Melissa’s co-ownership carries with it certain legal rights and responsibilities.  Firstly, if Melissa is a co-owner, the assets in Mom’s account are now subject to Melissa’s creditors being able to reach it.  For example, if she is sued and a judgment is obtained against her, the account can be accessed to satisfy that judgment.  We can’t say it’s Mom’s money.  The same thing applies if Melissa files for bankruptcy.  Any account which she is listed as a co-owner may be seized by the bankruptcy court and trustee.

 If Melissa is married and goes through a divorce, the joint account might be considered marital property in a divorce proceeding.  Melissa’s husband could assert a right to one-half of the account.  It doesn’t matter that it was always Mom’s money and that she didn’t intend to give it to Melissa.

 Ownership means that Melissa can legally take the money for her own purposes, even though that wasn’t the intention.  That may not be a concern in her case but in some instances it could be an issue.  It might be tempting for a co-owner to “borrow” some of the money in the account.  That could be a real problem if the parent needs the money for his/her care needs.

 Co-ownership of a bank account typically means joint with right of survivorship.  What most people don’t realize is that this changes how that account passes when an owner dies.  Mom’s account will not pass under her will to Melissa and her 2 siblings, but instead, will pass only to Melissa as the surviving co-owner, even though Mom never intended it.  Melissa can honor her mother’s wishes and share the proceeds with her brother and sister, but legally she is not required to do so.  If she does, it will be considered a gift from Melissa, potentially subject to gift tax payable by Melissa.

 This unexpected change could cause bad feelings amongst family.  Let’s alter the facts a bit.  What if Melissa maintained that Mom really intended to leave her the account in gratitude for the time Melissa spent on Mom’s behalf?  If she never communicated that to her other children, Melissa is left to explain it.  At worst, her siblings could sue her to try to establish that Mom never intended that result.  At best, the bad feelings could linger for years and cause family disharmony.

 To the untrained eye, three little letters “POA”, may not seem like much.  But as you see, without proper legal guidance, they can add up to a whole lot of heartache for families.

 Yes, it matters and yes there is a difference.  Let’s look first at the difference.  A power of attorney is a document in which the principal designates an agent to act on the principal’s behalf.  A financial power of attorney will typically give the agent the power to conduct financial transactions, such as pay bills, access bank and investment accounts, conduct real estate transactions, pay taxes, etc.  It can be as all-encompassing or limiting as the principal wishes.

 With respect to bank accounts, the power of attorney will give the agent the ability to write checks on the prinicipal’s behalf.  The agent will sign his/her name followed by the initials “POA” .  If Melissa is Mom’s agent, then she is acting in a fiduciary capacity and must act in Mom’s best interest.  The assets in that account are still owned by Mom.  However, if Melissa is a co-owner of the account, then those assets become hers or, in some cases, one-half of the assets become hers.

 It is very easy to misunderstand the difference and in many cases we have found that people are under the impression they have set up a POA situation when in fact they have made their “agent” a co-owner.  A careful review of a monthly bank statement can reveal the answer.   If Melissa is an agent under power of attorney, her name would not appear on the bank statement or it would appear with the initials “POA” after it.  She produced a recent statement and it listed Mom and Melissa’s names but no “POA”.  A call to the bank confirmed that Melissa is a co-owner of the account.

 Now that we understand the difference, let’s go back to my first question, “Does it matter?”  We’ll delve into that next week.

Paul’s initial statement about never qualifying, or thinking he might need, Medicaid for his mother is a common one.   It assumes that there is one sole concern, long term care for Mom.  While that is certainly the primary concern, in this case it isn’t the only one.  As we learned, Paul’s brother, Bill, is unable to support himself.  Although he hasn’t been deemed disabled or been clearly diagnosed as far as Paul knows, Bill will likely need assistance the rest of his life.

Mom attempted to address his needs by leaving a portion of her estate to Paul to help provide for Bill’s needs (as I have written in previous posts,  not the optimum way to do this. A trust for Bill’s benefit is a much better way to go).  The more she spends for her care, however, the less there will be to support Bill.  That’s why Medicaid is important here.

I told Paul I could help but we’d have to act quickly.  We could set up a trust and transfer a portion of his mom’s assets to that trust.  But we need to keep enough assets in her account to cover 5 years of nursing home care.  Why? Because when we apply for Medicaid we’ll need to show, that from the date we apply going back 5 years, that she didn’t make any transfers for less than fair value, which, of course, she would have done.

I know what you may be thinking.  Why should the government pay for her care when she has the money to pay for it herself?  But is it really that simple?  Life rarely is.  Bill has no way to support himself.  He’ll end up destitute and Paul doesn’t have the means to support him.  Mom had always intended to provide for his care.  She just didn’t go about it the right way.  Luckily, Paul called us with enough time to fix things.  Mom will still pay plenty towards her care, probably close to $600,000 if she lives 5 years but there should be enough left for Paul to provide for his brother.

Paul’s scenario is not all that uncommon.  Families are often wrestling with more than one problem at a time.  Long term care is the most pressing one but there other competing interests.  It is, therefore, critical that you take a wider view of the landscape and over a longer time frame.  Which means that you might not have enough money as you think you have and it may be time to put a better plan in place.

 Why did I say that?  Doing some quick math, spending approximately $100,000 a year of her assets on nursing care, it will take 10 years before Paul’s mom spends it all.  A 10 year stay isn’t all that likely, is it?  After all, she would be 98 at that point.  Not likely, but it is certainly possible. But let’s say she doesn’t outlive her money.  What if, instead, she lives in a facility for 6 years or 8 years and spends $600,000 or $800,000?  

 I told Paul that whatever is left will be passed on to her heirs in her will.  The exact amount will depend on how long she lives and how much she uses for her care.  I then asked if she had a will.  That’s when he told me that Mom has 3 children, but Paul’s brother Bill has “issues”.  “He hasn’t been deemed disabled or even diagnosed with anything”, Paul told me, “but Bill never married, has never held a job for very long and is just ‘off’.”

 Paul told me that Mom’s will leaves 2/3 of her estate to him to look after his brother.   I then asked about Bill’s situation, his financial needs.  Not surprisingly, he has nothing to his name.  As we were talking, Paul had an “aha” moment.  He realized that there just might not be all that much left for Bill and that the financial burden would fall to him.   Suddenly, Medicaid seemed to be more relevant.  Paul grew concerned and asked, “Is there anything you can do to help me?”  “Actually, there just might be”, I told him.

Next week I’ll share with you what I told Paul.

 Mindy corrected me.  “Dad only has $500 in the bank.  His income doesn’t count towards the $2000 asset limit”, she said.  That’s true but the assets aren’t Karl’s problem.  He has too much income.  You see, if his income exceeds the Medicaid reimbursement rate, that rate which Medicaid pays the nursing home for its’ Medicaid residents, then he won’t qualify.  (Actually, Medicaid requires the resident to give his income to the nursing facility and then it will pay the difference up to the reimbursement rate.)   And the long term care insurance, which will pay out for another 3 years, counts towards income.

 “But, the nursing home we looked at said their private pay rate is $10,000 per month”, Mindy told me.  “He only has $7500.  What are we going to do?”  I asked her if Karl was a veteran.  He was, of World War II.  If you are a regular reader of this blog you know that there is a wonderful program available to wartime veterans and their surviving spouses which can provide additional income in the form of a pension.

 I told Mindy that Karl could obtain a pension of $1700 per month.  That would bring his income up to $9200 per month, close to the $10,000 she was quoted.  We could either negotiate with that facility or find another one that would accept her dad’s income on a private pay basis.  That would get her through 3 years, until the insurance policy is tapped out.  And what then?  Karl’s income would most likely be below the Medicaid reimbursement rate at that point and we could then qualify him for Medicaid.

 I could hear the relief in Mindy’s voice.  “This is all so complicated.  I am so lucky I found you.  I could never have figured this all out myself. ”  I understood completely.  It’s so difficult to navigate through the long term care system without a knowledgeable guide.  To see if VA benefits can help you check out our 30 second VA Quiz at http://elderlawtodaypodcast.com/areas-of-practice-2/veterans-benefits/

When we sit down with new clients to explain how we can move assets out of their name in order to qualify for government benefits, they so often think in terms of gifting outright to their children.  Well, that’s what happened in this case.  Don told me that his mother gifted the home to Don’s deceased brother’s son, Clyde, a year and a half ago.   He lived in the home with his grandmother and was supposed to provide some care – or at least that was the plan – until Clyde decided that he wanted to sell and move to California to pursue a new career.  I figured out what was coming.

Don told me that Mom was essentially being kicked out of her house.  Clyde reneged on his agreement and was taking the proceeds from the sale with him.  Don wanted to know what his options were.  We talked about the possibility of suing Clyde to recover some of the money.  The problem was that no written agreement existed.  It sure looked a gift from Grandmom to Grandson, no strings attached. 

He then asked me about assisted living care for his mom who, he felt, really needed supervision.  She had approximately $50,000 in savings and $2200 in income from Social Security and pension.  At a cost of $5000 per month it would take her about 18 months to run out of money, leaving her unable to pay the assisted living facility expenses beyond that and with nothing to get her into a nursing home later on if she needed it.

“It all sounded reasonable when she transferred the house”, he told me.  “Clyde needed a place to live and Mom wanted to help him get on his feet.”  I understood, but at the same time, I know that life doesn’t always go according to plans.  It reminds me of the quote from a Robert Burns poem, that “the best laid plans of mice and men often go awry”.

That’s why we never advise our clients to transfer assets outright to other family members, but instead we use trusts.  Even when someone tells me that “everyone is on the same page – we all get along”, that is hardly a guarantee.  Life is too complicated, with so many twists and turns.   What Don’s mother should have done is work with an elder care attorney to put a plan in place to help her grandson, as she desired, but first to be sure to provide for her care needs for the present and the future.  Only when she no longer needed the funds should they have been given over to Clyde.

So what did Don do?  I told him that he’d have to make that $50,000 stretch another 3 and ½ years before Mom could hope to qualify for Medicaid.  He considered moving her to his home, not an ideal situation, but the least costly option.  He took the name of an attorney to talk with about suing his nephew and he thanked me.

I have spoken and written often about a wonderful benefit available to many of our elder law clients, specifically wartime veterans and their widowed spouses.  It is a non-service connected pension, commonly referred to as the Aid and Attendance benefit.  It provides a monthly pension to seniors needing increased long term care and is a real life saver for people receiving care at home, in an assisted living facility or a nursing home setting.  The 3.6% COLA applies to this program as well.

 In real dollar terms that means, for example, that in the case of a married couple, the maximum pension of $1949 per month increases to $2019 per month.  For the widowed spouse of a veteran it jumps from $1056 to $1094 and for a single veteran from $1644 to $1701.  And keep in mind that this pension is income tax free.

 Take our VA Quiz to see if you just may qualify.  Email us at contact@hauptmanlaw.com and we’ll send you the 4 easy questions you can answer in seconds, that could get you as much as $24,000 a year of additional income.

 So, what happens when a guardian dies?  Another one needs to be appointed. But that can take time, especially if there is no obvious successor.  In Judy’s case there wasn’t.    She didn’t have any suitable family members to serve and struggled with the decision.  In fact, she made the worst decision she could have, none at all.

When a medical emergency occurred with Bill after she died, that was a real problem because the non-profit organization caring for him didn’t have the legal authority to make medical decisions.  On the financial side of things, no one had access to the funds set aside for Bill, to be able to meet his care needs.

 Luckily, Bill’s medical crisis turned out to be not so serious but getting a substitute guardian in place took time.  Judy had discussed with the organization the possibility of having them serve but she never put anything into motion. So they weren’t sure if they should make application or not.  When there isn’t an obvious choice, time is wasted.  It isn’t clear who should take action first so everyone waits for someone else to step up.

 In Judy’s case, her legal and financial advisors helped out.  Eventually, the organization did petition the court to be appointed and, as I said, luckily Bill didn’t have a medical emergency during the 4 months it took to complete the entire process.  And while it appears to be the best situation possible for Bill, Judy left it to chance that all would work out well.

 The lesson is clear.  As we see many parents with adult disabled children age and pass away, it highlights the need for a succession plan before the parent dies.    Judy would have been best served if she had chosen a guardian and petitioned the court before she died.  The transition would have been much safer and smoother for her son, Bill.

We learn that the assets Gloria is trying to protect include a house and a car.  The writers do get something right.  Medicaid will likely scrutinize a divorce settlement that leaves all the assets to the healthy spouse.  But, if it is true that those are the only assets, any elder law attorney knows that Gloria can keep them under Medicaid spousal protection laws.  A divorce is unnecessary.

Let’s change the facts a bit.  Even if the couple have some money in the bank, Gloria can keep some or possible all of it, or at least spend it in a way that is more beneficial to her.  For example, if they have an additional $25,000 in assets she can keep almost $21,000 of it under Community Spouse Resource Allowance Rules.  The rest can be applied, for example, to a prepaid irrevocable funeral for Abe.

There are other possibilities, although the writers didn’t tell us enough about the couple to be able to say for sure.  Is Abe a war time veteran?  If so, then Gloria may be able to qualify for nearly $2000 a month of tax free income to help pay for his care under the VA’s Aid and Attendance program.

And what about the discussion about the ethics of a divorce?  We learn that Gloria has been unhappy in her marriage for years.   Medicaid isn’t her sole motivation so would she really be committing fraud?  Is it true that, as one of the attorneys in the firm says, her failure to plan is bankrupting the country?  We don’t know enough about how Gloria and Abe got to this point – how much money they had over their marriage and how they spent it – to be able to answer that question.  Maybe this is all they ever had in their lifetime.  Their house is their nest egg so what exactly did they do wrong? 

It is unfair and inaccurate to put the entire blame on the backs of individual Americans.  The problem of long term care is much more complicated than that.  The cost keeps climbing exponentially and we are living longer than ever before.  How were Gloria and Abe – or any of us for that matter – supposed to plan for that?

It’s 9:50 and Harry and her attorneys have only a few minutes to wrap up Gloria’s problem into a nice neat solution.  After all, they’ve got to get through the credits and at least 3 commercials before the next show in NBC’s lineup at 10p.  In typical TV fashion, Harry’s partner Tommy says he will pay for Abe’s care, even 24 hour care.  At an average cost of $120,000 per year that’s mighty generous of Tommy.  I doubt he realizes what he has just offered.

That’s clearly not a realistic solution, but the show’s writers can get off the hook that way.  They can write it anyway they want and in TV land you’ve got to have a nice neat ending.  It’s just that, in the real world, you can’t script it that easily.  It takes much forethought and planning. 

If I was writing the ending I would have sent Gloria to an elder law attorney to help guide her through what will surely be the most challenging time in hers and Abe’s life.  There are solutions.  She just has to get the right advice.  Who knows?  Maybe that can lead to a spin off series for NBC about an elder law firm.

 An elderly married couple, Gloria and Abe, meet with one of the lawyers in the firm.  Gloria explains that Abe has Alzheimer’s and that he needs full time care which they can’t afford without selling the house.  She wants a divorce from Abe, allowing her to keep their assets and permitting him to qualify for Medicaid.

 Much of the discussion amongst the lawyers in the firm focuses on the ethical issues.  Would Gloria be committing fraud?  Would Medicaid challenge the divorce settlement?  Should the country help Gloria and Abe (and others) who failed to plan for long term care? 

Later in the episode we learn that Medicaid isn’t Gloria’s sole motivation for seeking divorce.  She has been unhappy for much of their 40 year marriage.  The stress of Abe’s illness has just aggravated the situation.

 It all makes for great drama, but as so often happens with television and movies, in an effort to make the story “more sexy” and in the interests of time (after all, the show is only an hour and there is more than one plot line in each show) the truth sometimes falls by the wayside.  Next week I’ll share with you where the writers went wrong and why you don’t want to get your elder law advice from television.

