Myth #1: All of My Money Needs to Be Spent Down on the Nursing Home or Medical Expenses Before I Can Qualify for Medicaid
The type of Medicaid that pays for long term care in the nursing home, assisted living facility, or in the home, is now known as Managed Long Term Services and Supports or MLTSS. The MLTSS program has very specific resource limits. Resources in excess of these limits have to be “spent down” in order for individuals applying for Medicaid to be deemed financially eligible for benefits. Contrary to popular belief, assets do not need to be spent down on nursing home care or medical care before an applicant can qualify for Medicaid. Rather, the assets to be “spent down” can be preserved for the applicant’s spouse or family; spent for the benefit of the applicant’s spouse; or spent for the benefit of the applicant.
The resource limit for a single person in New Jersey is $2,000.00. This means that an unmarried individual applying for Medicaid benefits in a nursing home, an assisted living facility, or in their own home, can have $2,000.00 worth of countable resources, or less, in their name, and be financially eligible for Medicaid.
The resource limit for a married individual is more complicated. The ill spouse, known as the “Institutionalized spouse” is still subject to the $2,000.00 resource limit. The well spouse, known as the “Community Spouse” is entitled to a “Community Spouse Resource Allowance” (“CSRA”). In 2016, the Community Spouse of couples whose combined resources are in excess of $238,440.00, is permitted to keep the maximum CSRA of $119,220.00. This amount excludes the marital home which is an excludable resource, and other excludable resources such as one car. The remaining assets have to be spent down.
If the couple’s combined resources are less than $238,440.00, the Community Spouse is only permitted to keep one-half (½) of the couple’s combined assets (excluding the marital home and one car) as of the “snapshot date.” The snapshot date is the first day of the first month of continuous institutionalization. Continuous institutionalization begins on the first day of the first month in which the institutionalized spouse goes to the hospital, then the nursing home and never goes home, or goes to the nursing home and never comes home. For example, if the institutionalized spouse goes to the hospital on January 11, 2016, then to the nursing home on January 15, 2016, and remains in the nursing home thereafter, the couple’s snapshot date is January 1, 2016. If that couple’s combined assets on January 1, 2016 are $100,000.00, the Community Spouse’s CSRA is $50,000.00. The Institutionalized Spouse would get to keep $2,000.00, and the remaining $48,000.00 would be spent down.
The minimum CSRA a Community Spouse would be entitled to in 2016 is $23,844.00. What that means is that couples whose combined assets on the snapshot date are below $47,688.00 would only have to spend down to $23,844.00 plus the $2,000.00 in the name of the Institutionalized Spouse.
What does it mean when we say that assets in excess of these resource limits must be “spent down?” Spend down is usually achieved by paying off debts; prepaying certain permissible expenses; making repairs and upgrades to the Community Spouse’s home; and purchasing exempt assets such as irrevocable, pre-paid funeral trust arrangements, a new vehicle for the Community Spouse, and where appropriate, Medicaid-qualifying annuity products that can allow both the Community Spouse or a single Applicant to preserve their assets. In some cases, it can mean paying nursing home or medical expenses.
If you or your spouse require an institutional level of care, you should speak to an experienced Elder Law Attorney to ensure that your assets are spent down in a manner consistent with the Medicaid rules and your needs.
Myth #2: I Need a Revocable Living Trust So I Can Avoid Probate
Probate is simply the process of establishing whether a written instrument constitutes the valid and legally binding Last Will and Testament of a decedent. There are states, like New York, where the probate process is particularly onerous and expensive. Therefore, many attorneys recommend that their clients establish revocable living trusts in order to avoid probate. In New Jersey, the probate process, which includes having the named executor complete the “qualifying” paperwork, takes about half an hour. The costs are minimal and are based solely on the length of the Will and how many Letters Testamentary (also known as Executor Short Certificates) will be needed to administer the Estate. Thus, in New Jersey, the probate process is not something that one needs saving from.
The actual probate process can vary from county to county. Some counties requires the named executor or potential administrator to make an appointment with the Surrogate, while others do not. Many counties allow the executor to mail in the necessary documentation ahead of time. This gives the clerks the opportunity to prepare the paperwork in advance of the executor’s personal appearance. That way, all the executor has to do is come in with their photo ID and check book, and sign the necessary paperwork. Even if the executor does not take advantage of the mail-in option, or resides in a county that does not permit the paperwork to be mailed in advance, the whole process can still be done very quickly, provided the executor has the following documents with them when they personally appear at the Surrogate:
● Original Will;
● Original death certificate;
● Names and address of all named beneficiaries and all those who would have inherited had the decedent died without a Will;
● Executor’s Social Security Number;
● Photo ID; and
● Check book.
