Penalty Period

Rules on an Irrevocable Trust and Nursing Home Medicaid

This post describes the regulations that exist regarding when assets in a trust are considered resources of someone who is applying for Long Term Care Medicaid.

Many Seniors are concerned about the cost of long term care, especially if it is necessary that they spend months or years in a skilled nursing facility.

Some Seniors explore getting assets out of their name timely to make themselves eligible for Medicaid. These same Seniors, however, are uncomfortable putting assets in their children's names for fear of losing control of the assets, and for fear of giving their children unwanted tax consequences.

Some people explore putting assets in trust for purposes of gaining future Long Term Care Medicaid eligibility. The Louisiana Long Term Care Medicaid Eligibility Manual (the "Manual") has specific rules regarding whether trust assets are considered a resource of the Medicaid applicant, rendering them ineligible for Medicaid benefits.

Regarding when the Medicaid applicant is a trustee of a trust, the Manual provides:

"Count the trust as a resource, regardless of whose funds were
originally deposited into the trust, if the applicant/enrollee:
 is the trustee, and
 has the legal right to:
- revoke the trust, and
- use the money for his own benefit."

Regarding when the Medicaid applicant is a Settlor of a trust, the Manual provides:

"Count the trust as a resource if the applicant/enrollee is the settlor
(created the trust) and:
 has the right to revoke it, and
 can use the funds for his own benefit"

Regarding when assets are not considered a resource and penalty periods apply to the transfer of the assets to a trust, the Manual provides:

Consider penalties under the transfer of resource policy (refer to
I-1670 Transfer of Resources For Less Than Fair Market Value) if
the applicant/enrollee:
 created the trust,
 does not have the right to revoke it, and
 cannot use the principal for his own benefit.

The traditional "avoid probate" revocable living trust clearly is a resource for a Medicaid applicant. Many people, however, create other trusts, and transfer assets to those trusts, which can enable a Senior to avoid the risks inherent in transferring assets during into children's names, while starting the five year penalty period and protecting assets from the nursing home spend down.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Protecting the Home Property When You Enter a Nursing Home

When someone enters a nursing home, it is likely that they own both exempt assets and countable resources. The countable resources must be consumed down to a certain limit ($2,000 for a single person) prior to Louisiana Long Term Care Medicaid eligibility. Exempt assets are not counted for purposes of initial Medicaid eligibility. The home is an exempt asset. So, it's important to understand the Medicaid definition of the home, under what circumstances you can transfer the home out of your name, and whether Medicaid will have Estate Recovery rights when you die.

In general, the home is described as property in which someone has an ownership interest and that serves as his or her principal
place of residence. Home property includes: the house or lot which is the usual residence, all contiguous property, and any other buildings on the home property. Property is contiguous to the residence if it is touching the residential property (even corner to corner) and is not separated by property owned by others. Property separated by a public right of way, such as a road, is considered contiguous.

If a person, in 2018, has more than $572,000 of equity in their home, then the excess in not exempt. If they own a home out of state, then, generally, it is not exempt. And if you list your home for sale, then it is no longer an exempt asset.

In certain circumstances, one can transfer their home to another person prior to applying for Medicaid, without incurring penalties. This is important because if you take the home out of your estate, then Medicaid will not have estate recovery rights when you die. 

You can transfer your home to a child who is blind or permanently and totally disabled as defined by SSI at the time of the transfer. You can also transfer your home to a child, without penalty, if the child is age 21 or over, is not blind or permanently and totally disabled, was residing in the home for at least two years
immediately before the date the individual became institutionalized, and provided care to the individual allowing the individual to reside at home, rather than in an institution.

A note exists to the above exception that provides:
The exception must be documented by written statement
from physician indicating his/her knowledge that during the
preceding two years, the individual’s child was present in the
home as the primary care giver and if not for the care
provided by the child the individual would have required care in an institution (nursing home).

Finally, if the home is in your name when you die, it will be part of your Louisiana Succession and thus, subject to Louisiana Estate Recovery rights. People often thing the home is "home-free" because it is an exempt asset. However, after a Medicaid recipient dies, if the home is in the recipient's Louisiana Succession, then Medicaid can seek reimbursement from the Succession, forcing the Succession to sell the home to pay the Succession debt.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Medicaid 2018 Asset and Income Limits (with Analysis)

Every year the State of Louisiana's Department of Health adjusts certain Louisiana Long Term Care Medicaid asset and income limitations for Long Term Care applicants and recipients. The following is a summary of the changes made for 2018.