 I was reminded of the show when I saw a recent announcement that the first shoes with GPS tracking will be sold in the United States.  No, they aren’t being made for government agents but rather for seniors suffering from Alzheimer’s Disease.  Wandering is a problem for many Alzheimer’s patients who then get lost when they can’t remember their way home.  A GPS tracking system in their shoe can make it easy for family and police to find them.

 While bracelets and pendants can do the same thing, seniors often won’t wear one because they don’t recognize it as being theirs so they remove it.  By placing the GPS in the heel of the shoe, the senior won’t know it’s there.  As the number of Americans afflicted with Alzheimer’s is expected  quadruple in the next 20 years the costs to society will be many.  Technology will play a big role in solving this growing problem.

 Interestingly,  the original idea was to create the shoe for long distance runners and children.  A college professor who was an advisor to the project, convinced the company which manufactures them that it would be best suited to seniors with memory issues.

Who knows whether anyone had Maxwell Smart’s shoe phone in mind when the idea of the GPS shoe was first discussed?  But, it’s a pretty neat idea which just may save lives and reduce a lot of stress for families concerned for their loved ones’ safety.

            Warren was referring to the latest prediction by Harold Camping, an American Christian radio broadcaster.  Camping claimed the world would end on October 21, 2011 after incorrectly predicting disaster would occur on May 21, 2011.  It always amazes me that so much media attention attaches to apocalyptic predictions.  Camping claimed he had examined the Bible and using numerology, a form of mathematics of sorts, was able to calculate the exact date.

            So, October 21 came and went.  The world as we know it is still here, and we’re still wrestling with the same problems we had on October 20.  While Warren was being facetious, his comment expresses the sentiment of many.  They just don’t want to deal with the unpleasant subject of aging and dying.  I am not sure why talk of the end of the world is any easier or more comforting to think about, but I’ll have to ask him when I see him next.

            It really just allows us to push the topic into the back of our minds, but time marches on and we all get older.  We can ignore it for a while but eventually the subject will rear its ugly head.  If Harold Camping wants to increase his batting average as far as predictions go, he might want to focus on the future of the long term care system in this country.  Because it doesn’t look pretty.  We are headed towards a real catastrophe and our government doesn’t seem to have a clue how to solve it (See my post last week about the death of CLASS).  As always, those who are ill prepared will suffer most.  The message is clear. If you were “hoping” the end of the world would bail you out, sorry to disappoint you.  Maybe it’s time to buckle down and put your long term care plan in place.

            CLASS, which stands for Community Living Assistance Services and Support was the part of President Obama’s 2010 health care reform bill that addressed long term care.  There weren’t many specifics in the bill, just a general outline.  The plan was to be a voluntary government program under which participants pay a monthly premium, which would then guarantee them a small benefit to cover their long term care needs.  However, they would be required to pay into the program for at least 5 years before claiming the benefit.

Participants would pay a monthly premium through payroll deduction.  The program was not intended to be another government funded one.  How much of a benefit would be paid and for what types of care weren’t clearly defined in the bill which became law.  The plan called for a committee to be formed to develop all the details over the next 2 years with the goal of beginning enrollment in 2012 and payouts in 2017.  Now, you may notice that I keep referring to the plan in the past tense.  That’s because only 19 months after the law was passed the President scrapped the CLASS program.

Last April, in this blog, I pointed out the many flaws in the plan.  It didn’t take an actuary to look at the numbers and figure out very quickly that there would be serious problems collecting enough premium dollars from a shrinking workforce to be able to pay out the mountain of claims that are sure to come as our population continues to age.  There was also the matter of the benefit amount which, although never finalized, was rumored to be in the $50 to $75 range.  The whole plan just didn’t seem to be well thought out, and perhaps that’s why the Obama Administration chose to announce its death on Friday.  (If you have bad or embarrassing news to release the PR trick is to release it on Fridays so it hits the papers Saturday when readership is at its lowest.)

So, where does that leave us?  I said last year that I wasn’t expecting much from CLASS and that proved correct.  But, I am also sure that this isn’t the last we will hear from this president or the next administration on the subject.  We can’t continue to ignore the problem of long term care in this country and we can’t hope and pray that the government will come to our rescue.  Each of us needs to ask some hard questions.  “Do I have a plan and is it adequate to meet my needs?”  If you don’t or it isn’t, then you’ve got to talk to the right people, such as your financial advisor, accountant, insurance agent and elder law attorney and get help now.  The clock is ticking and time is most definitely not on our side.

For several years now, many regular readers of this blog have offered me kind words and feedback on my weekly stories and interesting posts, suggesting that I write a book.  Well, I have finally taken their advice and am pleased to announce the publication of my first book, titled “Be Nice to Me – I Pick Your Nursing Home”.  Some might be puzzled, others amused, by the title.  It was intended to be humorous and head turning.  The book is a compilation of many of my posts over the years, updated in some cases.  My goal is not simply to be thought provoking, but for the reader to take action to address what is a growing problem in this country, the cost of long term care and how best to administer it.

For more information and to purchase your copy go to www.elderlawtodaypodcast.com/services/

 Richard West, a Medicaid recipient afflicted with muscular dystrophy, who needs nursing assistance and uses a ventilator, learned that certain of his vital services were being cut back because he had “maxed out” his benefits.  Although severely disabled, he still has mental capacity – and determination.  He checked his medical records and discovered that the home health care company that provided him with nursing care was overbilling Medicaid.  He tried reporting what he found to several government hotlines, but got nowhere so he hired an attorney.

 The healthcare company, Maxim Healthcare, has several hundred offices around the country.  The case involved 4 federal agencies and the Medicaid fraud units of at least 3 states.  The investigation reached through almost every state in the country.  For at least 6 years, Maxim billed Medicaid for services it never provided, using what is known as “no show” billing.  Nurses were paid for jobs they never had.  After being nabbed, Maxim agreed to return improper payments it received and pay criminal fines, totaling $150 million.  For his part in bringing the fraud to light, Richard West received $15.4 million.
 
 West described his frustration in reporting what he found, first to his county social worker, then to the state Medicaid office and then to a Medicaid fraud hotline number and waiting for action.  As anyone who has ever dealt with government bureaucracy knows, you can wait a long time.  West then took matters into his own hands.  Unfortunately, most Medicaid recipients are too sick, physically and mentally, to take on the fight that West did.

 West was literally fighting for his life.  Take away the vital services that Medicaid provides and he feared that he would die.  Now he has too much money to qualify for Medicaid.  Not exactly the “Medicaid Millionaire” who proponents of Medicaid reform claim are collecting benefits that shouldn’t be.  But it just goes to show you that you can’t rely on the government to take care of you.  It took a wheelchair bound 63 year old man on a ventilator to get the government to pay attention to someone stealing hundreds of millions of dollars right from under its nose.

 The case involved I.M., a 79 year old grandmother who is the primary caregiver for her 21 year old mentally disabled grandson, J.M.  (The court used initials to protect the family’s privacy.)  Their sole source of income consisted of I.M.’s Social Security and J.M.’s disability benefits.  They also both were Medicaid recipients.

 One day the State of New Jersey’s Department of Developmental Disabilities sent I.M. a grant of $2000 to be used for J.M.’s benefit.  She spent $500 and put the rest in the bank for later use, in a savings account payable on death to J.M.  She later changed the account to show that I.M. held it as representative for J.M.

 Well, maybe, if you are a frequent reader of my blog, you can guess what happened.  That account, combined with another account I.M. owned, pushed her over the $2000 limit for Medicaid eligibility, or so said the government.  The State demanded the money back on the threat that they would take away her Medicaid benefits.  I.M. refused and the case went to court.

 On appeal I.M. was victorious.  The court said that the money wasn’t hers simply because she had physical access to it.  She was merely acting in a fiduciary capacity, on J.M.’s behalf, as his representative.  Of course the State gave her the money with that understanding in the first place, but that didn’t seem to stop it from taking action against her for accepting it. 

And that’s what reminded me of the oft repeated phrase “Beware of Greeks bearing gifts”.  The saying is a reference to the story of how the ancient Greeks defeated the Trojans in a long war that lasted 10 years.  Cities at that time were surrounded by walls to protect against invading armies.  The Greeks couldn’t penetrate the walls of the City of Troy so they devised a clever plan.  They pretended to “give up” by offering the Trojans a peace offering of sorts, a wooden horse.  They left the gift outside the city gates and sailed away.  The Trojans saw this and brought the gift inside and proceeded to celebrate their “victory”.  In actuality, the gift was a trick to gain access to the city.  Hidden inside the horse were 30 Greek soldiers.  At night, while the city inhabitants slept, they opened the gates for the Greek army which had surreptitiously returned.  Victory was theirs.

 I am sure that I.M. would agree with my thoughts.  Accept the government grant to help her son but beware, because the same government will try to take away her Medicaid benefits.  It sure sounds sneaky and just reinforces to me why  I do what I do as an elder law attorney, on behalf of my clients.

 The first things we needed were the last 5 years of statements for every asset that Eddie’s parents owned.  We then looked through each one to determine what amounts of money had been transferred from their accounts that Medicaid could consider “transfers for the less than fair value”, that is, transfers for which they did not receive something of equal value back in product or service.  The monies Mom and Dad sent to Ecuador to support family members counted as transfers but we wanted to know what else there might be. 

 Eddie admitted he had no idea since his parents didn’t keep good records and they never discussed it with their 3 children.  Our paralegal painstakingly went through what seemed like a mountain of documents.  She found a total of $40,000 of cash withdrawals over a period of 5 years.  “Not all of that money was sent to Ecuador,” Eddie explained.  “My parents paid for things in cash.  They didn’t believe in credit cards.”    I told him if we could prove what some of that money was used for, by documentation (ie. receipts), we could knock that $40,000 down.

 Our goal was to get that number as small as possible because that is what Medicaid divides by another number to tell us how long the Medicaid penalty would be, how long Mom would have to pay privately for Dad’s care before Medicaid would kick in.  As it turned out, some of the cash was used to pay repairs on the home.  I had Eddie contact the contractor to get an invoice.  That was $10,000 right there.  We also determined that $7500 had been sent to Ecuador 4 years and 10 months ago.  I told Eddie that as long as we apply for Medicaid more than 5 years from the date of those transfers they would fall outside the lookback and we didn’t need to disclose that to Medicaid.

 That left $22,500 unaccounted for consisting of numerous withdrawals of varying amounts from many different accounts over the 5 year period.  I told Eddie that we should file for Medicaid and let’s see what they come up with.  I was confident their number wouldn’t be bigger than ours because I was very conservative in terms of what could be considered a transfer for less than fair value.  But I also know that much of this is subjective and Medicaid may “let certain transactions go”.  That depends on the caseworker, his/her caseload, the timing of the application and my ability to walk the caseworker through our application and the documents we provided.

 At worst, the penalty would be 3 months, meaning Eddie’s parents would have to pay an additional $33,000 at the nursing home’s private pay rate of $11,000 per month. But Mom still has a house worth $300,000 so, I explained, we could work out an arrangement to pay the nursing home from the proceeds of the house if she sells it or have her take a reverse mortgage or have one of the children loan her the money.

 It all made sense to Eddie and that’s what we did.  Medicaid in fact, found $14,000 in uncompensated transfers, resulting in a 2 month penalty.  Eddie was pleased.  Mom would have to pay the nursing home $22,000 but Medicaid then covered the rest.  We ended up saving her at least $40,000, the amount of money she would have had to pay if the penalty had been as much as 6 months or more.  Why?  Because, if Eddie had filed the application himself he would have been totally unprepared to provide the documentation Medicaid needed and to plead his case.  Being at the mercy of the State who knows how high that penalty would have been?

 Not too long ago, we handled a Medicaid application for a family.  Some clients we have worked with for a period of years, guiding them through the various stages of long term care, which culminates in a Medicaid application.  In other cases, we are called upon just before Medicaid is needed.  Eddie’s call about his dad fit the second scenario.  We knew nothing about his parents’ finances and Dad was in a nursing home.  Eddie was panicked about applying for Medicaid as soon as possible to protect as much as possible for Mom.

 I gave Eddie our Medicaid checklist of documents we would need to file the application, including 5 years of financial records for every account Mom and Dad owned.  I explained that we need to closely scrutinize money going into and out of those accounts, looking for transfers for less than fair value.  We want to determine, before we file the application, if there will be any transfers which will cause a Medicaid penalty.  Sometimes we can correct them before we apply or at least gather as much paperwork as we can to present to Medicaid if and when it becomes an issue to limit the penalty.

 Eddie told me not to worry.  Mom and Dad didn’t make any gifts, he told me.  The bank account statements I started to receive, however, painted a different picture.  As soon as we started to review them, we noticed cash withdrawals of, in some cases, $2000 per month.  Eddie told me, “Oh, my folks help out my aunt and her family in Ecuador.  But, that’s not a problem for Medicaid, right?”

 “Actually,” I said, “it is.  That’s a transfer subject to a Medicaid penalty.”  Eddie had a hard time grasping that.  “It’s not a gift,” he said.  “My aunt helped my family when my parents first came to this country when I was a young boy.  My parents are really repaying a debt.”  Unfortunately, Medicaid doesn’t look at it that way.  Under their rules it’s subject to a penalty, a period during which Dad is not eligible for Medicaid, even though he meets all the other Medicaid qualifications.

 Eddie was distraught until I told him what we needed to do but we had to work fast.  Next week I’ll tell you what I told him

 I explained to Melissa what I call the Medicaid “time bomb”.  She was totally unprepared for it.  The advisor who helped her with the VA application never told her about it and she said she never really thought about what she would do if either of her parents needed nursing home care.  I told her not to worry.  We’d have to transfer back assets to her parents and spend down some of that money before we apply for Medicaid.

 That’s when she told me about the annuities she purchased.  The stream of income they provided was a great help to pay for the assisted living care but now that Dad needed $10,000 of care each month the VA pension plus the annuity wasn’t nearly enough to meet the monthly nut.  I told Melissa that she would need to cash in the annuity, transfer it back and then spend down at least part of it.   “One small problem”, she said.  They have surrender charges if she liquidates them now.  The penalty is about 7% of the total value.

 “But the advisor never prepared me for this”, Melissa exclaimed.  That’s because he didn’t understand how Medicaid works – really doesn’t work – in conjunction with the VA benefits.  Melissa started to regret her decision to pursue the VA benefit.  I quickly corrected her.  It wasn’t a mistake.  It’s just that getting the VA pension was only a small part of what her parents needed.  They should have also, at that time, prepared for the next stop in their elder care journey – before they reached it.  Locking up their money with early withdrawal penalties severely restricted their flexibility, something they absolutely need when their health is declining.

 It wasn’t wrong to restructure their assets to get the VA pension.  It can help them stretch their money out and hopefully have enough to provide for both Mom and Dad’s care needs.  The problem is that they were completely unaware of how it affected their Medicaid eligibility.  The advisor couldn’t provide Melissa with any help at all.  His response was to contact an elder law attorney.

 Great advice, only he should have given it to her 2 years ago.

 The VA program is a needs based one, meaning that there is an income limit and an asset limit, similar to Medicaid, but also with some significant differences.  The asset limit is about $80,000 for a married couple. $40,000 for a single applicant.  Melissa’s parents had $200,000.  The advisor explained that transferring the excess assets out of their names would work because the VA doesn’t have a look back or a penalty period like Medicaid.  Mom and Dad could qualify for VA benefits the very next month.

 Then the advisor explained the income rules, what I call the “critical calculation”.  The VA takes gross income and subtracts recurring unreimbursed medical expenses to arrive at income for VA purposes (IVAP).  This number is then subtracted from the maximum pension rate for the category applied for to determine the pension received.  If unreimbursed medical expenses exceed gross income then the applicant gets the maximum pension.  In Melissa’s parents’ case, that would be $1949 per month.  The advisor next explained that unreimbursed medical expenses include the cost of home aides.

