Show #334 Airing: 3/26/06
Medicaid is the safety net for people who must go to a nursing home. The law allows people to take steps to protect their home and part of their life savings, but Congress just changed the rules. Now it's harder and more complicated than ever. Thankfully, all is not lost. Here to offer a couple of new planning strategies created by the new law is my old law partner, Jennifer Peck.
Question: On the last show, you told us about big changes in the gifting rules.
Answer: That's right. Under the new law, the state "looks back" and will penalize you for any gifts made over the past five years instead of three years. The penalty is the length of time you cannot get Medicaid, and it's based on the amount or value of the gifts.
Under the new law, the penalty begins at the time of application and when your money runs out, not when you make the gifts. If all this sounds complicated, that's because it is.
Question: so gifting will become much less helpful?
Answer: That's correct. However, there are new planning techniques that are now available to protect some assets and obtain Medicaid eligibility.
Question: What are the new Medicaid planning techniques?
Answer: The first is creating care giver agreements. Many family members help loved ones in all kinds of ways: going to the store for food, driving to doctor appointments, cleaning the house, making meals, staying with a person who can't be alone, and lots more. Most people do this out of love, with no expectation of payment.
But one option under the new law is to pay a child or other family member for the care and help the family member is able to provide that allows you to remain at home. As long as the money is paid under a written contractual "Care Giver Agreement," the money paid is not a gift causing a penalty period, but a payment for services rendered.
Significant money can be shifted to the family member over time, and protected. One downside is that since this is payment for services provided, it is income that is taxable to the family member when received.
Question: Can you give us another new plan?
Answer: The next is drafting Medicaid qualified promissory notes and annuities. Under this new strategy allowed in the new law, the nursing home resident would gift part of their assets to children or others, creating a penalty period of up to five years. With the remainder, he would purchase a Medicaid Qualified Promissory Note or annuity. The Promissory Note or annuity would pay income to the nursing home to cover most of the costs during the penalty period. At the end of the penalty period, the resident gets Medicaid, and most of the transferred assets are protected.
Question: Can you give us an example?
Answer: Sure. Let's say Dad has $100,000 in assets and has to enter a nursing home. He gifts $50,000 to his child. This gift amount will create a 10 or 11-month penalty period during which the nursing home must be paid, based on a legal formula.
Dad uses the other $50,000 to purchase a Medicaid Qualified Promissory note or annuity, which pays most of the nursing home costs for about 11 months, and the child pays the rest from the transferred funds.
After about 11 months, the penalty is over, Medicaid is available, and the child has maybe $40,000 or more left and protected.
Question: Are these the only planning techniques available?
Answer: No. There are dozens of other strategies, some old, some new, that can be used to protect your home and at least part of your savings. But the rules are more complicated than ever, and people should consult with an elder law attorney to get help. This is not a do-it-yourself arena.
The government has made the Medicaid law more complicated than ever. Fortunately, Congress still allows you to take steps to protect at least part of your life savings. For more information, or to attend a free seminar, call the number below.
