Protect Your Estate from Nursing Home Costs

Nursing home care is expensive, costing between $12,000 to $20,000 per month, so most seniors should do all they can to prepare for this possibility. According to a recent article from the Times Herald-Record, “Elder Law Power of Attorney can save assets that would go to nursing home costs,” this is something that can be done even when entering a nursing home is imminent.

A Durable Power of Attorney is used to name people, referred to as “agents” (in Massachusetts, the agent is called an “attorney-in-fact”) to conduct legal and financial affairs if we are incapacitated.    Whatever you can do financially, such as open or close a bank account, manage investments and retirement accounts, sign a tax return, run an on-going business, sell a house, contract from in-home services or skilled care at a nursing home, can be done for you by the agent or agents named in this document.   Having this document is an important part of an estate plan since it reduces or completely avoids the risk of your family having to go through guardianship proceedings, where a judge names a legal guardian to take over your affairs.     Without a durable power of attorney and without family, a guardian may be someone you have never met that is appointed by the Probate Court.    Planning ahead and thinking through the “what ifs” is advisable.

Depending upon your preference, your durable power of attorney can authorize your attorney-in-fact to do some long term care planning, such as create an irrevocable Medicaid trust that follows the outlines of your existing testamentary plan, include gifting powers to use a crisis strategy that involves a gift and loan/annuity to shorten the period to ineligibility, and provide other financial powers.

Here’s an example: Amy, who is single, can no longer live on her own and 24/7 home health aides cannot provide the skilled care necessary for her specific health requirements.   Amy has a durable power of attorney that an elder law attorney drafted that includes the powers that her attorney-in-fact, that is, her daughter Ellen, will need to address the issues of an elderly parent facing a health crisis.    Ellen can sign a contract with a nursing facility, can access bank accounts to pay for such care, and has additional powers to gift to use certain crisis strategies that shorten the period to Medicaid eligibility.   Without a durable power of attorney and without some preplanning that may have included the creation of a Medicaid Asset Protection Trust or an irrevocable trust, the strategies that Ellen can utilize to qualify her mother are limited to those included in a durable power of attorney and may not protect as many assets that could have been protected with some planning and/or a more robust document.

The following example can illustrate this statement.  If Amy had $500,000 in liquid assets, under Massachusetts regulations, all of these assets are countable and would need to be depleted to $2,000 to be “otherwise eligible” for Medicaid or MassHealth.    If she enters the nursing home requiring skilled care with $500,000 in assets, she would not be eligible and would have to use those resources to pay for her care.  In Massachusetts, the average cost of care is $17,000.00 per month, and her $498,000 would be depleted in 29 months, or a little over 2 years.  One option is for Amy to spend down all of her money on nursing home costs, until all she has is $2,000. All of her savings will go to the nursing home, with very little left for her daughter, Ellen.   Many people believe that this is their only option.  However, if Ellen consulted an elder law attorney at the time Amy were entering the nursing home or, better yet, if Amy had engaged an elder law to help with planning for long term care, depleting all of the $498,000 on care would likely be avoided.

An elder law attorney is the best resource for determining what the best tools are to protect a nest egg if and when a person needs the care of a nursing home.   What is achievable for each applicant is dependent upon the types of assets that an individual has, the value of these assets, along with whether the applicant is single/widowed or married, and other variables.

Many people make the mistake of thinking that it “won’t happen to me.”  However, injuries and illnesses often accompany aging, and it is far better to plan for this eventuality in advance than waiting and hoping for the best.

DISCLAIMER: Medicaid planning is complex and the case hypothetical above with “Amy and Ellen” is provided for purposes of illustration. What strategies would work for you or your loved ones depends on the laws of your state of residence and your unique circumstances. Consult with an experienced elder law attorney admitted to practice law in your state of residence before engaging in any Medicaid planning!

Reference: Times Herald-Record (Jan. 8, 2021) “Elder Law Power of Attorney can save assets that would go to nursing home costs”


How to Plan for Spouse’s Medicaid

Medicaid eligibility, assuming that you require long term care and have satisfied the medical eligibility requirements , is essentially a two-prong test or analysis of assets and income.   That is, there are restrictions on the types of resources that you can have when you apply for Medicaid, specifically with regard to assets, if you expect to be approved for benefits.    The income portion of the analysis is most relevant where there is a spouse who will continue to live in the community and will need a portion of the applicant’s income to maintain his or her standard of living.    There are other considerations with regard to income, such as the Patient Paid Amount and where an applicant may have substantial income to create what is called an “under/over issue”; however,  assets are the initial consideration in the overall analysis.