Although the probate process is very easy in New Jersey, it is only the first step in the overall administration of the Estate. The length of time it takes to administer an estate can vary depending on myriad of issues, including the number and type of assets, the liabilities, whether there are any intervening legal issues, whether any New Jersey Inheritance or Estate Tax is due, whether any Federal Estate Tax is due, and whether any real estate must be sold. There will always be someone out there who will tell you that they received their inheritance within three months, and they can’t understand why your estate is taking so long. That person is the exception, not the rule.
Myth #3: I Can Give Away $14,000.00 to My Children and Grandchildren Every Year and Still Qualify for Medicaid
This myth involves the conflation of two totally different bodies of law: Estate and Gift Tax law and Medicaid law.
In 2016, for Gift and Estate Tax Law purposes, everyone has a lifetime gift tax exemption of $5.43 million. You can give away up to $14,000.00 to another person without having to file a Form 709 Gift Tax Return. A gift of $14,000.00 does not affect your lifetime exemption. If you give away more than $14,000.00 to a single person this year, you will have to file a Gift Tax Return, and your lifetime exemption will be reduced by the amount of the gift.
The rules are very different for Medicaid. Gifts of $14,000.00 that were made during the five (5) year lookback period may be used to create a penalty period during which the applicant is ineligible to receive benefits. An individual is responsible for private paying for care during a penalty period.
Medicaid is a welfare program, and as such has very strict financial eligibility criteria. This criteria is mostly concerned with three concepts: 1) Income, 2) Resources, and 3)Transfers. Resources are financial assets like bank accounts, stocks, bonds, cars, and real estate, that can be liquidated and used to pay for care. The rules about whether specific kinds of resources can be accessed by the applicant and whether they are counted towards Medicaid eligibility are complex.
In order to determine financial eligibility for Medicaid, the caseworker in charge of processing the application will look through five years of the applicant’s financial records. If the applicant applies for Medicaid beginning January 1, 2016, their application must contain all financial record for the five years immediately prior to January 1, 2016, which would be records from January 1, 2011 to January 1, 2016.
During the audit, the caseworker will be looking to see if any funds were “transferred” during the lookback period. The term “transfer” refers to two different types of transactions. The first type involves resources that have been given away as outright gifts. For example, a gift of $14,000.00 given to a grandchild. The second are resources that have been “transferred for less than fair market value.” A transfer for less than fair market value would occur in a situation where you cut someone a deal. Suppose you have a Toyota Camry and the Kelley Blue Book value of the Camry is $15,000.00. Your grandson is going off to college in Massachusetts and needs a reliable car. He wants to buy a car but only has $5,000.00 in his savings account. You sell the Camry to your grandson for $5,000.00 even though it has a Fair Market Value of $15,000.00. For Medicaid purposes, you have “transferred” $10,000.00, the difference between the Fair Market Value and the amount paid by your grandson.
The total amount of non-exempt gifts/transfers made during the five year lookback are added together, then divided by a formula called the “Penalty Divestment Divisor,” to determine the length of the period during which the applicant will be ineligible for benefits as a result of the gifts/transfers made during the lookback period. This period of ineligibility is known as a “penalty period” or a “transfer penalty.” The applicant must private pay for care during the penalty period because they are not entitled to receive Medicaid benefits.
Applications for Medicaid do not get denied due to gifts and transfers during the lookback period. Gifting during the lookback period can only result in a penalty period.
The five year lookback applies even where no gifts were made in the five years prior to the application. The County Board of Social Services must still audit your records.
The Medicaid rules are extremely specific and complex. Be sure to consult with an experienced Elder Law Attorney before making any gifts, if you or your spouse may be applying for long term care in the near future.
About the Author: Beth L. Barnhard is an attorney with Meyerson, Fox, Mancinelli & Conte, P.A. in Montvale, New Jersey. A Certified Elder Law Attorney as recognized by the National Elder Law Foundation (NELF), Beth concentrates her practice on representing elder law clients with Medicaid applications and administrative Fair Hearings, asset preservation planning, guardianships, protective arrangements, estate planning, estate administration, and estate litigation.