Must Seniors Lose Their Life Savings If They Need Long Term Care?
By: Larry E. Bray, Esq.
No senior wants to use his/her life savings to pay for long term care, i.e. a nursing home, assisted living facility or homecare. Likewise, no child wants to watch his/her inheritance dwindle to zero. Further, no senior wants to give up control of his/her money for fear that they might wind up in a dirty and abusive Medicaid facility. The whole subject is emotionally and legally complex for both the elderly and their children. An overall Asset protection program is far beyond the scope of this article which is limited to a word allowance. But I will attempt to illustrate just a few selected strategies for seniors and their families.
Let’s assume that there exists an elderly couple and one spouse (74) enjoys good physical and mental health while the other (76) has good physical health but suffers severe dementia. The sick spouse wanders and is too great a burden on the community spouse. Clearly, the sick spouse requires an assisted living facility with a lockdown unit. Depending on the facility, this can cost between $5,000 and $10,000 per person each month. If the couple has joint assets of say, $400,000, and income of about $3,500 each month (not wealthy by any standard) their resources will not last long if they private pay. Because both still have good physical health, they will run out of money and their children will surely be left nothing. Is that fair? Well, that’s not my call. But let me tell you what the law allows.
The sick spouse can transfer his/her interest in all assets to the community spouse solely. (Obviously, since the sick spouse now lacks capacity, she would have needed to have already transferred them or executed a durable power of attorney). Such transfer can be done immediately prior to applying for Medicaid benefits (no look-back). The sick spouse may retain only $1900 in assets. If, after the transfers, the community spouse has assets in excess of $92,000, he/she can use several vehicles to reduce countable assets to meet Medicaid eligibility tests. One thing the community spouse could do would be to purchase an “irrevocable immediate annuity” in the amount by which the assets exceed $92,000. The annuity principal is exempt from Medicaid evaluation and will be paid monthly as income over the life expectancy of the community spouse. The point here is that Medicaid has no restriction on the community spouse’s income, only on assets. So the annuity has converted a countable asset into exempt income. The principal is shielded not only from Medicaid but also from creditors.
However, the sick spouse’s income does matter and it cannot exceed $1656.00 per month for Medicaid eligibility purposes. If it does, then a Qualified Income Trust (QIT) must be established. The sick spouse’s gross monthly income minus $1656 (which gets paid to the facility via a bank account), minus the personal needs allowance ($35.)(haircuts, etc.) minus the Spousal Income allowance gets paid into the QIT. The amount paid into the QIT each month will have to be paid to the facility from the QIT. Medicaid will then pay the balance to the facility.
The primary residence is a Homestead and therefore, is not counted as an asset for Medicaid eligibility. Therefore, the community spouse can retain his/her home.
So now, the sick spouse’s needs are taken care of while the community spouse can live comfortably without fear that his money will run out before he dies. And the children can still inherit something.
Of course, none of this means anything unless the family can find a facility that accepts Medicaid and also provides good care in a safe, clean and comfortable environment. Luckily, there are some. But be careful.
Once again, planning is the key.