The Long Term Care Resource Limit for Single Individuals ($2,000)  and Married Couples ($3,000) has not changed.

The Spousal Resource Standard has increased from the 2017 amount of $120,900, to the 2018 new limit of $123,600. What this means is that if one spouse is in a nursing home (the "institutionalized spouse") and one spouse still lives in the community (the "community spouse"), the the community spouse can retain up to $123,600 of Countable Resources. The rationale is that the spouse who is not in the nursing home needs assets to live off of.

Note that the Louisiana Home Equity Limit has increased from $560,000 in 2017, to $572,000 for 2018. Most people realize that the home is not a countable resource - it is an exempt asset. But what some don't realize is that when a Medicaid recipient dies, the State of Louisiana has Estate Recovery Rights which allows the State of Louisiana to force the sale of the home to reimburse Medicaid for what Medicaid spent on the deceased Medicaid recipient's care.

However, if the home, at the time of Medicaid application, is worth more than $572,000, then the applicant will not qualify for Medicaid due to Louisiana's Home Equity Limit of $572,000. 

Regarding monthly income, the new Spouse's Maintenance Needs is $3,090 of monthly income. Generally, the Community Spouse will be permitted to keep the first $3,090 of the couple's monthly income. Exceptions to this rule apply, however, so work with the right estate planning attorney to protect as much of your assets and income as possible.

Finally, the Average Monthly Cost for Private Patients of Nursing Facility Services remains at $4,000, as it has since November 1, 2007. This means that if you make an uncompensated transfer within five years prior to applying for Medicaid, you will be assessed a penalty period of the value of the transfer divided by $4,000. The fact that the actual cost of nursing home care increases each year makes it very difficult to transfer assets prior to a nursing home stay to protect assets. This $4,000 number really should be increased since the lower the number - the longer the penalty period.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

What Are Options That People Consider When Attempting To Protect Their Estate From Nursing Home Poverty?

I've talked to many Louisiana families about things that they had done in an effort to protect their money from all being sucked up by the nursing home costs which can exceed $100,000 annually. Lots of mistakes being made here by people who don't truly understand the intricacies of the Louisiana Long Term Care Medicaid law and regulations. While you won't get all the answers in this post, you'll learn what some of the common mistakes are. So...here are options that just don't work.

Do Nothing

Probably the worst thing that you can do if you want to protect your estate from being eaten up to nursing home costs is to ignore the problem.

Example. Nelda had her home worth $150,000 (no mortgage). She also owned accounts totaling $450,000 in value. Nelda procrastinated taking action to protect her estate from skilled care cost. A stroke caused Nelda to have to reside in a nursing facility. Nelda was forced to spend all of her $450,000 (until there was less than $2,000 remaining) before qualifying for Medicaid. When Nelda died, Medicaid pursued its Estate Recovery rights, forcing Nelda’s home to be paid to reimburse Medicaid for what it had spent on her nursing home care.

The people who protect their estate from nursing home costs typically are those who are proactively seek out the right information, at the right time, and work with the right people, and get it right the first time. Others risk losing everything they own.

Give It Away

Some people choose to give their assets away so that the assets will not be in their name when they get sick and apply for Medicaid.

People generally utilize one of two different gifting strategies when they attempt to help their financial situation by giving their assets away:

1.      Give $14,000 Away. Gift and estate tax laws provide that you can donate $14,000 to as many people as you want to without gift and estate tax consequences. Many people mistakenly interpret this as an income tax rule. Many mistakenly believe that either the donor or the recipient must pay income tax on gifts that exceed $14,000. Example: Dad gives Daughter $114,000. No one owes any income tax, but since the gift exceeded $14,000 (by $100,000) Dad has used up $100,000 of his $5.450,000 estate tax exemption. No one owes tax, but when Dad dies, he can “only” leave $5,350,000 free of the 40% estate tax. The problem, however, with making $14,000 annual gifts, from a Medicaid Planning standpoint, is that assets are not protected until five years after they are given away. So, giving it away in $14,000 increments does little good.

