Medicaid for Long-term Care & Planning for One’s Home

January 14, 2019

Planning for long-term care, and protecting one’s home in the process, is a concern for many.  In general, selling one’s one home in order to qualify for Medicaid coverage for nursing home (or other covered long-term) care is not necessarily required.  Despite this fact, there is a common fear amongst individuals applying for, and those who anticipate needing to apply for, Medicaid coverage for nursing home (or other covered long-term) care that they will lose their home; or, that their spouse will lose the home and will have nowhere to live. While this fear, and the desire to protect one’s home, is certainly understandable, it is important to understand that giving away one’s home to his/her children (or someone else) may not be the best way to protect it.  In fact, doing so may lead to severe unintended consequences.  Accordingly, here are three reasons why individuals should NOT transfer their home, without first consulting with their elder law attorney regarding the potential negative consequences that may occur and to learn what other options might be available in their particular circumstance:

  1. Medicaid ineligibility.  Transferring one’s home to his/her children (or someone else) may make one ineligible for Medicaid for a period of time. The Medicaid eligibility and transfer penalty rules regarding the transfer of one’s home (when determined to be a non-allowable transfer) are harsh and unforgiving. Basically, the state Medicaid agency looks at any transfers made within five years of the Medicaid application. If the applicant has made a transfer for less than market value within that time period, the state will impose a penalty period during which the applicant will not be eligible for benefits. Depending on the value of the home, the period of Medicaid ineligibility could stretch on for years, and it would not even start until the Medicaid applicant is almost completely out of money.  Exceptions:  There are, however, some exceptions to the Medicaid penalty rules related to the transfer of one’s home.  The circumstances under which one can transfer his/her home without incurring a Medicaid penalty requires that very specific criteria (which may vary from state to state) be met. Thus, it is critical that individuals consult with a qualified elder law attorney BEFORE proceeding with such a transfer to determine whether their circumstance fits within any of the exceptions. 
  2. Loss of control.  By transferring one’s home to another person or persons (usually one’s children), the individual will no longer own and/or have control of the home.  The recipients of the transfer will be able to do whatever they want to with the home.  In addition, if the recipients are sued or get divorced, the house will be vulnerable to their creditors.
  3. Adverse tax consequences.  Inherited property receives a “step up” in basis when one dies, which means the basis is the current value of the property. However, when one makes a lifetime transfer of his/her home to a child (or someone else), the tax basis for the home is the same price for which the individual purchased the home. Thus, unless the recipient of the gift of the home meets the IRS rules to qualify the home as his/her residence for the required length of time, the recipient (usually the individual’s child or children) will incur capital gains taxes, when he/she sells the home (which may or may not be after the individual’s death).  Accordingly, it is important to seek both legal and tax advice BEFORE proceeding to determine the likely tax consequences to the recipient of the transfer.

Likewise, when planning for one’s home, understanding the rules regarding when the state may file either a lien, or an estate claim (upon one’s death) against the home is also important.  When Medicaid contributes to the cost of one’s long-term care in a nursing home (or other covered care), the state must attempt to recoup from one’s estate whatever benefits it paid for the individual’s care. This is called “estate recovery.”  Again, consulting with an elder law attorney regarding the Medicaid rules related to liens and estate claims, BEFORE proceeding with such a transfer, will allow one to carefully consider all of the necessary information, and crucial pieces, of putting together a plan that may result in protecting one’s home, should Medicaid coverage for long-term care be necessary.

Simply put, the bottom line is that there may be viable ways to protect one’s home for the benefit of a qualified person and/or from a potential lien and/or Medicaid estate recovery.  However, to determine what options may be available, consulting with an elder law attorney PRIOR to proceeding with a home transfer, is absolutely critical.

The Elder Law Center, P.C. (a division of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.

 


Why You Should Use a Lawyer for Medicaid Planning

September 1, 2017

Many seniors and their families don’t use a lawyer to plan for long-term care or Medicaid, often because they are afraid of the cost. But an attorney may be able to help you save money in the long run as well as make sure you are getting the best care for your loved one.

Instead of taking steps based on what you’ve heard from others, doing nothing, or enlisting a non-lawyer referred by a nursing home, you can hire an elder law attorney. Here are a few reasons why you should at least consider this option:

  • No conflict of interest. When nursing homes refer the families of residents to non-lawyers to assist in preparing the Medicaid application, the preparer has dual loyalties, both to the facility that provides the referrals and to the client applying for benefits. To the extent everyone wants the Medicaid application to be successful, there’s no conflict of interest. But it’s in the nursing home’s interest that the resident pay privately for as long as possible before going on Medicaid, while it’s in the nursing home resident’s interest to protect assets for the resident’s care or for the resident’s spouse or family. An attorney hired to assist with Medicaid planning and the application has a duty of loyalty only to the client and will do his or her best to achieve the client’s goals.
  • Saving money. Nursing homes can cost as much as $9,000 (or more) a month in some areas. So investing in legal advice in many cases will be worthwhile and cost-effective, and may result in savings equal to this much in long-term care and/or probate costs. Often attorneys will consult with new clients at a reduced cost to determine what might be achieved before the client pays a larger fee.
  • Deep knowledge and experience. Professionals who work in any field on a daily basis over many years develop both the depth and breadth of experience and expertise to advise clients on how they might achieve their goals, whether those are maintaining independence and dignity, preserving funds for children and grandchildren, or staying home rather than moving to assisted living or a nursing home. Less experienced advisers, however well-intentioned, can’t know what they don’t know.
  • Peace of mind. While it’s possible that when you consult with an elder law attorney, the attorney will advise you that in your situation there is not much you can do to preserve assets or achieve Medicaid eligibility more quickly, the consultation will provide peace of mind that you have not missed an important opportunity. In addition, if obstacles arise during the process, the attorney will be there to work with you to find the optimal solution.

