In the prior post, http://www.randallperla.com/blog/know-what-a-living-trust-can-do-for-you-and-what-it-cannot-do-for-you/ I discussed how a home, which is generally not a countable resource for Medicaid purposes, is countable when it is held in a Revocable Trust.  I explained how such an arrangement can cause a single person to be ineligible for Medicaid and how it can work to a married couple’s advantage.  I want to reiterate the advantage of a revocable trust to a married couple who is applying for Medicaid.

As stated previously, whereas a single person is only permitted to have $1,500 of countable resources, the spouse of the nursing home Medicaid applicant is permitted to keep half of the couple’s countable resources, up to $109,560.  The advantage of a revocable trust can be seen in the following example:

John and Jane Smith are married and applying for long-term Medicaid for John.  As part of the application process, the state looks at all of John and Jane’s assets.  The couple has $50,000 in an IRA, $40,000 in bank accounts, $20,000 in mutual funds and a home valued at $250,000.  The home is held in a Revocable Trust (aka a Living Trust). 

Since the home is in a revocable trust it is not exempt and is a countable resource.  Thus, the Smiths have $360,000 of total countable assets.  However, a Community Spouse is only allowed to keep half of the total countable resources, up to $109,560.  Thus, in this case, the Smiths will be able to keep $111,060 which is the maximum amount that Jane can keep as the Community Spouse ($109,560) plus the maximum amount that John can have as a Medicaid recipient ($1,500).  The Smiths will have to spend down the remaining $248,940 to qualify. 

However, instead of spending any of their money, the Smiths can simply move the home out of their Revocable Trust and deed it in John and/or Jane’s name.  The home will then be considered an exempt resource and not countable for Medicaid eligibility purposes and the Smiths will be down to $110,000 in countable resources, under the maximum resource amount of $111,060.  John Smith will have qualified for long-term Medicaid without him or his wife spending down a dime.

Alternately, if the Smiths had their home outside of a revocable trust, it would have cost them $53,500.  The $250,000 home would have been exempt and not a countable resource.  Thus, the Smiths would have had a total of $110,000 in countable resources.  Jane would have been permitted to keep half that amount ($55,000) and John would have been able to keep $1,500, and the remaining funds ($53,500) would have had to be spent down to qualify.

Elizabeth L. Perla, Esq.

Law Offices of Randall M. Perla

Cleveland Medicaid Attorneys

19443 Lorain Road

Fairview Park, Ohio 44126

Phone (440) 333-2503

Fax (440) 333-9650

perlalaw@wowway.com

www.randallperla.com

A living trust, the popular term for a trust that is established during a person’s lifetime and can be revoked or changed at any time, has its advantages.  A living trust can help your heirs by eliminating the expense and time of probate, allow you to consolidate your assets, and avoid the necessity of a guardianship over your estate should you become incompetent, among other benefits.  However, revocable trusts have no tax benefits and can work for or against you if you apply for Medicaid.  Here’s how:

When a person applies for Medicaid benefits, all assets are countable for purposes of determining eligibility, including any assets in a revocable trust.  Current Medicaid eligibility requirements only permit a single individual to have up to $1,500 worth of countable resources to qualify.  (If the individual is married, his spouse will be able to keep additional assets.)  However, some assets, most notably an individual’s residence, are exempt, that is they are not a countable resource.  Here’s the kicker: If your residence is in a revocable trust, rather than simply held in your name, it will not qualify for the residence exemption and will instead be treated as a countable resource.  The following is an example to illustrate.

John Smith is single and applying for nursing home Medicaid.  He has $1,500 in cash and lives in his  home worth $250,000.  John would qualify for Medicaid as he has less than $1,500 worth of assets and his home is exempt.  However, if instead John’s home was being held in a revocable trust then he would not qualify for Medicaid as his home would not be exempt and he would be considered $250,000 over the permitted resource amount.

However, although a revocable trust can hurt a single person’s ability to qualify for Medicaid, it can benefit a married couple. Whereas a single person is only permitted to have $1,500 of countable resources, the spouse of the nursing home Medicaid applicant is permitted to keep half of the couple’s countable resources, up to $109,560.  A revocable trust can be a wonderful way to increase the spouse’s resources as shown in the following example.

John Smith is married and applying for nursing home Medicaid.  He has $50,000 in cash and lives in his own home worth $250,000.  Because the home is exempt, and hence, not a countable resource, John and his wife have $50,000 of countable resources.  John and his wife would be permitted to keep $26,500 (half of $50,000 plus $1,500) and would have to spend down $23,500 of their cash. 

Now, let’s see what the result would have been had John and his wife had their home in a revocable trust prior to John applying for Medicaid. 