2.      Give Everything Away. Some people think that they will beat the government by putting all of their assets in their kids’ names. But his could be really dumb move for tax purposes. Example: Mom and Dad own a home that they bought 35 years ago for $30,000. Today, the home is worth $240,000. If Mom and Dad donate the home to the kids during Mom and Dad’s lifetime, then the kids will get Mom and Dad’s $30,000 “carry-over” capital gains tax basis. When the kids later sell the home, there could be an extra $60,000 or so of capital gains tax due. Plus, when Mom and Dad donate their home to their kids, Mom and Dad will lose their property tax homestead exemption. In addition, many parents that I talk to don’t like to give up the control over their assets that they give up when they put everything in their children’s names. Serious problems could result if the children die, go bankrupt, have IRS issues, get divorced, have spouses with bad spending habits, or if they can’t pay their debts. Don’t turn over everything you own to your kids.

Rely on Medicare To Pay Nursing Home Costs

While Medicare will pay for some of the nursing home costs for the first 100 days of rehabilitation if you had a prior hospital stay of at least three days, you must pay 100% of the remaining costs of the skilled nursing facility (unless you qualify for Medicaid).

Have a Last Will and Testament and Power of Attorney

If you think that somehow your last will and testament will help you avoid losing your home and life savings to nursing home poverty, then think again. A last will and testament (“Last Will”) names your executor who will administer the court proceeding when you die, and your Last Will tells a judge who to make sure remaining assets get disbursed to at the end of the court proceeding (“Probate”). But a Last Will does nothing to protect your estate from long term care costs.

Example. Mom had a Last Will prepared naming her daughter, Sue, as the executor. In her Last Will, Mom left her estate to her two children, Sue and Richard. Mom felt like she did all she needed to do to “protect her estate for her children.” Eight years after writing her Will, Mom went into a nursing home. Mom was forced to spend her entire life savings on her nursing home care. When Mom died, Sue, as the executor of Mom’s probate, was forced to sell Mom’s home on behalf of the estate and give all of the proceeds of the sale to Medicaid – leaving the children with nothing.

A common Last Will technique can get you in bigger trouble. Many married couples write Last Wills. Often, the Wills are structured so that the first spouse to die leaves all of his or her assets to the surviving spouse. Then, because all of the assets were lumped into the surviving spouse’s estate, the surviving spouse must deplete the entire family estate before getting any help from Medicaid. So, the “I Love You” Will leaving everything to your spouse can be a disaster.

Put Your Money In a Safe Deposit Box – Or In A Hole You Dig In The Back Yard

One of the questions on a Medicaid application asks where you have a safe deposit box and what is in the box. Documents of Proof that Medicaid says it may need from you includes, “A list of what is inside any safe-deposit box.  This must be a written statement by a bank employee or a sworn statement from someone who looked inside.”

Failing to disclose the necessary information on a Medicaid application is Medicaid Fraud. It’s easier to plan ahead, get the right information to enable you to protect your estate, and then take that action.

Some people mistakenly believe that if they “put their child’s name on their bank account,” then the bank account somehow is no longer a Countable Resource for Medicaid eligibility purposes. Wrong.

Consequences Of Failing To Address The Nursing Home and "Medicaid Planning" Issue

One of the biggest problems that senior citizens ages 65 and older face is that they are frustrated by the fact that they have worked hard and sacrificed to save a nest egg for their later years only to face the possibility that they could lose everything to a long term care medical need, while others who spend and don’t worry about their finances can rely on government assistance to pay for all of their skilled nursing home costs.

Sometimes older parents and grandparents even wake up in the middle of the night worrying about how much their children will struggle having to provide care for their aging parents while the children watch the family finances go down the drain.

Senior citizens think that if they could wave a magic wand, they would want the following five things to occur:

1.      They could live out their remaining years in comfort with peace of mind knowing that they will be able to keep what they have and protect it for the generations they leave behind.

2.      The natural aging process will prevent them from being forced to deplete their life savings from having to spent on sub-standard care in a nursing home.

3.      They can pass along the actual and intrinsic value of the family home to their loved ones when they pass away, without the government stepping in and taking the home from the descendants.

4.      The children, and perhaps even the grandchildren, can enjoy the fruits of the senior citizens’ labor and their sacrifices, while using the inheritance as a stimulus for positive relationships which continues to last, in part, due to the financial value and emotional value of the legacy left behind.

5.      The seniors leave their legal affairs in a way so that it is simple for the next generation to obtain the benefits of the legacy, without the relationship-scarring government intrusions that often get in the way.