 Melissa told me she gave the advisor the income numbers.  Mom and Dad had combined income from Social Security and pension of $4000 per month.   Living at home the cost of the aides was $2000 per month but Dad needed more care than what he was getting.  She just couldn’t convince her parents to hire more because of their concern that they couldn’t afford it.  Melissa wanted to move her parents into the assisted living facility but that expense was even greater, at $8500 per month.

 The advisor then explained that the money they transfer out of their names could buy an annuity.  This would be a stream of income for Melissa’s parents that would helpe them pay for the assisted living facility.  Combined with the VA benefit they could make ends meet.  It all sounded great and Melissa and her parents went ahead with the plan.  Mom and Dad moved into the facility and applied for and received VA benefits.  Everything worked according to plan – that is until Melissa called us.  That’s because of what we call the Medicaid time bomb.  We’ll talk more about that next week.

 We had a recent situation in which our client, Charlie had long term care insurance and Social Security and pension income that, combined, exceeds the Medicaid reimbursement rate, the amount which Medicaid pays the nursing home.  Charlie’s income plus insurance benefits totaled $7500, while the Medicaid reimbursement rate for the particular nursing home is $6000 per month.  The home charges $10,000 per month to its private pay patients so Charlie was in a bind.  He had too much income to get Medicaid but not enough to pay privately.  It would seem that Charlie had fallen through the cracks.

 We spoke with Charlie’s family about a possible solution.  Charlie was a World War II veteran, having been honorably discharged.   The nursing home bill counts as an unreimbursed medical expense, which easily reduced his income to zero for VA qualification purposes.  He, therefore, was eligible for a VA Aid and Attendance pension of nearly $1650 per month, the maximum amount allowed for his category.  That would bring his income up to $9150. 

We then approached the nursing facility to see if they would take Charlie as a resident.  It seemed to be a win/win.  The facility, while not getting quite the amount they usually charge private pay, still would receive more than the Medicaid reimbursement rate and Charlie’s family would have the peace of mind of knowing that Charlie would have a place to stay.  They could rest assured that he would fall into what I call a black hole of long term care.

 In Laura’s mind, the crisis for which she hired us had now subsided.  She could put long term care issues on the backburner.  She had other things to deal with, among them the psychological, emotional and financial toll of the loss of her longtime spouse and what changes to her lifestyle that would cause.  I can certainly understand her thinking, but that is absolutely the wrong response.

 You see, when a married couple becomes our client in what  we call “crisis mode”, the family is focused on one problem only.  In Laura’s case it is how to afford George’s long term care without losing everything.  While that is my primary focus too, I am also looking at the care needs of the healthy spouse, Laura.  How can we best protect Laura so that, down the road, she doesn’t find herself in the same situation as George.

 Laura is healthy.  Now is the time to take action so that if and when she is faced with the spector of long term car – and that might be 3, 5 or 10 years from now – we won’t be trying to put out fires, so to speak.  We will have a plan in place and the ability to tap into all available sources of payment.  That will make it so much easier for Laura’s children to manage their mom’s care without worries that she will run out of money and it will decrease the chance that Laura will need to enter a nursing home.

 This is critical to Laura, but also to her children.  While Laura devoted the last several years to caring for George, it won’t be so easy for her children to do the same for her.  While they want to be there for their mom, they have young children and careers too.  They can’t simply drop everything on a moment’s notice. 

 When I explained this to Laura she understood.  It took her a little time to adjust to the loss of her life companion, George but we also didn’t need to work quite as quickly.  Over the next several months we put the pieces of a plan in place.  Laura and her family have the peace of mind of knowing that they’ll be much better prepared if a long term care crisis hits a second time.

 Because Medicaid is so maddeningly confusing.  Because the Medicaid rules vary from state to state.  Because well meaning people hear a snippet of information and pass it on as if it is fact or take what happened in one case they know of and assume the same thing will apply in the next.  All very dangerous and usually wrong.

 Let’s look at the house issue.  First of all, the State has no desire to literally “take your house”, meaning take over ownership.  The State is not in the business of managing real estate.   In certain circumstances, under what is known as estate recovery, the State will place a lien on a Medicaid recipient’s home.   A lien is like a mortgage, a secured interest in your home.

However, what most people don’t realize is that this doesn’t happen until after the Medicaid spouse and the healthy spouse both die.  As long as the healthy spouse is alive the State cannot place that lien on the home.  The spouse can sell it and keep the money but does not have to pay the State back at that time.  In fact, the State, under certain circumstances, might never get that money.

 We try to prepare our clients for the inevitable well intentioned free advice.  “Don’t panic”, we tell them.  “Just give us a call and we’ll reassure you that the path you’ve chosen is the right one.  It’s tough to travel down the elder care journey on your own.  Getting the proper guide makes all the difference in the world.

     A trend we have noticed in recent months in many county offices (Medicaid applications are processed on the county level) is the high turnover of staff and the severe understaffing of offices.  Many offices are filled with inexperienced and overworked employees – a bad combination.  That’s when mistakes happen.  If you’ve been a reader of this blog for even a short time you know how many things can go wrong with a Medicaid application and it’s almost never in your favor. 

     The family doesn’t know the ins and outs of the Medicaid rules.  Completing a Medicaid application is more complicated than preparing the average tax return.   That’s why you hire a good CPA.  The nursing home is not any more equipped to handle it either.  It’s just not the business they’re in and it can cost the applicant and the nursing home tens of thousands of dollars if they make a mistake. 

      The reply I hear so often is “I looked at the application form.  It’s only 8 pages and looks pretty straight forward”.    For the most part that’s true.  Except that it’s not the application that’s really the problem.  It’s all the documentation you must provide and the follow up scrutiny.  Going through the Medicaid process is sort of like undergoing an IRS income tax audit, only worse.  Why? First of all, most people have some basic knowledge of income tax just from the fact they have been filing returns for many years.  Most people who file a Medicaid application, however, do it only once.  They know next to nothing about the laws and regulations (or even worse they think they know and are flat out wrong). 

     Secondly, the tax auditors are so much more experienced than Medicaid caseworkers.  They generally know the tax laws, or at least how to interpret the laws in the government’s favor (which is why you don’t walk into an audit on your own).   You can’t really blame the Medicaid workers.  They are thrown into the job, usually with next to no experience, and try to do their best.  But, in so many cases it’s the blind leading the blind.  When the caseworker says an asset is countable how do you know it really is?  If he/she is wrong you wouldn’t know it.

     So, let’s go back to my original question.  Is there really any easy Medicaid application?  If for the past 5 years you literally never had any assets and only a checking account and lived on Social Security and a pension then, yes, that would be a painless application.  But, that’s a pretty rare occurrence.

     If you’ve got more assets than that, it is impossible to say it will be an “easy” application until an elder law attorney who knows the rules and regulations really scrutinizes all the transactions in every document provided to Medicaid before you file the application, not after.  That’s the best way to insure you’ll have a painless Medicaid experience.

 If you ask anyone turning 65, they’ll tell you they don’t feel like seniors.  They also don’t act like seniors, certainly not like ones of past generations. Growing up with sex, drugs and rock and roll, many of the recently minted seniors, the oldest of the baby boomers, still think of themselves as young and are generally healthier than their parents were at that age. 

65 now is not what it was 20 or 40 years ago.  People are living longer, more active lives and that will have an impact on what services new seniors will require and demand in the marketplace.  For example, traditional senior centers in some areas are closing for lack of funding and lack of participation.   Many are too sedentary.  You are more likely to find younger seniors at a health club than a senior club.  They are more likely to be playing basketball, softball, tennis, golf, even adventure sports, than playing board games, cards and bingo. This change will affect many senior communities, including active adult communities and assisted living facilities.

It usually takes society time to adjust to change.  We’ve heard about how the Social Security and Medicare will run out of money within the next 10 to 20 years.  The retirement age for Social Security has been raised gradually from the traditional 65 and probably will continue to climb. The notion of retirement in 1935, when the Social Security program was created, did not contemplate 20 or 30 years or more of retirement but that has become the norm.  In 1935 people weren’t living with chronic ailments for years like we are now, thanks to advances in modern medical science.  In fact, the average life expectancy in 1935 was less than 65 years of age.  Social Security was designed with the expectation that a large segment of the population would never collect benefits.  That’s generally how insurance works, at least if the insurance company wants to remain in business. 

With people living longer, more active lives does that mean long term care services are no longer necessary?  Of course not.  While we can put off the aging process we can’t avoid it – at least until someone figures out that whole cryogenics thing.  It just means we are more likely to face significant declines in our health later, perhaps at 75 or 85.  Everything is stretched out over a longer time frame and we’d better be prepared for it.  We have to stop thinking about retirement and long term care as it was 75 years ago.  Most people have a plan that fits 1935, as if they are caught in a time warp.  It’s time to replace it with one that works in 2011.

 Mackey was a tight end for the Baltimore Colts in the 1960’s and early 1970’s after having played his college ball with some great Syracuse teams in the early 1960’s.  He later became the first president of the NFL Players’ Association and was instrumental in efforts to secure pensions and other benefits for retired and ailing players.  Football is a violent sport and like many players Mackey began to suffer from dementia.  In his last years he needed to be cared for in an assisted living facility.

 Mackey played in the days before athletes made millions.  His wife, Sylvia, therefore, had to go back to work as a flight attendant to pay their bills and because they needed the health insurance.  As the disease progressed, however, the Mackeys realized what many of our clients come to learn, that traditional health insurance won’t cover long term care.  That’s when Sylvia Mackey and other wives and children of former NFL players pursued the NFL and its Players Association to establish the 88 Plan.

 Named in honor of John Mackey, whose uniform number was 88, the plan provides up to $88,000 a year to cover long term care for former NFL players with dementia.  Much has been written about the connection between football and brain injuries although the NFL still insists there isn’t any higher incidence of dementia in football players than there is in the general population.  Maybe the 88 plan is just the NFL recognizing what I have been saying for a long time, that long term care is a big problem in this country and the owners and players are doing what we all should, implementing a plan to solve the problem.

 The Mackeys’ story is instrumental.  It’s a story of a wife who suffered along with her husband, supporting him physically, financially, emotionally and psychologically the best she could.  It’s also a lesson about being unprepared.  The Mackeys didn’t have a plan, but they were lucky.  They convinced John Mackey’s former employer to come through with the “88 Plan”.  The question then is, “who’s going to provide your 88 Plan?”  Chances are you’ll have to do it yourself so the sooner you get started the better off you’ll be, unless you’re thinking the NFL is going to help us all out – just as soon as they figure out how to solve their lockout and save the coming season.  Yeah, right.

 In the commercial, present are an elderly woman we presume to be the widow, the very attractive young blonde “soul mate” and the son.  The attorney recites the clause in which the jet, private island, and family business are left to the soul mate, to the disgust of the widow.  Finally, the Direct TV collection of movies is left to the son, who proceeds to carry on in celebration.  Funny, but is there any truth to any of it?

 No, not really.  While I can’t say I have had any client take that much interest in passing on an inheritance that includes their TV service, reading a will aloud isn’t a requirement and I’m not sure, outside of Hollywood, it ever really was required by law. 

But what about the idea that the widow gets nothing, or at least that’s the inference that the commercial leaves us with.  Of course, we don’t know what else the Direct TV subscriber’s will says, but most, if not all states, have a law to protect the “kept in the dark” spouse.  The law is known as the elective share.  It says that the surviving spouse is entitled to a minimum amount of the estate even if her spouse’s will cuts her out entirely, unless she knowingly waives that right.  So the poor “Direct TV” widow, if she lived in New Jersey, for example, could be entitled to as much as 1/3 of her husband’s estate, regardless what the will says.

 In that case, the son might not be celebrating quite as much if he only receives 4000 movies, the other 2000 being left to the widow.  It doesn’t make for as amusing a commerical, although I’d hate to think about how messy it could be deciding who gets what movies.  Sounds like that family may be headed for a court battle.

 It’s a good thing Janet called when she did.  Half the refund is hers, no question, but the other half is Murray’s money.  If Murray now has $5000 isn’t that more than the $2000 Medicaid asset limit?  Will he now lose his benefits?  Or is it considered income to Murray, requiring him to turn it over to the nursing home?  Or is it possible that Janet can keep it all?

 This is a very tricky situation, and a clear illustration of how so complicated Medicaid is, even after you have been approved.  First of all, Medicaid rules state that an income tax refund is not considered income so giving Murray’s half to the nursing home isn’t necessary.  OK, so it’s an asset.  Well, then, can Janet keep it?  No, she can’t.  While she can keep any asset she had when Murray was approved for Medicaid (ie. the house and $100,000) and any asset she receives after that point (ie. her half of the refund), Murray cannot transfer his half to Janet.  He would lose is Medicaid benefits.  This is what is called a “post eligibility transfer”.

 So, what options remain?  Janet could spend the money for Murray’s benefit on things he needs, such as clothing, a TV, a companion to assist him etc.  However, she must spend it by the end of the month he received the refund.  Anything left unspent the following month will be added to his other assets.  If Murray is over $2000 in assets that next month he will lose his Medicaid unless he turns the money over to the state.

 It was a good thing Janet called when she did.  Can you imagine if she kept that $5000 and Medicaid found that out the next time she had to complete the paperwork to annually renew Murray’s eligibility?  Losing Medicaid would have cost her $10,000 a month, the private pay rate at the nursing home.  Janet could have potentially lost tens or hundreds of thousands of dollars, sending her to the poorhouse.  Luckily, she sought the proper advice.  But, it just goes to show you there are infinite ways that the Medicaid rules can trip you up.  The problem is you just don’t know what you don’t know.

 These questions refer to what is known as family or “filial” responsibility laws.   More than half the states have some type of law that requires family members to pay for the care of other indigent (poor) family members.  There is a long history of filial responsibility dating back to 17th century England.  The English Poor Relief Act of 1601 required parents, grandparents and children of every poor person to financially support that individual to the extent possible.

 In most states that currently have such laws, they have never been enforced.  Pennsylvania is an exception, but  even there it is by no means easy to do.  As I often explain to clients, just because the state passes a law or makes a new policy or regulation doesn’t mean it is enforceable, legally or practically.

 The Medicaid program is a hybrid in the sense that there are federal laws and state laws that both govern the program.  States sometimes pass laws or regulations that may violate other  federal laws, which they can’t do.  Federal Medicaid laws, for example, state that in determining financial eligibility the assets and income of the applicant and spouse shall be considered.  Adult children aren’t part of that equation.  So, if a state now says that children should pay for care before Medicaid pays, it is making the federal eligibility test more restrictive than what Congress intended, which, again, it can’t do.

 Although I haven’t examined each state’s filial responsibility law, I would say it is likely that no 2 laws are written exactly the same, which will also factor into any outcome.  In New Jersey, the law provides that a child who has “financial means” must pay for the parent.  But what does that mean?  The law doesn’t establish a number or even a method to determine who can afford to pay.  Obviously, these are not easy questions to answer and no one has yet attempted to enforce the law. 

 So, what is the final word on filial responsibility?  There isn’t any right now but, it is important to keep an eye out for trends and changes in the coming years.  And it is important to have someone on your side, such as a competent elder law attorney,  to be able to help you navigate through and around the pitfalls that pop up with regularity in the long term care world.

 That’s when he went to see an estate planning attorney.  As I often explain to people, estate planning focuses on “what happens if you die”.  Jack and Diane executed  a plan that will help eliminate estate taxes through the use of trusts, and will leave their assets to each other and alternatively to, or for the benefit of, their children, one of whom is disabled and is incapable of managing money.   They missed a really big opportunity, however, one that could end up costing them as much as a half a million dollars or more.  The estate attorney didn’t raise the question of “what happens if they don’t die”, meaning they live and get sick and have $120,000 a year in long term care expenses or more, a very real possibility at that time, because Diane had already been diagnosed before they visited that attorney.  They didn’t realize that long term care costs could “solve” their estate tax problem.

