Dave Nesbit Keystone Elder Law
If your widowed parent is in a nursing home, you may think it’s too late to save assets or that you can’t get government help to pay for their care before all their money runs out. wears out over time.
It’s not true. You can save money and avoid the need for probate and estate administration in the future.
A few years ago, a federal court ruled that a Medicaid-compliant annuity might be acceptable, even if the duration of the annuity is a fraction of the life expectancy of the person for whose benefit it is obtained. This decision authorizes the use of a gift annuity strategy to enable immediate application for Medicaid, which in Pennsylvania is administered by the Department of Human Services (DHS) and is called medical assistance or MA.
It is important that the applicant’s power of attorney document (POA) includes language that clearly authorizes unlimited donations. Such a power of attorney is part of what we call foundational documents, which also include a last will and health care directive.
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Before preparing the basic documents, I ask our clients this: “If you are getting the care you need and it is clear that there may be money left over, do you want that money to go to a nursing home, to the government or to your children?” You can guess what they always answer.
In order to apply for an MA to pay for nursing care, a person must have a medical need for nursing home care. Second, that person’s gross monthly income must be less than the monthly cost of care. Since almost everyone has pension incomes that total less than $10,000 per month, these two requirements are easier to meet to qualify for the MA.
This is the third requirement, that a person must be “underfunded”, which is normally the barrier. Anyone who has less than $2,400 in total monetary value of all resources is underfunded. A person with a gross monthly income of less than $2,349 may have up to $8,000 in cash value from all resources.
A “look-back period” of 60 months before filing the request for MAID prevents the family from taking or hiding the resources of the parents. Transfers of unpaid assets are “gifts”. If they total more than $500 in any of the 60 calendar months, they are penalized. Some families wonder, “How will DHS find out that we took our parents’ money?”
DHS requires that up to five years of bank statements be submitted with the MA application. DHS analysts demand explanation for large checks and large cash withdrawals. Similarly, DHS requires five years of tax returns so that assets that were on the tax returns but not included in the MAID request are discovered.
DHS uses a formula to calculate the length of a penalty period when MA will not pay for nursing home care. Penalty periods are a family issue since Pennsylvania law allows a nursing home to collect the cost of nursing care from any adult child of a parent who is not eligible to receive an MA due to a gift. . The only defense is parental abandonment.
Although unpaid transfers of assets, or “gifts,” carry criminal penalties, it is not a criminal offense. The gift annuity strategy calculates how much money can be “gifted” and still have enough to purchase a Medicaid-compliant annuity to provide funds to pay the retirement home during the penalty period.
We use proprietary computer software and several case-specific facts to perform this calculation. We can usually calculate the penalty period and necessary annuity to the day and dollar amount as DHS eventually determines.
If you get lost in the arithmetic of this example, don’t worry: Dad is a widower and his monthly income is $4,200. His monthly insurance cost is $200, which is a deduction from his income. Her monthly nursing cost is $10,100. If he had an income of $6,000 more per month, his income minus the insurance deduction would still be $100 less than his cost of care. He has $425,000 of total resources left, including the value of his now empty home, to spend before he becomes underfunded and “otherwise eligible” for MA, but for the penalty period.
The penalty divisor is the average monthly cost of nursing in Pennsylvania. Assuming the divisor is $11,000, if Dad gave his children $264,000, it would result in a 24-month penalty assessed by DHS, which would determine a specific future date when Dad would be eligible. Dad’s income could be augmented with a $144,000 annuity that would pay $6,000 a month during the 24-month penalty period to not quite offset the monthly cost of care.
The $425,000 in this example would be spent with a donation of $264,000, an annuity of $144,000, and other costs of $17,000, which could include a funeral account. Even though a portion of the offered funds would be spent to cover the intentional monthly shortfall between Dad’s total income and the cost of care, after 24 months, when MA starts paying, there should still be over $200,000 of offered funds remaining. .
The gifted funds could be used during Dad’s lifetime for anything he might want. Upon his death, the funds could be divided among the children as an inheritance. If Dad died before all 24 annuity payments were received, the children would receive the remaining payments.
There would be no need for estate administration since Dad would have no assets at the time of his death. If Dad lived a year after the gift annuity strategy was implemented, there would be no inheritance tax. This strategy can work for amounts under $100,000 and to address issues caused by donations already made.
If you have a widowed parent in a nursing home, don’t try to do it yourself. Get help from a knowledgeable and experienced elder law attorney.
To learn more about the author of the article and other community education opportunities, go to www.keystoneelderlaw.com. Check out the book “Long Term Care Guide: Essential Tools for Solving the Elder Care Puzzle,” at the Whistlestop bookstore or on Amazon, and check out Keystone’s free directory of services for the elderly at www.mypeaceguide.com. Keystone Elder Law has offices in Mechanicsburg and Carlisle. Call 717-697-3223 for a free phone consultation.