Unfortunately, the consequences of failing to address this issue include:

·       Medicare Doesn’t Cover Nursing Home Expenses. While Medicare will pay for some of the nursing home costs for the first 100 days of rehabilitation if you had a prior hospital stay of at least three days, you must pay 100% of the remaining costs of the skilled nursing facility (unless you qualify for Medicaid).

·       Difficult to Qualify for Medicaid. Unless you have taken advantage of legal strategies years in advance, or unless you have nothing, you will not qualify for Medicaid and you will be responsible for 100% of skilled nursing home costs as a private pay patient.

·       Married Couple with Only One Spouse Needing Skilled Care. If you can stay in your home but your spouse needs skilled long term care, you will be forced to deplete all your combined savings (no matter who’s name it is in) down to the limit known as the Community Spouse Resource Allowance.

·       Both Spouses Need Skilled Care. Here’s where it can get downright devastating. Let’s say one spouse is dealing with dementia at home while the other spouse suddenly has a stroke, rendering that spouse unable to take care of their own self, but also unable to take care of the demented spouse. Both spouses then enter a nursing home incurring double the already-expensive nursing home costs. This is a situation where a life of savings that resulted in as much as a half-million dollars can evaporate lickety-split. The couple will not get a penny of help from anyone or any insurance company or any government program until they spend their combined assets (excluding the home and car – more on that later) down to less than $3,000.

·       You are a Burden on your Children. You don’t want to burden your children by moving in with them or having them move in with you, but your prior lack of planning gives your family no choice but to force the children to care for you – it’s the only way to protect your savings and to protect the value of your home for your heirs. Your children give up the lives that they planned to lead in their 50’s and 60’s to care for you.

·       Worst-Ever Last Will: “I leave everything to my spouse.” Many elderly couples get comfort from knowing they have a last will and testament in place leaving everything to their surviving spouse. But this can be a false sense of security. Let’s say Mom and Dad each own $200,000 of assets (total estate = $400,000). Dad dies with a Will leaving everything he owns to Mom. Mom now owns it all. When Mom later enters the nursing home, nothing is protected. The worst thing Dad could have done was write a Will lumping everything into Mom’s estate, and then forcing Mom to deplete the entire family worth on her skilled care expenses.

·       You Thought the Government Could Not Touch Your Home. Many seniors mistakenly believe that their home is protected from nursing home expenses. Here’s the facts: when you enter a nursing home, you must deplete your entire life savings on the nursing home but you will not be forced to sell your house AT THAT TIME. Makes sense – the government wants you to be able to keep your home while you are in the nursing home just In case you get well enough to return to your home. However, when you die, Medicaid laws require the state to exercise the state’s Estate Recovery Rights by forcing your estate to sell your home and reimburse Medicaid for what they spent on you while you were in the nursing home. For example, let’s say you have a home and $350,000 in various financial assets. When you enter a nursing home, you must spend your $350,000 down until you have less than $2,000 remaining. Then, Medicaid will pay most of your nursing home cost. They will allow you to keep your home, but when you die, your home must be sold. If your home is worth $200,000 and Medicaid spend $199,500 on your care in the nursing home, then Medicaid will get that money back and your heirs will receive the remaining $500.

·       Probates Required. What can make matters worse, is if there happens to be anything left in your name after you pass away, your children or other heirs must then hire an attorney or law firm to take all of the family member through an attorney-controlled, government-supervised probate proceeding. Families who must go through this often complain because it takes a long time to go through, it’s expensive (at a time when the family is trying to preserve all they can), it can be a lot of work gathering detailed family data and getting everything valued, and it can cause family animosity when unreasonable expectations are not met. And if you are married, no that your survivors must go through the probate twice: once when the first spouse dies to get that spouse’s name off of the assets, and then once again when the surviving spouse dies.

In a later post, we'll address what many people do to ATTEMPT to protect their estates, and why those attempts fail.

