Crisis Medicaid Planning
For those clients in the middle of a medical crisis who need nursing home care immediately, we can still provide guidance on and solutions for preserving your assets. People are sometimes surprised to learn that it is almost never too late to preserve assets and plan for Medicaid eligibility. This is particularly true for married persons.
The first step in crisis Medicaid planning is to get a full picture of all the assets owned by the person in the nursing home. The next step is reviewing the available techniques to convert assets that are counted as available resources (called “countable resources”) into assets that do not count against the person for Medicaid eligibility (called “exempt assets”).
Married persons must be able to recreate their financial picture on the first day of the month in which the spouse in the nursing home was first hospitalized or in a facility for an extended period of time. That day is referred to as the “snapshot date.” From the snapshot date, the Department of Social Services determines the Community Spouse Resource Allowance, which is the amount the spouse in the home gets to keep. The spouse in the nursing home may only have up to $2,000 in countable resources. For the spouse living at home, all funds in excess of the Community Spouse Resource Allowance must be “spent” in some way before Medicaid eligibility can be established for the spouse in the nursing home.
Some options we review with our clients to spend excess countable resources include purchases of items for the benefit of the person in the nursing home, such as a burial or funeral plan; an automobile of any value; up to $20,000 in U.S. Savings bonds; and items for the person’s personal comfort, such as clothing, special furnishings, electronics, dentures or glasses.
Other options we review with married clients include the transfer of countable resources from the spouse in the nursing home to the spouse at home, followed by that spouse’s conversion of the countable resources into an exempt income stream. Sometimes our clients convert countable resources into an income stream by making a special kind of loan to family members, and sometimes we assist the client in purchasing a Medicaid compliant annuity. Our married clients also make improvements to their homes with their excess funds.
Our unmarried clients sometimes employ a Medicaid planning technique referred to as a “reverse half loaf.” Completing a reverse half loaf transaction means that the client makes a gift to a transferee (such as a child) that will cause a Medicaid penalty period. The penalty is imposed because a gift has been made within the five year lookback period. However, the transferee then pays some of the gift back over time, or the client purchases an annuity to pay for the cost of care during a portion of the penalty period. The client reapplies after the repayments (or annuity payments) have been made, and the Department of Social Services then recalculates a shorter penalty period. It’s a complicated planning technique that is often used in conjunction with a promissory note or annuity as mentioned above.
We dig into the Medicaid process with our clients, and our clients give us written permission to make phone calls and talk to financial institutions on their behalf. We gather all of the income and asset information that the Department of Social Services requires to complete the Medicaid application process. We deal directly with the Department of Social Services on the client’s behalf. When our clients are able to give us complete financial information, including information within the five year lookback period, we are able to reliably predict Medicaid outcomes and plan for eligibility. We can also predict the minimum income the spouse living at home is entitled to keep (called the Minimum Monthly Needs Allowance). In Virginia, the spouse at home is never required to contribute to the cost of care of the sick spouse, but if the income of the spouse at home is low enough, the Medicaid rules permit some or all of the sick spouse’s income to be paid to the spouse at home. Further, if the spouse at home has mortgage payments, real estate taxes, homeowner’s insurance and/or utilities that are excessive as defined by Medicaid, the spouse can receive even more of the sick spouse’s income. These are called “excess shelter expenses.”