Trying to plan your North Carolina estate? Get the answers you need to protect your family.
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What is Medicaid?
Medicaid is a program created under the Social Security Act. The act created a joint federal and state medical assistance program for the aged, blind and disabled.
Recipients under the Medicaid program do not receive payments directly from the government. Instead, if an individual qualifies for Medicaid, the payments are made directly to his or her health care provider, such as the doctor, hospital, nursing home, pharmacy, medical testing facility, or dentist.
Doesn’t Medicare cover the cost of nursing home care?
No, this is a common misconception, but Medicare does not cover the cost of long term nursing home care. Medicare is an insurance program that provides health care benefits to persons who are over the age of 65, or are blind or disabled. For recipients, it is basically their primary form of health insurance. But what many seniors fail to understand is that Medicare does NOT pay for long-term care expenses!
Part of the reason for the confusion is that Medicare does pay for rehabilitation. If a senior on Medicare has a hospital stay of at least three days and then is admitted to a Skilled Nursing Facility for rehabilitation, Medicare will pay for the care—for a while anyway. Medicare will only pay for the rehabilitation for a maximum of 100 consecutive days. Plus, once those days are used up, they’re gone for good.
Did you notice that I said a “maximum” of 100 days? That’s because it’s actually based upon how well the patient responds to the rehabilitation. The patient must experience some improvement. If the patient’s health is not improving, Medicare may decide that the condition is long-term and benefits will be cut off—even if you haven’t reached 100 days yet.
Another thing that most people don’t realize is that Medicare only fully covers the first 20 days, after that there is a daily deductible of about $140 per day! So a 100 day stay could still end up costing you over $11,000! [If you have a Medicare Supplemental Insurance policy, it might help cover some or all of the difference though.]
How are nursing home and long term care expenses usually paid?
Contrary to popular believe, Medicare pays very little of the cost of nursing home and long term care expenses. The most common forms of payment are either private pay (from your own savings and/or proceeds from a long term care insurance policy) or Medicaid.
When should I start planning for my potential long term care or disability needs and if I haven’t planned ahead, is it too late?
First, unless you’ve already spent all of your assets and don’t own any real estate, it’s never too late to start planning. If your loved one is already in a nursing home, there are still planning strategies available.
But, in general, the sooner you start planning, the more assets you will be able to protect and the faster you will be eligible for Medicaid assistance if and when you need nursing home care. As a rule of thumb, in our office, we recommend that you begin shopping for long term care insurance around age 50+ and that you begin implementing Medicaid planning strategies beginning at age 65+. However, if there is a known family history of a particular illness, or you already been diagnosed with an illness that is likely to require nursing home care in the future (such as Alzheimer’s, dementia, Parkinson’s, etc.) then you may wish to begin investigating Medicaid planning sooner.
What is Medicaid planning and how does it relate to my estate plan?
Medicaid planning is a strategy of planned transfers, gifts, use of financial products and other strategies to preserve and protect some assets while enabling a disabled senior to qualify for financial assistance from Medicaid as quickly as possible to help offset the cost of nursing home care in a skilled nursing facility.
If one of your planning goals includes Medicaid planning, then it is very important that the Medicaid planning is properly integrated with your estate planning. In addition, certain estate planning strategies that may be beneficial for other estate planning goals may have a significant negative impact on your Medicaid planning.
For example, some clients may be advised by their estate planning attorney or accountant that they can gift $13,000 per year to family members without paying an gift taxes. And while this might be a great gift and estate tax planning strategy, this can have a very negative impact on your Medicaid planning.
The Medicaid rules penalize you for such gifts. So, while they might be permitted under the IRS gift tax rules, you may be punished for them under the Medicaid rules.
Similarly, other estate planning tools, such a revocable living trusts, will not protect your assets for Medicaid and nursing home planning purposes.
Can family members be paid for providing care to a parent or relative without disqualifying them from Medicaid?
Yes, if done properly, this is typically referred to as a personal services contract. Medicaid will permit payments to a family member pursuant to a personal services contract if the contract complies with the Medicaid rules. This typically requires that the agreement be in writing and clearly indicates the amount of compensation and what services and care will be provided. The compensation must be reasonable. Also, the contract cannot be for past care given. For example, if you’ve already been providing care to mom or dad for the past 2 years and now they need a nursing home, you cannot go in after the fact and set up a personal services contract for the past care given.
A friend suggested I add my child to my accounts or deed to my home, are there reasons why shouldn't I do that?
Many people believe that an ‘easy’ way to avoid probate or to enable their children to assist them as they get older is to add their child to their bank accounts or even to the deed to their home. In our office, this is what we call the ‘coffee shop’ and ‘beauty parlor’ law. You heard from a friend, who’s neighbor’s non-lawyer brother-in-law said it was a good idea. And while occasionally it might work for some, there are many reasons why this approach is NOT recommended:
There are several possible consequences from a tax perspective:
- If your child makes any withdrawals from the bank account in excess of $14,000, it may constitute a gift requiring the filing of a gift tax return with the IRS.
- If you add your child to your deed, it is considered a gift and a gift tax return must be filed with the IRS.
