Nursing home Medicaid rules in Michigan about gifting are completely separate from the tax concerns. For Medicaid purposes, any gifts made within five years of needing nursing home care will cause the state to deny Medicaid benefits for a period of time equal to the total gifts given divided by the average monthly cost of care. For 2009, that number is $6,362.00. So for example, if someone gave away $63,620.00, they would not receive state assistance with the cost of long-term care for 10 months.

On the often related issues issues of gifting, Medicaid, and taxes, it is very important to understand that giving away appreciating assets during your lifetime can have dramatic tax consequences. When an asset that increases in value is sold, there can be capital gains tax on the difference between the purchase price and the sale price. If an asset is given away at a person’s death, the person receiving that gift only has to pay a tax on the increase in value after the original owner’s death, not on the increase in value since purchase, regardless of whether the asset passes through probate or a revocable living trust. It is therefore important to consider tax consequences when doing any Medicaid planning. Gifting to a trust can typically eliminate the negative tax consequences of gifting during life while at the same time protecting the asset from the cost of long-term care.

Michigan’s Program Eligibility Manual (which is used by the Department of Human Services to determine eligibility for Medicaid) does not have any clear policies on point to help families facing this situation. The rules allowing a healthy spouse to shelter assets above $2,000.00 do not apply because both spouses are in the nursing home. There is therefore no community spouse.

If any assets are transferred, it appears that the couple will face a shared penalty. What this means is that if the couple were to divest $63,260.00, they would both face a penalty of five months each ($63,260 / $6,326.00=ten months. But divide by two because of the shared penalty). The shared penalty rules are discussed at PEM 405, p11 and read as follows:

A client can be penalized if he or his spouse divests. The penalty is

imposed on whichever spouse is in a “Penalty Situation.” If both

spouses are in a penalty situation, the penalty period (or any remaining

part) must be divided between them.

Example: Mr. Brown is in LTC and under a divestment penalty for 1/1/

04 through 12/31/05. On 9/9/04, Mrs. Brown enters LTC and applies for

MA. She is eligible for MA starting in September. There are 16 months

of penalty left (9/04 - 12/05). Each spouse must serve 8 months. Mr.

Brown’s penalty is now 1/1/04 through 4/30/05. Mrs. Brown’s penalty is

9/1/04 through 4/30/05.

At the outset, I would mention that having the spouses share the penalty makes sense on an intuitive level. But we should expect a little more from the government. The actual rules controlling this situation are not what one would expect.

When two spouses are in the nursing home, it does not follow that gifts by one will result in penalties for both. This is because two spouses in a nursing home are treated as financially separate for purposes of Medicaid eligibility.

When determining financial eligibility for Medicaid, it is important to determine whose assets and income will be counted. There are different rules for making this determination depending on the type of Medicaid for which one is applying. For SSI-related MA, it is clear that the general rule is that an adult applicant forms a fiscal and asset group of one. Fiscal group rules are generally designed to impose financial responsibility among non-traditional living arrangements. But for L/H Patients, there is a clear exception “even if he lives with his spouse.” In other words, no rule to create financial responsibility between spouses will generally be imposed, even if they live together (which is the broadest net DHS casts for capturing assets). The rules prohibit expanding the fiscal group for SSI-related Medicaid where one person who generally lives in the same household is in long term care-and an intention to return to the household is specifically mentioned as not being an exception to this policy. Here is the relevant rule (PEM 211, p5):

SSI-Related Adult SSI-Related MA

An adult’s fiscal and asset groups are:

• The adult for an L/H patient, a waiver patient (see PEM 106) and a

Freedom to Work customer even if he lives with his spouse.

Exception: When PEM 402 instructs you to determine a couple’s

countable assets for an “INITIAL ASSET ASSESSMENT” or “Initial

Eligibility,” the L/H or waiver patient and his community spouse are

considered an asset group.

In other words, when two spouses are in the nursing home, each long term care resident is a separate applicant for Medicaid. PEM 402 (the community spouse rules) are an exception to this rule. But where both spouses are in the nursing home, they are separate fiscal groups (of one).

On a practical level, this means that one spouse can qualify for Medicaid while the other spouse carries out asset protection planning. While asset protection planning for one in the nursing home generally means carefully managing a penalty period, it is nonetheless possible to protect a significant portion of a married couple’s estate from the enormous expense of two nursing home stays.

The new community spouse resource allowance is a minimum of $21,912.00 and a maximum of $109,560.00. This number is important for married persons with a spouse in the nursing home. It determines how much in cash and otherwise non-exempt assets the spouse living in the community will have to spend down before qualifying for Medicaid.

