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Success Story of the Month – “Where’s The Beef When We Saved Their Bacon?”

Who says you can’t save more than the “maximum”? This case illustrates how you can protect more assets than the “maximum” pursuant to long-term care Medicaid rules.

FACTS:       

Wife, 70, has dementia and needs long-term care. She has no long-term care insurance. She receives Social Security of around $1,000 per month. Her husband, 75, can live independently at home. He receives Social Security of around $1,000 per month also. They have real estate (home and other property) that has a total value of around $800,000 (although the home is not a countable resource for Medicaid and it was worth around $600,000). They have cash assets (checking, savings, CD, annuity and stocks) and husband’s cattle business (cattle, tractor, etc.) which total $200,000. Since some of the real estate is only owned by wife and wife never signed a power of attorney, husband has a court ordered guardianship.

Getting the government to pay for the entire cost of her care

Although they own $1,000,000 of assets (mostly the homestead and contiguous land), they seek governmental assistance for the cost of care of wife. Most are unaware that Medicare has very little coverage for skilled nursing care. Medicaid will pay for the cost of care, but it is “means-tested” – the government determines if you have too much countable resources to qualify. Certain assets (such as the homestead and the cattle business – including the cattle, tractor, etc.) are non-countable resources. The cattle business is only non-countable if the income exceeds the expenses of the business as it must be a resource essential for self-support. So, if the home and business were worth $700,000, then $300,000 of the resources would be countable. In year 2022, the maximum protected resource amount (exclusive of home, car, business essential for self-support, etc.) is $137,400 if not expanded.

Keeping more than the “maximum”

Due to spousal prevention from impoverishment rules (years ago, the well-spouse, known as the community spouse, would seek divorce so they could live off the resources of the couple), the government changed the rules to permit “expansion” of the “maximum” if the non-countable resource income (in this case, the Social Security income of the couple and the income from the sale of cattle were the only sources of non-countable resource income). The lower the amount of non-countable resource income of the couple, the more countable resources that can be kept for eligibility as there is a formula for expansion based on one year CD rates. The sale of cattle would need to be monitored since there had to be enough income for the business to be profitable (otherwise it wouldn’t be a non-countable resource as a resource essential for self-support) while being not too great so the protected resource amount could be expanded. In year 2022, the non-countable resource monthly income of the couple must be below $3,435 for expansion. So, if the non-countable resource income was $2,500 ($2,000 from Social Security and $500 from cattle sales), then the couple would be $935 below the permitted income limit where there could be expansion. In this case, since the income was well below the limit, all countable resources could be kept without spenddown to the $137,400 limit. As a result, Medicaid eligibility was achieved.

Get court approval to transfer resources to community spouse

Under the long-term care Medicaid rules, the countable resources of institutionalized spouse must be below $2,000 within one year. There is no transfer penalty between spouses. In this case, the husband was named as the guardian of his wife and her assets. Under the Texas Estates Code, the guardian must do what is in the best interest of the ward (in this case, the wife). As a result, many judges would not permit the transfer of the assets of the ward since those assets could be used to take care of her. However, after being advised that (1) the Medicaid benefits that could be lost, (2) the assurance that the husband would not divorce his wife of over 40 years, (3) the revision of the husband’s will that would also benefit his wife and (4) the fact that even the Texas Estates Code permits revision of a person’s will after death if the beneficiary is on public benefits since Texas recognizes the value of public benefits for a beneficiary, the judge permitted the transfer of the assets to the husband. All property was then transferred to the husband as his sole and separate property.

Revise will of community spouse so that public benefits could not be potentially lost

Although many married couples have “I love you” wills (all assets to each other), that type of will would be counterproductive to our plan. If she inherited outright, then all of her countable resources would have to have been spent down to $2,000 (the limit for a single person and the state would have a right to make a claim against her non-countable resources (home, cattle business, etc.) after her death. The husband’s will was revised so that everything would go to a contingent special needs trust within his will for the benefit of his wife. The trust is used to supplement, rather than supplant, Medicaid benefits. After her death (whether or not she predeceased him), the assets would go to their children. The husband died shortly after all assets had been transferred to him (less than a year after the wife had obtained Medicaid eligibility).

Probate husband’s will

Husband’s new will was probated with all of his assets (approximately $1,000,000 consisting of both countable and non-countable resources) held in trust for her benefit which was used for her additional care to the extent that the trustee thought that was needed. No spenddown of resources was needed since the wife didn’t inherit the assets directly.

Obtain notice of withdrawal of claim by the state

The wife was on long-term care Medicaid for approximately nine years. If the average cost of care was only $6,000 per month (it now exceeds over $7,000 per month in Texas) then that would result in the payment of $648,000 that would have been needed if the wife paid privately. Even if the wife had kept the home and cattle business (which totaled $700,000), then her interest would have been subject to Medicaid estate recovery after her death. Since all assets had been transferred to her husband and then passed to the trust created within his will after the will was probated, she was impoverished and so there was nothing left (she had less than $2,000) for the state to make a claim. As a result, even though the state may have paid out hundreds of thousands of dollars for her care, it could not make a successful claim as she had limited resources. A letter of withdrawal was obtained from the state. The trustee of the supplemental needs trust is now selling the property. The title company (who wants to ensure good title) is given the correspondence with the state and the letter of withdrawal of claim and issues good title for the sale of the property. After sale, the proceeds will be distributed from the trust to the children.

Medicaid planning is similar to tax planning. The goal of tax planning is generally to pay as little taxes as possible. The goal of Medicaid planning is often to obtain as much benefits as possible. In this case, maximum benefits were obtained and assets were protected for the Medicaid recipient’s lifetime and then subsequently benefitted the family.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual or in person Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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