planning Cost?
The cost of Medicaid planning assistance usually depends on the number of assets the applicant has and what his or her needs are. In any case, the fees may vary from $3,000 to $10,000, which is about the cost of one month’s care at a decent nursing home.
If you are considering applying for Medicaid benefits and have a high income or a huge number of assets, speak to an elder care lawyer who has experience with Medicaid planning assistance as to what you can do to become eligible for Medicaid. Call Elder Law, P.A. today at 1-561-588-7572 to learn more.
There are Medicaid planning strategies to help restructure your assets so that they won’t be counted towards Medicaid’s eligibility criteria. No matter what strategy is employed to restructure the assets, qualify for Medicaid benefits, and avoid any problems with Medicaid eligibility, it should not be done at the last moment.
Any money transfer or redistribution within the five-year look-back period will trigger a Medicaid audit and can result in a penalty, fraud charges, and/or the denial of benefits.