By: Matthew M. Wallace, CPA, JD
Last week we discussed some of the things that you should do if nursing home admission was a possibility for you or a loved one. You may be tempted to implement some of the suggestions in that column without consulting an elder law specialist. If you did, it would be a mistake.
On a regular basis, we see people who have attempted to protect assets on their own and then attempt to apply for Medicaid for nursing home care. The Medicaid application is only four pages for a single person and six pages for a married person. How hard can it be?
Well, it’s not always the form that is difficult to complete, it is the required documentation supporting the entries on the form that are often difficult to assemble. The Medicaid application packages that our office files with the Michigan Department of Health and Human Services are typically at least 500 pages for a married Medicaid applicant and at least 300 pages for an unmarried Medicaid applicant.
The do-it-yourselfers get advice from someone they read online, the nursing home, the social worker or their morning coffee clutch. This free advice is usually well intentioned, but most of the time is only partly true.
When the do-it-yourselfers take action based upon this free advice, it often results in many months of Medicaid ineligibility or a divestment penalty period. During this time, nursing home care is privately paid for by the family to the tune of $7,000-$8,000 or more per month.
The most common partly true advice we see relied upon time and time again is about the amount of assets that must be spent down before you can apply for Medicaid. The do-it-yourselfers are told that they can keep the car and the home , and then must spend down the rest of the assets and can only keep $2,000 if the Medicaid applicant is unmarried or, if the applicant is married, they can keep one-half of the remaining assets.
This advice is only partly true because with proper estate planning documents in place, in addition to the house and car, you can protect all of a married couple’s remaining assets if one of them enters a nursing home and about one-half of the remaining assets of an unmarried Medicaid applicant.
For example, we had one family come into our office after they had spent about $200,000 in private pay nursing home costs for Dad over the last three years. They said they were told by the nursing home that they had to spend the assets down to $2,000 before Dad could apply for Medicaid to pay for nursing home care. Dad still had $150,000 left. We were able to protect about $75,000, one-half of the remainder, for Dad’s loved ones.
We had another instance in which a nephew attempted to file a Medicaid application for Uncle several times, but was repeatedly denied. When nephew came into our office, there was an outstanding nursing home bill in excess of $20,000 and the nursing home was threatening discharge, that is eviction in nursing home-speak. We discovered that the reason that Uncle was denied was a life insurance policy, which had a cash surrender value in excess of his asset limit of $2,000.
We assisted nephew to take out a loan against the policy to get the cash surrender value of the policy below $1,500, used the policy loan proceeds to pay us and the nursing home, and reapplied for Medicaid. Uncle was then approved for Medicaid. We then were able to utilize a special Medicaid rule to allow the patient pay amount to be used to pay the outstanding nursing home bill.
In another case, we prepared an asset protection plan for a wife whose husband was in the nursing home. The plan outlined how we could protect all of the marital assets for the wife and qualify the husband for Medicaid to pay for nursing home care. The wife decided that she did not want to pay us to implement the plan or apply for Medicaid. She wanted to do it all herself and save the lawyer fees.
Fast forward four months. Wife comes into our office with a Medicaid denial, a $32,000 nursing home bill and the nursing home is threatening discharge. We were able to implement the asset protection plan and qualify the husband for Medicaid to pay for nursing home care, retroactively to the admission date. However, it took nearly twice the legal work to fix it than it would have.
We also had a situation in which a wife came into our office because she could no longer care for her husband at home and she was going to have to place her husband into the nursing home. She said she was told by the nursing home that she had to spend down one-half of the marital assets other than the house and car, before she could apply for Medicaid to pay for husband’s nursing home care. So she went to the car dealer to inquire about purchasing a new car to spend down one-half the assets.
Good thing that she came to our office before buying the car. The date used to determine how much of a couple’s assets have to be spent down is called the snapshot date. The snapshot date is the first day that you or your spouse received continuous custodial care for at least thirty days since 1989. That custodial care could be in a hospital, rehabilitation facility or nursing home, or a combination of these facilities.
Since husband had never been in a nursing home or had an extended hospital stay, the snapshot date had not occurred yet. The snapshot date would be the date he was admitted to the nursing home. Had the wife spent down one-half of the marital assets to buy the car before the snapshot date, then she would have to spend down one-half of the remaining one half on the snapshot date. Luckily, we were able to develop and implement an asset protection plan preserving all of the marital assets for the wife.
When you or your spouse have this thirty day custodial care period, do not throw out those financial records. Hold onto them. We recently had a case in which the snapshot date was in 1992. You can only imagine how difficult it was to reconstruct our clients’ financial picture and obtain documentation from more than twenty years ago.
Kids, don’t try this at home without proper supervision and guidance from a knowledgeable and experienced elder law specialist. You and your loved ones will be thanking you later.
Matthew M. Wallace is an attorney and CPA with the Wallace Law Firm, PC in Port Huron and can be reached at 810-985-4320, matt@happylaw.com or www.happylaw.com.
The ideas presented herein are for discussion and educational purposes only and not intended to be relied upon. For specific information regarding your needs, concerns and plan, you must consult with your tax advisor, financial planner and estate planning attorney to discuss your situation and obtain advice. © 2016 Matthew M. Wallace, CPA, JD.
Published edited June 19, 2016 in The Times Herald newspaper, Port Huron, Michigan as: Do-It-Yourself Plans Dangerous for Nursing Home Medicaid Qualification