 Had Jack and Diane come to us then, we would have started them on the very same plan we are putting in place now.  But, since we know that the government won’t help out until 5 years (because we are transferring assets into trusts and there is a 5 year Medicaid waiting period) Jack must pay for Diane’s care during that time.  Diane’s care now costs $120,000 per year and will only continue to rise.  5 years ago, however, Diane’s care costs were minimal because she was still in the early stages of Alzheimers’, a progressive disease.

 That’s the mistake Jack and Diane made.  Diane’s care costs over the next 5 years will be hundreds of thousand of dollars more than they were in the last 5 years.  You want the 5 year look back to run when your costs are less.  Certainly when Diane received her diagnosis that should have been the alarm sounding that they should work with an elder law attorney to protect what they have, especially when you consider that Jack could live another 30 years and will need to support his special needs child.

 It all goes back to the Medicaid 5 year look back, the penalty and how it is calculated.  When Mary applies for Medicaid she will have to provide 5 years of financial statements for every account that Dad had in existence during that time period.  The State will look for any transfers for less than fair value, meaning transfers for which Dad did not receive anything of equal monetary value back.  Those transfers are totaled up and then divided by the average monthly cost of nursing home care.  That third number is the Medicaid penalty, the number of months Dad will be ineligible for Medicaid benefits from the date he has applied going forward.

 And this is the reason why you don’t want to rush to apply.  Surprisingly, what is considered a transfer triggering a penalty is not always easy to define.  It could be because there isn’t a clear paper trail to establish where money went.  Cash transactions aren’t easily explainable so the State may say they are subject to a penalty and Mary may not have the documentation at hand to prove otherwise.  There are many other examples, too numerous to list here.

 If a Medicaid penalty is set, the only way to eliminate it is to return all the money. Now, you might think, “OK, what’s the big deal”?   Well, if the Medicaid caseworker tells you to explain a particular transaction and you have 10 days to do it, will you be able to get all the necessary documentation together?  Probably not, especially since, in Mary’s case, she wasn’t in charge of Dad’s finances until he entered the nursing home and he was a very poor record keeper.  She may be stuck with a penalty simply because she didn’t have enough time to get the answers.

 There is however, a greater risk.  Let’s say Dad made a transfer of $100,000 to Mary, for her to hold, 4 ½ years ago.  If she applies for Medicaid now, Dad will be stuck with a penalty of 13.7 months.  Mary would need to figure out how to pay for his care for over a year.   On the other hand, if, as I recommend, we do a Medicaid review first, and find that transfer before we apply, then the better course of action is to wait until the 5 year Medicaid look back expires.

 Why?  Because if we wait another 6 months then that transfer won’t fall within the 5 years so there won’t be a penalty.  We will, in other words, qualify Dad for Medicaid 7.7 months sooner, saving Mary approximately $80,000 in long term care costs.  Keep in mind that each case is different and the Medicaid laws are quite complex but it does illustrate, again, why you must have a trusted guide throughout the Medicaid process.

 Bill called us regarding his dad, who is now in a nursing home.   2 ½ years ago Dad transferred $300,000 to Bill and his brother.  Bill said he did this after speaking with friends who he said “had been through the Medicaid process”, his accountant and financial advisor.  He said if Dad needed nursing home care (he was living at home at the time of the transfer) he understood that he could apply for Medicaid, get a penalty assessed because of that transfer and then transfer 1/2 the money back to Dad, reducing the penalty.

 Bill was describing what is known as the reverse half a loaf strategy.  Transfer back a part of the assets, apply for Medicaid, receive a Medicaid penalty, or period of ineligibility and use the funds transferred back to cover that time period.  It all sounded good to him.  Except for one thing.  Earlier this year the State put a stop to the reverse half a loaf strategy.  I told Bill that he would need to either transfer all of the money back and use it for Dad’s care or keep the funds in his name and pay for Dad’s care for another 2 ½ years till the 5 year look back expires.

 That’s when Bill told me his problem.  He didn’t think he would need the other ½ of the $300,000 for Dad’s care and Dad wanted to pay for his grandkids college education so Bill only has enough to cover the next 1 ½ years.  Yet he won’t be able to get Medicaid for 2 ½ years.  Bill’s mistake is that he left himself with no other options.  He expected that things wouldn’t change, that his strategy would work exactly as he planned.  He never considered that the Medicaid rules could change.

 That’s a mistake people so often make when it comes to long term care planning.  They focus on one solution to the exclusion of all else.  But, predicting the future is a risky business.  What works today may not work tomorrow, which is why getting the right advice from someone who has been through the process so many times, such as a qualified elder law attorney, can make all the difference.  I didn’t have a great solution for Bill.  If Dad outlives the balance of $150,000, Bill and his brother will have to come up with the funds to pay for care for another year until he can get Medicaid.  At least he has 18 months to figure that out but that was little consolation for Bill.

 I have written in the past about some of the issues facing parents of disabled children who become adults.  Parents may not automatically make all decisions, financial and medical, for their children.  The children must either sign a power of attorney and health care directive or the parents must petition a court to declare the child incapacitated and have themselves appointed guardians.

 While it is important to address the issue of decision making, that is only a part of the problem that many families will face in coming years.  Services for adults with disabilities are not mandated in the way that school age education is for children.  These adult children will face many of the same issues that aging seniors, eventually their own parents, will have to address.  That won’t be easy as the government cuts services and programs to save money and there are fewer working-age adults to provide the necessary care.

 For example, many parents are unaware of how difficult it is to move a child to a group home setting.  The demand for this type of housing far outstrips the supply and the trend in many states is to get away from group housing because it is costly.  That leaves many families unprepared for the possibility that their disabled child may live with them for many years, perhaps until the parents die.  But, then what becomes of the child?

 Well, that typically will fall to the non-disabled siblings and other family members.  Imagine what you would do if you suddenly had the responsibility of caring for a severely disabled person.  Would you be able to take the person into your home?  Do you have the space to do it, the proper environment, the financial means, the emotional and psychological strength to do it?   For most people the answer is no or not without great difficulty.

 The services available and the system in place to assist the disabled is even more of a patchwork, than is the long term care system for the elderly.  Financially, the disabled are generally worse off than seniors, most of whom were part of the work force for many years and accumulated some amount of wealth that their families can apply towards their care.  Not so for the developmentally disabled, such as those who are autistic.  Whatever funds available for their use will be provided by their parents. 

 Which is why it is so important for those parents to set up a plan now, while they are healthy, before they spend all their assets on their own care, leaving their surviving family members with the problem of providing quality care without the funds to pay for it.  That’s a sure recipe for disaster.

 The latest example is not about long term care but the parallels are there.  The State of New Jersey established a fund to help homeowners  remove rusted and leaking underground storage tanks that contaminate the soil.  5 years ago the fund had $90 million.  Now there is nothing.  But it’s the reason why there is nothing left that gets me.  The fund ran out of money in part because it was spent on other things that had nothing to do with removing underground storage tanks and in part because too many people were made eligible.  As a result, 1300 people seeking grants or loans to help pay for cleanup will have to wait at least a year and no new requests will considered until 2014.  Of course, there is nothing preventing the State from extending either of those timelines, making residents wait even longer.

 Meanwhile, leaky tanks will continue to leak and the State environmental agency can, by law, hold the residents responsible for the spill.  It’s commissioner has said that in some cases, where the homeowner doesn’t have the money to pay for the removal and it can’t wait, then the State will go in and clean it up and then put a lien on the property for the cost of that cleanup.  What does that tell you about whether any funds will be available next year, 2014 or any time?  All the chairman of the Senate environmental committee could say is that they will conduct an investigation as to what happened to all the money and why no one told them sooner.  Great.

 What has this got to do with long term care?    Nothing and everything.  Certainly environmental and long term care issues couldn’t be more different. What is important, however, is to pay attention to what the government is, or in this case, is not, doing for its citizens, especially where it made certain promises.  The State isn’t beyond changing the rules in the middle of the game and breaking its promises.

 And that’s the lesson to be learned here.  Long term care is a huge problem.  The government is a part of the solution.  But, it has in the past, and will most certainly again in the future, change the rules.  If you aren’t prepared for the possibility of needing long term care and expect the government to be the answer, you’d better rethink it.  Look what happened with a small program to remove underground tanks.  Don’t think it won’t happen with a program like Medicaid.  It will.  That’s why it’s so important to get your ducks lined up now, have a plan and a backup plan in place.  Because what the government provides you today may be very different than what is willing to provide you tomorrow.  You’d better know how you will respond.

 The short answer is no — if Betty follows our instructions carefully.  First of all, she shouldn’t sell the home until Joe is approved for Medicaid.  Why?  Because we don’t want what is a non-countable asset to turn into a countable one.  If Betty’s house is worth $500,000, then she’ll have to spend down those assets until she has no more than a shade under $110,000 before Joe receives Medicaid.  That doesn’t leave her a whole lot to live on and is why I always tell clients that in long term care planning timing is everything.

 When Joe reaches Medicaid eligibility there is what is called a “division of assets”.  The State determines what Betty is entitled to keep.  The house is the biggie.  That means that as long as she lives she does not have to use any of those funds to pay for Joe’s care.  So, if she sells the house, while it does mean that these assets are now countable for Medicaid purposes, that applies only to Betty, if at some point in the future she applies for benefits.  It does not affect Joe’s Medicaid eligibility.  This is very important to Betty because, as I said, she will lose some of Joe’s income and she doesn’t have much  in the way of investments.  She can’t afford the cost of maintaining the home and has determined that renting will cut her monthly expenses considerably.  Betty was relieved to hear what I had to say as I could see the stress just drained from her face.  She was onboard and gladly will accept our guidance.

 In New York residing in an assisted living facility doesn’t establish residency for Medicaid purposes.  However,   Mom hasn’t lived in New Jersey since 2003.  She’d have to move back here to qualify.  Moving directly to a nursing home would work but Mary said it’s difficult to make a move now and she want Mom near to her, which I certainly can understand.  So, New Jersey appears out.

 Let’s go back to New York.  If Mom lived even one day with Mary she’d satisfy the residency requirement.  Alternatively, if she had at any point entered a facility for rehabilitation she’d qualify that way.  Mary needs to go back over the past 8 years and determine if either of these scenarios has occurred.  If so then she’ll be able to get New York Medicaid.  Of course, I am presuming that no transfers for less than fair value have been made and a clear paper trail exists to prove that Mom’s money was spent entirely on Mom’s needs.  Since Mary was not at all familiar with these concepts it is entirely possible that a Medicaid penalty will result.  And, what if she can’t establish residency?  The options are not very appealing.

 And that’s the lesson to be learned.  Mary’s mistake occurred 8 years ago.  She had a plan, moving Mom in to live with Mary.  But, when that fell through she had no contingency plans.  She didn’t consider what would happen if Mom ran out of money.  Mary took for granted that the government would help out.  Unfortunately, it’s not that simple.  Better to plan ahead and get your “ducks lined up”.  Speak to someone who knows the rules and do it well before the money runs out because once the money is gone your options are drastically reduced, and in some cases eliminated altogether.

 The numbers are staggering.  The federal government spent $216 billion on Medicaid in 2009, about 7% of the overall budget.  States spend, on average, 22% of their budgets on Medicaid.  Those numbers are increasing at a rate of 6 to 7%, outpacing the rate of inflation.  The government realizes it must do something to rein in the cost.  As usual, the battleis drawn along political lines.  Republicans are pushing to turn Medicaid into a block grant program.  Democrats are fearful that services will be cut and costs won’t be curtailed if that happens.

 So, what would a block grant program mean?  First of all, under the Republican proposal, there would be set funding levels, rather than open ended funding as there is now.  Less federal funds would be provided to the states, but that would mean more control for them.  Now, all states must follow certain guidelines and offer Medicaid to specific categories of people.  However, they can offer additional programs, provided they apply for a waiver from the federal government.  If Medicaid is converted to a block grant program states would be able to entirely set their own Medicaid rules.  Some state governors feel that their hands are tied in terms of their attempts to “rein in” Medicaid because of the federal restrictions.  A block grant program would “release” those strings.

 What would the change look like?  It’s hard to say specifically, but it is reasonable, in light of tough economic times and government budget deficits, to expect that it will be more difficult to qualify for benefits.  And when can we expect these changes?  The House of Representative passed a proposal but political experts believe the Senate will reject it and President Obama has said he opposes it.  Even if it fails this time around, the issue won’t go away and another presidential election looms in 2012.  A transfer of power could change the political landscape considerably so stay tuned.

 Julia lived in that facility for almost 7 years actively participating in events and socializing with other residents.  It was at that point, however, that Amy’s family moved Julia to a nursing home.  They were worried that if she did not have the private funds to pay for her care in a nursing home of their choosing, but applied for Medicaid just before entering a facility, they could not be sure that she would be placed in a suitable nursing home.  So they moved her before she ran out of funds.  She is now 91 and has not handled the move well.  Her health is rapidly deteriorating.  She no longer socializes with other residents and rarely speaks, even to family members who visit.

Amy’s family was unaware of the VA’s Aid and Attendance program, which Julia could have qualified for back in 2003 upon her move to the assisted living facility.  She has lost out on nearly $90,000 in benefits over that 7 year period.  That money could have kept Julia in the place where she had thrived, for possibly 2 more years, before a move had to be made. 

Who knows?  Maybe her dementia would not have progressed as far if she stayed in the environment in which she had grown accustomed.  It’s also possible that she may pass away within those 2 years without ever having to move.  Unfortunately, Amy didn’t know enough about the situation (her family lives out of state), or soon enough, to be able to direct them to an elder law attorney who could have helped them qualify for these benefits.  But she wanted me to tell her family’s story because it illustrates how we can help guide families through the elder care journey if we get to them early enough.  By tapping into any and all possible sources of payment we can often keep your loved ones in the safest and best environment for them, and reduce the likelihood that you are forced to make a decision purely because you are out of money.

 Nearly 1 in 4 interviewed said they were concerned about needing to provide long term care for a loved one with Alzheimer’s.  Less than 1 in 5 said they had made any plans for the possibility of getting Alzheimer’s.  Only 2 in 5 people said they have had discussions with their families about Alzheimer’s.  4 in 5 adults admitted that they have made no financial arrangements for the cost of care should they develop the disease.  And here’s one final stat.  63% of those surveyed  acknowledged they know little or nothing about Alzheimer’s Disease.

 One thing is clear.  While the average American is concerned, he/she is not doing anything about it.  The problem isn’t going away and will only continue to intensify.  The government isn’t going to help either if this week’s developments are any indication.  Congress and the President only avoided a government shut down at the 11th hour  when they reached tentative agreement on federal budget cuts.  The message is clear.  You’ve got to look out for yourself and your family.  Others won’t do it for you.  To start taking action, visit our website www.livingstonmemorylawyer.com/

 This situation is actually more common than you might think.  Mary and John’s divorce wasn’t too complicated because their children were adults and they didn’t have much other than the house and retirement account, which were close to equal in value. Mary hired an attorney to “put the divorce through” and John represented himself.  For reasons Mary doesn’t recall, John never signed a deed transferring ownership.

 This could be a real problem for both Mary and John.  That’s because unless John can prove he legally no longer owns the home it could be countable and part of a required spend down towards long term care.   One of two things could happen.  If the house is sold then ½ of the proceeds may need to go towards John’s care.  If the home is not sold the state could put a lien on the home for Medicaid benefits it pays out on John’s behalf during his lifetime.  “But didn’t he give the home to Mary in the divorce?”  Well, yes, but he has to prove he received equal value back and he has to actually complete the transfer, which to this point he hasn’t done.

 As long as Mary (or John) can produce a written agreement showing the exchange of the house for the retirement account that won’t be a problem.  Mary assured me it’s in writing.  She just has to dig it up.  I told her now would be a good time to do that.  The longer she waits the harder it may be to locate and the State won’t take her word for it.  They will want the physical evidence.

 She then asked me about preparing a deed.  “Would we need to back date it 15 years,” she asked.  “Absolutely not”, I told her.  The signing date should never be backdated.   “Won’t Medicaid treat the transfer as occurring now, making it subject to the 5 year look back?”  I told Mary that isn’t an issue.  As long as she can prove there was an equal exchange it won’t be subject to a Medicaid penalty and the deed signing is a formality anyway.  Legally she acquired ownership 15 years ago.

