An estate plan implements documents to administer and transfer property and delegate decision-making authority. In other columns, I discussed trusts, wills, powers of attorney, health care proxies, and living wills.
Elder law and Medicaid planning are a special form of estate planning. In New York, 58 separate districts administer Medicaid. The program covers many medical and nursing care benefits including residence in a nursing facility (e.g., nursing home) and home care. As life spans and the cost of nursing care have increased, Medicaid planning has become increasingly important.
B. Proactive Planners are Better Prepared
One can plan proactively or reactively. Proactive planning occurs before an emergency happens – when seniors are healthy and have the capacity to make decisions and transfer assets. They can calmly consider their options to preserve wealth and protect their interests.
Reactive planning is prompted by a crisis (e.g., a catastrophic injury). Frequently, the senior’s spouse, adult children, or other relatives have to handle the crisis. Reactive planners have fewer options, higher expenses, and more stress.
C. Medicare Doesn’t Cover Custodial Care
Medicare does not cover long term nursing care or custodial care. It covers short term stays (less than 100 days) in nursing facilities where the patient receives skilled nursing or rehabilitation services.
Patients must meet additional requirements. Among other things, the patient must be hospitalized for three consecutive days (not including the day of discharge), and the facility must approve coverage. The most common reason for denial of Medicare coverage for nursing care is that the care is not skilled or rehabilitative. Whereas Medicare pays only for “skilled care,” Medicaid pays for all levels of necessary care including “custodial” care.
D. Home Health Care
Medicare Part A covers some home health care including intermittent or part-time skilled nursing care, speech therapy, physical therapy, occupational therapy, medical social services, and provision of certain medical supplies in the patient’s home. It will not cover occupational therapy alone. It excludes unskilled services such as homemaking, personal care (e.g., bathing, toileting, grooming, dressing). Also, it excludes home meal deliveries, drugs, and blood transfusions.
Medicaid covers home health care. This has been part of the Lombardi program. Now, New York’s Medicaid districts are transitioning to a managed care program that will administer this service. Because Medicaid often limits the services and hours approved for patients, families can pay to supplement them.
E. Medicaid Income and Resource Requirements
To receive Medicaid, an applicant’s income and resources must fall below certain specified levels. The level will depend on the applicant’s household size, the amount and types of income and resources, and how they compare to eligibility standards. Applicants’ whose income and resources exceed the standards must “spend down” excess income and resources to become eligible.
F. Transferring Resources to Become Eligible
Advance planning attempts to avoid spending down. By transferring assets five years (60 months) or more before applying for Medicaid, the program does not count them when considering available resources or calculating penalty periods. Seniors can transfer their assets into a Medicaid asset protection trust, make outright gifts, or maintain a life estate in real estate and transfer the “remainder interest.” An asset protection trust has a variety of tremendous advantages. Seniors should consider the consequences of each method.
The details of a plan will depend on a senior’s marital status, age, and health. For example, an “ill” spouse may transfer assets to the “well” spouse or trust. A “community spouse” (i.e., not in a nursing home) or single person may transfer assets into a trust.
G. Mental Capacity, Agents, and Guardians
To transfer assets, a person must have mental capacity. If a person loses capacity – perhaps due to a catastrophic physical injury or degenerative illness – an agent appointed by a power of attorney or court order can transfer assets.
Unless an incapacitated person previously executed a durable or springing power of attorney, someone must petition the court for a guardianship. This is expensive and takes time. The extent of the agent’s powers will depend on the judge’s discretion. The agent’s powers may not be comprehensive enough to do all of the necessary planning.
H. Calculating Penalty Periods
Medicaid applies a 60-month look-back period to determine if one transferred assets to qualify for coverage. The senior would not be eligible for Medicaid coverage for a period equal to (a) the uncompensated value of the resource transferred divided by (b) the average regional monthly cost of a nursing home in the county.
For example, suppose one’s home is worth $400,000 and the average regional monthly cost of a nursing home in the county is $12,034 per month. By transferring the home, the penalty period would be calculated as follows: (a) $400,000 ÷ (b) $12,034 per month = 33.24 months. This would be rounded up to 34 months.
The penalty period for nursing home care would begin to run when (1) one enters the institution, (2) applies for Medicaid, and (3) is “otherwise eligible” (except for the penalty period). If the applicant requires nursing home care within the 60-month look-back period, additional planning is necessary. Assets transferred more than 60 months before entering a nursing facility would not be subject to a transfer penalty because the look-back period would have expired.
I. Medicaid Recovery Actions
After a recipient dies, Medicaid tries to recover the cost of benefits paid on the recipient’s behalf. This applies to nursing home and home care. Medicaid can recover amounts paid on a recipient’s behalf for a ten year window going as far back as the person’s 55th birthday. The program cannot recover benefits paid before age 55.
Medicaid can place a lien against an estate for amounts owed. It may be entitled to the entire net estate leaving nothing for the beneficiaries. Proactive planning may reduce or eliminate Medicaid estate claims.
Seniors and their families should consider these issues before crises occur. Wishful thinking will not prevent problems. Thoughtful, proactive planning can benefit the whole family and avoid difficult problems and needless stress later on. Contact me if you have questions.
About the Author: Bryan L. Berson, Esq. is an attorney and mediator at The Berson Firm, P.C., a commercial and civil law firm that handles estate administration and planning, real estate, commercial transactions, mediation, and commercial litigation. His e-mail is email@example.com. His phone number is (631) 517-1055. Connect with The Berson Firm on Facebook and Bryan L. Berson on LinkedIn. The firm’s website is www.bersonfirm.com.
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