Medicaid Asset Rules
South Carolina Medicaid Planning Attorney Spartanburg, Greenville, Upstate SC
(Source: ElderLawAnswers )
Our Medicaid planning attorneys for the Smith & Haskell Law Firm assist individuals and families the complexities of Medicaid rules and laws. We strive to create an environment for those in need of benefits to be eligible to receive the best possible care for them or a loved one should they require nursing home or other care.
Effective Medicaid Planning addresses Medicaid Issues and Medicaid Eligibility
The laws surrounding Medicaid eligibility are complex and you should consult an experienced and knowledgeable Medicaid planning attorney to address issues and provide you with a comprehensive strategy tailored to your individual situation. The Medicaid planning process involves developing a plan to reallocate your assets in such a way that Medicaid will not take them into consideration when determining your eligibility for coverage. If you will require nursing home care in the future, you will then qualify to have Medicaid pay for the cost of care, rather than depleting your own resources to cover these costs. Our experienced Medicaid planning attorneys provide guidance throughout this process.
Medicaid planning is a process of working within all applicable laws to set aside savings for the benefit of nursing home residents who will otherwise be economically devastated by the exorbitant cost of private nursing home care. Through asset preservation, implementation of a Medicaid plan allows the resident continued access to the many things not otherwise covered by nursing home Medicaid.
Resource (Asset) Rules
These are general state guidelines for South Carolina as of 2010.
In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets.
The spouse of a nursing home resident–called the “community spouse” — is limited to $66,480.00 in “countable” assets. (see South Carolina Department of Health and Human Services Medicaid Policy and Procedures Manual) This figure changes each year to reflect inflation.
All assets are counted against these limits unless the assets fall within the short list of “noncountable” assets. These include the following:
- Personal possessions, such as clothing, furniture, and jewelry
- One motor vehicle is excluded, regardless of value, as long as it is used for transportation of the applicant or a household member. The value of an additional automobile may be excluded if needed for health or self-support reasons. (Consult our Medicaid planning attorneys to discuss how these rules apply to your situation)
- The applicant’s principal residence, provided it is in the same state in which the individual is applying for coverage (the states vary in whether the Medicaid applicant must prove a reasonable likelihood of being able to return home). Under the Deficit Reduction Act of 2005 (DRA), principal residences may be deemed noncountable only to the extent their equity is less than $525,000. Under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there
- Prepaid funeral plans and a small amount of life insurance
- Assets that are considered “inaccessible” for one reason or another
Depending on the state, nursing home residents do not have to sell their homes in order to qualify for Medicaid. But as noted above, under the DRA principal residences may be deemed noncountable only to the extent their equity is less than $525,000. The home will not be considered a countable asset for Medicaid eligibility purposes and the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there.
The Transfer Penalty
The second major rule of Medicaid eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return. These restrictions, already severe, have been made even harsher by enactment of the DRA.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.
Example: For example, in South Carolina, the current average monthly cost of care is $5,481.42 and you give away property worth $100,000, you will be ineligible for benefits for 18.24 months ($100,000 / $5,481.42 = 18.24).
Another way to look at the above example is that for every $5,481.42 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month.
In theory, there is no limit on the number of months a person can be ineligible.
Example: The period of ineligibility for the transfer of property worth $400,000 would be 72.97 months ($400,000 / $$5,481.42 = 72.97).
However, for transfers made prior to enactment of the DRA on February 8, 2006, state Medicaid officials will look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so-called lookback period for all transfers is 60 months.
The second and more significant major change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the 18.24-month penalty period created by a transfer of $100,000 in the example described above is assessed the later of the first day of the month in which the asset was transferred or the date on which the individual is eligible for medical assistance for long term care and would otherwise be receiving a Medicaid payment if not for the application of the penalty period.
For instance, if an individual transfers $100,000 on April 1, 2010, and the individual would be eligible to receive a Medicaid payment on April 1, 2012, the penalty would begin on that date and would run for 18 months and 7 days from that date.
Exceptions to the Transfer Penalty
Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include the following:
- A spouse (or a transfer to anyone else as long as it is for the spouse’s benefit)
- A blind or disabled child
- A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).
In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:
- The applicant’s spouse
- A child who is under age 21 or who is blind or disabled
- Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
- A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
- A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Congress has created a very important escape hatch from the transfer penalty: the penalty will be “cured” if the transferred asset is returned in its entirety.
Is Transferring Assets Against the Law?
You may have heard that transferring assets, or helping someone to transfer assets, to achieve Medicaid eligibility is a crime. Is this true? The short answer is that for a brief period it was, and it’s possible, although unlikely under current law, that it will be in the future.