 Mary was relieved but she did learn a lesson.  Better to take care of those loose ends now and not allow them to remain untied.  A lot can go wrong in 15 years and her home is essentially all she has. When she does sell it she’ll need to make the money last.   It would be a tragedy if she were to lose any of it.

 Mary’s response was, “I guessed wrong the first time, so, although I don’t think she will live to 105, I will plan against that risk.”  Mary was especially concerned because she was an only child, had divorced her husband a number of years ago, and did not have much in the way of assets herself.  “Mom had always planned to leave me enough for me to survive on when she’s gone”, Mary related.

 Well, the rest of the story is that Mom made it to age 103.  We never did apply for Medicaid.  But, looking at it in hindsight, had Mary made the decision the first time we met, Mom would have been on Medicaid at age 100, saving approximately $360,000.

 You might ask “why should Mary get this windfall?  She is cheating the government.”  But, is that really the case?  Mary now has about $250,000, not a whole lot for someone who is on a fixed income and could live another 20 to 30 years.  Mary may well find herself living in poverty, needing government handouts years before she ever might need long term care.

 The lesson to be learned is that planning isn’t about predicting what is going to happen.  It’s like buying insurance.  I buy life insurance to protect my family should I die.  I am buying peace of mind, protection against a scenario that could occur.  I am not “betting” on my mortality.  If I don’t die while the policy is in force I won’t be upset that my family didn’t “collect”. 

It’s the same thing with long term care planning.  If thoughts of nursing home care are keeping you up at night or occupying your thoughts during the day, you ought to manage that risk.  Most 95 year olds don’t make it to 100, especially when they are at a nursing home care level.  Mary thought her mom wouldn’t make it either.   But, in the end, her mom wasn’t like most 95 year olds.

Mary’s mom was already in a nursing facility when she came to see me.  Mom was in spend down mode, paying privately for nursing home care, at the rate of about $100,000 per year.  She had $1.2 million in assets and minimal Social Security of $500 per month.  Oh, and she was 95 years old.

Her situation was pretty simple and straight forward.  She didn’t have long term care insurance.  Her deceased husband wasn’t a veteran.  She didn’t have any disabled children or own a home.  I explained to Mary that Mom had two options, private pay and Medicaid, but all assets would need to be spent first before Medicaid eligibility could be an option, unless we did some very basic long term care planning.

I told Mary that we could move some assets to a trust.  “But what about the Medicaid penalty and look back period”, she asked.  I explained that Mom would need to private pay for her care for 5 years, approximately $500,000, before we could apply for Medicaid.  We discussed the likelihood of Mom living to 100.  I told Mary that while I agreed the odds were not good  she would have to evaluate that risk herself and decide if it was worthwhile to plan for that possibility.  She opted not to do the planning and thanked me.

Well, you know what happened, right? (Otherwise, I wouldn’t be telling you this story.)  Mom did live another 5 years and Mary came back to see me when she reached 100.  I’ll tell you all about that meeting in next week’s post.

 I had a conversation last week with a married couple for whom we are preparing a Medicaid application.  John is in a nursing home and Mary is healthy and living at home.  I explained to them that Mary can keep ½ of their countable assets, in their case $75,000, but that they must spend down to below that dollar amount by the last day of the month directly preceding the month we want to qualify John for Medicaid.

 I have had this conversation numerous times with clients in John and Mary’s situation and know all too well that this simple instruction is not always followed.   The largest part of most spend downs typically goes to the nursing home.  But, as most people do, myself included, we wait till we get a bill before we pay it.  If I owe you money, I’m not going to chase after you for a bill.  Whenever you get around to it and invoice me then I’ll pay it.  The longer the money stays in my bank account the happier I am.

 However, this can get you into big trouble and cost you tens of thousands of dollars if you wait for the nursing home bill.  If we want John eligible for Medicaid next month and we know that he owes the nursing home $20,000 for the past 2 months of care but they haven’t yet presented Mary with a bill, it makes no matter whether they legitimately owe the facility the money.  If that $20,000 is still sitting in their bank account next month, causing their account balance to exceed $75,000, John cannot qualify for Medicaid.  Even worse than that, he can’t ever qualify for next month.  He has to wait till the following month, which means they will owe the facility another $10,000, leaving Mary with $65,000 to live on.

 That is why we are so focused on getting our clients to change their habits, which isn’t easy to do.  Their entire lives John and Mary have paid their bills, after the vendor presents them with an invoice.  However, I tell them they must go bother the nursing home to bill them ASAP.   Who chases after someone to whom they owe tens of thousands of dollars?  That’s the way it goes in the Bizarro World of Medicaid and why entering this strange land without a knowledgeable guide can literally cost you tens of thousands of dollars.

 Jim’s mother has kept his father in their home with aides for the past two years but now, he is in the latter stages of Alzheimer’s.  Mom is overwhelmed, stressed and concerned that money is running out.  What will she live on?  Jim is now assisting Mom in searching for a suitable nursing home and hoping to qualify for Medicaid because Mom is healthy and may outlive Dad by some years.  She’ll need every dollar she can preserve.

 Qualifying for Medicaid in the case of a married couple is complicated.  Medicaid takes a snapshot of the couple’s countable assets as of the first day of the first month that the applicant spouse is continuously institutionalized.  That number is then divided in half and the healthy spouse can keep one-half of the assets, but not more than $109,560 (this number is adjusted each year).  The couple must spend down the rest of their assets to below $2000.

 Jim reported to me that one nursing facility told him that his mom could give the facility advance payment of several months of nursing care at their private pay rate while they are applying for Medicaid.  Once the application is approved (it can take 2 to 4 months and sometimes longer to receive word) the facility would refund whatever amount from that deposit they don’t need because Medicaid is then picking up the cost.  So, for example, if they deposit $60,000 with the nursing home to cover the cost of the first 6 months and Medicaid says they will start paying from month 4 then the home would refund $30,000.  Jim said it didn’t sound right to him.  I told him he was absolutely correct.

 What many don’t realize is that the money held by the nursing home on deposit is a countable asset so it affects both the snapshot or starting number and the target spend down or ending number.  That money isn’t part of the spend down until it is paid to the nursing facility for services received.  Medicaid doesn’t allow for payments in advance of services.  If you “pay” the nursing home for 6 months all you have done is move your asset from your bank account to the nursing home’s bank account but it is still yours.

 I explained to Jim that his mom could lose many months of Medicaid benefits, which could dissipate assets she will need for her own care.  He was thankful that he called us when he did.  We are now preparing his dad’s Medicaid application, guiding his mom through the process to insure that she will preserve what little she has left and the nursing home will be compensated for the care they provide.

 It all sounded straight forward.  But then I probed a little bit deeper.  I asked Mary how Dad pays his rent, food, insurance premiums and home assistance with only $1300 each month.  “Well, actually”, Mary told me, “I am supplementing his income.”  I learned that Mary was transferring $750 every month into his account so that he would have enough to pay his bills.  I asked Mary which Medicaid program she applied for. She said she wanted to keep Dad in his apartment as long as she could so she applied for the home based Medicaid program.  That’s all I needed to hear.  I had the answer.

Remember that Medicaid has an income eligibility limit of $2022 per month.  If you have more than that you can’t qualify for some of the Medicaid programs, but you can for others.  In Mary’s case, she applied for one with a hard cap, so to speak.  But, Dad has $1300 in income.  Why wouldn’t he be eligible?

 That’s because there is a specific Medicaid regulation, that counts as income, any regular contributions by family members over an extended period of time.  And that’s exactly what Mary was doing when she deposited $750 each month into Dad’s checking account, giving him $2050 of income per month, $28 over the limit.  I explained to her that it would have been better for her to simply buy her Dad some of the things he needed. This way there would be no income and he would have been well below the income cap.

 The good news is that, with this change, Dad can now be eligible for Medicaid.  The bad news is that it took Mary a year to call us to learn this information.  Dad lost a full year of benefits.  Just another example of how when it comes to Medicaid, looks are deceiving.  What appeared to Mary to be so simple actually cost her tens of thousands of dollars and a lot of heartache and stress.

 Here in New Jersey the budget deficit worsens.  Governor Christie will be announcing his state budget for the upcoming year and many are bracing for cuts in Medicaid programs, a trend that is occurring across the country.  The economic recession has reduced tax revenues in many states and caused a reduction in federal funding as well.  Remember that the federal and state governments contribute, on approximately a 50/50 basis, towards the cost of Medicaid programs.  What this means is that many states are cutting optional Medicaid programs and reducing the rate at which they reimburse providers.

 The second article talks about the first wave of Baby Boomers who are starting to turn 65 in 2011, and the fact that many are postponing their retirement plans for at least 4 years because of the recession.  In other words, they can’t afford to retire yet.  The article also notes that even before the latest economic downturn, Baby Boomers were unprepared for retirement which now typically lasts decades.  So, what do you think will happen as 77 million people retire over the next 20 years?  Many will enter an overburdened and underfunded long term care system.  More people and less money, a perfect storm.

 Knowing this storm is brewing, what can and should you do?  I am reminded of Aesop’s Fables, those stories we all learned as a child.  The particular one that is relevant here is “The Squirrel and the Grasshopper”.  The squirrel was busy in the summer gathering food and preparing for the coming winter.  Meanwhile the grasshopper was having a good time, not a care in the world.  When winter arrived he was unprepared and died of starvation.

 The same holds true for long term care planning.  Failing to plan while you are healthy may leave you unprepared when a crisis hits.  Ask yourself if you could afford a $125,000 per year additional expense (the average cost of nursing home care in New Jersey), or $250,000 for a married couple, without depleting your assets.  If the answer is “no” then it may be time to talk to your advisors, including a qualified elder law attorney, about putting a plan in place.  Better to be the squirrel rather than the grasshopper.

 The Medicaid penalty is actually a period of months of ineligibility for benefits.  The more money gifted, or more accurately, “transferred for less than fair value”, the longer the penalty.  Sounds fairly straightforward but it isn’t.  That’s because the penalty doesn’t actually begin until the applicant files a Medicaid application and the State calculates the penalty.

 Many people are entirely in the dark about these rather arcane rules and file a Medicaid application only to find out that they will have to transfer money back and spend it down first.  And that decision to apply before transfers back can be a huge mistake.  What if all the money can’t be returned?  Returning part of the gift should at least reduce the penalty, right?

 Well, not necessarily so.  Recently, New Jersey changed its position on partial gift returns, indicating that its interpretation of Medicaid laws now leads it to conclude that only when all the money is returned will it wipe out the penalty.  And that’s one reason I am fond of telling clients and prospects that timing is everything when it comes to Medicaid.

 If I can’t give back all the money Mom gifted to me, but only a part, I may be better off returning it before she files for Medicaid.   Why?  Because, remember, the penalty isn’t calculated until I apply and the State reviews my financial records and determines the exact length.  A partial return before Mom applies for Medicaid won’t result in a reduced penalty because there is only a potential penalty at that point.   If Mom transferred $100,000 to me but I transfer back ½ then when she applies for Medicaid the penalty will be calculated on $50,000, not $100,000.

 The reduced penalty can save some families tens and hundreds of thousands of dollars and possible financial ruin and is another reason why it so important to get proper advice before, preferably years before, an anticipated Medicaid application is to be filed.

Mary was told that John’s long term care insurance counts as income and, therefore, he had too much income to qualify for Medicaid.  Yet he didn’t have enough to cover the private pay cost of the nursing home.  Mary and John were caught between a rock and a hard place.  How was this possible?

 New Jersey has two Medicaid programs that cover nursing home care.  One program is for applicants who have no more than $2022 per month in gross income.  And when we talk about income, we usually mean Social Security and pension, which can’t be modified as long as you live.  A second program exists for those who have income greater than $2022, but the income limit for that program is the equivalent of the Medicaid reimbursement rate.  That rate is what Medicaid pays the nursing home, usually somewhere between $5000 to $6000, depending on the facility.

 John’s insurance policy benefits were being paid directly to him, not to the nursing home.    For that reason, Medicaid treated the payments as income to him , which pushed his “income” to $6500 per month, making him ineligible.  So was that it?  Was Mary out of luck?  Not necessarily.

 With a slight change John could be made eligible.  By having the insurance company send the benefit check directly to the nursing home, it would not be counted as income and John could qualify for Medicaid.  That’s because under Medicaid regulations third party payments for medical care or services, including room and board, are not counted as income.  If the insurance company, as the third party, pays the nursing home directly, then that “income” disappears.

 Crazy, right?  How can a minor change like that affect Mary’s health and well being so drastically?  That’s because, Medicaid regulations are so complex and arbitrary.  Failing to get the proper guidance can cost literally thousand and hundreds of thousands of dollars.  In Mary’s case, she spent another $25,000 before she sought out the advice of an elder law attorney who helped her fix her application.  Another example of how difficult navigating through the long term care maze can be.

 That is not true for home based and other community Medicaid programs.  Most states limit the number of residents for whom those benefits will be provided, resulting in lengthy waiting lists.  If you have spent all your money down to qualify for Medicaid at home you could wind up on a waiting list.  And if you can’t wait because your health  is at risk then your only alternative is to go to a nursing home.  That is how the system “drives people to institutional care”.

 In recent years there has been increasing discussion about whether this “bias” is what the government really wants.  Isn’t it less expensive to administer care at home, which would then cost the state less money ?  That is a debate that you’ll hear more of as the federal and state governments struggle with budget deficits and trying to keep costs down.   We are already seeing, in the past 5 to 10 years, an increase in state spending on home and community based programs.  But some lawmakers fear what they call the “woodwork effect”.  If they expand these programs, giving people what they want, more will be encouraged to apply and thus, the costs will rise.  People will be “coming out of the woodworks”, so to speak.  (Makes you wonder how much the government really cares.)

 That premise is debatable.  A 2009 University of California study found that expanding home based care programs saved states money in the long run.  There were additional “start up” costs but over time the additional expense paid for itself because, the study found, the cost of home care is cheaper than institutional care.

 As we see 77 million baby boomers starting to turn 65 the discussion will only intensify.  The long term care problem isn’t going away.  For more discussion on the issue check out a recent story on National Public Radio which you can find at http://www.npr.org/2010/12/10/131755491/home-care-might-be-cheaper-but-states-still-fear-it

 Medicaid rules require that the Medicaid recipient give his/her income to the nursing facility and Medicaid will then pay the rest up to the Medicaid reimbursement rate, that rate at which the State pays the nursing home.  If I apply for Medicaid in January but don’t receive  approval until July, I must give the nursing home my income each and every month starting in January.  John didn’t do that.  But it’s his reason why that is a lesson in why you don’t want to do it yourself.

 Mom was living in an apartment, paying rent.  When John met with the Medicaid caseworker, he says she suggested that he keep paying the rent on the apartment in case Mom wasn’t accepted on Medicaid and needed to go back home.  John understood that to mean that he should use Mom’s Social Security income to pay the rent, which is what he did.  Of course, he then didn’t have that income to give to the nursing home.  So when he received word of Medicaid’s approval he thought it was smooth sailing.  Except that Mom now owed the nursing home close to $15,000, her Social Security income for the past 6 months.

 He tried to explain to the nursing home that he followed exactly what Medicaid told him to do but the facility is demanding payment and is ready to file suit against his Mom and possibly John as the agent under the power of attorney.   His mistake is in relying on the state employee to guide him.  The employee either flat out gave him incorrect information or, in trying to be helpful and offering him advice outside the scope of her job, didn’t make it crystal clear.  In other words, while it might be a good idea to keep the apartment for a few months, the caseworker should have made it clear that payment of the rent cannot come from Mom’s income which absolutely had to go to the nursing home.  Either way, he took some bad advice and ended up in a whole lot of hot water that could have easily been avoided if he had just sought out the proper guidance.