Medicaid rules provide multiple opportunities for nursing home residents to preserve assets for themselves, their spouses and children and grandchildren, especially those with special needs. There are more opportunities for those who plan ahead, but even at the last minute there are almost always still steps available to preserve some assets. It’s always worth checking out whether these are steps you would like to take.

The Elder Law Center, P.C. (subsidiary of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.


Special Needs Trust Fairness Act Passage Presents New Opportunities in the New Year

January 30, 2017

On December 13, 2016, approximately two weeks prior to the start of the new year, the Special Needs Trust Fairness (SNTF) Act became law.  The SNTF Act corrected what appears to have been a long-standing error in the law regarding who is authorized, pursuant to the Social Security Act, to create first-party special needs trusts (commonly referred to as a (d) (4) (A) trust).  For many disabled persons, the ability to create a first-party special needs trusts is extremely important and critical to his/her continued access to important government benefits.  As such, the passage of the SNTF Act is a significant victory for competent disabled adults, who now have the same right that parents, grandparents, guardians, and courts have to create a first-party trust, for their own benefit with their own assets.

Prior to December 13, 2016, and for more than two decades, such individuals were prohibited from creating their own first-party special needs ((d)(4)(A)) trust.  Rather, the prior law stated that such trusts could only be created by the individual’s parent, grandparent, or guardian or by a court, even in a circumstance in which the individual was legally competent and able to handle his or her own affairs.  This error in the law left legally competent disabled adults in the unfortunate circumstance of having to either rely on the assistance of a qualified family member, or to expend significant funds petitioning a court to establish a first-party trust, when a qualified family member was either no longer alive, unwilling, or unable to assist.

Specifically, the SNTF Act, which was included in the 21st Century Cures Act, accomplished this change by amending the Social Security Act to add “the individual” as a person who is now allowed to create a first-party specials needs trust for the individual’s own benefit.  It should be noted that the SNTF Act did NOT make any other changes to the law regarding first-party special needs trusts, which still requires the inclusion of a payback provision to allow state Medicaid offices to recover expenditures made by the state for the individual’s benefit from the any remaining trust assets, after the individual’s death.

Quite simply:  The bottom line is that the addition of just two words (“the individual’) to the Social Security Act has made a world of difference for many legally competent adults.

Planning for special needs is complex.  As such, persons wishing to learn more about special needs planning for yourself or a loved one, are strongly encouraged to seek specific legal advice from an attorney, whose practice includes special needs planning.

The Elder Law Center, P.C. (subsidiary of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.


Dispelling a Common Misconception:  Annual Gifts do NOT Qualify as an Exception Under the Strict Medicaid Transfer Rules

March 30, 2015

At our office, we frequently meet with clients regarding long-term care planning.  Many times these meetings include counseling clients regarding the Medicaid eligibility rules for a long-term nursing home stay.   (A full discussion of the Medicaid eligibility rules is beyond the scope of this post, as the rules are complex and vary from state to state.)   During these meetings, it is not uncommon for clients to make the following statement, “I know that I can gift $14,000 per year per person, without any negative consequences, if I have to apply for Medicaid.”   Most of these folks are quite surprised when we advise them that their understanding is incorrect and simply NOT true.  

Pursuant to the federal law regarding Medicaid eligibility for long-term care stays at a nursing home, there is a sixty (60) month look-back period in which ALL transfers made by the Medicaid applicant will be strictly scrutinized.   When transfers made during the look-back period are reviewed, a penalty period will be imposed for all “non-allowable” transfers.  A “non-allowable” transfer (made during the look-back period) is a transfer for which there is insufficient documentation to support that the applicant, or his/her spouse, received either  resources or services approximately equal to the fair market value of the amount transferred.  There are “exceptions” to the transfer rules, which may result in certain transfers being treated as “allowable,” even when the transfer was not made for fair market value.  However, nowhere in the Medicaid eligibility laws, rules, and policy provisions, as applied in Illinois, is the transfer of $14,000 per year per person included as an “allowable” transfer.  Thus, pursuant to the Illinois Medicaid eligibility rules, unless an annual gift (made during the applicable look-back period) fits into one of the “exceptions,” the gift will NOT be “allowable,” and it will result in a penalty period being imposed.

The genesis of this misconception is easily explained.   It is the result of confusing the federal gift tax laws with the Medicaid eligibility laws and rules.  According to the IRS, the federal annual gift tax exclusion rules provide that, in 2015, an individual may gift up to $14,000 per year per person without the annual exclusion gifts counting towards the individual’s lifetime gift exemption. This rule, however, is limited solely to the federal estate and gift tax laws, and unless the gift fits into one of the stated “exceptions” for transfers made during the look-back period, it will NOT qualify as an “allowable” transfer under the Medicaid eligibility rules.

Quite simply, the bottom line is that if you or a loved one will likely need Medicaid assistance for long-term care, obtaining legal advice (in your home state) for your specific situation is highly recommended. As noted above, the Medicaid eligibility rules are quite complex and vary from state to state.  As such, it is important to be certain that you are not confusing other laws and rules with the applicable Medicaid eligibility rules in your state.

©Copyright 2015 by Constance Burnett Renzi. All rights reserved.

To discuss elder law issues, estate planning (including Wills and/or Trusts), life care planning (powers of attorney), special needs planning, probate and/or guardianship matters with one of our attorneys, please call the Elder Law Center at 630-844-0065 or contact us via email. The Elder Law Center, P.C. is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

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