RALPH S. ROBBINS, CFP©
A CERTIFIED FINANCIAL PLANNING PRACTITIONER
elder care financial planning
The key to successful Elder Care Financial Planning is to begin as soon as the need for care, or potential need for care, becomes apparent. In this section we will be addressing Medicaid benefits in more detail (see The Top Eight Medicaid Mistakes).
The rules regarding Medicaid eligibility are complex and ever changing (we usually see changes twice a year - each January and July) and most families will need health care, financial, tax, and legal advice. It is unlikely that a current advisor will have the over-arching background to adequately assist you. Also keep in mind that, though very helpful and dedicated, Medicaid case workers are specifically instructed not to provide assistance beyond completion of the Medicaid application.
All figures current as of January 1, 2018.
The purpose of the information provided below is to help you understand the basics of Medicaid eligibility and is for EDUCATIONAL PURPOSES ONLY. It should not be considered advice; financial, legal, or otherwise.
Treatment of Income
To meet the income test, the applicant's gross monthly income must be below $2,250.00. If the applicant's income exceeds this amount it may still be possible to qualify if a), the asset test is met and b), excess income is deposited to a bank account established by an Irrevocable Qualified Income Trust (QIT). An Irrevocable Qualified Income Trust must be drawn by an attorney licensed in Florida.
After excess monthly gross income is deposited into the QIT bank account, it is used either to pay the applicant's "Patient Responsibility", diverted to the Community Spouse for his/her needs (see "Protecting the Spouse" below), or for other permitted purposes.
The applicant may retain $105 of gross monthly income as a Personal Needs Allowance (PNA) to pay for the applicant's personal needs in a nursing facility. The PNA will be higher for those receiving Medicaid at home or in an assisted living facility.
Protecting the Spouse: Income
Although almost all of the recipient's income will go to cost of care, spouses living at home are offered some financial protections including a minimum income standard called the Minimum Monthly Maintenance Needs Allowance (MMMNA).
The MMMNA provides that the Spouse at home may retain a minimum of $2,030 and a maximum of $3,090 of joint marital income. In other words, if the community spouse's income is less than $2,030 per month she is entitled to her husband's income up to an amount that will make up the shortfall.
A full discussion of the MMMNA can be found on the Income Test page.
treatment of Assets
Meeting the asset test poses the greatest challenge for most families. The transferring/gifting of assets that used to be permissible has been severely curtailed by recent legislative changes. A discussion of asset limits and what is considered a "countable asset can be found on Asset Test page.
Gifting and Medicaid Penalties -The "5 Year Look-Back"
The most important thing to know about asset strategies is that, with the exception of transfers between spouses and some other exceptions, any gift or transfer of any countable asset made without fair market value compensation in goods or services to the applicant in the 5 immediate preceding years of application may result in a denial of benefits and the imposition of a penalty period during which time the applicant will be ineligible for benefits.
This applies only to those asset that if/when transferred reduces or has reduced, countable assets to Medicaid eligibility levels as described on the Asset Test page.
If the applicant had made gifts within the 5 years prior to application, the Department of Children and Families has the authority to sum up the value of those gifts and impose a penalty based on the value of those gifts looking back from the date of application...not the date of the last gift!
For example: George has been gifting $1,000 per year to his two children and three grandchildren for the past 5 years for a total of $25,000. George suffers a stroke and needs care. He applies for Medicaid and meets all other criteria for acceptance. George is denied benefits based on his uncompensated divestiture of $25,000 and a penalty period is imposed.
The penalty is based on the state's Medicaid monthly nursing home reimbursement rate (currently set at $8,994) and is expressed in months.
Continuing with the example above, the penalty calculation would be: $25,000 (cumulative gift amount) divided by $8,994 (the state reimbursement rate as described above) giving a result of 2.78 which would be the number of months George will be deemed ineligible for Medicaid nursing home or home and community based services (he still may be eligible for medical services).
Many confuse Medicaid's strict asset gifting policies with Federal Gift and Estate Tax rules which permit the annually gifting of small amounts without the requirement to file a gift tax return or for the amount to be countable as to lifetime gift and estate tax exemption amounts.
It is true that a taxpayer can, in 2018, gift $15,000 to as many individuals as they like with no gift tax and in addition to the lifetime Unified Estate and Gift Tax Exemption of $5.6 million.
But this has nothing to do with Medicaid eligibility and such gifts may cause severe penalties!
Techniques are available that may permit the transfer of some assets without creating penalties. What you will find, however, is that there are no perfect methods - each idea will have positive and negative attributes.
Protecting the Spouse: Assets
As with income, important protections are afforded the Community Spouse:
A Word about IRA's
In Florida, Individual Retirement Arrangements (IRA's) receive special treatment. The IRA asset or account itself is not considered countable as long as regular periodic distributions are being made. Any IRA income proceeds received by the applicant will be applied to patient responsibility (cost of care).
Community Spouse IRA assets are also not countable as assets and and are not included in the $123,600 Community Spouse Resource Allowance as long as the IRA is in distribution. Distributed income will be considered in calculating the spouse's monthly income requirements.
It is possible, by obtaining a court ruling, to have IRA assets of the applicant, or a portion thereof, transferred to the community spouse via a Qualified Domestic Relations Order; a strategy which may make sense in some circumstances.
So we've had an overview of Medicaid and how it works. But simply applying for Medicaid is not Eldercare Financial Planning. What about the following:
1. What will the budget look like? Will we have enough funds to provide everything the applicant and/or couple need? How should money be positioned? When will money run out?
2. What about other resources? Are there other programs we should be looking at? What about Medicare, Hospice, non-Medicaid related State programs or Community-based free services?
3. What is the most appropriate venue for care? Should we be looking at Adult Day Care, Home Care, Assisted Living Facilities, Adult Family Homes, or is it time to consider a nursing home?
4. How will Veteran benefits coordinate with other benefit programs? What is the difference between VHA and VBA programs and what is available from each?
5. What happens, for instance, when the person receiving Medicaid benefits passes away (or the Community Spouse predeceases)? Can the state look to the estate for compensation? What assets can they seek and which can they not? Is the home protected?
Elder Care Financial Planning helps address these and other questions.
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