Is it Too Late for Me to Protect My Savings From the Cost of Long Term Care?

By: Anthony J. Enea, Esq.

On a regular basis I will have a client advise me that because of their age and circumstances that they believe it is just too late to protect their assets from the cost of long term care. While it is always better to start the process when one is younger and in good health, however, because of the devastating financial impact that the costs of nursing home care or home care can have on one's life savings, there really is no specific age that is a cut off for engaging in long term planning. Many times clients who are in their 80's and even 90's and are in relatively good health, will transfer their assets to an Irrevocable Trust for long term care planning purposes. In fact, one could be residing in a nursing home and can still protect approximately forty-five (45%) to fifty (50%) of one's assets.

Several years ago, after I had concluded a presentation for a local bar association, a fellow attorney in attendance approached me and recounted a conversation he had with the Director of Social Services for the nursing home where his mother was admitted (he was also a member of the Board of Directors for said nursing home). The Director explained to him that because his mother (a widow) had $500,000 in non-IRA/retirement savings she needed to pay the nursing home privately ("spend-down") until she had no more than $14,000 in savings.

To the dismay of the attorney/son, the fact pattern above is a classic example of a case requiring the implementation of a Medicaid crisis plan by an experienced elder law attorney. If and when a single individual (no spouse, divorced or widowed) needs to enter a nursing home for long term care, and he or she has assets or resources which are significantly greater than the amount permitted for Medicaid nursing home eligibility ($15,150), the implementation of a Medicaid crisis plan is often the most logical and financially prudent option available.

In the simplest of terms, a crisis plan is a plan wherein, immediately prior to the filing of a Medicaid nursing home application, approximately 40-50 percent of one's assets are gifted to children and/or other loved ones. At the same time, the balance of one's assets are transferred to the same children and/or loved ones that received the gift of assets, in consideration of a promissory note or annuity agreement signed by the children or others in favor of the Medicaid applicant. The promissory note or annuity must comply with the requirements of the Deficit Reduction Act of 2005 (DRA). The transfer is a loan that will be repaid during the period of ineligibility for Medicaid described below.

Once the gift and loan has been made, the application for nursing home Medicaid is filed. Because a gift (uncompensated transfer) has been made, the application will be denied and Medicaid will calculate the period of ineligibility created based on the dollar value of the gift. For example, if the applicant has $500,000 of resources and makes a gift of $250,000, in Westchester County, said gift, utilizing the divisor of $12,428 per month (the Medicaid regional nursing home rate for the Northern Metropolitan region), would create a period of ineligibility for Medicaid nursing home of 20.11 months. Thus, the Medicaid applicant would have to privately pay for nursing home care for 20.11 months. Said payments will be made by using the applicant's monthly income, such as social security and/or pension along with the funds transferred pursuant to the promissory note being repaid to the applicant. This calculation requires a variety of factors to be considered, such as 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 during the period of ineligibility for Medicaid. The amount paid to the nursing home must always be less than the nursing home's private pay rate, pursuant to Medicaid regulations.

Once the ineligibility period imposed by Medicaid has expired, the Medicaid application is brought up to date and resubmitted, and the applicant should then be approved for nursing home Medicaid. If the potential applicant is married, a crisis plan is not utilized as a Medicaid application with spousal refusal is normally the best option.

Thus, as can be seen from the above, it is never too late to engage in Medicaid and long term care planning. The implementation of a Medicaid crisis plan, when possible, is an extremely valuable tool in helping to prevent the unnecessary dissipation of all of one's life savings in the event nursing home care is required. However, if one has engaged in Medicaid asset protection planning in advance of needing nursing home care, the ability to shelter and protect virtually all of one's life savings from the cost of care is even more likely. Planning well in advance of needing care is still the best course of action.