Should I Just Give My Assets to My Kids To Qualify for Medicaid?

In the event that you or your spouse are facing a long-term care crisis and are concerned about spending down your assets quickly in order to qualify for Medicaid, it’s important to be aware of some of the potential pitfalls of acting too fast without carefully considering your options.

Individuals who are not familiar with the Medicaid qualification process might think that it’s a safe bet to pass on assets to children in order to reduce the volume of assets linked to the individuals attempting to qualify. Passing on these assets to children may be done with good intentions, but it can actually do more harm than good if you’re not careful. canstockphoto1739163

One of the disadvantages associated with transferring these assets is that doing so gives you no control over them in the future. Imagine a scenario where the child is sued and all of the assets are taken. Although this can be disheartening to think about, it’s also important to consider that giving away too many assets in an attempt to qualify for Medicaid can actually trigger a penalty. Medicaid looks back at gifts over the previous five years to determine if an individual has attempted to disperse assets in order to qualify for the government program. Since Medicaid is geared towards low-income individuals, if it is found that you transferred assets too aggressively in an attempt to qualify, a penalty may be calculated to determine the amount of nursing home care that could have been paid for with that gift. The applicant will be ineligible for Medicaid during a particular period if this is determined.

While Medicaid is a critical program for most individuals facing a long-term care crisis, you need to apply for it and prepare for it under the guidance of an experienced elder law professional. Don’t take any actions until you’ve consulted with an expert- email us at info@lawesq.net.

Tips for Safely Spending Down Medicaid

It’s not uncommon to discover that you have too many assets when you are first trying to qualify for Medicaid. In fact, as an increasing number of adults are helping aging parents, this is actually one of the biggest challenges in terms of preparing for long term care. In order to meet qualification guidelines, the applicant must have insufficient assets on their own.

First off, make sure you work with an experienced elder law firm so that you are aware what assets should be “spent down” and which ones don’t have to be counted to begin with. Household goods, some prepaid burial and funeral expenses, the home, personal effects, and others may qualify as “non-countable” personal assets and shouldn’t be spent down. An experienced elder law firm can tell you what assets should be spent and which ones should be left alone. sdf

Here are a few tips to help you get the most out of qualifying for Medicaid:

  • Payments related to non-countable assets may allow you to help improve your home, for example, which spending money that could count against you in terms of Medicaid. If your home is exempt, you may be able to make plumbing repairs that would be considered “allowable”.
  • Funeral and burial expenses may be “pre-paid”, thus taking care of an important need ahead of time. Work directly with your estate planning specialist and elder law professionals to determine your state’s limits.

Details are crucial in Medicaid qualification, so you should reach out for help as soon as possible to ensure that you are following guidelines. Contact our offices today at info@lawesq.net to learn more about Medicaid and other elder law issues.

 

Preventing End of Life Costs from Destroying Your Estate

It’s very rare that anybody has covered all possible risks in terms of their wealth management when it comes to income and cash flow, guaranteed income, cash, investments, and the connection between long term care and your estate. If you skip planning for long term care expenses, you may find that your other wealth management tools and strategies don’t hold up to the rising cost of healthcare.

Preventing End of Life Costs from Destroying Your Estate
(Photo Credit: colourbox.com)

The average cost per month for a long-term care facility is over $7,000. That’s why long term care planning is so essential. When a long-term care insurance policy is too expensive or not an option because you do not qualify.

There are alternatives, however. Structuring your estate in a particular manner can help you guard against the cost of long term care. Two common strategies are eliminating assets through trusts and transfers. This means that down the road, if you need to reduce your assets for Medicaid eligibility, you’ve already done most of the work. If you are confronted with a long-term care event before you have done this, you could find yourself having to “spend down” your assets anyways before government assistance kicks in, depleting your savings and forcing you to do it rapidly, which is rarely in your best interest. However, if you do it incorrectly, it has the potential to have a severely negative impact on eligibility and penalty periods. To learn more about trust planning, gifting, and other strategies to mitigate risk in estate planning, email info@lawesq.net or contact us via phone at 732-521-9455.

‘Gifting’ May Be Penalized By Medicaid

While people can “gift” up to $14,000 each to anyone they want to each year without tax penalty, that tactic is not going to fly if it is being done to “spend down” in order to get Medicaid to pay for nursing home care.

Centers for Medicare and Medicaid Services (Me...
Centers for Medicare and Medicaid Services (Medicaid administrator) logo (Photo credit: Wikipedia)

If a person is “gifting” money to family or friends in order to spend down to reach the resource limit for Medicaid nursing home coverage, it better be done five years ahead of time, according to an article in the New York Daily News.

