Legal-Ease: A little planning makes a big difference
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Medicaid Planning can make a world of difference to a couple when facing nursing home care. Let' look at a typical couple I might deal with in my Elder Law practice. Fred, the husband, is sick (which is typical because we men lead harder lives; "Not so" the ladies say, "You men are just a weaker species"). Alice, his wife, although elderly, is in pretty good health.
Fred inherited their home from his father, so he is the sole owner. Alice drives a 2010 Chevy. True to his West Virginia heritage, Fred drove a 1995 Ford pickup truck. They have $100,000 in life savings, comprised of savings, checking, certificates of deposit, and cash value of life insurance policies.
Fred and Alice's adult son, Cyrus, is a good son whom Fred and Alice trust. At the time we tune in on their lives, Fred's doctor has told Alice that Fred needs to be in a nursing home within another month.
SCENARIO 1: NO PLANNING
When Fred enters the nursing home, Alice visits the Department of Health and Human Resources' county office to see when Fred can qualify for Medicaid to pay his monthly nursing home bills. The caseworker explains to Alice that Alice may continue to reside in their home and use the household furnishings, but since the house belongs to Fred, after his death if she dies or stops living there, Medicaid will require that the house be sold so it can recoup the money it spent on Fred. Alice is told that she can keep one vehicle, so she sells Fred's truck. She is told that she can keep as her nest-egg for the future one-half of their life savings, which amounts to $50,000. She is told that Medicaid will consider the other one-half (also $50,000) to be Fred's money which he will need to spend paying for his nursing home care until his share is "spent-down" to less than $2,000. Then, when his share has been reduced to less than $2,000, he will be "poor enough" to qualify for Medicaid.
Without planning, here is their outcome:
Alice ultimately will have:
The $50,000 which Medicaid lets her keep as her nest-egg for her future;
Her 2010 Chevy;
Use of Fred's old house, but the house will be lost eventually to repay Medicaid;
Fred will qualify for Medicaid in about five months, when, by paying for his monthly nursing home care he will have spent all but $2,000 of his share of their life savings.
SCENARIO 2: WITH MEDICAID PLANNING
Starting from exactly the same spot, with good Medicaid Planning advice obtained from a knowledgeable Elder Law Attorney, Alice takes these steps:
1. BEFORE Fred enters the nursing home, Alice borrows in Fred's name $196,000 which she simply deposits in their savings account. Medicaid will let Alice, as Fred's wife, keep one-half of the assets they have when Fred enters the nursing home as her share of their life savings. In determining Fred and Alice's total life savings when he enters the nursing home, Medicaid looks at only what they own; not what they owe. Debts are not considered. After obtaining the loan, Fred and Alice have total life savings (not counting the debt) of $296,000 (the $100,000 they already had, plus the $196,000 they borrowed). This means that Alice's nest-egg will be one-half of that amount, $148,000. Medicaid will consider the rest of their money, the other $148,000, to be Fred's share, making him "too rich" for Medicaid.
2. Shortly AFTER Fred enters the nursing home, from Fred's share of their money, Alice spends his $148,000 to reduce the loan at the bank, instantly making him "poor enough" for Medicaid. You see, Medicaid allows Fred to use his money to pay off debts which he owes.
Merely by these two steps Alice has raised the amount she will have as her nest-egg from $50,000 to $148,000, and made Fred "poor enough" for Medicaid.
I want to show you some other things Alice can do to improve their situation, but I need Fred to have more money to play with. To give him more money, pretend that Fred's favorite aunt dies a week AFTER Fred enters the nursing home, leaving $100,000 to Fred. That $100,000 makes Fred "too rich" for Medicaid again.
3. AFTER Fred is in the nursing home, but now burdened by the $100,000 his aunt left to him, Alice takes these steps to get rid of his aunt's money and make Fred "poor enough" for Medicaid again:
a. She pays off the balance Fred owes on his bank loan ($48,000);
b. She buys pre-need funeral plans for both Fred and herself ($15,000);
c. She trades in her old car and Fred's old truck and buys a new car for herself ($20,000); and,
d. She quickly pays for repairs and improvements to Fred's house and buys new household furnishings ($17,000).
Alice is getting the benefit of the money's purchasing power, rather than merely giving it to the nursing home.
4. To protect the home from Medicaid's future efforts to get back its money, Fred signs a deed to Alice, making her the owner of the home. This deed does not interfere with Fred becoming eligible for Medicaid because spouses can transfer assets back and forth without upsetting Medicaid. If Alice later worries about needing nursing home care for herself, she can sign a Transfer on Death Deed which will deed the property to their son, Cyrus, instantly when Alice dies.
With careful Medicaid Planning, here is Fred and Alice's outcome:
Alice will have:
* $148,000 as her nest-egg;
* Fred's loan will be paid off;:
* Both funerals are paid;
* Alice has a new car;
* Alice's home and contents are improved;
* Alice is the sole owner of their home and it will go to son, Cyrus, when she dies.
Fred will qualify for Medicaid almost immediately, because by repaying the loan and purchasing what Alice chose, his share of their life savings promptly will be "spent down" to less than $2,000.
These are only some examples of how you can save your hard-earned life savings and home from Nursing Home costs. Each situation is different. If you would like to protect your life savings from nursing home costs, when it looks like nursing home care may be in your future don't delay in consulting an Elder Law Attorney about Medicaid Planning. Medicaid Planning is a highly complex and detailed field; be sure to get your advice from a competent source.
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Gerald W. Townsend is a partner in the law firm of Fluharty & Townsend, Parkersburg, West Virginia, with special emphasis upon Medicaid planning to protect assets from nursing home costs. He can be reached at jtownsend@fntlawoffices.com.