 When we meet with clients who are well on their way to needing nursing home care or are already in a nursing facility Medicaid is starting to really come into focus for these folks. When we then look through their finances we so often find transactions that, if carried out with an understanding of the Medicaid rules, would have put them in a much better position.

 For example, I have written in this blog about the right way and the wrong way to pay for aides.  In the case of family members serving as home aides, typically there is no written agreement as to the amount of compensation or the scope of the work.  Without that agreement Medicaid views the transfers as gifts subject to a Medicaid penalty.  In some cases real estate or bank accounts have been transferred, or so the family thought.  Without a proper understanding of the Medicaid rules those transfers of assets out of the senior’s name actually are not transfers and, to the dismay of the family, are still subject to be spent down.

 When I tell clients this sometimes their response is, “can we create a written agreement memorializing all the care I provided to Mom for all these years?”  This typically involves “backdating” documents.  My answer is always an unequivocal “no”.  Back dating documents involves creating a document, such as a deed or a caregiver contract, and then making it appear that it was written and/or signed on an earlier date. 

Not only is it dishonest, it is also a federal criminal offense to falsify an application or documents in order to obtain Medicaid benefits.  This is known as Medicaid fraud and it caused an Ohio attorney to lose her license and be brought up on felony charges.  In her case, she back dated a deed 3 years to start the clock running on the Medicaid penalty. 

 That’s why it is so critical to understand the rules before you take a course of action.  And the only way to do that is to engage in planning with a qualified professional who understands the rules and can guide you accordingly.

 That’s because New Jersey, like many states, doesn’t have a gift tax.  Now you might think that’s a good thing, but we need to be careful.  To recognize why, it helps to understand how federal gift tax works.  Most people know that they can make gifts of $13,000 per person per year (the amount was $10,000 but is now indexed for inflation) without paying gift tax.  They can additionally make $5,000,000 in gifts during their lifetime.  (The new federal estate tax law passed by Congress for 2011 and 2012 upped both the estate and gift tax exclusions.)

 New Jersey provides  two methods to calculate its estate tax.  One way requires gifts to be added back to the estate for purposes of determining the estate subject to tax.  The other way does not.  So, depending on which method is used her dad’s estate could have to pay more or less in taxes.

 Mary had a hard time understanding that at first.  “But Dad gave no more than $13,000 to each of his children and grandchildren,” she exclaimed.  “He didn’t owe any tax”.  “All true,” I replied, “depending on what way you figure out the tax”.  It’s a good thing Mary sought our guidance.  The potential additional tax that she was unaware of amounted to over $50,000.  Although Mary was confused as to why two different tax amounts for the same estate could exist she was appreciative that we were able to steer her away from a costly mistake.

 An interesting question, and one that could have a real impact on Mom’s financial well being.  That’s because, under community spouse resource allowance rules, Mom will be able to keep a maximum of $110,000 but has to spend down the balance of their $200,000 in assets before Medicaid will cover Dad’s care.  That’s not much to live on, especially if Mom lives another 10 years or more.

 Medicaid does exempt the German reparations money from income rules, meaning it isn’t counted as income for purposes of determining eligibility.  But, Dad has received over $200,000 from Germany over the course of his lifetime.  Can that money be treated as an exempt or non-countable asset under Medicaid rules?  If so, then Mom can keep the extra $200,000, which would go a long way towards easing her money worries.

 The problem for most recipients is that it isn’t easy to identify which assets are from the German pension because the reparations money wasn’t segregated.  After all, the average person isn’t thinking about needing Medicaid years into the future, nor does he/she know the intricacies and specifics of the Medicaid regulations.  And there isn’t a specific regulation in New Jersey that talks about German reparations anyway, just a federal regulation.  (The Medicaid program is governed by a hybrid of federal and state regulations.)

 What I did tell Jerry, however, is that if the money can be segregated and traced, there is a very good chance that the entire amount can be exempted.  That means we must document how much Dad received over his life, place that dollar amount in a separate account and when we apply for Medicaid explain that this is the “German reparations” account.   It might require some negotiation with the State but it is well worth the effort.  Mom was relieved when I told her this and we have begun to take steps to make it all happen.  Stay tuned.

 Well, first of all, the new law is yet another temporary solution, this time for 2 years.  So, we might be right back here again in December 2012.  Nevertheless, the changes come as a bit of a surprise.  To review, had there been no change the federal estate tax would have returned next year for estates greater than $1,000,000, with a tax rate of 55%.  There had been some talk about going back to an exemption amount of $3,500,000, which was the case in 2009.  Instead, President Obama signed into law an exemption amount of $5,000,000 and a tax rate of 35%.

 For a married couple, with tax planning through the use of a credit shelter trut, that means they can transfer as much as $10,000,000 without paying federal estate tax.  Not bad.  Keep in mind, however, that many states have their own estate tax which remains unaffected by this new law.  New Jersey residents owe tax on estates greater than $675,000 and New York residents on estates greater than $1,000,000.

 What is somewhat surprising, however, is that the federal gift tax exclusion is once again unified with the estate tax.  Over the last 9 years, as the federal estate tax exemption kept increasing, the lifetime gift exclusion remained at $1,000,000.  In 2011, however, the gift tax exclusion will go up to $5,000,000.  The gift tax rate will be 35%, the same as the estate tax rate.

 So, what does this all mean for you and me?  For one thing, most estates will escape federal estate tax but estate planning will still be necessary to minimize, or in some cases completely avoid, state estate taxes.  Secondly, there are significant reasons to consider gifting more than the $13,000 per person per year annual gifts, now that $5,000,000 of gifts are exempt.  It might be a good idea to take advantage of the huge gift exclusion which may or may not be available beyond the next 2 years.  What remains unchanged is the specter of long term care.  Before one considers any gifting a carefully crafted long term care plan must be in place.

Part B covers doctors’ bills.  It is possible to sign up for Part A but not Part B.   Part B carries a separate premium (unlike Part A which has none) that, when you collect Social Security, is deducted from your Social Security payment.  The premium ranges from $96.40 to $110.50 for most people.  Because it is optional, some may decide to delay signing up for it if they have other insurance, through their employer or former employer, for example.  If you wait, however, you could be hit with higher premiums, 10% more for each year you could have signed up and didn’t.  And that lasts for the rest of your life.

 But, the rules on when you need to sign up are confusing.  Most should enroll at age 65 or when they retire, whichever is later – maybe. If you still have health insurance through your employer or your spouse’s employer you might be able to delay signing up, as long as there are at least 20 employees in your company.  Otherwise, you should enroll.  There are also special rules for federal government workers and other groups.

 Medicare Part D is the prescription drug coverage introduced a few years ago.  Part D rules differ from Parts A and B.  Enroll too late and there is also a premium penalty, 1% for each month you wait. If you have “creditable” drug coverage from your employer’s plan, then the penalty may not be imposed.   Your employer must tell you each year whether its’ plan is better than Medicare’s.

 Medigap insurance covers what Medicare doesn’t.  So, for example, it may cover some of your Medicare co-pays.  These plans are regulated by the government, meaning there are a few basic plans that will cover certain standard things, the more comprehensive the plan the higher the premium.  Switching in and out of these plans can be tricky. If you want to change plans without going through a medical screening process there are separate rules that apply.

 Another option that Medicare offers is called Medicare Advantage.  Most Advantage plans are HMO managed care plans.  If you are enrolled in one of these plans you don’t get Parts A and B and you don’t need a Medigap policy.  The premium will generally be lower but the negatives to these plans are similar to other HMOs in that your options for treatment may be more limited.

 Turning 65 is a milestone.   Making a decision on Medicare enrollment will have long term ramifications so do your research and choose wisely.

 Most people know that Medicare is the government health insurance program for seniors and the disabled that is now 45 years old.  For many years, turning 65 in this country has meant collecting Social Security and enrolling in Medicare.  Except that for new seniors now, Social Security won’t start till they turn 66 years old.  Many may then assume that age 66 applies to Medicare – it doesn’t – or they may simply choose to wait to enroll in Medicare, which could be a big mistake.  That’s because you could limit your options in the future and it could cost you more money in premiums for the rest of your life.

 Even if you are working and have health insurance benefits through your employer when you turn 65 you should sign up for Medicare Part A, which covers hospitalization expenses.  The initial enrollment period is 6 months, beginning 3 months before and continuing through 3 months after your birthday.  However, when during that 6 month period you sign up also matters.  If you sign up before the month of your birthday then your coverage starts on the first day of the month of your birthday. Sign up during your birthday month and coverage begins the month after.  Sign up later than that and your beginning date will be even longer, possibly 3 or 4 months later.

 What about Medicare Part B?  When should you sign up for that? We’ll discuss it next week along with Medigap policies Medicare managed care.

 Early one morning, while Mary was still asleep, John awoke to use the bathroom.  The progression of the disease had recently caused John to become increasingly unsteady on his feet and he had experienced a few minor falls but he was resistant to using his cane.  When Mary awoke, she noticed the bathroom light on.  When she went to investigate, she discovered John in the bathtub.  He probably lost his balance, fell in the bathtub and died from the blow to his head.  The news was devastating.

 Could this tragedy have been prevented?  Did we, as counselors to John and Mary, do everything we could?  Certainly, a situation like this one calls out for the use of a Personal Emergency Response System (PERS) or Medical Emergency Response System (MERS).  (Life Alert is the one most people know.)  These systems enable seniors, in the event of emergency, to contact a call center which in turns notifies the police, ambulance or fire services. The senior wears the device as a wrist bracelet or necklace pendant.  It is impossible to say whether John would have had time to use it in this instance.

 There is, however, a broader lesson here.  When we talk with clients about planning for long term care, especially with families that are already in crisis mode, their focus is usually on the here and now, which is certainly understandable.  What services or assistance does Mom or Dad need right now?  What most fail to realize, however, is that the level of need is anything but stable.  What Mom or Dad needs now isn’t likely to be what they need 6 months or a year from now.  But there isn’t a set schedule as to when those care needs will increase. It won’t be the same for everyone.  And there won’t be anyone tapping you on the shoulder to say “now is the time to move to a safer environment”.

 We so often talk with families about getting the appropriate level of care.  It might mean in home care.  It could be selling the home and moving to a facility.  It’s never easy to hear, usually frightening to consider, and often the issue of cost is a primary obstacle.  The failure to adapt, however, can have serious consequences, as we saw in John and Mary’s case.  It is best to be “ahead of the curve”, not waiting for something to happen and then reacting to it.  Tragedies can be avoided and financially, a better result is the outcome as well.

 The reasons for MetLife’s decision are twofold, rising number of claims and decreasing interest rates on reinvestment income.  This comes on the heels of recent announcements by John Hancock and Genworth that they are raising premiums, in John Hancock’s case by as much as 40% for individual policies.  On the other hand, companies like Northwestern and New York Life have not raised rates.  Rather, in some cases new products have been introduced.

 So, what conclusion can we draw from all this news?  For one thing, long term care is something that everyone ought to examine very closely, and for many who are approaching senior status, they should put it on the front burner of issues to tackle.  And while I do believe that long term care insurance is an important part of the solution, a well crafted long term care plan shouldn’t rely too heavily on any one thing.  Just as diversity in investment is wise, so is diversity in planning.  One can’t “set it and forget it” because, as we are witnessing, the insurance industry is still wrestling with decisions on how to make long term care insurance “work”. 

MetLife is saying they can’t make it work.  Too many claims and not enough money to cover those claims.  Did MetLife mismanage their business or is this an industry wide problem?   I am certainly not knowledgeable enough about MetLife in particular or the insurance industry in general to be able to answer that question.  I certainly hope it isn’t an indication of more companies pulling out of the market.  More choices are better for the consumer.  But what I do know is that the warning signs are there for anyone paying attention.  Long term care is the greatest threat to financial security in this country.  Ignore that fact and you do so at your own peril.

 That’s because gifts are subject to Medicaid’s transfer for less than fair value penalty.  And as the rules are written, even as little as a $250 gift carries a 1 day penalty.  So does that mean you can’t make gifts?  Not necessarily.  It depends on the amount, frequency, timing, source and recipient of the gifts.  Allow  me to  explain.

 If Mom is in failing health and currently paying for long term care, gifting is going to be an issue for Medicaid, which will review 5 years of financial statements going back in time from the date of application. For example, if Mom made gifts 6 months before applying for Medicaid, the State will probably take issue with that since those gifts could have been used to pay for Mom’s care.

 Small gifts of $100 or so, far enough in advance of the Medicaid application may be OK.  However, if Mom has 20 children, grandchildren and great grandchildren  then the total amount is now $2000, carrying a penalty of approximately 1/3 of a month.  Keep in mind that the State adds all transfers over the 5 year lookback period together before calculating the penalty.  That’s why the frequency of transfers is an issue.

 The recipient of the gifts is important as well. Transfers to certain disabled children may be exempt from the Medicaid penalty rules.  Of course, gifting to a disabled child may not be a wise idea, depending on the nature of the disability, but the gift can be made to a special needs trust.  (See my 11/9/09 blog post)

 Finally, the source of the gifts is also key.  If the gift comes from the Medicaid applicant’s account then it will be subject to the transfer penalty.  However, if it comes from another source, for example, from a trust then it could be permissible.  Why?  Because the assets in certain types of trusts are not counted as owned by the applicant for eligibility purposes.  So when gifts are made from the trust it doesn’t count as a transfer.  It does, however, count as a transfer when the applicant puts the money into the trust.  That’s why long term care planning using trusts must be done well in advance of the possibility of needing Medicaid, not when you are on the doorstep of the nursing home.

 By doing the planning, ideally while you are still healthy, you can “have your cake and eat it too”.  Assets in the trust are there for your benefit, to pay for your long term care needs first, but you also can have the ability to make gifts to your loved ones without worrying that you’ll jeopardize your own care if you run out of money.

 The question they are really asking is, “how will a gift affect my need for long term care”?  I find that, while most people I speak with completely misunderstand Medicaid, the primary government program that covers long term care, they do know generally that there is some penalty for transferring assets.  That penalty, which is really a confusing term, refers to a period of ineligibility for Medicaid, not a dollar fine of some sort.  The greater the amount of the transfer, the longer the penalty.  So, for example, if I transfer $100,000 to my children, in NJ the penalty would be 13.7 months.  In New York, depending on what area of the state you live in, that penalty could range from 9.5 months to 14.9 months.

 When I explain this, the listener will often have an “aha” moment.  “Can’t we transfer $10,000 per person?  Isn’t there some gift tax law that says so?”  Actually, that gift exclusion is up to $13,000 per person per year since it is indexed for inflation.  But, no, that isn’t true, sorry to say.  While there won’t be any gift tax, there most certainly is a “potential” Medicaid transfer penalty.  And it doesn’t matter what the gift is for.  And it doesn’t matter if you gave gifts of a similar nature in the past.  In other words, if you have established a gift giving pattern for years, that won’t be excluded from the watchful eyes of the State when it comes time to file for Medicaid.

 So, does that mean the answers is “no, I can’t make gifts?”  Not necessarily, but we will talk more about that next week and I’ll explain what I mean by “potential” penalty.

             Experts on Alzheimer’s Disease note that one of the first signs of dementia is confusion surrounding money and credit.  This confusion can result in not paying bills on time.  It may also lead to being the victim of a senior scam.  Sometimes it is a “friend”  helping the senior write checks to the “friend” or multiple checks to various charities to which the senior never previously expressed any interest.

            Issues surrounding money and finances are complicated.  Many families never talk about money.  It’s a taboo subject.  Add to that the fact that competency is not a bright line determination.  As I often explain, whether I have a broken leg or not can be determined with certainty.  An x-ray will usually settle the issue.  The brain is a more tricky issue.  Just because you have a diagnosis of dementia does not automatically mean you are incompetent.  It is a gradual decline with ups and downs. But over time it is a downward decline.  That’s what makes it so difficult to know when someone can no longer handle their own affairs.

