Sue Schiebel has written an excellent article on Medicaid Planning. While her article concerns MassHealth, which is the Massachusetts Medicaid program, the rules and ideas explained are the same in Michigan. She writes:

A lot of middle-aged people don’t realize Medicare, the federal health insurance program, pays for a very limited amount of skilled nursing home care. As we live longer, that means more of us will have to spend our own money for long-term care or must rely on MassHealth, the state health insurance for low income people. Many people wind up doing both — first using up many of their own assets to “spend down” to Medicaid limits so they are financially eligible for state help.

Medicaid qualification is a complex area of the law. To highlight just one counter-intuitive aspect, consider that donations to a church or charity are treated as gifts under the law. One making such a gift is technically creating a period of ineligibility for Medicaid. Strictly speaking, one could then have no means to pay for a nursing home after all other assets have been spent down. An elder law attorney helps families cope with these bizarre rules and avoid such unfortunate results.

Retirement assets (401ks, IRAs, etc) are considered available assets for purposes of Medicaid qualification in Michigan. In simple terms, that means that those funds have to be spent down until the threshold for asset eligibility is met. In the case of a single person, asset eligibility is generally about $2,000.00, with some additional allowances for the homestead, modest life insurance and funeral expenses. In the case of a married person, the threshold is higher, and will be between $20,880.00 and $104,400.00, depending on the couple’s assets before entering the nursing home. For more details, see The Basics of Medicaid Qualification, below.

In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Read the rest of this entry »

An astounding thing happened during the fall of 2007. Michigan changed its Medicaid policy with respect to annuities and implemented those changes with retroactive effect.

The new policy requires annuities to have several features in order to avoid being considered a divestment. Among the requirements is a rule that the state of Michigan must be named a remainder beneficiary to the extent of Medicaid benefits received. This law applies to all annuities purchased or altered after February 8th, 2006, the day President Bush signed the Deficit Reduction Act into law.

Read the rest of this entry »

It is important to understand the basic rules of qualifying for Medicaid Long Term Care Assistance in order to cope with the financial realities of a relative’s long-term care. The rules below apply in Michigan and have been updated for 2008.

First, you should understand that the rules are different for single people and those who are married. To make things just a little more complicated, if both spouses of a married couple are in the nursing home, they are both subject to the rules of a single person.

Read the rest of this entry »

Under previous Medicaid policy, applicants for long term care were given the benefit of a doubt most of the time. In some cases, a demonstrated intent to complete asset conversion, which is the process of converting non-exempt assets into exempt or excluded assets and is the heart of Medicaid planning, would be enough to pass scrutiny.

Read the rest of this entry »

Many Elder law attorneys advise loving couples to pursue divorce as a method of asset protection. I have never found the technique necessary and, frankly, find the approach ethically questionable. Alternatives exist for both pre-planning and crisis planning that avoid the murky waters of a consensual divorce between an otherwise happily-wed pair. It is my view that you should not have to pretend to be something that you are not in order to protect assets. Everything is always disclosed in the Medicaid applications I advise clients on and the asset protection plans I create. I have helped dozens of couples protect their estates from the cost of long term care and there has never been a reason to resort to divorce.

This post is continuation of what I expect to be a long series on protecting the homestead of long term care patients.

Before the Deficit Reduction Act was signed in February of 2006, it was relatively easy for an elder law attorney or a well-informed layperson to set aside money to pay for the upkeep of a nursing home patient’s homestead. A simple contract could be created and assets transferred to a responsible relative who would pay for the utilities, taxes, insurance and maintenance of the nursing home patient’s home. It also used to be possible to gift a significant amount of money each month. Therefore one could simply give assets to another to keep up the home. These techniques were necessary because a person in a nursing home can generally have only $2,000.00 in cash or equivalent non-exempt assets and all but a small portion of income will go to the cost of care. Since such a small amount of money is dwarfed by property taxes alone, the policy allowing money to be set aside for homestead maintenance made sense for several reasons.

First of all, some people do return home, even after long stays in a nursing home. Second, there are significant tax benefits to waiting until one’s passing to transfer a homestead to a relative. But with the possibility of tax foreclosure or dissipation through neglect, a sale or significant financial hardship is difficult to avoid with the owner in a nursing home. Moreover, Medicaid policy considers the transfer of a homestead a divestment subject to penalty in most cases. Third, the sale of home in financial distress is a loss to an effected family, particularly in today’s troubled real estate market.

Read the rest of this entry »