While planning for long term care should ideally occur years before entering a nursing home, this is not always possible or even considered until it is too late.  The following article, however, outlines several strategies that are available for individuals with "a foot in the door" of a nursing home with respect to their available assets.

1.         Under a plan commonly known as the "Reverse Rule of Halves", an individual entering a nursing home can transfer all of his assets (over and above the Medicaid resource allowance ($13,800.00 in 2011) to his heirs, and then apply for Medicaid - knowing that the application will be denied because he has transferred assets. He will then be ineligible for Medicaid for a period of time equal to the total assets transferred divided by the average monthly cost of a nursing home. On Long Island in 2011 that's $11,445.00 per month. The heirs to whom he transferred his assets must then execute a promissory note to him, agreeing to pay back, in monthly installments an amount equal to about half of the total assets transferred, plus interest at a "reasonable" rate (which the Department of Social Services says is 5%.) The nursing home will then be paid the institutionalized person's monthly income plus the monthly payments on the promissory note until the period of ineligibility ends. If, for example, a person with $200,000 in assets requires nursing home care, under the Reverse Rule of Halves, he will have to spend half of his assets on nursing home care before becoming eligible for Medicaid - just as under the old Rule of Halves. But rather than just transfer one-half of his assets as before, he would transfer the entire $200,000 to his heir, who would sign a promissory note to him pledging to repay $100,000, plus interest at 5%. He would then be ineligible for Medicaid for approximately 10 months: $100,000 (or half of the assets transferred) divided by the Medicaid divisor ($11,445.00). If he had $1,000 per month in income, that $1,000 (less a small personal allowance) would be paid to the nursing home, and the balance of the nursing homes expenses would be paid from the heir's monthly payment under the promissory note. Those payments would continue until the period of ineligibility expires at which time Medicaid will be approved. The promissory note must meet certain criteria. The repayment must be actuarially sound, meaning the monthly payments must be sufficient that the loan can be repaid during the institutionalized person's life expectancy. Also, the payments must be made in equal amounts with no deferral and no balloon payment. The promissory note also must prohibit the cancellation of the balance on the death of the lender. Lastly, the note must be non-negotiable, otherwise it might be determined that the note itself has a value, which could make the applicant ineligible.

2.         Nonexempt assets under Medicaid can be converted to exempt assets. For example, the community spouse can buy a larger personal residence or add capital improvements to an existing residence. This way nonexempt cash would be converted into an exempt residence.

3.         An immediate annuity that is irrevocable and non-assignable, having no cash or surrender value (i.e., permitting no withdrawals of principal) can be purchased with excess cash. The annuity contract should provide a monthly income for a period no longer than the actuarial life expectancy of the annuitant-owner. In the event the annuitant dies before the end of the annuity payout period, the policy's successor beneficiary would receive the remaining installments. This strategy can convert a nonexempt excess asset into a revenue stream that is subject to the more liberal income rules of what the community spouse can retain under Medicaid. An annuity with a term exceeding the annuitant's life expectancy may be considered a transfer affecting Medicaid eligibility.

4.         Liquid resources should be used to pay off consumer debts and prepay burial plots and funeral expenses (including a family crypt), thus spending down excess cash in an acceptable fashion.

5.         Children can be compensated for documented household and care services as long as the amount is reasonable. An independent estimate should be obtained before determining the amount of remuneration and the family should have a written agreement with the family members providing care. This is more commonly known as a "Caregiver Contract".

6.         All joint and individual assets that are in the name of the institutionalized spouse should be transferred to the community spouse. In 2011 the maximum Community Spouse Resource Allowance ("CSRA") is $109,560.00. After such transfers, asset protection planning can be undertaken for the community spouse).

7.         Under the Medicaid transfer rules, certain transfers are exempt. The transfer of a home is exempt if the transfer is to a spouse, a minor (under 21), or a blind or disabled child, a brother or sister with an equity interest in the home who resided in home one year before institutionalization, or a son or daughter who resided in home two years and provided care so as to keep the person from becoming institutionalized.

Certain other transfers of any resource may also be exempt. Call us today to learn more about last minute Medicaid planning or to discuss your particular situation.