26 Jan SUCCESS STORY OF THE MONTH – IT IS BETTER TO GIVE THAN RECEIVE – UNLESS YOU APPLY FOR MEDICAID
Facts: Potential Medicaid applicant for governmental assistance to help pay nursing home costs had limited amount of cash and monthly income and had given away money to a relative who spent the money gifted and could not give anything back. This success story is an illustration of how to overcome mistakes made prior to getting legal advice.
Although Medicare does not generally pay for long-term care costs and most people fail to have long-term care insurance or have adequate income or resources to pay for such costs, Medicaid will help for such costs if certain eligibility requirements are met.
There are three financial eligibility requirements that must be met before the government will help pay for care costs (typically nursing home and drugs for Medicaid recipient).
The first requirement is that countable resources must be below $2,000 prior to the first day of the month in which eligibility is sought if the applicant is single. Certain resources such as an applicant’s homestead (if equity is less than $603,000), a pre-need funeral, one vehicle of any value and every day personal property items do not count towards that limit.
The second financial requirement is that if income exceeds the cap (presently $2,382 per month), then there is ineligibility unless a qualified income trust is established and funded as of the month in which eligibility is sought. Income should be less than the cost of care. Typical income funded into the trust is Social Security, pension income and/or annuity (if annuitized).
The final financial requirement (if the applicant is applying for long-term care in a skilled nursing care facility) is that if there is an “uncompensated transfer” within five years prior to the month of application, then there is a transfer penalty which is calculated by dividing the average daily cost of care as determined by the state ($213.71 presently) into the total uncompensated transfers within the five year “look-back” period. Thus, if the coverage cost of care is $6,000 per month (it is greater) and the total uncompensated transfers within the look-back period were $60,000, then the transfer penalty would be approximately 10 months ($60,000/$6,000) from the first day of the month in which the applicant is otherwise eligible (i.e., below $2,000 of the countable resources, creates and funded a qualified income trust also known as a QIT or Miller Trust) and meets all the non-financial requirements (i.e., medical necessity, in a Medicaid bed., etc.).
In our fact situation, the Medicaid applicant had given away assets within the look-back period to a relative who has spent the money given and does not have assets to repay the applicant or pay the applicant’s bills resulting in a transfer penalty. If they did have such funds and gave the money back to the applicant or paid the applicant’s bills, then the transfer penalty would have been reduced or eliminated to the extent of repayment.
Since the Medicaid applicant had a limited amount of countable resources (cash) left and since the beneficiary of the gifted funds did not have funds to give back to the applicant or pay the applicant’s bills and since the transfer penalty would not begin until the applicant was below $2,000 of countable resources, the solution was actually quite simple. One of non-countable resources (although not mentioned above) is a certain type of single premium immediate annuity designed to comply with the Medicaid rules since it is treated as income and cannot be cashed. The elder law attorney needs to simply calculate the monthly cost of care of the facility, the gross income of the applicant, determine the transfer penalty based on the amount given during the look-back period and then purchase the Medicaid compliant annuity in an amount that will terminate at approximately the same date as the transfer penalty – a relatively simple mathematical formula. It should be noted that a qualified income trust would also need to be established since the annuity would increase the applicant’s income over the cap. After the transfer penalty expires and annuity no longer exist, the applicant would simply give up his or her income (minus a few allowable expenses) to the nursing home and the government would be responsible for any care costs (in addition to drug costs) over and above that. So, if the cost of care was $6,500 and the applicant’s Social Security after permitted deductions was $1,500, then the applicant would save $5,000 a month from that point forward. If the applicant had too much resources in excess of the amount needed to purchase the annuity, then the applicant would consider payment of bills, purchase of other non-countable resources or explore other transfer planning options.
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