From the category archives:

Technical

FAQ: What is estate recovery?

by Jerrold Bartholomew on September 1, 2008

Estate recovery is a state program created to recoup the costs of providing care to Medicaid long-term care recipients. Once a Medicaid recipient passes away, the state uses a variety of legal processes to take the remaining assets of that Medicaid recipient to the extent of Medicaid benefits provided. The state’s ability to take assets is not unlimited and may be subject to a variety of allowances provided in other parts of the state law. For most people, the biggest worry regarding estate recovery is that the state will take the family home.

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New changes to Medicaid eligibility rules

by Jerrold Bartholomew on July 27, 2008

The Michigan Department of Human Services has enacted several changes to the Medicaid eligibility rules recently that impact qualification for long-term care Medicaid.

Perhaps the most important change relates to divested assets (gifts) and the calculation of penalty periods. Generally speaking, the gifting of assets results in a period of ineligibility for Medicaid long-term care. Under previous policy, returning some of the gifted assets would result in a partial cancellation of the penalty period. For example, if a long-term care Medicaid applicant had given away $61,910.00, she would ineligible for Medicaid for 10 months ($61,910.00/$6,191.00=10 months). But if that same person returned $30,955.00 ($6,191.00 x 5), the penalty would be reduced to 5 months. This former policy was known as a “partial cure” of a penalty. [click to continue…]

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Choosing the Right Time to Receive Social Security

by Jerrold Bartholomew on May 6, 2008

Social Security PosterOne very important matter for retiring seniors is the decision of when to begin receiving social security benefits. This helpful calculator from AARP can help in the decision-making process. But be forewarned: there is a lot of information on the internet suggesting that you should delay receiving benefits as long possible. And this is not without some merit as your benefits will be higher and theoretically provide better cashflow through your retirement the longer you wait to begin receiving benefits. However, in many cases the modest monthly gain for waiting is not offset by the years of foregone benefits. Consider it this way: If you retire at 65 with a household income of about $50,000.00, you can immediately begin receiving about $1,750.00 per month. If you choose to wait until age 67 to begin receiving social security, your monthly benefit will be about $1,988.00 per month. Think you should wait for the extra $238.00 per month? Well, in order to receive that additional $238.00 per month, you will not receive $42,000.00 in benefits ($1750.00 x 24 months = $42,000.00). The additional $238.00 per month will take you a little more than 176 months to make up the difference between the total of what you would have received with the earlier election and waiting to have the higher monthly payout.

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Retirement Assets and Medicaid Planning

by Jerrold Bartholomew on April 7, 2008

Nest EggRetirement 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.

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Estate Planning and Michigan Real Property Taxes

by Jerrold Bartholomew on April 4, 2008

Estate Planning often involves transfer of real property. Care must be taken to avoid incurring unnecessary property taxes as an asset protection plan is carried out.

One of the biggest obstacles to overcome is the so-called uncapping of property taxes. In Michigan, property taxes can only increase by a fixed percentage each year, regardless of the increase in fair market value of the real estate so long as the real estate is owned by the same person or joint owners. For those who have held real property for a long time, this rule has helped to keep their property taxes down.

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