Annual nursing home costs in Westchester County are $149,136 on average, according to the most recent information published by the New York Department of Health. This is a significant expenditure, especially when multiplied for each year of nursing home care, well beyond the financial resources of most New York residents.
Small wonder that 63 percent of New Yorkers in nursing homes are dependent on Medicaid to pay for their care. In addition to nursing home care, Medicaid also pays for residential nursing services and assisted living facilities.
For this reason, qualifying for Medicaid benefits is a reasonable and prudent part of many individuals’ financial and health care plans.
The Medicaid spend-down
Medicaid, funded jointly by federal and New York state governments, provides health care coverage for eligible low-income adults, children, pregnant women, elderly adults and people with disabilities. Although widely used by people of moderate means as a source of funding for nursing home and assisted living care, it limited to indigent individuals.
In order to satisfy the Medicaid program’s strict income and asset limits, it is often necessary for elderly individuals with property and other assets to engage in what is known as a “Medicaid spend-down.” A Medicaid spend-down is an entirely lawful estate planning strategy that allows elderly persons to retain their assets and qualify for Medicaid at the same time.
In 2018, the asset limit for a New York resident applying for Medicaid for long-term care is $15,150, and the maximum home equity amount allowed is $858,000.
If you have valuable assets and are considering Medicaid to help with nursing home care, you will need to engage in a Medicaid spend-down. We believe that early planning and strategic disposition of high-value assets, aided by experienced estate planning counsel, are the best way to obtain the benefits of the Medicaid program while at the same time preserving the wealth you have accumulated over a lifetime’s hard work.
1. Plan ahead
People seeking to qualify for Medicaid must begin the planning process as soon as possible. This is because the government, when considering whether a person is eligible for Medicaid, will examine all property transfers or gifts within the preceding five years to see if the applicant is deliberately impoverishing themselves in order to qualify for Medicaid.
Assets that affect Medicaid eligibility include:
- Cash and money in bank accounts;
- Real property other than the primary home;
- Retirement accounts;
- Most IRAs and 401(k) accounts;
- Stocks and bonds, mutual funds and other securities.
The government can impose stiff penalties against anyone who deliberately sheds these assets within the five-year window, making it even more difficult to qualify for Medicaid.
2. Consider transferring your primary home
Although the value of the primary home does not count against Medicaid asset limits, the government can file a claim against the Medicaid recipient’s home after death in order to obtain reimbursement for nursing home and other medical expenses. For this reason, elderly individuals often consider transferring the family home to their children as part of their Medicaid planning process.
The primary home should not be transferred to children or relatives without careful consideration. Once the property is transferred, the former owner loses all control over this asset. The primary home will no longer be available as a source of money, if needed. The children will be free to sell the home at any time. If they are involved in a divorce or have financial creditors, the home could be transferred or sold to satisfy their claims.
Transferring the primary home can also have adverse tax consequences. If a primary home is transferred as a gift to a child and the child later sells the home, the taxable gain will be the sale price minus the parent’s original purchase price. Children who inherit property following the parent’s death are taxed based on a “stepped up” basis — the value of the home on the date they inherited it, which almost always results in considerable tax savings.
For very high-income individuals, estate taxes are also worth careful consideration. Following enactment of the Tax Cuts and Jobs Act of 2017, gifts under $22.4 million are exempt from federal estate tax.
Finally, as mentioned earlier, if asset transfers take place within the five-year window, the government will penalize the applicant.
3. Consider an irrevocable trust
Creating an irrevocable trust can solve some of these problems. With an irrevocable trust, assets that would otherwise disqualify a person from Medicaid are transferred to the trust with instructions that they be used for the benefit of the Medicaid recipient. Because the trust is irrevocable — meaning, its assets can never again belong to the transferor — they are not counted against Medicaid’s eligibility requirements. Because the trust directs how the assets are to be used, elderly transferors can have confidence that life savings will be available to help with medical and other end-of-life needs.
The success of an irrevocable trust depends greatly on the wise choice of a trustee to manage the trust. It is a good idea to discuss this with family members.
4. Seek expert advice
Medicaid eligibility rules are complex and subject to change each year. In our experience, a lot of what people hear from others or simply believe is untrue or incomplete. Most of the basic rules discussed above have exceptions that can be successfully navigated by the experienced estate planning attorneys at Littman Krooks. We believe that state planning topics such as Medicaid spend-downs should be approached in the larger context of each retiree’s complete financial and health care needs.
In our experience, the cost of sound legal advice is a small fraction of the money to be saved though careful estate, tax, and health care planning.
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