Gifts made within five years of applying are likely to disqualify the gift giver from obtaining coverage for a period of time based on how much was given. The larger the gifts, the longer the wait.

Medicaid will presume the gifts were made to get around the criteria for coverage.

The penalty period is likely to be in place even if the gifts were put into a trust.

Because Medicaid planning and the use of trusts is complex, the article suggests consulting with a qualified estate planning or elder law attorney.

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You have Options For Your or Your Loved One’s Long-Term Care Needs

As life expectancy continues to rise, so does the possibility that an individual will require long-term care at the end of his or her life. A recent article states that 7 in 10 Americans will require long-term care at some point in their lives. Unfortunately, as life expectancies rise, so do the costs of long-term care.

ElderlyWomanInGlasses
(Photo credit: Wikipedia)

Many families do not realize how high the costs of care are until they are trying to place a loved one in a facility.  Many studies estimate the cost to range from $8,000 per month to $13,000 per month.  At that point, it is too late to utilize any sort of planning or saving and the financial reality can be devastating. Therefore, it is important to have a plan to cover your long-term care costs. Below are three of the most common ways that people plan to pay for their long-term care.

1. Save and pay out of pocket: If you believe that you will be able to pay for your long-term care costs out-of-pocket, be sure to conduct some research to predict how much money you will need to save and account for contingencies.
2. Purchase long-term care insurance: Long-term care insurance is becoming a more popular method through which individuals pay for their long-term care costs. Importantly, be sure to purchase this early for the best rates.
3. Spend down your assets so that you apply for Medicaid: Medicaid is a needs-based program. Therefore, your assets must be below a specific threshold in order to qualify for benefits. If you are above the threshold, you may be able to carefully spend your assets down until you qualify for coverage.

Which is right for your family?

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Planning Now for the Potential of Alzheimer’s Later

More and more senior Americans are forced to deal with the devastating diagnosis of Alzheimer’s. Without planning, an Alzheimer’s diagnosis can be a devastating financial blow to an individual and his or her family. A recent article discusses how individuals can take control of their financial futures by planning now for the potential of an Alzheimer’s diagnosis later.

One potential way through which a person can get funds to pay for medical care is through Medicaid. Medicaid is a need-based program, so a person must meet certain income requirements to apply. If a person is above the threshold to receive Medicaid, he or she must spend-down assets in order to qualify. However, the spend-down of assets must be done carefully,with the oversight of an estate-planning attorney. Importantly, Medicaid employs a look back provision that will disqualify certain distributions of wealth if they occur within five years of a person’s application for Medicaid.

Often, Alzheimer’s patients require more care than Medicaid will cover. One option to fill the gap is through long-term care insurance. These insurance policies provide broad coverage for care received in a patient’s home, assisted living facility or nursing home. It is important to get long-term care insurance early, as rates go up as a person ages. Additionally, it may be difficult to find an insurer after a diagnosis of Alzheimer’s.

Considering Gifting Your Home? Read This Before You Give Away The Castle.

Many parents want to believe that their children would never kick them out of their own home. However, the sad reality is that this has been the subject of more than one lawsuit. As a recent article explains, if you are considering gifting your home to your child or children, it is important to consider that possibility and other consequences.

First, the gift of a home is often a taxable gift. If a parent signs a deed gifting the house to their children, he or she should file a gift tax return as well. If this gift tax return is not filed, the parent may lose the ability to claim an exemption from the gift tax and may owe taxes on the transaction.

Additionally, gifting a house to children allows them to sell the house out from under the parent. The children can attempt to send the parent to a nursing home or simply evict the parent altogether.

Finally, gifting a home can have serious implications as far as Medicaid is concerned. Medicaid is a need-based program that employs a look-back provision of five years. Therefore, if a home is gifted within the five year period before a parent applies for Medicaid, the value of the home is considered in the parent’s assets. Therefore, depending on the value of the home, the gift could make the parent ineligible for Medicaid benefits.

Often, the ideal scenario involves a system whereby the value of the home is gifted, but the parent is permitted to live in the home for as long as they like or for a certain period of time.  Parents should consider using a combination of life estates and proper trusts to achieve these goals.

Long Term Care Planning: Understanding the Medicaid Look-Back Provision

For those engaged in the process of Long Term Care Planning, perhaps the most intimidating proposition is Medicaid’s look-back provision. This provision provides that certain assets that a person no longer owns will still count toward the calculation of his or her total assets to determine whether he or she qualifies for Medicaid coverage. A recent article discusses the look-back rules.