             Waiting too long, however, has some very real dangers.  Take the case of Dr. Max Gomez.  His case was highlighted in a recent New York Times article.  You may know of his son, Dr. Max Gomez, for many years the medical correspondent for CBS News. Max, the son, lives in New York. His dad was living alone in Miami and over time, began experiencing problems dealing with his finances.  By the time his son learned of the problems his dad had lost everything, including his condominium to foreclosure.

            Unfortunately, Dr. Gomez’ case is all too common.  The lesson to be learned is to have conversations about finances with your senior loved one early on.  If possible, establish a system by which you’ll get notice if Mom or Dad skip paying bills.  Taking a look at the checkbook for money going in and out is also a good idea.  It may be an uncomfortable subject but the pain of losing everything is far greater.  And if you’d like to read more about Dr. Gomez go to http://www.cnbc.com/id/39935545/

 Because Medicaid treats the married couple as one unit, their assets are combined for purposes of determining Bob’s eligibility.  The home is an exempt asset, as long as the healthy spouse continues to live there.  The solution then seems clear.  Transfer Bob’s interest in the home to Mary.  After all, that’s what they had decided upon before Bob’s tragic mishap.  But, hold on a minute.

Bob had agreed to give the house to Mary because he had more earning potential.  This was a way to even things up.  But, that isn’t the case anymore.  Bob can’t work and doctors don’t know if he’ll ever again be able to earn a living.  If not, then can he really afford to give Mary the entire home, leaving him with literally nothing?   If he is able to leave the nursing facility where will he go and how will he pay for it?

There is also the matter of who can make decisions for Bob.  Right now it is not clear whether he has capacity.  He never executed a power of attorney so the only option is a guardianship, but, again, who is going to be the guardian?  We probably would look to the spouse first, but Mary was about to divorce Bob.  That doesn’t automatically eliminate her as an option but a court is certain to question whether she can act in his best interest.  Their only child is in the military overseas and there doesn’t appear to be any other family.  Maybe a court appointed guardian is appropriate here.

So then what happens to the home?  While Mary doesn’t want to abandon Bob in time of need she is also concerned about her future.  There may be a solution.  Bob can qualify for Medicaid if Mary remains in the home but Medicaid rules require that Bob’s name be removed from the deed.  That should be fine for Mary but someone has to protect Bob’s interest. 

Mary still wants to proceed with the divorce and she feels that the agreement they had should remain in place.  The question then is whether Bob wants to change the agreement.  Bob didn’t consult an attorney when he and Mary reached their agreement.  He didn’t think he needed one, nor did he want the expense.  Now that his mental capacity is questionable, however, he needs proper legal advice, especially if he must transfer his interest in the home to Mary.  Will that be permanent or just temporary?  Mary and Bob may disagree on that.  

And that’s what makes this so complicated.  Mary and Bob are still interconnected in so many ways.  They need to work together to reach the best result for both of them.  Not what either of them planned for, but when a medical catastrophe hits long term care issues will radically change anyone’s life.

             Probably 20 years ago Bob would not have survived but advances in medical science saved his life.  However, Bob remained in a coma for several weeks.  After regaining consciousness, he could not speak and had limited movement of his arms and legs.  Bob was transferred to a rehab facility where he began intensive therapy.  It is too soon to tell the extent of his recovery or if he will need to remain in a nursing facility for a lengthy period of time.

             Meanwhile, Mary now has a dilemma.  She is still married to Bob.  The nursing facility is pressing her about how she will pay for his care if he needs to remain there.  Emotionally, she is torn.  She and Bob have agreed to a divorce, although it’s not final yet.  But, she also knows that he has no family, other than their son, but, again, he is overseas.  She is also concerned about finances.  She doesn’t have the funds to pay for nursing care at $10,000 per month. 

             To make it even more complicated, Bob never signed a power of attorney.  As Bob’s spouse, Mary is being looked upon as Bob’s decision maker, but legally she has no right to make those decisions.  But, beyond that, some of the answers to the questions on the financial side of things, may benefit her but maybe not Bob.  Since their intent, before the accident was to part ways, is she even in a position to act in Bob’s best interest?  If Bob needs Medicaid, the home can be protected for Mary as the healthy spouse.  But what happens when the couple isn’t really still “together”?  How does that change things?

             We’ll discuss those issues and more in next week’s post.

 Beginning in 2011 Medicare Advantage plans will have to reduce members’ out of pocket expenses for some more costly services and for members who use the most health care.  The Advantage plans must continue to provide the same benefits available under Medicare Parts A and B.  Currently Advantage plans are paid 14% more than it would cost to cover the same person in traditional Medicare.  Over the next several years the new law will reduce that number to 1%.  Plans that receive a high government rating will receive bonus payments, so seniors considering an Advantage plan should look for a plan in existence at least 5 years and one that carries a high government rating.

 The Community Living Assistance Services and Supports Act (CLASS) establishes a national long term care insurance program.  The program is intended to help pay for some future long term care services and support.  (See my blog posts of April 12, 2010 and April 19, 2010 for further discussion.)

 The new law also provides better information and accountability for nursing home care.  It promotes home and community based services by providing financial incentives to the states to offer greater assistance for those who choose to remain at home rather than residing in a nursing facility.  This signifies a recognition by the government that more people want to remain at home (where it is less expensive to administer care).  It will be interesting to see if this becomes a trend as 77 million baby boomers start to turn 65 next year.

 The new law does include provisions requiring those with higher incomes to pay for Medicare.  Beginning next year, some will see higher premiums for Part D benefits.  Additionally, the Medicare tax rate for households with high income will increase and the Medicare tax will be applied to unearned income (investment income, royalties, rent etc.)

 The Affordable Care Act is very complicated and this review covers only a few key elements of import to seniors.  It is clear, however, that while President Obama and Congress have attempted to address some long term care concerns, the need for planning is as urgent as ever.  The government will not come to the rescue.  It is up to each one of us to protect ourselves and a carefully constructed long term care plan will go a long way to providing that security.

 The Affordable Care Act, which Congress passed and the President signed into law in March, 2010 will expand health care coverage for all Americans.  No guaranteed benefits under Medicare Part A or Part B are being cut.  Some provisions of the new law will take effect immediately.  Others will be phased in over the next several years.

 Seniors will receive a big benefit immediately with assistance with the infamous Medicare Part D donut hole.  The donut hole is the Part D coverage gap.  When a Medicare beneficiary surpasses the prescription drug coverage limit, he/she is then responsible for all prescription drug costs until expenses reach the catastrophic limit.  Each year everyone starts at zero again so many seniors incur this cost year after year.

 A $250 rebate will be paid to Medicare beneficiaries who reach the donut hole in 2010 (even by $1).  Seniors will receive these checks automatically.  They do not need to fill out any special forms.  Be careful, however, as there are scams in which it is claimed that you can pay a fee to get your check faster.  Not true.  Beginning in 2011, upon reaching the donut hole, seniors will received a 50% discount on brand-name prescription drugs and a 7% discount on generic prescription drugs.  By 2020 the donut hole will be gone and Medicare beneficiaries will instead pay 25% of the cost until they reach catastrophic coverage levels.

 Another change beginning in 2011 will be coverage for preventative care.  Medicare will cover one annual wellness exam for each beneficiary.  There will be no cost sharing for these services.

 Stay tuned next week for some more features of the new health care plan that will affect seniors.

 Jane’s mom has been living at home with the assistance of Jane and some private aides.  Mom is now in her 90’s, her health is declining and she needs ever more assistance.  Jane called me because she is anticipating Mom’s money running out in a few months and Mom will probably need nursing home care.  As Jane explained, “I want to be prepared.”

 Jane told me that Mom is down to about $50,000 in assets.  I asked about transfers and that’s when she told me that 2 years ago Mom gave her a gift of $50,000.  I asked if she gave her other daughter, Mary, a gift as well .  Jane told me that Mary is well off, doesn’t need the money and that Mom wanted to “compensate” Jane for all the care she would be providing.

 Jane acted surprised when I told her that although she thought she was planning ahead she was actually too late and now, in what we call, “crisis mode”.  That’s because Mom’s gift makes her ineligible for Medicaid.  “But I’ve been providing care for Mom.   She’s really just paying me for care that, if I wasn’t providing, we would have to hire someone to do”, Jane exclaimed.

 I then related to her that the State doesn’t look at it that way.  In fact, I’ve had discussions with the State’s attorneys in which it is clear that, philosophically, they feel that families should provide care without compensation, that it is simply a case of hiding money.  In my view, that’s a simplistic and unrealistic way to look at it.  I see many cases where children stop working to care for aging parents.  They lose income that they need to support themselves.

 But, it doesn’t matter to Jane how things should be, just how they are. Mom could have transferred assets to her, but it had to be for fair value.  In other words, Mom and Jane needed to enter into a caregiver contract in which Mom paid Jane for care that, if not provided, she would have to pay an aide.  And, no, Jane can’t go back retroactively and sign that contract.  The State presumes Mom made a gift to Jane and that carries a Medicaid transfer penalty.  I told Jane that if Mom needs care she’ll either have to give the money back or pay for Mom’s care at the private pay nursing home rate for 7 months, the length of the penalty.

 Jane listened and then told me that she doesn’t have the money to give back, however, her sister, Mary does have the money.  “Shouldn’t she cover it since I have been taking care of Mom?”, she asked.   I told her that this could possibly be a solution but legally, Mary is under no obligation to do that.  

 So, where does that leave Jane?  In a predicament with no great solution.  But, again, one that could have been avoided with proper planning.

 I explained to Jim that the appeal process is a lengthy one.  A fair hearing must be scheduled before an administrative law judge at which evidence must be presented.  If the judge finds in Jim’s favor, the State can still reject the decision.  Another appeal before a Superior Court judge is next.  And given the inability to answer many questions because Dad has died, it makes Jim’s case a long shot at best.  In the meantime, someone has to pay the nursing home which is caring for Grandmom.  At a private pay rate of $10,000 per month the bill will quickly run up.

 I asked Jim about his dad’s estate.  “Dad has a house worth about $200,000”, he told me.  “We haven’t probated his will yet, but I am the executor named in the will”.  I advised Jim that negotiating with Medicaid to repay them out of Dad’s estate would be the best route to go at this point.  Because it will take time to sell the home, however, the State will likely want assurances that they will be repaid .  And the clock is running down on Grandmom’s Medicaid eligibility.  But, the best thing for Jim and his family is to keep Grandmom on Medicaid and in the facility where she has been for the last 18 months.

 There was a long pause.  Jim processed what I said.  He wasn’t happy but he recognized that this was his best option.  Had his dad sought advice before applying for Medicaid he would not have been left with this mess.  But I also told Jim that he should consider himself lucky.  At least his dad left assets with which to repay the State.  Without those assets who knows what would have happened.  Jim, or some other family member, would have had to step up and pay the bill, or be comfortable walking away from the problem entirely, leaving Grandmom with no one to look out for her well being.

 During the course of our conversation Jim told me that Dad had a joint bank account with Grandmom which Dad transferred to himself about a year before he applied for Medicaid.  The State apparently ran a check on Grandmom’s Social Security number and turned up the account.  Jim didn’t know for sure why it hadn’t been disclosed on the original application but to make things more complicated, Jim’s dad had recently died.  Jim told me he pleaded his case to the Medicaid caseworker.  “The account was always Dad’s and at some point he put Grandmom’s name on the account”, he said.  He then added, “Dad was Grandmom’s caregiver and so this was simply repayment for those services and other money he paid out of his own pocket for her care.”

 I patiently explained to Jim that he needs to back up those statements with documentation.  I asked him how much in receipts he could prove Dad spent.  “About $5000”, Jim replied.  “Well”, I said, “the other $45,000 is still subject to a Medicaid penalty for being a transfer for less than fair value.”  “You see”, I explained, the Medicaid system works differently than the criminal system.  In the criminal system you are innocent till proven guilty.  The Medicaid system views it the other way around.  If you can’t prove by written documentation how you spent the money than it will be treated as a penalty.”

 I could now hear the panic in Jim’s voice.  “The nursing home is calling us daily, demanding to know whether we are going to pay back the money”, he said.  “We’ve tried to talk to the Medicaid caseworker to no avail.  What do we do?  Will the nursing home kick Grandmom out?”

 Jim’s problem is a common one, made more complicated because Medicaid wrongly approved Grandmom’s application and now wants its money back and the one person who might have been able to provide the answers has died.  And I know what you may be thinking.  Just because the State made a mistake in approving the application in the first instance doesn’t mean they waive a right to get the money back.  Stay tuned next week for what I told Jim to do.

 Specifically, we are talking about a specific VA program (of which there are many) called Aid and Attendance.  This is a non-service connected pension available to wartime veterans and their spouses who are deemed disabled and in need of aid and attendance.  The disability stems not from a service related injury but typically from declining health caused by the aging process.  Veterans and their surviving spouses can qualify for as much as $1949 per month of income to help pay the costs of that care.

 But, as most applicants are elderly, and the application process can take months, some die while their claims are “pending”.  VA regulations provide that certain “qualified” persons can continue on with the application.  Those persons include the veteran’s spouse and the veteran’s children.  However, not all spouses or all children are “qualified”.

 The spouse must have been married to the veteran at the time of the veteran’s death and lived with the veteran continuously from the date of marriage to the date of death and has not remarried.  The child must be under age 18 or one who became permanently incapable of self-support before reaching 18 or who is not yet 23 and pursuing a course of instruction at an approved educational institution.  In each case that qualified member can be substituted for the veteran and complete the VA claim.

 And what if you don’t fall into any of the above situations? Then the claims dies with the veteran.  However, any person who paid for the veteran/claimant’s last illness and burial expenses may file for accrued benefits to be reimbursed for those out of pocket costs.  If, for example, the veteran was single and a child was paying for care at home or at an assisted living facility or nursing home, as long as the expenses can be linked to the last illness the child can seek reimbursement from the VA.  For many families  that can mean recouping as much as $10,000 in VA benefits on an application that may have been pending for 6 months before the parent died.

Let’s change the facts a bit.  What if Al entered the nursing home but died before needing Medicaid.  At the time of his death he owned the home with Betty and Carl joint tenants with right of survivorship.  This means that Betty and Carl by operation of law received Al’s interest and now owned the home together.  No problem, right?  Well, not so fast.  We have to consider estate and inheritance taxes. 

Estate taxes are owed on estates over a certain size.  In the case of federal estate tax this year there is no estate tax and next year tax is owed on estates greater than $1,000,000.  New Jersey imposes a tax on estates greater than $675,000.  Al only owned the home, worth $600,000, and a few thousand dollars that he hadn’t yet spent towards his long term care.  Since his share of the home is worth $200,000 we don’t have to worry about estate tax.

New Jersey, however, also has an inheritance tax.  This tax is based first on the relationship of the heirs to the person who died and then on the amount received by that heir.  Children, grandchildren and spouses are exempt from the tax, but siblings are not.  The first $25,000 is free of tax but then the tax rate starts out at 10% and eventually reaches a maximum of  15%.  The tax is due 8 months after death and if not paid incurs interest at 10% per year.

Betty and Carl owe approximately $8000 each in tax.  Most people are unaware of this tax unless they have consulted with an estate or elder law attorney.  What happens if they don’t have the money to pay the tax?  The interest can start to really add up.  And if Betty and Carl need long term care themselves the tax can eat up what they have left in assets.  If Denise is aware of the tax and comes to see us before Al dies we can plan for the payment or possibly avoid it altogether until the last sibling dies.  If she waits till Al dies the choices are much less appealing.

 Al, Betty and Carl were, in many respects, like a typical married couple living under one household.  They combined their income to pay many of the bills, holding a joint checking account from which they paid those expenses.  They also combined much of their investments and savings in joint accounts.  This included the home which was titled in all 3 of their names.  Everything worked out fine until Al’s health deteriorated to the point where he needed nursing home care.  That’s when Denise called.

