Introduction to Elder Law and Asset Protection
Over 50% of all Americans will require long-term health care at some time in their life.
About 35% of people develop Alzheimer=s disease by age 75, and the percentage rises with age. By 85, almost half of all people get the ailment.
The average cost of nursing home care in North Carolina is from $5,000.00 per month to over $6,000.00 per month.
The cost of long-term health care is increasing at a rate of 18% per year.
These statistics show that the likelihood of being financially devastated by a long-term illness is higher than one might think. The onset of Alzheimer's or Dementia, or an occurrence such as a stroke, heart attack, or debilitating accident could leave the average American family financially destitute if proper planning is not prepared in advance.
Most people can avoid the overwhelming costs of long-term care with some timely planning; however, the practical reality is that most people do not plan ahead, and consequently, they end up paying out of their own pockets for nursing home care until they run out of money. This spend-down can be avoided with the help of an attorney competent in the areas of Elder Law and Medicaid planning.
The federal and state governments have joint responsibility in implementing the Medicaid program. Needless to say, with the federal and state bureaucracies involved, the Medicaid application process entails mind boggling complexity. To make matters more difficult, just when those who administer the program have become proficient in administering it, the laws, rules, and guidelines change. Within the changing complex program are broad eligibility guidelines within which states function, exercising unilateral discretion to determine which applicants are eligible.
Other than Medicaid, there are other third party payment sources such as Medicare and private long-term care insurance. Currently, however, they are less available than Medicaid, and when available, their sources often do not provide sufficient coverage. In North Carolina, there is an additional program called Special Assistance that will help pay for care in an assisted living facility; again, eligibility for this is based on limited income and assets.
Despite the higher costs, there are possible advantages to paying privately for nursing home care. Some of these advantages include: (1) the likelihood of being placed in a facility with higher quality of care; (2) the choice of a private room with added amenities; (3) the likelihood of individualized planning and attention. The obvious disadvantage is the expense. In North Carolina, nursing home costs range from approximately $5,000.00 to $6,500.00 per month. Without prior planning, nursing home residents stand to lose the majority of their assets to the private pay drain of nursing home care.
For many individuals, a benefit of tax, estate and long-term care planning is to protect and preserve assets (by avoiding paying them to a nursing home) while simultaneously qualifying for nursing home Medicaid benefits. This may be accomplished by careful planning that adheres to the guidelines for Medicaid eligibility in North Carolina.
Medicaid has three primary components for qualification: (1) Medical need, (2) Resources, and (3) Income.
1. Medical Need. Medical qualification for Medicaid is usually initiated by the attending physician or the physician associated with the facility in which the applicant is residing, or is to be placed. The Division of Medical Assistance FL-2 Form, which is provided by the physician, must confirm that the Medicaid applicant needs the skilled or intermediate level of nursing home care.
In addition to the FL-2 Form, there is a screening form that is maintained in the individual's record, detailing Mental Illness, Mental Retardation, Dementia or Alzheimer's Disease.
2. Resources. In North Carolina, the basic resource rules of nursing home Medicaid eligibility are that an applicant may have no more than $2,000.00, if single, or $3,000.00, if married, in countable assets in his or her name. Countable assets generally include everything except: (a) the home as the applicant's principal residence (with certain qualifications); (b) personal possessions, such as clothing, furniture and jewelry; (c) one motor vehicle; and (d) inaccessible assets. It is important to remember that there are many exceptions to these general countable asset rules.
The determination of the level of an individual's or couple's assets is made as of the first day of the first month of date of application or institutionalization, whichever occurs first.
3. Income. When a nursing home resident becomes eligible for Medicaid, all of his or her income, less certain deductibles, must be paid to the nursing home. The deductions include a $30.00-a-month personal needs allowance, a deduction for any uncovered medical costs (including insurance premiums), and, for married applicants, an allowance he or she must pay to the spouse who continues to live in the community.
In all circumstances, the income of the community spouse will continue undisturbed. He or she will not have to use his or her income to support the nursing home spouse receiving Medicaid benefits or to contribute to the patient's monthly liability of the spouse.
UNDERSTANDING THE SPEND DOWN
In many cases, the Medicaid applicant must spend his or her assets until only $2,000.00 of countable assets remain in his or her name before becoming eligible for Medicaid. That is, the available assets must be depleted through compensated fair market value transfers, not gifts. The transfers may be in the form of services, benefits, tangible objects or money as long as it amounts to, or is more than, the value of the asset transferred.
THE TRANSFER PENALTY
If the transfer of countable assets is for less than fair market value, the applicant will be ineligible for Medicaid for a period of time beginning at the date of the application for Medicaid. The actual number of months of ineligibility is determined by dividing the amount transferred by $5,500.00. For instance, if an applicant makes a gift totaling $55,000.00, he or she would be ineligible for Medicaid for 10 months ($55,000.00 divided by $5,500.00 = 10) beginning at the date of application. However, Medicaid may only sanction gifts that a fall within the look-back period. Traditionally, this period has been thirty-six (36) months, but currently Medicaid is transitioning into a sixty (60) month look-back period that has been federally implemented pursuant to the recent Deficit Reduction Act.
As a part of the spend down process, the applicant should consider purchasing exempt assets or making exempt transfers of property. The rules regarding exempt assets and transfers are very complicated and have recently been modified in the state of North Carolina. However, the transfer rules do allow for the removal of countable assets from the applicant's estate without any penalty, if certain guidelines are strictly followed.
Once a competent attorney assists the applicant in removing certain countable assets from the estate, the applicant is usually eligible for Medicaid. Thus, the assets that were carefully transferred to other family members or deeded in a way that renders them non-countable will not have to be spent down or sold before applying for Medicaid, and the family will be able to keep those assets.