The community spouse income allowance, which is the income that the community spouse can keep each month and not have to pay to the nursing home has been increased from a minimum of $1,750.00 to $2,739.00. The new utility allowance (which provides additional income protection for the community spouse above the minimum protected amount) is $550.00 per month. However, it is important to note that these numbers do not adjust until April of this year.

Initially the state of Michigan did not include a new divestment penalty divisor in the 2009 figures. After much prodding by the elder law bar, it has been announced that the new penalty divisor is $6,362.00. What that means is that for every $6,362.00 gifted by a nursing home patient within the look back period, the state will withhold nursing home care for 1 month. So if a senior has given away $63,620.00 during 2009 and needs nursing home care, the state will impose a penalty of 10 months.

For many seniors, these numbers may be discouraging: particularly those related to the community spouse. DHS will require an unadvised senior to spend down to ½ of the family’s total assets with a maximum of $109,560.00 before qualifying for Medicaid. Furthermore, the income allowance is very seldom any higher than $1,750.00 based on cost of living expenses alone. With effective advocacy, however, it is not uncommon for these figures to be increased by court order.

Estate planning is traditionally thought of as the field of law concerning the distribution of assets at the time of one’s passing. Modern estate planning encompasses planning not only for distribution on death, but also planning for disability and asset protection. Planning for disability will greatly increase the likelihood of having something to pass on to heirs, while at the same time reducing stress and maximizing one’s own independence. But in order to effectively manage a one’s affairs through a period of disability, there must be a close relationship between the estate plan and the financial arrangement, including the types of investments used.

Annuities can have many different features. Sorting them all out would be beyond the scope of this brief article, but it is important to note that without effectively combining the estate plan and the annuity, you cannot achieve the maximum benefit of either one. To understand why this is so, a few common features of annuities are worth mentioning.

Annuities can be either assets or income streams. When initially purchased, most annuities are like certificates of deposit with a longer term and a greater penalty for early withdrawal. Such annuities are assets and are said to be “deferred.” Money can be taken out of the annuity at this stage, but like a certificate of deposit, there will be a penalty or surrender charge imposed if the withdrawal is taken too soon.

Annuities can be converted into guaranteed income streams. Once this is done, the annuity no longer has any cash value, but will instead pay out a fixed sum of money on a regular basis for a period of time. This process is often called “annuitizing” the annuity. Once annuitized, the funds placed in an annuity can no longer be accessed. What has really happened here is that an asset, the annuity or cash used to purchase the annuity, has been converted into an income stream. This is a permissible form of spending down for Medicaid eligibility provided that the requirements of Medicaid law (described below) are met. An annuity that will meet these requirements is fairly described as “Medicaid friendly.”

According the Program Eligibility Manual (Section 401, pp.4-5) for the state of Michigan, an annuity must have several different characteristics in order to avoid being considered a divestment for purposes of Medicaid qualification, including:

1. The annuity must be irrevocable and non-assignable;
2. The annuity must pay out on an actuarially sound basis;
3. The annuity must pay out in level installments;
4. The state must be named as a remainder beneficiary to the extent of Medicaid benefits received.

Any annuity that does not comply with these rules will be considered a divestment and subject to penalty. But any annuity that does comply with these rules will go to pay the cost of nursing home care in two ways. First, the regular income from the annuity will have to be paid to the nursing home on a monthly basis. Second, if the owner of the annuity should pass away before the annuity has paid out the entire balance, the remainder would go the state to the extent that any assistance had been provided. The owner of the annuity will have to pay the entire nursing home bill sooner or later. Medicaid friendly indeed!

It is at this point that the need to consult with and elder law attorney regarding annuities becomes clear. Elder law is the practice of law related to serving the needs of senior citizens and their families. It often involves planning for health care costs and interactions with Medicaid and Veterans benefits. Medicaid law in Michigan and many other states has changed a great deal since the Deficit Reduction Act of 2005 was passed and this law has dramatically changed the meaning of “Medicaid friendly.” Great care must be taken under this new law to either avoid or carefully manage penalties for transferring assets and yet maximize the benefits available with annuities. Without proper planning, precisely because an annuity can be described as “Medicaid friendly” it would almost certainly have to be exposed to the cost of long term care. But a modern estate plan developed in consultation with an elder law attorney can avoid exposing funds placed in an annuity to the cost of long term care while still obtaining the other benefits of the annuity itself. Careful estate planning can render an annuity safe from spend down for Medicaid qualification and make it truly Medicaid friendly.

*Jerrold E. Bartholomew is a licensed attorney in the state of Michigan. He is not licensed for insurance products or securities.

