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Michigan Elder Law Today

Saturday, July 2, 2011

Medicaid Part 15 - Medicaid Planning for a Single Person

Many people are aware that they can make gifts of $13,000 per year without any negative tax issues.  This is the federal gift tax annual exclusion amount.  What is less understood is that this federal gift tax law conflicts with the federal Medicaid laws and, in this situation, the Medicaid law controls.  So while it is true that one can make gifts of $13,000 per year without any gift tax ramifications, for Medicaid purposes, such gifts will be considered a divestment if they occur within 5 years of applying for Medicaid. 

Still, some seniors want to make gifts to their family before their life savings are gone.  More importantly, a nursing home resident will often have needs that exceed the amount of $2,000 in funds they are allowed to have while qualifying for Medicaid.  If all of their funds have been spent down before obtaining Medicaid, how will those needs be met?  $2,000 may only pay for one year’s worth of real estate taxes.  How pays the taxes on the home after that money is gone?  The family would have to in order to keep the home.  If a senior has spent down to $2,000 or less, they are essentially out of money and out of care options.  What can be done to avoid being out of money and out of options?  Consider the following hypothetical case study with an adult daughter we will call Sally and her mother who is a nursing home resident.

Sally feels worn out. Four years ago her father died and for the past three years she has been caring for her aging mother.  At first, it was little things . . . grocery shopping, trips to the doctor, help with her medication, and things like that. But as her mom's health deteriorated, Sally's burden has increased. The last six months have been difficult. That's because Sally had to move her mom to a nursing home. Mom couldn't live at home any more.

Sally thought her job would be easier once the nursing home staff took over, but it hasn't turned out that way. As the oldest daughter, Sally still feels responsible, even though technically, someone else is now responsible for Mom's care. Sally feels like she has to be there. So she visits her mom four or five days a week.

Sally is running herself ragged and Mom is running out of money. Besides the home, Mom has about $50,000 left, and at $6,500 per month for the nursing home, Sally knows Mom's money won't last long. When the money runs out, who will be there to pay for Mom's nursing home? Sure, Sally has heard Medicaid will cover the nursing home, but she's also heard Medicaid won't cover everything. What then?  Sally is quite distraught. "Is there anything else I can do?" Yes, there are steps she can take.

The last thing we want is for a nursing home resident to spend down to the $2,000 Medicaid limit because then they are out of money and out of options.  Assuming there is a proper power of attorney in place, Mom can still make a transfer of some of the remaining $50,000 to Sally.  This will create a pool of protected funds that can be used for Mom's other needs after she obtains Medicaid eligibility, such as paying the real estate taxes on the home.  Other needs Mom may have, even after qualifying for Medicaid are cable T.V. in her room, replacement dentures, eye glasses and hearing aids, and clothing.  Also, if Mom has to go to the hospital after qualifying for Medicaid, she may lose her spot in the nursing home.  The reason for this is someone has to be in the bed in order for the nursing home to be paid by Medicaid.  If Mom is in the hospital temporarily, the nursing home may have to fill her spot with another patient in order to generate revenue.  If some of Mom’s money is protected, it can be used to pay for a bed hold if Mom is temporarily in the hospital.  That way Mom will not lose her spot and the family will not have to scramble to find another acceptable nursing home for Mom.

If there is not a proper power of attorney in place, this planning still may be able to be done, but we will have to first obtain probate court authority.

Usually, at least fifty percent can be saved if not more, even after a senior moves to a nursing home.  The amount that can be saved depends upon if there have been any prior gifts, Mom's income, Mom's medical expenses, and the daily rate for the nursing home. 

Sally says, "what about the five year look back period.  I heard you can't make any gifts within five years of moving into a nursing home?" 

The look back period is a disclosure requirement.  This means that when one applies for Medicaid, you must disclose to Medicaid if there have been any gifts or transfers made within the five years of applying for Medicaid.  However, there is no law prohibiting Mom from making a gift within the five year period, even after she moves to a nursing home.  After all, it is her property, she can do want she wants with it.  It is true that Medicaid can apply a penalty if Mom makes a gift.   The penalty is simply that Medicaid will not pay for Mom's care for a period of time.  That is why the entire $50,000 cannot be saved; some of these funds, along with Mom's income, will need to be used to pay for her care during the penalty period.  It is the elder law attorney's job to apply the laws so that Mom can make the maximum gift with the minimal penalty.  The portion of the funds that Mom does not gift will be structured to pay the nursing home during the penalty period.  That way the nursing home will be paid in full.  After the expiration of the penalty period, Medicaid will start paying and at least fifty percent of Mom's assets have been protected.

The above explanation is the “short version” and this type of planning must be handled in a very specific manner.  For instance, you cannot just make a transfer of 50%.  Funds have to be structured to pay the nursing home during the penalty period and the timing of filing the application is critical.  However, when done properly, such planning can be used to make sure that Mom is never out of money and out of options; this planning will allow Sally to provide for all of Mom's need while qualifying for Medicaid to pay for the nursing home.


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