The Medicaid look-back period is the five years prior to that date upon which an individual applies for Medicaid benefits.  All transfers made during this period are subject to scrutiny by Medicaid officials. For the purposes of calculating benefits, it is as though all gifts made during this period never occurred. For example, if an individual gave his or her child $20,000 the year before he or she applied for Medicaid coverage, the government would likely count that $20,000 towards the person’s assets to determine whether he or she qualifies for Medicaid.

Some individuals try to avoid the look-back provision by setting up a trust. Although Medicaid officials do not consider a trust to be a part of a person’s assets, assets moved into a trust are considered. Therefore, if assets are transferred to a trust during the five-year look-back period, Medicaid officials will take them into account.

Individuals often mistakenly believe that Medicaid has an annual gift-giving exclusion similar to that of the IRS. However, this is not true. Although the IRS allows taxpayers to give gifts up to a certain amount without invoking tax consequences, there is no parallel in the Medicaid determination.

What is an Irrevocable Funeral Trust?

One tool for those looking to spend down their assets in order to apply for Medicaid benefits is the Irrevocable Funeral Trust (“IFT”). Through an IFT, a person can set aside funds to pay for his or her funeral and burial expenses. Importantly, funds in an IFT are not considered to be part of a person’s estate for purposes of Medicaid qualification. A recent article discusses the basics of the IFT.

Importantly, an IFT should not be used by just anyone. High net-worth individuals who will not require Medicaid assistance, for example, would not use an IFT because they likely have sufficient funds or insurance policies that will cover medical expenses.

However, those who are worried about how to pay for their long-term care costs and do not have money earmarked for their funeral should consider an IFT. A person taking out an IFT will be required to pay completely in advance, and will not be permitted to take out an IFT for an amount that exceeds 125 percent of the average funeral cost.

Importantly, no medical underwriting is necessary for an IFT. Beyond the one-time payment to the insurance company, the insured party faces no expense from the trust.

Dealing with Early-Stage Alzheimer’s

Currently, the sixth leading cause of death in the United States is Alzheimer’s disease. Between 2000 and 2010, the number of deaths caused by Alzheimer’s disease increased by 68 percent. By 2050, the number of Americans with Alzheimer’s disease is set to increase to 13.8 million. As a recent article explains, Alzheimer’s could quite possibly become an epidemic, if it is not one already.

English: PET scan of a human brain with Alzhei...
English: PET scan of a human brain with Alzheimer’s disease (Photo credit: Wikipedia)

If a loved one in your family begins to display the signs of Alzheimer’s disease, the first thing a family should do (beyond medical attention) is be sure that the family member has executed a will, durable financial power of attorney, and health care power of attorney. These documents allow the person to direct how his or her assets will be distributed upon his or her death, and also to direct who should make medical and financial decisions for him or her when he or she is no longer capable.

Importantly, a person diagnosed with early-stage Alzheimer’s may still be able to sign these legal documents. When a loved one is suffering from short-term memory or vocabulary loss, but still has a grasp on reality, he or she can often show the necessary mental capacity to create legal documents.  Although it is best if these documents are created prior to the early-stage dementia, if that is not possible, have a geriatric psychologist evaluate the person immediately prior to signing.

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‘Spending Down’ for Medicaid Coverage: A Cautionary Tale

Medicaid is a need-based public benefit program that assists citizens in paying for medical care. Therefore, a person can only receive benefits if he or she meets certain income criteria. In order to meet the criteria, many people attempt to spend down their assets. However, if not done properly, a ‘Medicaid spend-down’ could have disastrous consequences. A recent article tells the story of Eugene Shipman, who ran into trouble after attempting to spend down his assets to qualify for Medicaid.

Centers for Medicare and Medicaid Services (Me...
Centers for Medicare and Medicaid Services (Medicaid administrator) logo (Photo credit: Wikipedia)

Shipman and his wife, Arline, began the spend down process in April of 2008, so that Arline would qualify for Medicaid coverage for her anticipated and impending care needs. As part of this spend-down, Eugene disinherited her in his will executed in March of 2009. Following the drafting of the will, Arline’s son, David – who exercised her power of attorney – disclaimed any inheritance from Eugene on her behalf.

Then, in 2010, Eugene unexpectedly passed away. Arline’s attorney scrambled to file a petition to claim an elective share of Eugene’s estate on her behalf. When the trial court denied the petition, Medicaid got involved and asked the court to reconsider. Luckily, the appellate court revoked the disclaimer and granting Arline the elective share.

