Eleventh Hour Medicaid Planning
While planning for long term care should ideally take place years prior to entering a nursing house, this is not constantly possible or even thought about till it is too late. The following short article, however, describes several methods that are available for individuals with “a foot in the door” of a nursing home with respect to their available possessions.
1. Under a plan typically referred to as the “Reverse Rule of Halves”, a specific getting in an assisted living home can move all of his properties (over and above the Medicaid resource allowance ($13,800.00 in 2011) to his beneficiaries, and after that request Medicaid – knowing that the application will be denied since he has transferred assets. He will then be ineligible for Medicaid for a duration of time equivalent to the overall assets moved divided by the typical regular monthly expense of a retirement home. On Long Island in 2011 that’s $11,445.00 each month. The heirs to whom he moved his possessions must then perform a promissory note to him, consenting to pay back, in monthly installments a quantity equivalent to about half of the total assets moved, plus interest at a “reasonable” rate (which the Department of Social Provider states is 5%.)
The assisted living home will then be paid the institutionalized individual’s month-to-month income plus the regular monthly payments on the promissory note up until the duration of ineligibility ends. If, for example, an individual with $200,000 in assets requires retirement home care, under the Reverse Rule of Halves, he will need to invest half of his properties on retirement home care before ending up being eligible for Medicaid – simply as under the old Rule of Halves. Rather than simply transfer one-half of his properties as previously, he would transfer the entire $200,000 to his heir, who would sign a promissory note to him pledging to pay back $100,000, plus interest at 5%. He would then be disqualified for Medicaid for roughly 10 months: $100,000 (or half of the properties transferred) divided by the Medicaid divisor ($11,445.00). If he had $1,000 per month in income, that $1,000 (less a small personal allowance) would be paid to the retirement home, and the balance of the assisted living home expenditures would be paid from the beneficiary’s month-to-month payment under the promissory note. Those payments would continue up until the duration of ineligibility ends at which time Medicaid will be authorized.
The promissory note must satisfy certain requirements. The repayment should be actuarially sound, indicating the month-to-month payments must suffice that the loan can be repaid throughout the institutionalized person’s life span. The payments must be made in equivalent quantities with no deferment and no balloon payment. The promissory note also needs to forbid the cancellation of the balance on the death of the lender. The note should be non-negotiable, otherwise it may be determined that the note itself has a value, which could make the applicant ineligible.
2. Nonexempt assets under Medicaid can be transformed to exempt possessions. The neighborhood partner can purchase a bigger individual residence or add capital enhancements to an existing residence. In this manner nonexempt money would be transformed into an exempt residence.
3. An instant annuity that is irrevocable and non-assignable, having no cash or surrender value (i.e., allowing no withdrawals of principal) can be acquired with excess money. The annuity agreement ought to provide a month-to-month earnings for a period no longer than the actuarial life span of the annuitant-owner. In the occasion the annuitant passes away before completion of the annuity payment duration, the policy’s follower recipient would get the remaining installments. This strategy can transform a nonexempt excess property into an income stream that undergoes the more liberal income guidelines of what the neighborhood spouse can maintain 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 settle customer debts and prepay burial plots and funeral costs (consisting of a family crypt), hence investing down excess money in an appropriate fashion.
5. Kids can be compensated for recorded home and care services as long as the quantity is affordable. An independent quote must be gotten before identifying the quantity of remuneration and the household should have a written arrangement with the member of the family supplying care. This is more commonly called a “Caretaker Contract”.
6. All joint and specific properties that are in the name of the institutionalized spouse should be transferred to the neighborhood spouse. In 2011 the optimum Community Spouse Resource Allowance (“CSRA”) is $109,560.00. After such transfers, possession protection planning can be carried out for the community spouse).
7. Under the Medicaid transfer guidelines, certain transfers are exempt. The transfer of a home is exempt if the transfer is to a spouse, a minor (under 21), or a blind or handicapped child, a sibling or sibling with an equity interest in the home who lived in house one year prior to institutionalization, or a child who lived in home 2 years and provided care so as to keep the person from becoming institutionalized.
Certain other transfers of any resource might likewise be exempt.