The $250,000 home would have been a countable resource, and combined with their $50,000 in cash, John and his wife would have had $300,000 in countable resources.  John and his wife would have been able to keep $111,060 (maximum amount of $109,560 plus $1,500).  Moreover, instead of spending down any of their funds, John and his wife could simply transfer their cash and home into the sole ownership of John’s wife. 

In conclusion, the living trust can be a beneficial instrument for general estate planning as well as Medicaid planning purposes.  The key is having a knowledgeable attorney to help you take advantage of its benefits and avoid its pitfalls. 

Elizabeth L. Perla, Esq.

Law Offices of Randall M. Perla

Cleveland Estate Planning Attorneys

19443 Lorain Road

Fairview Park, Ohio 44126

Phone (440) 333-2503

Fax (440) 333-9650

perlalaw@wowway.com

www.randallperla.com

WHAT IT IS:

An agreement between caregiver and the caregivee that states that the caregiver will provide care to the caregivee in exchange for specified compensation.  The agreement would set forth the specific responsibilities of the caregiver, including days and hours of care and the compensation paid for that care.

ADVANTAGES:

PROVIDE FOR YOUR CAREGIVER: Provide compensation to a trusted loved one who may have had to quit a job, forgo job opportunities or otherwise spend considerable time and energy providing care.

AVOID FAMILY CONFLICT: Minimize problems among relatives as to who will provide necessary care and how it will be paid for.

SAVE MONEY: Long term care insurance may provide for such care if there is a formal, reasonable agreement.

TRANSFER MONEY & ASSETS TO A CAREGIVING LOVED ONE AND NOT THE GOVERNMENT- HAVE MEDICAID PAY FOR YOUR FUTURE LONG-TERM CARE NEEDS:

Should an alternate caregiver or nursing home become necessary, all assets of the caregivee will be considered available to pay for that care and Medicaid will not be available until all assets are depleted.

Certainly the care a loved one provides is just as valuable and worthy of compensation as the care provided by a future caretaker or nursing home.

With a personal care agreement the caregivee can provide for his or her caregiving loved one and have Medicaid pay for future long term care costs. The trick is drafting the agreement properly so that it won’t be considered an improper transfer and lead to a penalty period by Medicaid.  It is best to consult an attorney knowledgable in Medicaid laws to assist you in the drafting.

Elizabeth L. Perla, Esq.

Law Offices of Randall M. Perla

Cleveland Medicaid Attorneys

19443 Lorain Road

Fairview Park, Ohio 44126

Phone (440) 333-2503

Fax (440) 333-9650

perlalaw@wowway.com

www.randallperla.com

A former Magistrate with the Cuyahoga County Court of Common Pleas, listed in Martindale-Hubbell’s Bar Register of Preeminent Lawyers and AV rated for 15 straight years, Randall M. Perla, joined by his associate Elizabeth L. Perla in 2007, has been providing clients with the highest quality legal representation for over 35 years.

Why Should I Plan?     

Seventy Percent (70%) of people over age 65 will need long term care during their lifetimes.  However, as the average annual cost of a nursing home room in the Cleveland Metropolitan area is $73,912.50, such care can quickly deplete all of your savings. 

Won’t Medicare Cover my Care?

Medicare doesn’t cover long-term care costs.  Even if a number of criteria are met Medicare only covers the cost of a skilled nursing facility for up to 20 days, with the possibility of an additional 80 days on a co-payment basis.  The average nursing home stay is 2.4 years.

What about Long-Term Care Insurance?             

AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care.  If you can afford to comfortably pay the premiums for the rest of your life then long-term care insurance may be a good option.  However, if you cannot afford the premiums or if you outlive your long-term care insurance coverage, you are likely going to need Medicaid.

What is Medicaid and how will I Qualify?

Medicaid provides free long-term care as long as certain income and resource requirements are met.  However, because Medicaid’s resource limit is so low (currently $1,500) without proper planning, you will have to deplete all your resources before you can qualify.  Moreover, if you are thinking that you can simply give the assets away to a family member or loved one, you may want to reconsider.  For any assets transferred for less than fair market value within 60 months of the time of Medicaid application, there is a penalty period equal to the value of the transfer.  Hence, you could be left without any money or government assistance to pay for the care you need. 

Don’t Despair, Prepare!

There are many planning opportunities available in order to not only preserve as much of your savings as possible for you and your loved ones, but also to improve the financial situation of your spouse should you need long term care.  The earlier you begin to plan the better.

Contacting a Medicaid Planning Attorney could save you and your loved ones thousands of dollars should you find yourself in any of the following situations:

You or Your Spouse is Seriously Ill.

You are Considering Applying for Medicaid. 

You Have Been Denied Medicaid Coverage. 

You Live in a Loved One’s Home or are Considering Moving in with a Loved One.

You are Cared for by a Loved One.