Had the court determined that the disclaimer should not be revoked, not only would she have lost her Medicaid eligibility, but she would have also missed out on half of Eugene’s estate. The story of Eugene and Arline should remind individuals that they must seek competent counsel and take caution when involved in a Medicaid spend down.

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ALERT: New Rules for Reverse Mortgages

As the costs of long-term care continue to rise, more and more elderly Americans are turning to reverse mortgages in order to fund these costs. A reverse mortgage allows a homeowner aged 62 or older to convert his or her home equity into cash while also remaining in the home. The homeowner can choose to accept this cash through a line of credit, monthly payment, or lump sum. As a recent article explains, the rules surrounding reverse mortgages are about to change.

Logo of the Federal Housing Administration.
Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

The Federal Housing Administration (“FHA”), which insures and regulates reverse mortgages, recently announced that it will modify the reverse mortgage program in order to reduce the incidence of default. Two major changes include lower caps on borrowing limits and new rules that will make it even harder to obtain a reverse mortgage.

The FHA plans to change the borrowing limits in order to reduce the cap on the amount that a borrower can receive in the first year of a reverse mortgage. After the new rules are implemented, a borrower will only be able to take up to 60 percent of the appraisal value of the home. This amount is reduced from the previous cap of 75 percent.

The FHA will also implement various rules that will make it harder to obtain a reverse mortgage. These rules will also likely reduce the size of the loan that borrowers will be able to receive. The new rules are scheduled to take effect on October 1.

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Avoiding the Financial Crisis of Long Term Care

Many elder Americans are not prepared for the high costs of long-term care. This is causing a financial crisis, as too many Americans are relying on the federal and state governments in order to provide for this care. As a recent article explains, one way to avoid this crisis is by purchasing long-term care insurance.

According to the article, the two biggest fears of the baby boomer generation are (1) outliving the finances they have saved for retirement, and (2) being forced to depend on another person for care. Unfortunately, many seniors do not understand how the Medicare/Medicaid systems work, and believe that the federal programs will pay for any long-term care that becomes necessary.

In fact, Medicare has many limitations. For example, Medicare will only cover a stay in a skilled nursing facility if the stay is 100 days or less and is medically necessary. Of course, determining whether a stay is medically necessary will depend on Medicare standards that may be confusing.

Long-term care insurance, therefore, can fill in where Medicare leaves off. Long-term care insurance allows policy-holders to select which types of care they would like to receive. And what if long-term care insurance is not an option? Then it may be time to consult with an Elder Law attorney to discuss options, such as Medicaid “spend-down”, that can help with payment of long-term care.

Two Strategies for Medicaid Planning

Many individuals who require a nursing home stay at the end of their life deplete their assets in order to pay for the care. As a recent article explains, when people fail to protect their assets, it is because they failed to plan properly. The article urges readers to take steps towards Medicaid planning while they are still young and healthy.

One way to protect your assets is to exchange non-exempt assets for exempt ones. When determining whether you are eligible for Medicaid benefits, Medicaid representatives include all of your countable assets, those not exempted by State law, or that are otherwise inaccessible to Medicaid. Exempt assets vary from state to state, but typically include the family home, burial plots, one automobile, and term life insurance. Check with your state for an exact list of exempt assets.

Many people do not realize that Medicaid will count one’s spouse’s assets as well when determining Medicaid eligibility. If your spouse is still healthy, consider purchasing an appropriate single premium annuity benefit for them. This will provide your spouse with an additional income stream, while keeping the cost out of the countable assets for you, as well as your spouse.

Consider a Care Contract When Caring for Your Parents

Many adult children are living with and caring for their elderly parents. As a recent article explains, it would be beneficial for both parties to create a care contract for these services. Through a care contract, the parties can agree that the caregiver will assume responsibility for, and accept a specified payment from the loved one.

A care contract is especially important if the person receiving the care anticipates eventually requiring a nursing home stay. When a person applies for Medicaid coverage, representatives for Medicaid will consider all of the money that he or she has available to pay for his or her care. A person will not be provided with coverage unless he or she has depleted all of his or her financial resources. If that person has a care contract in place, all the money that he or she spent on care will count towards his or her “Medicaid spend down.”

Without a care contract in place, Medicaid representatives may consider the money given to the caregiver to be a “gift” or “transfer of assets.” If this happens, the money will be factored back into a person’s assets and he or she could be denied coverage.

It is also important to have a care contract from a caregiver’s perspective. Without a care contract, other heirs may think that the caregiver offered his or her services for free and may attempt to reduce the caregiver’s inheritance accordingly.