- Adding a child to an investment account or real estate can result in unfavorable income tax consequences for your children upon your death. Effectively, they could miss out on a huge tax advantage if the property has appreciated significantly since you purchased it.
You Could Lose Your Assets
The bank account or real estate is now considered owned jointly by that person and as a result, may be at risk if your child is sued, divorces, or files for bankruptcy. Recently, a colleague of mine shared a story with me about a client that added her daughter to the deed to her home. Her daughter later ran into some health issues, ultimately lost her job and wound up filing for bankruptcy. During the daughter’s bankruptcy proceeding, her mother lost her house because it was deeded in the daughter’s name and therefore was subject to the bankruptcy proceeding. Similarly, let’s say that your child causes a fatal car accident and is being sued. Guess what? If titled jointly, your bank account or real estate might be at risk to the lawsuit!
Your child falls on hard times—perhaps a job loss, health crisis, addiction, or some other jeopardy. And while they may never have intended do, sometimes life events happen that might just make this too tempting and the next thing you know, they’ve convinced themselves that you “would have wanted to help them out and won’t mind if they dip in the account a little bit”…and a little more… and a little bit more, until there’s nothing left.
Money Changes People Sometimes
If your children don’t get along, and you name one of them joint on your bank accounts and real estate, the other child may feel slighted and allege elder financial abuse filing a lengthy and expensive lawsuit against his or her sibling.
Also, once a child is added to your bank account, he or she can withdraw some or all of the account or can try to sell or mortgage his or her share of the house. Money has a funny influence on people and unfortunately, there are many stories and examples where children have wiped out their parents savings.
Keep in mind that if a few years go by and you decide you want to sell your home--perhaps to downsize or move to an independent living community--if your child's name is on the deed, you cannot sell your house without your child’s signature.
When You Die, It Might Not Go As You Had Intended
Upon your death, the account or real estate will pass automatically to the child that owned it jointly with you. If you have other children, chances are they’re going to be pretty upset! For example, let’s assume you have three children and your will or trust says that your estate will be divided equally between them. One of your children lives in town and the other two live out of town. For convenience, you decide to add your in-town child to your accounts. As a result, upon your death, the entire bank account will pass to the in-town child and he or she is not in any way obligated to share it with his or her siblings (and in fact, might be required to file a gift tax return if they do share it!).
Or What If You Don't Die But Are Disabled Or Need Long-Term Care
Consider the case where you and your child are in a car accident together and both left disabled. If your child is married, then it is likely that his or her spouse has power of attorney—which means your son-in-law or daughter-in-law now has full control and access to your bank account or real estate!
Or at some point you may need nursing home care and want to file a Medicaid application for assistance in paying the hefty costs of nursing home care. Guess what? Medicaid is going to penalize you for making the bank account or real estate joint—they view it as a transfer and a penalty will be imposed.
The bottom line is that there are much more effective estate planning tools that can help us avoid or limit your exposure to these situations such as a Durable Financial Power of Attorney and the use of a Living Trust that includes detailed disability instructions.
If you have questions about how to set up your estate so family members can help without endangering your finances or theirs, you should check out one of our regularly scheduled seminars . They are a great way to get a solid background on how you can use your planning and on the next steps you can take to protect yourself, your family, and your assets from the unexpected and the inevitable.
Does a revocable living trust protect my assets for Medicaid and nursing home planning purposes?
No. The general rule of thumb from the world of debtor-creditor law is whatever you have direct access to, your debtors and creditors have access to. This means that the assets owned by the revocable living trust while you are alive are still subject to your persona liabilities including nursing home expenses. Furthermore, any assets owned by your revocable living trust must be reported on a Medicaid application.
I have a long term care insurance policy, should I still consider Medicaid planning?
One of the most effective strategies for planning for nursing home and long term care is to combine a long term care insurance policy with other Medicaid planning strategies. Depending upon the terms of the policy, the long term care insurance can be used for home care and levels of care lower than nursing home care. Thus, it can be used during the ‘transition’ phase before you need full-on nursing home care (Medicaid is only available for nursing home level care).
In addition, the long term care insurance can provide you with greater flexibility when it comes to facility selection as you will not be required. However, if you use up all of the long term care insurance benefits and continue to need care, this is when your planning will transition to Medicaid qualification for assistance paying the cost of nursing home care.
Finally, the cost of nursing home and long term care is constantly increasing. Thus, if your long term care insurance does not include an inflation rider or at some point becomes too expensive for you to maintain, if you’ve already engaged in Medicaid planning, you’ll have a back-up plan to fall back on to either replace the insurance or fill in the ‘gap’ if your long term care insurance benefit is not enough to cover the cost of the nursing home.
Should I let the nursing home employee or social worker complete my Medicaid application for me?
No, we do NOT recommend letting a nursing home employee or case worker complete your Medicaid application. Filing the application at the wrong time or with the wrong information can be catastrophic. Both the nursing home and the Medicaid department just want you to complete the application as quickly as possible. This will usually result in unnecessarily spending almost all of your money on nursing home expenses before you can receive Medicaid benefits.