Blended New Orleans Family Wants Estate Plan To Protect Children From Prior Marriages

I was working recently with a couple from the New Orleans, Louisiana, area, setting up an estate legal program that would protect themselves, the surviving spouse, and their children. They each had children from a prior marriage. Some of the children lived in Louisiana and some lived out of state. They wanted to make sure that:

  • When the first spouse dies, the surviving spouse would remain in control of the assets. Specifically, the wife indicated that she would like want to sell their big house if her husband died first, and then she would move into a smaller home or condo. She wanted the ability to be able to sell the house right away (without government or court interference), and she didn't want to have to seek out the permission of any children, or give them money, if she were to sell the home.
  • They also wanted to make sure that after both spouses died, that the remaining assets would be divided equally among all of their children. We put some things in place so that after the first spouse died, the surviving spouse would not be able to exclude the children of the first spouse to die.
  • A significant amount of their net worth was in their paid-for home. They were worried that if one or both of them needed long-term skilled care in a nursing home in the future, that Medicaid would enforce its Estate Recovery rights after they both die to force the sale of the home to reimburse Medicaid for what the government spent on them while they were in a nursing home. We titled the home in a way that gave them that protection. And since this couple was not yet in their 70's, it looks like they will easily beat out the five year look-back period for Medicaid eligibility.

After our first conversation, I'm pretty sure that the couple felt relieved that they were getting all of this taken care of, and they new that everything would be in compliance with all of the Louisiana estate planning laws as they relate to inheritance, property, taxes, trusts, and Medicaid.

If you live in Louisiana and would like to have the confidence that you have an estate planning legal plan in place to protect yourself and your family, you may want to call our office at our toll-free number to have a conversation about how easy it is to put this in place. Just call 866-491-3884.

Brother Watches Sister Lose $500,000 to Nursing Home Expenses

I was working with a gentleman recently who came to my office to see me. He had been taking care of his elderly sister's money for the past several years after his sister became ill and needed skilled care.

Over the past several years, the brother had spent more than $500,000 of his sister's life savings on her nursing home expenses. The sister, who started with a life savings of almost three-quarters of a million dollars, was not down to about $200,000. And, the brother told me that the nursing home cost was increasing by about 10% from the previous year.  Years ago. the sister established an estate planning program for other family members. But now that most of the funds had been depleted, the estate planning program won't have much impact on her surviving family members.

We discussed a few options that exist to try to salvage some of her sister's funds: do nothing and she will spend it all; do some transfers and hope that in five years there are still some assets that have been preserved, and a few other legal strategies. But quite frankly, much more would be protected if the estate protection program would have been enacted years ago.

The silver lining behind all of this is that the brother and his wife now have started to create a program to protect the value of their home and their savings for themselves and their children.

Protecting Your Assets From Nursing Home Expenses: How To Qualify For Louisiana Medicaid

I was recently asked by the Louisiana State Bar Association to present at its 2016 Solo and Small Firm Conference. I taught about 200 Louisiana attorneys who were interested in learning the ins and outs of helping Louisiana families protect their estate from nursing home expenses. The following is an audio recording of my presentation.

While this presentation was designed for, and presented to, attorneys, it will give you a good understanding of some of the rules that apply to families that want to protect their estates from losing it all to the nursing home, and it will prepare you to have a meaningful discussion with me or one of our estate planning attorneys.

Protecting Assets When Parent Already in the Nursing Home

I met today with the children of a woman who is presently residing in a Baton Rouge nursing home due to her dementia diagnosis. The children had no idea how long term care and Medicaid financing for long term worked.

They told me that Mom owned a home, three annuities, some cash in the bank, and expensive jewelry and antiques. Their financial advisor referred them to my office. I asked them what they knew about long term care Medicaid. They said they were starting to "hear things" but they wanted to get the truth.

I told them that if all of the assets stayed in their mother's name, then their mother would be forced to spend her $475,000 of financial assets until she had less than $2,000 remaining. They told me that their mother was spending about $8,000 per month currently on her care. I also told them that - if Mom keeps everything in her name - then after Mom spends all of her finances, she will qualify for Medicaid, but then Medicaid will have the right to enforce its Medicaid Estate Recovery rights after Mom dies, forcing the house to sold after Mom dies to reimburse Medicaid for what they spent on Mom's care after Mom spent all of her own money.

Since the timing of your legal planning to avoid losing assets to nursing home expenses is so critical, we are not going to be able to save as much for them as we would for those who are more pro-active and engage the right legal help when they are still healthy.

The children will be back in the office next week to sign a slew of legal documents to ensure that they will save and protect about $300,000 of Mom's assets from losing it to the nursing home. While we weren't able to save everything because this planning started while Mom was already in the nursing home, we are going to be able to save hundreds of thousands for this family - even if Mom resides in the nursing home for many, many years.