Long-Term Care Skilled Nursing Facility Medicaid Rules
Medicaid is a federally funded program administered by each state for the residents of that state. A single individual will be eligible for Medicaid when his or her assets are less than $14,850 for 2016. Exclusions from the term “assets” when calculating whether their value is below $14,850 include but are not limited to irrevocable burial accounts set up with funeral homes, and retirement plans if the maximum distributions are being paid out. In addition to these assets, a single individual residing in a nursing home is allowed to retain $50 per month in income. All income in excess of that amount must be used to pay for the cost of the nursing home.
In the case of a married couple, an individual residing in a nursing home is eligible for Medicaid when the combined assets of the couple are equal to the greater of (i) $74,820, or (ii) ½ of the combined assets of husband and wife, but not greater than $120,900. This is the amount of money that a community spouse (the husband or wife of a Medicaid applicant) may retain in his or her name. Assets over this amount usually have to be used to pay the cost of the nursing home. If the community spouse is still living at home, the home’s value is not included when determining Medicaid eligibility.
There are many intricacies, pitfalls, and exemptions to be aware of when qualifying a loved one for Medicaid pursuant to the above basic rules and exemptions. If done correctly, certain transfers of a person’s resources can result in preserving a substantial amount of a person’s assets from the astronomical cost of skilled nursing home private payment ($140-$160,000 a year).
When planning ahead for skilled nursing costs, some people choose to invest in a long-term care insurance policy to pay for a substantial percentage of their skilled care. In addition, and as an alternative to long-term care insurance, people consider transferring assets outside of the five-year look back period - - when applying for Medicaid, transfers made within five years of the application date are subject to penalties.
With every Medicaid application, the Department of Human Services, looks at every transfer that a person has made ($2,000 or over in Monroe County), and determines what transfers were gifts. They then divide the total amount of gifts by the regional rate ($11,237 for 2017) and the result is the number of months during which a person is ineligible for Medicaid and must pay privately. Pre-planning is in essence taking a calculated risk in order to transfer your assets outside of that five-year period so that the transfers will not count towards the person and those assets will no longer be countable resources for Medicaid purposes.
One effective way to do this is by transferring assets into an irrevocable trust. This requires the person or married couple (the “Grantor(s)”) to choose a trustee and fund the trust with certain assets. The Grantor(s) can still have access to trust income, but the trust must specifically state that the Grantor(s) have no access to trust principal. A common example is a transfer of someone’s home into a trust. The Grantor(s) can retain a life use to the home - - the property cannot be sold without their approval, and the property or the sale proceeds of the property will remain in the trust. If a home is transferred into a trust in January 2017, then by January 2022 that same house and its equity value will not be a countable resource or be subject to the five-year look back period for a single individual or a married couple.
Which Trusts are Countable Resources?
The above example illustrates the benefit of using irrevocable trusts to preserve assets from the cost of skilled nursing. Irrevocable trusts in which the Grantor has no access to trust principal are not countable resources. Irrevocable trusts, however, only encompass one of many types of trusts that Medicaid will review if the applicant is a Grantor, trustee, or a beneficiary of a trust.
Supplemental Needs Trusts are irrevocable trusts set up by a parent, grandparent, guardian, or a court for the benefit of a disabled person using that disabled person’s assets. New York State must be listed as a primary beneficiary up to the amount of Medicaid benefits that the State pays out on behalf of the individual. In the alternative, a pooled Supplemental Needs Trust could be set up and run by a not-for-profit organization requiring that the organization retain any remaining funds after the person’s passing. Supplemental Needs Trusts are not countable resources for Medicaid purposes. Assets can be transferred into a Supplemental Needs Trust for the sole benefit of a disabled child. The disabled child will be the beneficiary of the trust and funds transferred into it will not affect the five-year look back period. As long as the trust is irrevocable with the Grantor having no access to trust principal, it will not be a countable resource.
Revocable Trusts are typically trusts established by an individual for the purpose of avoiding probate. If the Grantor also acts as trustee and has full access to trust income and principal, then the funds held in the name of the trust will be countable resources. Revocable by its name indicates that the Grantor can amend or revoke the trust at any time.
Lastly, there are Third Party Trusts. Third Party Trusts are set up by a third party for the benefit of a Medicaid applicant. This can be done through an estate or during the third party’s lifetime. Medicaid has made numerous decisions indicating that Third Party Trusts are countable resources for an applicant because the language of the trust gives the trustee discretion to distribute trust principal to the beneficiary. Based upon recent case law, these decisions can be fought if it can be proven that none of the applicant’s resources were used to fund the trust.
For more information regarding Medicaid pre-planning or trusts, please contact a member of our Elder Law & Medicaid Planning practice.
This publication is intended as an information source for clients, prospective clients, and colleagues and constitutes attorney advertising. The content should not be considered legal advice and readers should not act upon information in this publication without individualized professional counsel.
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