One quickly wonders how accurate the system really is. Given how much information is in the system, and how many people collected data, it seems difficult to believe that the system will be completely fair, objective and accurate. And indeed, several ratings for facilities that I know well have lower ratings than I would expect. CMS provides this Note to Nursing Homes to explain their methodology in collecting information. It is also helpful to note CMS’s policy that:

Each nursing home is also required by law to have the latest survey results on hand for the public to review. For the most recent survey results, contact the State Survey Agency. Their phone number is in the Helpful Contacts section of this website.

CMS also provides a number of useful publications related to nursing homes and care of the elderly generally. For instance, there is Medicare’s Guide to Choosing a Nursing Home, the Nursing Home Checklist, and a guide to Your Rights as a Nursing Home Resident.

And for those families seeking to avoid nursing home care, CMS has published resources on alternatives to nursing home care.

Private resources are also available to families seeking assistance with care management, financing, nursing home selection and other related issues. For instance, www.wheretofindcare.com is an extensive resource where patients and their families can both locate and comment on a wide variety of medical care providers. As an attorney who works with the elderly regularly, I publish several guides to Nursing Home Care, Hospice Care, and Medicaid Planning. Families with aging members can quickly become overwhelmed with the stress of caring for an aging person and our maze of a health care system. These resources are intended to help families find the information they need as quickly as possible.

This issue has been appealed by the state of Michigan with a hearing set for January. There will be much more to say on this issue as it develops.

When one member of a married couple requires long-term care for more than 30 days, an inventory of the couple’s assets as of the day the institutionalized spouse first entered the hospital or nursing home must be prepared. This is done using form DHS 4574-B, the Asset Declaration. This form must accurately describe a couple’s assets, under penalty of law. From this form, a determination is made of how much the couple will be permitted to keep and qualify for Medicaid. Eventually, assets that are retained by the couple will have to be separately titled in the name of the spouse who is not institutionalized. That spouse is called the community spouse. Therefore, the amount the couple can keep is called the community spouse resource allowance. “Resource” means basically the same thing as “asset” for most purposes. The process of dividing assets between what must be spent down and what the community spouse may keep is referred to as the division of assets. Generally speaking, the community spouse will be permitted to keep one half of all countable assets, but no less than $20,800.00 and no more than $104,400.00.

To take an example, let’s suppose that Bob and Mary have a house worth $150,000.00 and a car worth $8,000.00 and $150,000.00 in the bank on the day that Bob goes into the nursing home. Bob and Mary’s asset declaration might look like this:

House                    $150,000.00

Car                    $8,000.00

Bank Account                $150,000.00

Total:                    $308,000.00

At first glance, it appears that this couple is entitled to take retain the full $104,400.00 since they have $308,000.00 in net worth. But remember that the community spouse resource allowance only concerns non-exempt assets. The car and the house are exempt assets and so they do not count in the determination of what the couple may keep. But by the same token, the car and the house are not subject to spend-down. Here, the couple will only be entitled to keep $75,000.00 of the $150,000.00 in money that they have in the bank. The remaining $75,000.00 is the amount that is subject to spend-down. This money must be devoted to specific purposes under law, most commonly the cost of nursing home care. However, there are significant ways to put this money to the best use for the sake of the community spouse that will help to secure a retirement, care for the community spouse, or meet a number of other needs that the family may be facing. This is one area where consultation with an experienced elder law attorney can be particularly helpful.

For a free guide to Medicaid Planning and Division of Assets, send an email to Jerrold Bartholomew.

The aid and attendance pension is available to veterans who served during a time of war. It is not necessary to have participated in combat, but simply to have been in the military during a time of war. In addition to the service requirement, it is also necessary to be medically eligible and to meet the income and asset test.

Medical eligibility generally means that the veteran needs assistance with activities of daily living, such as grooming or eating. This requirement is often fairly easily met.

Finally, there are the income and asset tests. The income and asset tests can be the most difficult barrier to qualification for the aid and attendance pension. Among other things, the successful applicant will need to show that reoccurring medical expenses along with standard expenses of daily living exceed monthly income. Regarding assets, there are no hard and fast rules, but having more than $80,000.00 in cash or readily available assets is likely to disqualify a married applicant.

An elder law attorney can accelerate qualification for an otherwise eligible veteran who exceeds the asset or income thresholds. The asset test can be satisfied by use of an asset protection trust. This will allow assets to be preserved for future needs without interfering with qualification for benefits. Moreover, a plan of this kind will facilitate qualification for Medicaid in the future in case nursing home care is required.

Successful applicants for the Aid and Attendance Pension can receive more than $1,800.00 per month in assistance. This money, when combined with the social security and perhaps a pension, is often enough to pay for assisted living and to prolong assets almost indefinitely.