The thought of all your assets being wiped out if nursing home care becomes necessary is frightening.  It is important to be informed regarding the rules that apply when the State helps pay for nursing home care.  By knowing those rules, one can plan ahead. 

Medicaid applies an "asset test" before you can qualify for Medicaid paying for nursing home care as follows:

a)      A single person is allowed $2,000, plus one car is exempt, no matter how much it is worth, if it is used for transportation for the Medicaid recipient or a member of the recipient’s household; a $1,500 burial fund or life insurance with a face value of $1,500 (or various combinations thereof) or an irrevocable prepaid burial plan; a burial plot; a home if the equity interest is not greater than $500,000 (however, the home will be subject to a Medicaid lien) and household furnishings and personal effects. 

b)      A married couple, where one spouse is "institutionalized" on or after August 1, 2003, is allowed:  a) $2,000 plus b) the greater of $48,639 or ½ their non-exempt assets on the first day of "institutionalization"** up to a maximum of $109,560.  In addition they are allowed at least one car, a home and household furnishings and personal effects.  Each spouse is allowed a burial plot plus a $1,500 burial fund or life insurance with a face value of $1,500 (or various combinations thereof) or an irrevocable prepaid burial plan.  The exemption for the home does not apply if the equity interest is greater than $500,000 unless one of a few exceptions apply.  One of the exceptions is that the Medicaid recipient’s spouse resides in the home.

If nursing home care suddenly becomes necessary, many people immediately think, "I'll transfer my assets to my family so I can meet the Medicaid limits on resources."  The problem is gifts* made within 60 months of applying for Medicaid and (with a few exceptions) made to someone other than one's spouse will disqualify the applicant.  This is called the 60-month "look-back" period.  The period of disqualification before you can qualify for Medicaid is calculated by dividing the total gifts made in a month by the average daily cost of nursing home care (which as of 10/09 is $227 per day) and rounding down to the next whole number and the result is the number of days you will have to wait after you would be otherwise eligible for Medicaid to pay for long term care services based on an application approved by the Department of Social and Health Services. 

The following are some options, other than dissolution of marriage, that a married couple has when nursing home care becomes necessary and the couple's assets exceed Medicaid's limits:

a)      Many couples in this situation consider the purchase and annuitization of an annuity.  This does not need to be done until shortly before application, but you need to check the rules carefully.  Some, but not all, of the requirements are that the annuity must be irrevocable, non-transferable and have no cash surrender value.  There are additional requirements concerning the permitted term of the annuity and when the state must be a beneficiary of the annuity.  If structured correctly, the annuity will count as "income" and not as a "resource". 

b)      Strategies involving the home are important.  Options include paying off the mortgage, repairing and remodeling the home, or buying a larger home to protect your excess assets.  In addition, your excess assets can be used to purchase household furnishings, appliances and a new car.

Once your spouse is on Medicaid, it is vital to review whether you still want to use a Community Property Agreement.  Most people will not want all assets to go to the institutionalized spouse (thus disqualifying him or her for Medicaid) if the healthy spouse dies first.  Often, the healthy spouse will prefer to have a special needs trust in his or her will to take care of the Medicaid spouse.  You also need to consider whether transferring the home to you as the healthy spouse, so that the State does not impose a lien is a strategy you wish to pursue.

Prior to being in crisis, you should consider whether long-term care insurance is appropriate.  Also, you should review whether your power of attorney grants gift-giving powers, since that can be very helpful in dealing with Medicaid issues.

The rules regarding Medicaid disqualification are continuously changing*** and it is important to be as well informed as possible to be able to take advantage of the planning options that continue to be available.

Elizabeth A. Perry has been helping Clark County residents since 1976.  Her practice emphasizes estate planning, guardianships, probate and Medicaid planning.  805 Broadway, Suite 1000, Vancouver, WA 98660 (360) 816-2485  www.MedicaidLawyerinVancouver.com

(The above should not be construed as specific legal advice and is intended for general information purposes only.  Also, because Medicaid laws change constantly, review the status of the law at the time you take any action.)

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* As defined by DSHS

**Gifts made prior to May 1, 2006 are subject to a different analysis.