 Al had spent down his retirement accounts in his name alone and some of the money in joint accounts but when Denise went to apply for Medicaid they asked for 5 years of financial records so the caseworker could determine where all of Al’s money went.  And that’s where she ran into a problem because, for so many years, Al, Betty and Carl had combined much of their assets.  So who’s to say what was Al’s, what was Betty’s and what was Carl’s?  Denise thought she could just divide by 3 but the caseworker questioned the transfers into and out of those accounts, suggesting that Al  owned more than 1/3 of these accounts.

 Therein lies the problem we see so often.  By combining their assets the 3 siblings had muddied the paper trail necessary to establish that Al had spent down all his assets. Why is this so important?  Because if Al is spending his money for Betty or Carl’s benefit, that is a transfer for less than fair value and Medicaid will impose a penalty – a period of ineligibility – for benefits.  This applies equally to Betty and Carl should they need Medicaid in the future.  We need to separate their assets and clearly establish that each is paying their expenses from their own assets.

 We were able to help Denise navigate through the Medicaid process and explain all transfers into and out of Al’s accounts – with some difficulty.  We also helped her separate Betty’s and Carl’s assets, so things will go a lot smoother if Betty or Carl needs nursing home care and Medicaid.  

 Oh, and what about Al’s ownership interest in the home, you may ask?  There is an exception in the Medicaid rules that permits the transfer of the home to a sibling who has an equitable interest.  That was no problem here since both Betty and Carl had owned and lived in the home as long as Al.

 Certain types of SNTs, referred to by attorneys as “first party SNTs”, require payback provisions.  If there is anything left in the trust when the beneficiary dies the State must first be paid back all Medicaid benefits that the disabled individual received, before assets can be otherwise distributed.  Many SNTs also have early termination clauses that provide for an early end to the trust.  The new SSA regulations relate to these early termination clause. 

 For all trusts created on or after January 1, 2000, upon early termination, the assets must first be used to pay back Medicaid, similar to the requirement at the death of the disabled beneficiary.  Additionally, all remaining assets must be payable only to the disabled individual.  No one else can benefit from the trust.  Finally, the power to terminate the trust early must be given to someone other than the beneficiary.

 Some SNTs may already be in compliance with these new rules, but others will not.  So what to do?  Have a qualified attorney look at your trust and if necessary amend it.  Failure to do so will cause the trust assets to be included as an asset owned by the disabled person and cause him/her to lose government benefits.

 Bob and Mary’s combined income is about $2500 per month from Social Security and a pension.  While they own their own home worth about $400,000, their savings are down to $50,000.  There is no way Mary can afford the cost of Bob’s care, maintaining the home and still have something left to support herself.  They have no long term care insurance policies.  Mary figured there must be a government benefit program to help her.  Sad to say there isn’t one that fits her needs and desires.

 First I asked if Bob was a veteran.  He was, having served during the years between the Korean and Vietnam wars.  “Unfortunately”, I told Mary, “Bob cannot qualify for the $1949 per month of additional income VA Aid and Attendance benefits could provide because he was not a “wartime veteran”.  Even if he could qualify, however, the VA pension is likely to be a mere drop in the bucket and would not solve Mary’s monthly income/expense deficit.

 We then discussed Medicaid.  I explained to her that in New Jersey the home based Medicaid program only covers about 40 hours per week and that is after Mary spends their assets down, in her case to approximately $20,000.  Not very much help if you consider that Mary would have to pay for the rest of care out of her own pocket.  She could take a reverse mortgage and tap into her home equity, but what would she be left with? 

 That’s a real concern because Mary could outlive Bob by 5 or 10 year or more.  She’ll need every dollar of their assets to live in since she’ll lose some of their income when he dies, one Social Security check plus his pension.  This is Mary’s dilemma.  Put Bob in a nursing home and Medicaid will pay for his care there but that’s not what she wants.  Keep him home, on the other hand, and she’ll deplete their remaining assets leaving her without enough for her own care down the road.

 How did Mary end up in this predicament and what could she have done to avoid it?  There are a number of things that Mary and Bob could have done to plan for the possibility of needing long term care.  But, they should have taken those steps when they were both healthy.  A combination of insurance, elder planning with an elder law attorney and realistic spending with an eye towards the future would have put them in a much better position to handle the crisis they now faced and given Mary much more appealing choices.  Too late for this couple but not for future Marys and Bobs in coming years.

 A few years after their wedding Betty began a physical and mental decline that led to her need for assisted living and then nursing home care.  Betty had savings of $200,000, as did Joe, but no long term care insurance.  She lived long enough to spend her entire savings plus much of Joe’s.  When she died Joe had only $75,000 in savings left.  Joe and Betty were completely unprepared for how long term care would affect them.  And Joe was totally unaware that Betty could have qualified Medicaid before she died.

 Now, Joe’s health is declining.  He never before shared his finances with his children so they were shocked to learn that his savings had been depleted.  They are concerned that he will not be able to stay in the retirement community when his remaining funds are exhausted.  I asked Joe, Jr. what his dad’s agreement with the community says about that.  He doesn’t know because he’s never seen the contract.  Dad said he could handle things himself,  signing the 40 page plus contract without getting a second opinion.  Well, he clearly can’t take care of things any longer.  Joe, Jr. and his siblings will now have to make some tough decisions.  But instead of having a plan in place with options to choose from, the family instead is reacting in crisis mode.  Not the best situation to be in and one that could have easily been avoided.

 We are now 7 months into the year, the first estate tax returns for those who died in 2010 are due in less than 2 months, and still nothing concrete from Washington.  Many estate plans have built in flexibility in terms of placing assets into trusts to take advantage of the tax laws.  The problem is that if we don’t know what tax law is in effect how can anyone know what choices to make?

 The latest word is that a reinstatement of the old law is unlikely.  At least that is what Senate Finance Committee Chairman Max Baucus of Montana said last week.  Democrats want the reinstatement of a $3,500,000 exemption.  Republicans want to eliminate the tax entirely.  That would certainly be welcome news to families such as that of the late owner of the New York Yankees, George Steinbrenner.  Neither side has the votes to get what it wants, however, a compromise that is now being floated may be good news for all.

 Congress could permit more modest estates to elect to benefit from the step up in basis rules that were in effect last year.  This would mean, for example, that if you inherited, at your dad’s death, his house or stocks that he held for many years, the basis for calculating capital gains tax is not what he paid but the value of the assets at the date of his death.  So, if you sell those assets shortly after his death you owe no capital gains tax.  This way, the 2010 law would benefit everyone, not just the wealthy.

 While this makes a lot of sense, as we all know, that isn’t going to be enough to carry the day.  Lawmakers will be taking their traditional summer recess in a few weeks.  It’s not clear whether anything will happen but this all should come to a head in the next several weeks.  Stay tuned.

 We discussed guardianship as a possible solution.  But if the child resists the process or the doctors and/or the court don’t agree that the child fits the test of incapacity then what do you do?  The legal solutions are less than perfect but there are steps parents can and should take.

 Every person, with or without special needs, ought to have a power of attorney and a health care directive, designating someone to act on their behalf should the need arise.  On the health care side, that means someone who can speak with the doctors and make medical decisions should that become necessary.  The power of attorney designates an agent to make every day financial decisions such as moving money between bank accounts, writing and depositing checks, applying for government benefits, communicating with creditors etc.

 Parents of a child turning age 18 ought to encourage and arrange for that child to execute these documents as a significant step towards being a responsible adult.  It can be a positive experience for a child who feels the pull of independence.  Part of that independence is putting a support system in place of family and friends who they can rely on for help should the need arise.  The parents should emphasize that this necessity is not unique to children with special needs. Parents should explain to Jimmy that Mom and Dad have a similar plan in place.  It is something all responsible adults have.

 And as I have discussed in previous blog posts, the creation of a special needs trust is so important because if the parent dies without protecting the child’s inheritance then there is a high degree of probability that those funds will be mismanaged by the child, or by those preying upon him/her, leaving the burden upon other family members to provide support.  Additionally, a failure to protect the assets properly may disqualify the child for valuable government benefits.

 By addressing these issues before a crisis occurs, in a positive manner, very often the child won’t see it as a limit on his/her eagerly anticipated independence but rather a natural step in the process.

 He tells me that he doesn’t want to sell the business or the building.  He has a will that leaves both to his sons.  “But”, I explain, “if he needs long term care he will have to sell both before he or Mary can qualify for Medicaid.  Joe becomes exasperated.  “My sons support their families through the business, just as I did.  I can’t sell it now.”

 I hear what he is saying.  More than simply an asset, the business is also the income that supports 2 families.  Yet, Medicaid doesn’t look at it that way.  Which is why Joe ought to strongly consider transferring both the business and the building out of his name now.  Careful consideration must be paid to the tax consequences but using some of the strategies we have discussed previously in this blog can protect Joe and his family.

 Medicaid transfers carry a 5 year look back so the time to start transferring is now, while Joe and Mary are still healthy.  There are gift and estate tax consequences to making transfers.  Joe and Mary can make lifetime gifts of up to $1,000,000 each before having to pay gift tax so they should be able to transfer these assets without paying tax.  They may also be able to eliminate the possibility of estate taxes by employing certain tax strategies. 
 
 If Joe wants to continue to receive the income generated by each asset he has some options.  He could transfer ownership to a trust set up so that he receives the income from anything held in the trust.  On the other hand, he can choose to continue to receive a salary from the business and rental income from the building as an employee.  He’ll need to consult with his tax advisor to see which way is best.

 But by putting a plan in place now to protect both he and Mary should they need long term care he is also preserving the financial viability of his company, which is critical to 3 generations of his family.  Just another example of how long term care has the potential to destroy a family unless you are prepared for it.

 The answer to that is yes.  You see, Joe still owns 100% of the business.  He estimates that it is probably worth close to $750,000.  He also owns the building in which his company is housed and that is probably valued at another $500,000.  He receives rental income from the business and 3 other tenants there.  He and Mary have other investments totaling $200,000.  Joe figures that if he or Mary need long term care he’ll use the investments.  When that’s gone he’ll still have the salary plus rental income and his sons will pay for the rest of their care at home through the business.

 But, is this realistic?  What Joe doesn’t realize is that 24/7 long term care averages about $125,000 per year.  If both Joe and Mary need care, that’s a quarter of a million dollars a year.  When I explain this to Joe he quickly tells me that there is no way the business can support that kind of expense.  Quite frankly, what business can?  Joe also tells me that he and Mary don’t have long term care insurance.  If they can still get it, I would strongly urge them to purchase it.  But if they can’t get it, what then?  We’ll look at some of those options in next week’s post.

 “But Jimmy can’t possibly make financial and health care decisions for himself”, the parent tells me.  “You may know that,” I say, “but the law presumes that Jimmy is competent unless and until a court deems him to be incapacitated.”  I then explain the guardianship process by which a judge must decide that Jimmy is in fact unable to make his own decisions and that the person requesting to be appointed his guardian is a suitable person to protect him and act in his best interests.

 And as I wrote last year, because we have a strong history of individual rights in this country, taking away the freedom to make one’s own decisions is not something to be considered lightly.  Jimmy must be examined by two doctors who must agree that he is incompetent. (The exact process may vary from state to state.)  Then the court appoints an attorney to represent Jimmy.  The attorney must meet with Jimmy and report back to the court.  If Jimmy has the capacity to understand what guardianship means he may object to the process.  His court appointed attorney must send the judge a report as to his/her opinion about whether Jimmy needs a guardian and whether the person applying for that appointment is appropriate.

 So what happens if Jimmy objects or the doctors or his attorney don’t agree with Mom and Dad’s assessment?  Stay tuned.  We’ll discuss that next week.

What Joe was talking about is inheritance tax.  Only a handful of states have it and New Jersey is one of them.  Inheritance tax works differently than estate tax, which is based on the size of the estate.  Inheritance tax, on the other hand, is based on the relationship of the heirs to the decedent (person who died).  Parents, grandparents, children, grandchildren, spouses and domestic partners are exempt from the tax.  So are stepchildren, but not stepgrandchildren.  Siblings, sons in-law and daughters in-law pay tax at one rate and other more distant relatives and non-relatives pay tax at another rate.

Inheritance tax is due 8 months after death, one month before the estate tax is due.  In cases where both estate and inheritance tax are due, the total combined tax is not greater than the larger of the 2 taxes.  In essence, if inheritance tax is due then that payment acts as a credit towards the estate tax.

Joe, like most people, was unaware of inheritance tax.  It is typically owed on estates where there are no spouses or children.  In his case, the tax totals about $13,000 and if not paid, carries 10% per year interest rate.  There are other quirks in terms of what is taxed and what isn’t.  For example, life insurance isn’t subject to the tax if you’ve left it to named beneficiaries.  However, if those people all have died, for example, and the insurance is left to the estate, then it is taxed.  However, the life insurance is subject to estate tax .  It is easy to get tripped up by which assets are taxed for inheritance, and which for estate tax purposes.

The point is that each estate has to be looked at individually.  Just because your friend or neighbor didn’t have to pay inheritance tax doesn’t mean you don’t have to.  I explained to Joe that we still have time to complete the return and pay the tax on time.  The last thing he wants is the state coming after him for unpaid tax.

 Jack’s dad had recently died leaving his estate to Jack and his 2 sisters in equal shares.  But Dad’s will actually left Jack 2/3 of the assets because Jack’s sister Mary has special needs.  She is not capable of managing her money and would lose her government benefits if she received her inheritance outright.  Jack, however, was just diagnosed with Alzheimer’s Disease and may need nursing home care within the next few years.  He understands that he will have to pay for that care but he doesn’t want to use Mary’s money for his care.  There’s one big problem.  It isn’t legally Mary’s money.

 You see, Dad specifically disinherited Mary in his will.  It makes no mention of his intent to have Jack take care of his sister.  It just says that Jack inherits 2/3 of the estate.  Legally, it’s his money so if he needs long term care he’ll have to spend down his money and Mary’s, before he can qualify for government assistance.

 What Dad should have done was set up a special needs trust in his will and left Mary’s share to that trust.  He could then have named Jack as the trustee and his sister Helen as a back up trustee.  Mary would not lose her benefits.  Jack would not have to spend down that money for his care.  In fact, he can’t, since the money is not his.  And if he can no longer serve as trustee then Helen can step up.

 Could Jack set up a trust now?  The answer is yes, but because Medicaid rules are quite complicated, the assets transferred to that trust would still subject him to a Medicaid transfer penalty.  If Mary was his daughter and not his sister then he could avoid the penalty.  In other words, Dad could have done it for Mary because of the parent/child relationship.

 What Jack’s problem shows us is that sometimes the “easy” solution creates problems that are far more complicated to solve than the original problem.  While it’s possible that Jack may still be able to protect Mary’s inheritance it is far from certain, and much will depend upon how long he stays healthy.

 That statement is incorrect and leads to many veterans foregoing as much as $1949 of tax free income each month that can help pay for assisted living care.  But it is easy to understand why so many make this mistake.  It’s because the Medicaid waiver programs that pay for this type of care have an income cap of $2022 per month.  So naturally, the concern is that the additional VA income will push me over that income cap.

 Except that not all income is treated as income for Medicaid purposes.  The VA Aid and Attendance benefit falls into that category.  It does not constitute “countable income”.  In fact, there is a Medicaid Communication issued by the New Jersey state agency that administers Medicaid, clearly stating that the benefit will not be counted for financial eligibility purposes.  I should also note that Medicaid won’t deny an application if someone does not apply for VA benefits.  That can also be a point of confusion  since Medicaid does require applicants to apply for other benefits that they may be eligible for, such as disability. 

 Another point of confusion is that while the VA benefit is not counted for eligibility purposes, it is included with all other income when determining the amount of contribution towards the cost of care.  This is the cost sharing aspect to Medicaid assisted living benefits.  How much you pay for your own care and how much Medicaid pays depends on your income.  However, once VA receives notification of Medicaid benefits received it will reduce its pension to $90 per month.

 As you can see, it’s tough navigating through the long term care system alone.  It can cost you literally thousand of dollars a year if you don’t get the right information.