As part of a 1996 health care bill, Congress made it a crime to transfer assets for purposes of achieving Medicaid eligibility. Congress repealed the law in 1997, but replaced it with a statute that made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid. This meant that although transferring assets was again legal, explaining the law to clients could have been a criminal act.
In 1998, then-Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment protection of free speech, and she told Congress that the Justice Department would not enforce the law. Around the same time, a U.S. District Court judge in New York said that the law could not be enforced for the same reason. Accordingly, the law remains on the books, but it will not be enforced. Since it is possible that these rulings may change, you should contact your elder law attorney before filing a Medicaid application. This will enable the attorney to advise you about the current status of the law and to avoid criminal liability for the attorney or anyone else involved in your case.
Treatment of Income
The basic Medicaid rule for nursing home residents is that they must pay all of their income, minus certain deductions, to the nursing home. The deductions include a $30.00 a month personal needs allowance, an allowance for the spouse who continues to live at home if he or she needs income support, an allowance for dependent family members, a home maintenance allowance, and health insurance premiums (other than Medicare) for the beneficiary only.
In South Carolina, eligibility for Medicaid benefits is barred if the nursing home resident’s income exceeds $2,094 a month (for 2012), unless the excess above this amount is paid into a “(d)(4)(B)” or “Miller” trust. If you require more information on such trusts, consult an elder law attorney in South Carolina.
For Medicaid applicants who are married, the income of the community spouse is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted in determining his or her eligibility. Thus, even if the community spouse is still working and earning $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if he is covered by Medicaid.
Protections for the Healthy Spouse
The Medicaid law provides special protections for the spouse of a nursing home resident to make sure she has the minimum support needed to continue to live in the community.
The so-called “spousal protections” work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of “institutionalization,” the day on which the ill spouse enters either a hospital or a long-term care facility in which he or she then stays for at least 30 days. (This is sometimes called the “snapshot” date because Medicaid is taking a picture of the couple’s assets as of this date.)
In South Carolina, the community spouse may keep a maximum of $66,480.00 of the couple’s countable resources. This is known as the “spousal share”.
Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’s countable resources have been reduced to a combined figure of $68,480.00 — $2,000 for the applicant and $66,480.00 for the community spouse.
In all circumstances, the income of the community spouse will continue undisturbed; he or she will not have to use his or her income to support the nursing home spouse receiving Medicaid benefits. But what if most of the couple’s income is in the name of the institutionalized spouse, and the community spouse’s income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse. How much the community spouse is entitled to depends on what the Medicaid agency determines to be a minimum income level for the community spouse. This figure, known as the minimum monthly maintenance needs allowance or MMMNA, is calculated for each community spouse according to a complicated formula. The MMMNA is $2,841.00 a month (in 2012). If the community spouse’s own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’s income.
Example: Mr. and Mrs. Smith have a joint gross income of $3,000.00 a month, $2,300.00 of which is in Mr. Smith’s name and $700.00 is in Mrs. Smith’s name. Mr. Smith enters a nursing home and applies for Medicaid. Since Mrs. Smith’s own gross income is only $700.00 a month, the Medicaid agency allocates $2,141.00 of Mr. Smith’s income to her support. Since Mr. Smith also may keep a $30 a month personal needs allowance, his obligation to pay the nursing home is only $129.00 a month ($2,300.00 – $2,141,00 – -$30.00 = $129.00).
In exceptional circumstances, community spouses may seek an increase in their MMMNAs either by appealing to the state Medicaid agency or by obtaining a court order of spousal support.
Under Medicaid law, following the death of the Medicaid recipient a state must attempt to recover from his or her estate whatever benefits it paid for the recipient’s care. However, no recovery can take place until the death of the recipient’s spouse, or as long as there is a child of the deceased who is under age 21 or who is blind or disabled.
Summary of the New Medicaid Rules (the DRA)
On February 8, 2006 President Bush signed into law the Deficit Reduction Act of 2005 (DRA), which cuts nearly $40 billion over five years from Medicare, Medicaid, and other programs. Of greatest interest to the elderly and their families, the law placed severe new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care.
The DRA made significant changes to Medicaid’s long-term care rules, including the look-back period; the transfer penalty start date; the undue hardship exception; the treatment of annuities; community spouse income rules; home equity limits; the treatment of investments in continuing care retirement communities (CCRCs); promissory notes and life estates; and state long-term care partnership programs.
Following is a brief summary of the Medicaid laws before and after enactment of the DRA in these areas. Also, bear in mind that states are gradually coming into compliance with the new transfer rules.
