Medicaid Crisis Planning - It's Never Too Late to Implement a Plan
by Don Drake, Connelly Law Offices, Ltd. 6.26.24
"We know that change is an inevitable part of life, and unforeseen changes can occur suddenly, such as illness or serious accidents," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "Unfortunately, in many instances, Medicaid planning focuses on crisis preparation. This type of planning becomes essential when an unexpected medical event leads to hospitalization and subsequent transfer to a rehabilitation facility. Eventually, it may be determined that continuous skilled nursing care is necessary. In such instances, individuals often reach out to our office in a state of urgency, seeking assistance in protecting assets when considering imminent nursing home expenses."
When asked what happens in such instances, Attorney Connelly said that the firm typically organizes meetings with the Medicaid applicant or their authorized representative. He utilizes a durable power of attorney to investigate options for attaining Medicaid eligibility, address the associated financial considerations, gather the paperwork and records needed, and begin the process of applying for Medicaid coverage.
A Personal Story
"Recently, I received a message from a friend who has worked in the healthcare system for years about his mother, who is in her mid-sixties and suffered a severe stroke and had to be admitted to a nursing home for long-term care," said Attorney Connelly. "The social services director of the nursing home explained to my friend that because his mother, who is a widow, had over $500,000 in retirement savings, she would have to use her savings to pay for her care ("spend down") until her savings were reduced and she would qualify for Medicaid. Additionally, my friend mentioned that his mother had already spent $80,000 of her funds on her care at the facility."
"Even people with a good grasp of legal and healthcare regulations can be misled by inaccurate information about the options available to a spouse or family member living in long-term care," said Attorney Connelly. "This misinformation often comes from non-attorneys or employees at non-legal firms that handle Medicaid applications. These individuals may not have a comprehensive understanding of all the planning options available to individuals and their families."
When someone who doesn't have a Medicaid plan in place needs to transition to a nursing home for long-term care but has assets or resources that exceed the limit for Medicaid nursing home eligibility, it's important to seek help from a skilled elder law attorney. They can assist in implementing a Medicaid crisis plan to help preserve some of the remaining assets.
Crisis Planning Discussion
In the context of Medicaid eligibility, a crisis plan involves strategically gifting approximately 40-50 percent of one's assets to children or other loved ones just before filing a Medicaid nursing home application. This is often considered the most practical and financially sound option.
When an individual transfers their assets to their children or loved ones who also received the initial gift, it is typically done in exchange for a promissory note or annuity agreement signed by the recipients in favor of the Medicaid applicant. This transfer essentially functions as a loan, with the understanding that the recipients will repay the amount during the period of Medicaid ineligibility that will be incurred as a result of this transaction.
After making a gift or a loan, the next step is to apply for nursing home Medicaid. However, suppose a gift (uncompensated transfer) has been made. In that case, the application will be denied, and Medicaid will calculate the period of ineligibility based on the dollar value of the gift, as we explained in our last blog on the five-year look-back period.
During this period of ineligibility, the Medicaid applicant would be required to privately pay for nursing home care using their monthly income, such as social security and/or pension, along with the funds transferred under the promissory note being repaid to the applicant. The calculation considers various factors, including the private pay cost of the nursing home, the monthly income of the applicant, and an actuarial calculation of the promissory note and/or annuity payment to be made.
Upon the expiration of the ineligibility period imposed by Medicaid, the Medicaid application will be updated and resubmitted, leading to approval for nursing home Medicaid. Implementing a Medicaid crisis plan can safeguard approximately 40-50 percent of the Medicaid applicant’s savings. In some cases, it may protect even more, particularly if the Medicaid applicant does not survive the established period of ineligibility. In cases where the potential applicant is married, spousal refusal typically represents the optimal option.
Advance Planning is Best
"The above discussion focused on implementing a Medicaid crisis plan, which is an exceedingly valuable tool in preventing the unnecessary depletion of an individual’s life savings when requiring nursing home care," stated Attorney Connelly. "However, remember that engaging in Medicaid asset protection planning well before the need for long-term care increases the likelihood of sheltering and safeguarding nearly all of one’s life savings from the expenses associated with care. Therefore, advanced planning remains the best course of action."
A Final Word
"Even if you, your spouse, or your loved one is already in a nursing home, there are various strategies that can be implemented to protect your assets or maximize your resources to ensure you receive the care you need," said Attorney Connelly. "These Medicaid Crisis Planning strategies can be incredibly valuable for the person needing long-term care and their spouse, especially if the spouse has limited income, particularly while their partner is in a nursing home. At Connelly Law, we have extensive experience working with individuals and families to help them safeguard their assets from nursing home expenses, regardless of how quickly they require care."
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