“The Best Laid Plans…When Medicaid Planning Blows Everything Up and Why”
You have taken great care of your clients. You have advised them well and carefully made certain all their legal documents are in order, their assets are titled correctly and their estate plan is fully implemented. You have gone to great lengths to plan for every scenario down to the last detail. Measures are in place for death, succession, taxes, and successors are in place to step in and assist if there is an accident or sudden illness. Everything is in place. Or is it?
Despite the best Medicaid planning, the wheels can and sometimes do fall off. A sudden catastrophic accident, illness or required long term care in a nursing home can deplete assets of most families with a net worth of less than $2 million. A family may escape with less financial damage but tragically that may only come with the death of their loved one sooner rather than later and even then; there may still be a significant loss of family wealth and a diminishment in legacy which a family has worked a lifetime to achieve. We will explore a typical example of what could and unfortunately does happen when nursing home care is necessary and the family has to provide for unexpected long-term palliative care.
We start with certain facts:
- Annual costs for nursing home care for an individual in Palm Beach County are approximately $100,000.00.*
* https://www.genworth.com/aging-and-you/finances/cost-of-care.html
2. For an individual to qualify for Medicaid benefits, an individual must be poor, meaning the individual must have less than $2,000.00 of countable assets. If the applicant is married, his or her spouse cannot have more than $120,900.00 of countable assets or the application will be denied.
3. If an individual’s income is in excess of $2,205.00 per month it will disqualify an applicant for Medicaid (there is a workaround for this problem).
4. Any attempt to give away assets to anyone other than a U.S. spouse in the five years leading up to the filing of an application for Medicaid benefits will result in a penalty called the “look-back penalty”.
Now we can look at our example couple:
Harvey and Irma are 85 and 82, respectively. They have been married for 60 years. They have been to their attorney who prepared a Revocable Trust for them and they are the co-trustees. Their other documents, including durable powers of attorney, health care surrogates and HIPAA waivers are in place and appropriate. Their three children are residual beneficiaries of their Estate after the second of them passes away and are also their successor trustees, attorneys in fact and health care surrogates. Their children actually get along and have been successful in their lives so no major gifting has been done in the past five years. They have a condo worth about $400,000.00 with a reverse mortgage on it with $40,000.00 owed, investments of $900,000.00 and about $50,000.00 in their savings and checking accounts. They each receive monthly social security ($1,900.00 for Harvey and $1,400.00 for Irma) and Harvey also receives a modest pension ($1,500.00 per month). They live within their means especially as they have gotten older and slowed down. Unfortunately, bad things are about to happen…
Last Sunday, while watching his beloved NY Giants lose yet again, Harvey suffers a massive debilitating stroke. He is in the hospital and will soon head for rehabilitation but soon thereafter Harvey’s family will learn the damage is permanent and severe. Harvey will no longer be able to care for himself. Irma will take him home and do her best. The children will come to Florida and rally around her, but they have their own lives and cannot stay forever. Irma is neither trained nor physically capable to provide long term care on a 24/7 basis.
In the months to come, the family will make the heartbreaking decision to move Harvey to a nursing home to receive the care he needs. Between in-home care before the move and the cost for the first six months of nursing home care, the family savings will diminish by $150,000.00. Irma, now 83, in good health and with more years ahead of her, is worried about what will happen if their money runs out. What’s more, they always wanted to leave money for their children and now this seems unlikely.
These are our typical Medicaid clients. They do not need to go broke for Harvey to qualify for Medicaid. Irma can and should keep the assets they worked to accumulate without fear she will run out of money. The planning needs to change to meet their new circumstances. They can move assets around and with proper planning, they can make the best of their unfortunate situation by taking care of Harvey with government benefits while Irma is able to continue to live a comfortable life without fear of bankruptcy. It begins with the right planning, even during a time of crisis.
With the right plan, Irma can pay off the balance on the reverse mortgage because the home is an exempt, non-countable asset, funds can be drained from the revocable trust and placed only in her name, assets will be converted to income for Irma so she drops below the asset threshold so Harvey can qualify for benefits and finally Irma’s entire estate plan can be re-written to address the possibility that she passes away before Harvey. This will ensure he will have use of their money but will not lose his Medicaid benefits should Irma die first. When the second spouse does finally pass, there will still be a legacy to pass on to their family.
Clients facing catastrophic medical or long-term care situations should seek the advice of a Medicaid planning professional before resigning themselves to simply spending down their assets. Whether married or single, there are planning options available which could result in an enhanced life for the nursing home resident and often a better outcome for loved ones.