The Times Herald’s recent article entitled “Medicaid planning for a spouse” says that one of the toughest requirements for Medicaid to grasp is the financial eligibility. These rules for the cost of long-term care are tricky, especially when the Medicaid applicant is married.

To be eligible for Medicaid for long-term care in Massachusetts, an applicant generally cannot have more than $2,000 in countable assets in their name.

However, federal law says that certain protections are designed to prevent a spouse from becoming impoverished when their spouse goes into a nursing home and applies for Medicaid. In 2021, the spouse of a Medicaid recipient living in a nursing home—known as “the community spouse”—can keep up to $128, 640 (which is the maximum Community Spouse Resource Allowance “CSRA”) and a minimum of $25,728 (the minimum CSRA) without placing the Medicaid eligibility of the spouse who is receiving long-term care in jeopardy.

The calculation to determine the amount of the CSRA, the countable assets of both the community spouse and the spouse in the nursing home are totaled on the date of the nursing home admission. That is known as the “snapshot” date. The community spouse is entitled to retain 50% of the couple’s total countable assets up to a max. The rest must be “spent-down” to qualify for the program.   So, for 2021 to qualify for Medicaid in Massachusetts (which is called MassHealth), a married couple can keep a total of $130,640 in countable assets.

So what are countable assets?  In Massachusetts, cash, bank accounts, IRA’s and other retirement accounts, brokerage accounts, life insurance policies, annuities, a boat, a second or vacation home, and a second vehicle are all countable.  The couple’s primary residence, with a maximum equity limit of $893,000, and one vehicle is exempt.  That is, the home’s value and the one vehicle are not factored into whether a MassHealth applicant is eligible.

With regard to the “spend down”, there are many strategies and options that can be utilized, but they are dependent upon the types of assets that the couple have and how these assets are owned, that is, jointly or individually.    There are more strategies available for a married applicant (versus a single or widowed applicant).  Despite having an over-resourced applicant who is therefore not “otherwise eligible”, these spend down strategies can be implemented to either shorten a period of ineligibility where the couple pay at the private pay rate of approximately $17,000 per month in Massachusetts or achieve eligibility at the time of application.

In addition to the CSRA and the asset rules for Medicaid qualification, there are also federal rules concerning income for the spouse. In many states, the community spouse can keep all of his or her own income no matter how much it is.   If the community spouse’s income is less than the amount set by the state as the minimum needed to live on (“the Minimum Monthly Maintenance Needs Allowance” or “MMMNA”), then some of the applicant spouse’s income can also be allocated to the community spouse to make up the difference (called “the Spousal Allowance”). These rules are very  complex, so speak with an experienced elder law attorney.

Reference: The Times Herald (Jan. 8, 2021) “Medicaid planning for a spouse”


How Does Family Pay for Parents’ Care?

Women 50+ who leave the workforce to care for a parent forfeit an average of nearly $325,000 in wages, future Social Security benefits and retirement assets. Reducing their hours or leaving a job may mean buying health insurance, while also paying for caregiving-related expenses—like medications and gas for driving their parent to doctors. These expenses all add up.

Research calculates the annual unreimbursed out-of-pocket expenses average $7,000, says Forbes’ recent article entitled “Who Pays for Mom? Creating The Family Care Agreement Over A Holiday Zoom.”

However, there may be another option for families to plan and handle caregiving, which is to hold a family meeting to draw up a family care agreement. Discussing the issues can make it better for the caregiver when siblings consider what their unpaid sibling may be sacrificing, and what action is needed to fairly protect her finances.

A family care agreement, also called a “personal care agreement,” is a written agreement that details the responsibilities of the family caregiver and their compensation. It’s a formal contract that can include an “escape clause,” if the caregiver or other family members decide in coming years that the arrangement isn’t working and want to end it.

Compensation for the caregiver can include paying healthcare premiums, as well as paid vacation and sick days. Since the family care agreement can designate the caregiver as an independent contractor, the family can include funds to start an IRA (such as a Simplified Employee Pension or SEP). This type of formal arrangement can reward efforts on behalf of the family and protect against burn-out and long-term resentment.

The caregiver should maintain records of her hours and expenses. This is essential, if the person receiving care later needs to apply to Medicaid for help paying for institutional care. The records will show that the money paid to the caregiver was for legitimate expenses.

Caregivers may need some education on financial management because the caregiver’s financial responsibilities frequently evolve from simply paying bills to filing taxes and managing assets for the care recipient. They also may have to deal with Medicare or Medicaid, choosing options and a drug plan.

Reference: Forbes (Dec. 20, 2020) “Who Pays For Mom? Creating The Family Care Agreement Over A Holiday Zoom”