THE MARITAL HOME AND OTHER REAL ESTATE
Clients are often concerned with the prospect that the marital home and their other real estate may have to be sold to pay for long-term health care. If competent legal advice is timely sought, any real estate owned by the Medicaid recipient will not have to be sold to pay for long-term health care, and will not be subject to a lien upon the death of the applicant. The use of specially structured trusts and deed transfers allows for the protection of most real property while the Medicaid recipient and spouse have use and control of all of the real estate during their lifetime. This transfer of the marital home and other real estate must be structured properly so a look-back period of up to five (5) years is avoided, and gift and capital gains taxes are eliminated.
Certain types of annuities are considered exempt assets. The annuity must meet actuarial requirements, must be for the benefit of the Medicaid recipient, and have irrevocable construction. If it is shown that the Medicaid recipient has access to anything other than fixed installments over the course of the life of the annuity, then the annuity may be counted as a resource.
PLAN FOR THE HEALTHY SPOUSE
So much attention is given to transferring assets and protecting property when the ill spouse enters a nursing home, that planning for the healthy spouse is often overlooked. In some situations, assets are transferred to the healthy spouse, who then unexpectedly predeceases the ill spouse. All of the couple's assets then pass to the ill spouse, immediately disqualifying the ill spouse from Medicaid until the assets are spent down or some other disposition of the assets can be made.
The first precaution is to prepare a durable power of attorney for the healthy spouse. This will allow for the completion of an asset preservation plan should the healthy spouse become incompetent.
Next, the healthy spouse's will must be reviewed. Most couples have wills leaving everything to the surviving spouse. The will should be changed to either bypass the surviving spouse altogether, or to create a Supplemental Needs Trust.
The couple also needs to be sure that their home and other real property is not held as joint tenants. Unless the home is transferred into the healthy spouse's name outright, the home that continues to be held jointly by husband and wife would pass to the ill spouse if he or she survived the healthy spouse. Again, that would cause instant Medicaid disqualification for the ill spouse, and throw the family=s plans into a tailspin.
PROTECTION FOR THE COMMUNITY SPOUSE
Medicaid law provides for special protections for the spouse of a nursing home resident, known in the law as the community spouse. Under the general rule, the spouse of a married applicant is permitted to keep up to one-half of the couple's combined non-exempt assets, up to $109,560.00 (This amount frequently increases.) Also the minimum community spouse resource allowance is currently $21,912.00.
For example, if a couple owns $90,000.00 in countable, non-exempt assets on the date the applicant enters the hospital or nursing home, the applicant will be eligible for Medicaid once the couple's assets have been reduced by $43,000.00 ($45,000.00 minus 2,000.00), and the community spouse would be allowed to keep $47,000.00. If the couple owned $200,000.00 in countable assets, the spouse in need of institutional care would not become eligible until the couple's non-exempt resources were reduced by $88,440.00 leaving the community spouse $111,560.00.
If proper planning and advice had been sought in advance, the community spouse in both of these examples would have been able to keep the entire $90,000.00 and $200,000.00 respectively.
It is advantageous for the couple to try to have as much countable asset as possible; up to $219,120.00 in their names on the date of application so that the amount the community spouse is allowed to keep will be at its highest possible level. It is also important to remember that transfers of non-exempt assets may be made between spouses without penalty.
Any properly structured estate plan which provides for protection of assets from a spend down must account for the possibility of Estate Recovery. The state of North Carolina has a right to recover whatever benefits it paid for the care of the Medicaid recipient from his or her probate estate. North Carolina has enacted legislation that provides for a Medicaid Lien that attaches against the estate of any Medicaid beneficiary who received coverage for long-term care.
Given the rules for Medicaid eligibility, the only property of substantial value that a Medicaid recipient is likely to own at death is his or her home or any tenants in common real property. Under current law, the state may make a claim against the decedent=s home only if it is in his or her probate estate. Property that is jointly owned, in a life estate, or in a trust, is not included in the probate estate and thus escapes estate recovery. There are certain exemptions and exceptions to when North Carolina will seek to recover from the estate of a Medicaid recipient. An attorney knowledgeable in the field of Medicaid asset structuring and Estate Recovery can help you avoid a potential Medicaid Lien.
MEDICARE AND SPECIAL ASSISTANCE
In most cases involving the elderly and nursing home care, Medicaid is the program that is most beneficial. However, Medicare and Special Assistance provide coverage in many instances when Medicaid will not. It is important to note that Medicare only covers nursing home care for up to 100 days. After Medicare ends, the nursing home resident is responsible for the entire nursing home bill.
Medicare is a federal insurance program that pays medical costs for elderly and disabled persons, including acute care, hospitalization, limited skilled nursing care, doctor's fees, prescription drugs, medications used in the hospital, and home care in some circumstances.
Special Assistance is a state funded program for rest home care. This is often the only government benefit available for a resident in a rest home, because Medicaid benefits are available only for intermediate or skilled level of care. The eligibility requirements for Special Assistance vary greatly from Medicaid requirements, and in order to become eligible for Special Assistance, timely asset structuring by a competent attorney is often required.
With some timely planning, you will be able to pay for your long-term health care without selling your home or other assets; you will be able to afford nursing home care; and you will be able to leave your life savings to your spouse or children.
It is important to remember that time is always of the essence with regard to Medicaid and long-term health care planning. Often times, families wait until it is too late to plan for the costs of long-term health care.
This article is intended to generally familiarize you with various legal issues in the State of North Carolina. The scope of this document is necessarily limited, and consultation with your attorney should always precede taking any action.