MEDICARE is your government health insurance. It covers medical expenses such as hospital and doctor charges for those people eligible for the plan. It has a limited benefit for a nursing home stay; only if you were hospitalized for at least three days prior, require skilled nursing care, and are continuing to benefit medically (usually undergoing rehab of some type). Under those circumstances, you may be entitled to benefits (100 days, at the most, but usually much shorter).
Under any other circumstances, you’re on your own. MEDICARE does not pay for long-term care. MEDICAID, on the other hand, is the Federally funded, state-administered program, known as MEDI-CAL in California (nursing home and, other types of facilities or care), but only after the patient meets certain financial conditions.
How is MEDI-CAL eligibility determined?
MEDI-CAL eligibility is based primarily on three criteria: 1) the need for care (specific state standards); 2) the income of the patient (only), and 3) the combined countable assets of the couple. Assuming a sufficient level of care is required and the patient’s income is under the cap, if any (or the patient intends to establish an Income Cap Trust), a MEDI-CAL Resource Assessment would be completed. The purpose of this procedure is to identify and value all countable (non-exempt) assets and resources. Certain assets may be exempt (non-countable for purposes of qualifying), such as the home (assuming that the patient or the spouse is residing there, or is expected to return), one vehicle, household and personal property, medical equipment, burial plans and goods, etc.
Virtually everything else of value (bank accounts, CDs, mutual funds, retirement accounts, other real estate, cash value in life insurance, motor homes, additional vehicles, stocks, bonds, etc.) will generally be counted by MEDI-CAL. It doesn’t make any difference how the assets are titled (single, joint, living trust, etc.); MEDI-CAL simply comes up with a total of all the countable assets available to either spouse.
If that total is less than the current state minimum (monthly income may not currently exceed $845 for an individual or $1,407.20 for a couple), then there would be no “spend down” (reduction of countable resources) required – the patient qualifies. If, however, that total were higher than the state minimum, then there likely would be a spend down requirement. If that were the case, the patient would not qualify for MEDI-CAL until the couple could show that they had reduced their countable resources down to the required amount.
Will transfer (or gifting) of assets result in denial of MEDI-CAL benefits?
The transfer of assets between spouses is not a problem. However, if you transfer or sell an asset to someone other than your spouse, you must get fair market value for it, or you risk disqualification. MEDI-CAL has a five-year “look-back” provision. If you sell or transfer an asset for less than fair market value, the difference between the price you received and the actual value would likely be considered an “uncompensated transfer of assets,” resulting in a period of disqualification from MEDI-CAL benefits.
Is there any way to satisfy MEDI-CAL’s “spend down” requirement without actually losing the value of the assets? In other words, can we protect assets from MEDI-CAL?
When one spouse is in need of long-term care, and the couple approaches MEDI-CAL for help, they will typically have a MEDI-CAL Resource Assessment completed, which will determine their combined countable resources. Aside from their home, household/personal property and one vehicle, most everything else of value will be counted. Of the total countable resources available, the Community (healthy) Spouse will be allowed to keep some portion of the total. The balance of the combined resources would be considered available to the patient and must be “spent down” before the patient could qualify for MEDI-CAL. (The actual term used in the procedures is “reduce countable resources.”)
Here is where the confusion comes in, and it can be deadly from a financial point of view. Contrary to common belief, the MEDI-CAL rules do not limit specifically what the couple can spend their resources on. The only requirements are that, 1) they not give it away, and 2) that they get “fair market value” for what they spend or transfer. For example, if Mr. and Mrs. Jones had a $20,000 spend down (reduction of resources) requirement from MEDI-CAL, they could, quite literally, go on a $20,000 world cruise, and when they came back they would qualify for MEDI-CAL. They could remodel their home; replace their car with a newer one; rent every video in town, etc., just as long as they received fair market value for their money.
All of these actions would help reduce their countable resources. (What would not do them any good would be to buy another countable resource. For example, cashing in a bank CD to purchase a mutual fund; they really haven’t reduced their total countable resources.) The problem with these types of expenditures, though, is that once the money is spent, it is gone forever and will be of no future benefit to the surviving spouse in terms of providing income or support.
The way that people in these circumstances are helped is by identifying how they can “spend” their resources in such ways as to save the value for the support of the community spouse. Although each situation is unique, by simply spending the money in the “right” way, a married patient can often qualify for MEDI-CAL immediately, and still preserve the full value of their life’s savings for the benefit of the community spouse.
These strategies are basically simple, straightforward and accepted by MEDI-CAL. There is no attempt to “get around” the rules, but to simply utilize the options available within the MEDI-CAL rules, which were specifically included to protect the community spouse. Unfortunately, without the education and knowledge, most couples end up losing a large portion of their life’s savings, and it is almost always avoidable.
One approach which will result in the property being treated as transferred for MEDI-CAL purposes is to set up an Irrevocable Trust. An Irrevocable Trust means a trust that can’t be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the trust, effectively removes all of his or her rights of ownership to the assets and the trust.
The main reason for setting up an irrevocable trust is for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, effectively removing the trust’s assets from the grantor’s taxable estate. The grantor is also relieved of the tax liability on the income generated by the assets. While the tax rules will vary between jurisdictions, in most cases, the grantor can’t receive these benefits if he or she is the trustee of the trust.
The assets held in the trust can include, but are not limited to, a business, investment assets, cash and life insurance policies.
What happens to remaining assets after both spouses death?
After receiving notification regarding the death of a person who received MEDI-CAL benefits, the Department of Health Services will decide whether or not the cost of services must be paid back. In making this decision, the Department will consider how much was paid by MEDI-CAL and how much is left in the estate of the decedent beneficiary. MEDI-CAL cannot require reimbursement for services provided before the decedent’s 55th birthday (unless the decedent is institutionalized), if the MEDI-CAL beneficiary is succeeded by a child under the age of 21, or if the decedent is succeeded by a child who is blind or disabled (as defined by the Federal Social Security Act). If all of these circumstances change, then assets, such as the home and other assets, become subject to recovery. Many assets such as IRAs 401(k)s, trusts, life insurance benefits, and bank accounts are subject to MEDI-CAL resource spend down requirements and transfer lookback rules.
CONCLUSION
The issues associated with asset protection are complicated, especially with regard to the elderly and disabled. This document attempts to explain some of the issues involved. However, it is recommended to consult an Estate Planning Attorney so that you and your heirs keep as much of your estate as possible.
