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Michigan Elder Law Today

Saturday, June 25, 2011

Medicaid Part 13 - Medicaid Planning for a Married Couple, Part 2

Case Study: Medicaid Planning for Married People, Part 2

One of the most common mistakes people make with Medicaid qualification in Michigan is assuming the government will help them protect their assets.  Unless a nursing home resident is already eligible for Medicaid, another key mistake is relying on care staff or family members to complete the Medicaid application.  All too often I am called in to clean up these mistakes.  Consider the hypothetical case of a couple, with a husband will call George and his wife, whom we will call Martha.

George, age 76, and Martha, who is 74, have been married for 52 years. George suffered a series of strokes over the last two years and also has dementia. After the last stroke, he was discharged to the nursing home for therapy. After 6 days at the nursing home, the staff called Martha and told her George was no longer participating in therapy, so his Medicare coverage will end in three days.

Later that day, someone from the billing office at the nursing home calls Martha and tells her that since George's Medicare coverage is ending, they need her to bring a check for $13,000 to the nursing home tomorrow, $6,000 is for a security deposit and $7,000 for George's first month of care at the private pay rate. Martha is overwhelmed by all of these events and calls her son, Jack, for assistance. George and Martha own a home worth $175,000, a car, and have $225,000 in various savings accounts and certificates of deposit.

Martha asks the social worker at the nursing home for a Medicaid application. Later, she gives it to Jack and they fill it out together. Jack takes the Medicaid application to the local Department of Human Services office in Madison Heights. The staff tells Jack he has to take it to the Walled Lake office, since that office process the applications for the nursing home where George is a resident. Jack gets back in his car and drives across town to the Walled Lake office and files the application.

Six weeks later, Martha receives a notice from Medicaid that she can keep $109,560 of their savings, the maximum protected spousal amount. George can keep $2,000, and the rest must be spent down before George qualifies for Medicaid. Martha is shocked but starts spending down the other $113,400. The nursing home costs $7,000 a month, so Medicaid starts paying after 16 months

This is an unfortunate result in that Michigan's Medicaid policy actually provides that, when you have a married couple, assets can be transferred to a certain type of trust for the benefit of a community spouse.  The community spouse is the spouse who is not a nursing home resident, Martha in this case. However, the state will not create this trust for you or even tell you about it. You have to create the trust yourself and learn about it on your own.

The ability to transfer assets to this special trust for the benefit of the community spouse provides an excellent planning option for couples, a strategy that can provide nearly immediate eligibility with minimal difficulty. The trust, if properly drafted and structured, is recognized as an exception to the Medicaid divestment rules. If an applicant transfers assets to such a trust that is properly drafted and structured, the transfer of these funds will not be a divestment. Pursuant to this rule, an applicant may transfer an unlimited amount of resources into this trust, excluding them from being considered as resources for Medicaid eligibility purposes while retaining the ability to have the resources transferred back to the community spouse, in the future, for his or her needs. Each such trust is unique, in that the provisions in it are drafted based on each couple's specific financial, personal, and family situation. This trust is different from the standard revocable living trust that many married couples have.  It is also different from certain other types of Medicaid asset protection trusts, such as “income-only” trust which must be created and funded outside the 5-year look back period.  This special trust for a community spouse can be created and funded within the 5-year look back period.

In George and Martha's example, they have $225,000 in countable assets. The protected spousal amount is $109,560. If the special trust had been established and funded with the additional $113,400 or more, eligibility for Medicaid would have been achieved immediately. The funds in the trust would have been available for Martha's needs.  Martha would still also get to keep the $109,560 protected spousal amount. This case illustrates the importance of getting expert help (see number 9 in the Top Nine Mistakes People Make with Medicaid Qualification in Michigan).

Upon the death of the community spouse, any assets remaining in this trust are distributed to the beneficiaries chosen by the community spouse. The community spouse retains the power to change the trustee and final beneficiaries. If the community spouse needs more of the assets, the trustee can have discretion to distribute more of the assets to the community spouse. Nearly any type of asset can be conveyed into the trust without the need to liquidate or negative tax ramifications.

When one spouse requires nursing home care, married couples are encouraged to get comprehensive legal counsel from an experienced elder law attorney.  The help and information such a couple will receive will save a lot of money; an additional $113,400 in George and Martha’s care.


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