How to plan for future incapacity and qualify for Medicaid Featured

8:00pm EDT March 26, 2010

According to AARP, the average cost of nursing home care in Florida is $88,300 per year. The average cost of in-home care for seniors is $17 per hour. If an individual needs to go into an assisted living care facility, it could cost an average of $32,000 per year. These figures do not include prescriptions, therapy, clothing or other living expenses. It is also expected that these costs will continue to rise.

Medicaid, which covers the cost of nursing home care for qualifying individuals, is a federally funded program administered by the individual states and, as such, is very state-specific. In order to qualify for Medicaid, the applicant has to meet a two-prong test.

First, if the applicant is a single person, he or she cannot have more than $2,000 in assets. If the applicant is married, a married couple is allowed $3,000 in assets. If one spouse is in a nursing home (the institutionalized spouse) and the other is at home (community spouse), there is a community spouse resource allowance of $109,560. That is, after discounting $109,560 from both spouses’ combined resources, the institutional spouse’s remaining resources must not exceed $2,000.

Second, a single individual applicant will not qualify if he or she has income of more than $2,022 per month, unless the excess income is deposited into a “qualified income trust” so that the income outside the trust is less than $2,022. To qualify, the trust must be irrevocable, be composed of income only and must establish that the state will receive any funds remaining in the trust upon the death of the Medicaid recipient, up to the amount of Medicaid payments paid on behalf of the individual. There are a few exceptions to countable resources, such as a principal residence, as long as the applicant or a dependant lives there at the time of application or if there is an intention of returning home.

“You may think that transferring assets to other family members will allow you to get below the asset requirements and qualify for Medicaid,” says Ana M. Veliz, an attorney with Katz Barron Squitero Faust. “But, the government created rules making such transfers ineffective to qualify for Medicaid unless such transfers are properly planned and executed.”

Smart Business spoke with Veliz about Medicaid and how to properly plan for incapacity.

How do you know if a transfer or gift will affect Medicaid eligibility?

Transfers could subject the applicant to a penalty period during which he or she would not qualify for Medicaid. This is known as the ‘look-back period.’ If there is an uncompensated transfer within the look-back period, there will be a penalty period associated with any such transfer during which the individual is ineligible for Medicaid. This often results in seniors being unfairly penalized for giving gifts to loved ones. It is essential to seek advice from a qualified adviser prior to making any transfers or gifts.

If you want to qualify for Medicaid, how should you prepare?

Individuals seeking to qualify for Medicaid may have several planning strategies available to them. For example, certain expenditures are allowable, such as remodeling a home to accommodate a wheelchair, purchasing a hospital bed or purchasing a new vehicle. The earlier the planning starts, the more options are available for families. There are two modes of planning. One is preplanning, which often involves the purchase of long-term care insurance (for insurable clients) and/or creation of a trust. The second is crisis planning, which occurs when a family member needs to go into a nursing home immediately.

Families should seek trusted experts to ensure that they understand the Medicaid laws and can develop a plan to protect assets so loved ones can qualify for Medicaid. Proper planning enables individuals to provide for long-term care of themselves and their spouses, as well as ensure financial security of loved ones.

What sort of documentation is needed for proper Medicaid planning?

Planning should include advance directives. There are two documents that should be considered. First, there is a living will. This document states the individual’s intentions and wishes regarding prolonging life in situations were there is no reasonable medical probability that life would continue without artificial means. Second is the health care surrogate, which allows an individual to name the agent (many times a spouse or child) who can make health care decisions for him or her if the person is unable to make those types of decisions because of mental incapacitation. It also allows the agent access to medical information otherwise prohibited by HIPAA. In addition, a durable power of attorney (DPOA) gives the person designated as an agent the power to make gifts, sell real estate, access bank accounts and do many of the things that individuals would not be able to legally do for themselves as long as he or she is mentally capacitated. The DPOA can be made effective upon signing or effective only in the event the person granting the power becomes mentally incapacitated.

How do guardianships work?

In the absence of proper planning, if someone becomes mentally incapacitated, a guardianship must be established. The guardianship process is costly and the control of the decision-making rests with the judge, not with family members. Once a guardian is appointed by the court, all expenditures on behalf of the incapacitated person must be approved by the court. Most judges will not authorize the giving away of the incapacitated person’s assets even if it means that the incapacitated person would not qualify for Medicaid and that the assets have to be used toward the cost of care. Therefore, the opportunity for planning to preserve assets for a spouse or other dependants left at home is lost.

In most cases, the cost of not planning is much higher than the cost of comprehensive planning. Families need a complete analysis and comprehensive planning to achieve the best possible result based on particular goals and objectives.

ANA M. VELIZ is an attorney with Katz Barron Squitero Faust. Reach her at (305) 856-2444 x149 or amv@katzbarron.com.