Eleventh Hour Medicaid Planning
While preparing for long term care should preferably occur years prior to getting in an assisted living home, this is not always possible and even thought about till it is too late. The following post, nevertheless, lays out several methods that are readily available for people with “a foot in the door” of a nursing house with regard to their readily available possessions.
1. Under a plan commonly known as the “Reverse Guideline of Halves”, an individual getting in an assisted living home can move all of his possessions (over and above the Medicaid resource allowance ($13,800.00 in 2011) to his beneficiaries, and then make an application for Medicaid – knowing that the application will be denied due to the fact that he has actually transferred assets. He will then be disqualified for Medicaid for an amount of time equal to the total possessions transferred divided by the typical monthly cost of an assisted living home. On Long Island in 2011 that’s $11,445.00 monthly. The successors to whom he moved his possessions should then perform a promissory note to him, consenting to repay, in monthly installations a quantity equivalent to about half of the total possessions moved, plus interest at a “sensible” rate (which the Department of Social Provider states is 5%.)
The nursing house will then be paid the institutionalised individual’s monthly income plus the month-to-month payments on the promissory note till the duration of ineligibility ends. If, for example, a person with $200,000 in possessions needs retirement home care, under the Reverse Guideline of Halves, he will have to invest half of his possessions on nursing house care prior to ending up being eligible for Medicaid – just as under the old Rule of Halves. Rather than simply transfer half of his possessions as in the past, he would transfer the whole $200,000 to his heir, who would sign a promissory note to him pledging to repay $100,000, plus interest at 5%. He would then be ineligible for Medicaid for roughly 10 months: $100,000 (or half of the possessions transferred) divided by the Medicaid divisor ($11,445.00). If he had $1,000 per month in earnings, that $1,000 (less a little personal allowance) would be paid to the retirement home, and the balance of the assisted living home costs would be paid from the successor’s monthly payment under the promissory note. Those payments would continue until the duration of ineligibility ends at which time Medicaid will be approved.
The promissory note need to meet specific criteria. The payment must be actuarially sound, implying the monthly payments need to be sufficient that the loan can be paid back throughout the institutionalized individual’s life span. Also, the payments should be made in equivalent amounts without any deferment and no balloon payment. The promissory note likewise needs to prohibit the cancellation of the balance on the death of the lending institution. Lastly, the note should be non-negotiable, otherwise it may be identified that the note itself has a worth, which might make the candidate ineligible.
2. Nonexempt possessions under Medicaid can be converted to exempt properties. The neighborhood partner can buy a larger individual house or add capital improvements to an existing residence. By doing this nonexempt cash would be converted into an exempt residence.
3. An immediate annuity that is irrevocable and non-assignable, having no cash or surrender value (i.e., allowing no withdrawals of principal) can be purchased with excess money. The annuity contract need to provide a month-to-month earnings for a period no longer than the actuarial life expectancy of the annuitant-owner. In the event the annuitant dies prior to completion of the annuity payment period, the policy’s follower recipient would receive the remaining installations. This method can transform a nonexempt excess property into a profits stream that goes through the more liberal income rules of what the community partner can keep under Medicaid. An annuity with a term going beyond the annuitant’s life span may be considered a transfer affecting Medicaid eligibility.
4. Liquid resources need to be utilized to pay off consumer debts and prepay burial plots and funeral expenditures (including a family crypt), hence investing down excess money in an acceptable fashion.
5. Kids can be made up for recorded home and care services as long as the amount is affordable. An independent estimate must be obtained before figuring out the amount of compensation and the household ought to have a written arrangement with the relative offering care. This is more commonly called a “Caregiver Agreement”.
6. All joint and specific properties that remain in the name of the institutionalized spouse ought to be moved to the neighborhood partner. In 2011 the maximum Neighborhood Partner Resource Allowance (“CSRA”) is $109,560.00. After such transfers, asset security planning can be undertaken for the community partner).
7. Under the Medicaid transfer guidelines, certain transfers are exempt. The transfer of a home is exempt if the transfer is to a partner, a small (under 21), or a blind or handicapped kid, a brother or sister with an equity interest in the home who lived in house one year before institutionalization, or a child who lived in home 2 years and provided care so as to keep the individual from becoming institutionalized.
Certain other transfers of any resource may likewise be exempt.