16 Jan MEDICAID BIRD BOX TEN COMMON MISTAKES WHEN APPLYING FOR LONG-TERM CARE MEDICAID
As the aging population continues to grow, there is more likelihood of disability and a need for long-term care. However, the majority of elderly Americans fail to have long-term care insurance or have adequate assets to be self-insured. As a result, many elderly people rely on Medicaid (since Medicare has very limited coverage) for long-term care costs. Long-term care Medicaid is “means-tested”. For the government to help pay for your care costs, you have to be in compliance with its rules. Here are a few common mistakes that we see others make:
- Stating no intent to return home. Although a home doesn’t count as a resource (assuming the equity value is under $585,000 if the applicant is single), the Medicaid application should state there is an intent to return home especially if the applicant is single (even though you think the applicant may never return home). If this is not stated on the application, the home will count as a resource which could cause ineligibility.
- Assuming that if a married couple’s countable resources are under the maximum protected resource amount (presently $126,420) that the well-spouse could keep all resources without any spend-down. Although this is often true, it will depend on the income of the couple. If the gross monthly income (usually Social Security and pension) of the couple is over $3,160.50, then spend down will be required to one-half of the countable resources as of the date of institutionalization (unless countable resources are less than $27,284).
- Assuming that the most countable resources that a married couple can keep (if one spouse is in a nursing home and the other lives in the community) is the maximum protected resource amount ($126,420 in 2019). The lower the monthly income of the couple, the greater amount that is allowable for the well spouse (commonly known as the community spouse) to keep. The amount will vary by the interest rates at the bank where the applicant has an account. As a result, if one spouse is institutionalized and there is a community spouse and their combined gross monthly income is only $2,500, then it is likely that hundreds of thousands of dollars could be kept by the community spouse without spend down.
- If the Medicaid applicant pays someone else’s bills or if someone pays a nominal amount for an asset of the Medicaid applicant, it is not a problem for long-term care Medicaid. Any uncompensated transfer within five years of an application for long-term care Medicaid is subject to a transfer penalty. Presently the transfer penalty divisor is $172.65 (one day of ineligibility for each $172.65 given of an uncompensated transfer) and the penalty starts from the first day of month in which one applied and there would otherwise be eligibility, but for the transfer. The Medicaid applicant would private pay during the transfer penalty.
- I can always give $15,000 a year, per person without penalty. Many often confuse gift tax laws with Medicaid rules. Although you can always give up to $15,000 a year per person and not be subject to a gift tax or reporting the gift, it would be a transfer penalty if one applies for long-term care Medicaid since Medicaid is “means-tested” as the government presumes transfers were purposefully done to reduce assets and achieve Medicaid eligibility so that the government would help pay for long-term care costs.
- Someone can be reimbursed for paying Medicaid applicant’s bills or a transfer penalty can be reduced if the donee pays the bills of the donor. The state has announced that if the payments were made by a donee pursuant to a legally binding agreement signed on or before the date of the transfer and done exclusively for purposes other than obtaining or retaining Medicaid, then the transfer penalty will be reduced. Previously this has not been a problem, but apparently this is more risky to assume paying the Medicaid applicant’s bills will reduce a transfer penalty and apparently reimbursement to someone who paid the bills of the donor is now riskier than in the past.
- If my home is in a revocable living trust, it shouldn’t count as a resource. Although other resources that are exempt funded in a revocable living trust are still “non-countable”, a homestead exemption status changes to being a countable resource if deeded into a revocable living trust. A solution to this is to deed the property out of the trust to the grantor who then signs a Ladybird deed into the trust at grantor’s death.
- Forgetting that cash surrender value of life insurance policies count as a resource. If an applicant has a life insurance policy or policies where the total face value exceeds $1,500, the cash surrender value counts towards the resource limit.
- Cashing in a retirement account. There has been a verbal (not in writing at this time) announcement by the state that once the applicant is over 70½, a retirement account is a “non-countable” resource when in payout status. If under age 70½, it must be invested in the form of an annuity. See a link to the chart on our website (https://www.dallaselderlawyer.com/annuities.pdf) regarding the use of annuities in planning for long-term care Medicaid.
- Looking at the value of countable resources during the month instead of the value as of the close of business on the last day of the month. The state requires proof of the value of all countable resources as of the end of each month (or 12.01 a.m. as of the first day of the month) to determine Medicaid eligibility.
If you are interested in learning more, please sign up to attend our free “Estate Planning Essentials” workshop on Saturday, February 2, 2019 at 10:00 a.m. or Thursday, February 28, 2019 at 1:00 p.m. or attending our “Facebook Live Event” on Saturday, February 9, 2019 at 10:00 a.m. by calling (214) 720-0102 or signing up online at www.dallaselderlawyer.com.