(Photo Illustration - MetroCreativeConnection - Legal-Ease - Gerald W. Townsend)

Recently, my friend, Lori, who is 80, required more care than her husband, Shawn, also 80, could provide at home. At that point in life, they owned money savings of about $200,000, their jointly owned home, a car, and two rental houses.

Shawn had heard (correctly) that they would have to pay out of their pockets the $12,000/month her nursing home would cost until she would become “poor enough” to get financial help from the government program called “Medicaid.” Since their combined monthly incomes (Social Security, Shawn’s pension) are only about $2,500 per month, and Shawn will have his own living expenses, he figured they could pay the nursing home about $1,000 per month from each month’s income, but would have to dip into their life savings monthly for the remaining $11,000 of the nursing home bill. At that rate, he figured that in about 18 months ($200,000 ÷ $11,000), he and Lori would be poor enough to qualify for Medicaid’s financial help to pay the nursing home.

Being as how we are friends, and I do Medicaid planning, Shawn and I sat down at my kitchen table and discussed how he and Lori can save as much of their money savings, home, and rental properties as legally possible and qualify for Medicaid’s help more quickly. Here are the things Shawn learned:

1. Medicaid will let Shawn and Lori keep their home and furnishings, because Shawn needs a home now, and because Lori might improve and go home in the future. But, if Lori is the only owner when she dies, such as if Shawn dies first and it becomes owned just by her, when she dies Medicaid will recoup from the home the money it spends on Lori. To make sure the home won’t belong to Lori when she dies, Lori can sign a deed making Shawn the only owner of the home, then Shawn can sign a Transfer on Death Deed which will deed the home to their two kids when Shawn dies, making sure that its ownership will not go back to Lori. These steps will protect the home from the up-front cost of Lori’s nursing home care and from Medicaid’s “Estate Recovery” effort to get repaid when Lori dies.

2. Medicaid also will let the couple keep their two rental houses because, being rentals, they are real estate being used in a trade or business to generate income. Lori also can sign a deed making Shawn the sole owner of the two rental properties, which will result in two good results: As owner, Shawn will be allowed to keep the monthly rent for himself. And, he can sign a Transfer on Death Deed giving the properties to their kids when he dies. These steps will protect the rental properties from the up-front cost of nursing home care and from “Medicaid Estate Recovery.”

3. Shawn was delighted to learn that when one spouse of a married couple enters a nursing home and seeks Medicaid’s financial help, Medicaid will allow the healthier spouse (called the “Community Spouse”) to keep for that spouse’s future needs part of the life savings they have when nursing home care begins. In Shawn and Lori’s case, Medicaid would allow Shawn to keep one-half ($100,000) of their money life savings.

4. But, Medicaid will treat the rest of their life savings, no matter which one of them officially owns it, as Lori’s share of their life savings, making Lori “too rich” for Medicaid until her share is spent down to less than $2,000. Lori’s share will be the other one-half of their money savings, or $100,000. To save (or at least get more than just nursing home rent receipts for the money) Shawn can spend it in any of these ways, giving Shawn and Lori benefit of the spending:

A. They can pay off debts they owe, such as the balance they owe on their home mortgage;

B. They can pre-pay both of their funerals;

C. Shawn can trade in their car and buy a new one, paying the difference from Lori’s share of the money; and/or,

D. They can spend Lori’s money paying for repairs or upgrades to their home or the rental properties.

5. After discussing the “A” through “D” things they want to do, it looked to Shawn and me like Lori might still have left about $40,000 of her share of the money savings. Shawn was pleasantly surprised to learn that they can save the remaining money by paying it to an insurance company as premium to buy a “Medicaid Compliant Income Annuity” for Shawn.

Paying the insurance company’s premium will dispose of the rest of Lori’s share of their money savings, making her “poor enough” for Medicaid. The money paid to the insurance company as premium will be paid back to Shawn in two monthly payments, each for half of the premium paid. The annuity payments to Shawn are set up so Medicaid will call the payments part of Shawn’s own personal income, which Medicaid allows Shawn to keep and use however he chooses.

While nothing ever is without some sideline costs, from our kitchen table visit, Shawn learned that, with proper help and guidance, he and Lori can save from nursing home costs:

1. Their home;

2. Their rental properties; and,

3. Between the life savings Medicaid lets Shawn keep, the part of Lori’s money he spent for things they want or need, and his Medicaid Compliant Income Annuity, nearly all of their $200,000 of money savings.

Much relieved, Shawn thought it was time to enjoy a couple of Miller Lites. Fortunately, I just happened to have a couple in the refrigerator.

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Gerald W. Townsend is a partner in the Elder law firm of Fluharty & Townsend, Parkersburg, WV. His practice focuses upon meeting the legal needs of Seniors in West Virginia, with special emphasis upon protecting the home and life savings from the cost of nursing home care. He can be reached at jtownsend@fntlawoffices.com.