The Look-Back Period
A person applying for Medicaid coverage of long-term care must disclose all financial transactions he or she was involved in during a set period of time–frequently called the “look-back period.” The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. Congress does not want a person to be able to give away all of their assets one day and then qualify for public benefits the next.
The DRA extends Medicaid’s “look-back” period for all asset transfers from three to five years. Previously, the agency reviewed transfers made within 36 months of the Medicaid application (60 if the transfer was to or from certain kinds of trusts). Now, the look back period for all transfers is 60 months. The extension of the look-back period will make the application process more difficult and could result in more applicants being denied for lack of documentation, given that they will need to produce five years worth of records instead of three.
The Penalty Period Start Date
The penalty period is the period during which a Medicaid applicant is ineligible for Medicaid payment for long term care services because the applicant transferred assets for less than fair market value during the look-back period.
Before the DRA, the penalty period began either when the transfer was made or on the first day of the following month. It was possible for the penalty period to expire before the individual actually needed nursing home care. The DRA changes the start of the penalty period to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage but for the transfer. In other words, the penalty period does not begin until the nursing home resident is out of funds and has no money to pay the nursing home for however long the penalty period lasts.
Home Equity Limits
Before the DRA’s enactment an individual could still qualify for long-term care services even if he or she had substantial assets in his or her home. Under the DRA, South Carolina will not cover long-term care services for an individual whose home equity exceeds $525,000. However, under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there.
Change in Community Spouse Income Rules
The DRA requires all states to follow the “income-first” rule for supplementing a community spouse’s income. For more on this, click here.
The Treatment of Annuities
The DRA added requirements for disclosing immediate annuities, which have been useful long-term care planning tools. In its simplest form, an immediate annuity is a contract with an insurance company under which the consumer pays a certain amount of money to the company and the company sends the consumer a monthly check for the rest of his or her life or a prescribed time period
An immediate annuity can be used to convert assets into an income stream for the benefit of an institutionalized Medicaid applicant or the applicant’s spouse. The state will not treat the annuity as an asset countable toward Medicaid’s asset limit ($2,000 in most states plus up to $66,480.00 for the healthy spouse) as long as the annuity complies with certain requirements. The annuity must be: (1) irrevocable the annuitant cannot take funds out of the annuity except for the monthly payments, (2) non-transferable the annuitant cannot be able to transfer the annuity to another beneficiary, and (3) actuarially sound – the payment term cannot be longer than the annuitant’s life expectancy and the total of the anticipated payments have to equal the cost of the annuity.
To these requirements, the DRA added an additional requirement. The state must be named the remainder beneficiary of any annuities up to the amount of Medicaid benefits paid on the nursing home resident’s behalf. If the Medicaid recipient is married or has a minor or disabled child, the state must be named as a secondary beneficiary. The Medicaid application must now also inform the applicant that if he or she obtains Medicaid benefits, the state automatically becomes a beneficiary of the annuity.
In addition, all annuities must be disclosed by an applicant for Medicaid regardless of whether the annuity is irrevocable or treated as a countable asset. If an individual, spouse, or representative refuses to disclose sufficient information related to any annuity, the state must either deny or terminate coverage for long-term care services or else deny or terminate Medicaid eligibility.
Promissory Notes and Life Estates
Prior to the DRA’s enactment, a Medicaid applicant could show that a transaction was an (uncountable) loan to another person rather than (countable) gift by presenting promissory notes, loans, or mortgages at the time of the Medicaid application. A promissory note is normally given in return for a loan and it is simply a promise to repay the amount. Classifying transfers as loans rather than gifts is useful because it allows parents to “lend” assets to their children and still maintain Medicaid eligibility.
Congress considered this to be an abusive planning strategy, so the DRA imposes restrictions on the use of promissory notes, loans, and mortgages. In order for a loan to not be treated as a transfer for less than fair market value it must satisfy three standards: (1) the term of the loan must not last longer than the anticipated life of the lender, (2) payments must be made in equal amounts during the term of the loan with no deferral of payments and no balloon payments, (3) and the debt cannot be cancelled at the death of the lender. If these three standards are not met, the outstanding balance on the promissory note, loan, or mortgage will be considered a transfer and used to assess a Medicaid penalty period.
Prior to the DRA’s passage, another common estate planning technique was for an individual to purchase a life estate (a legal right to live in and possess a property) in the home of another person, such as a child. By doing this, the individual was able to pass assets to his or her children without triggering a transfer penalty. The DRA still allows the purchase of a life estate in another person’s home, but to avoid a transfer penalty the individual purchasing the life estate must actually reside in the home for at least one year after the purchase.
Undue Hardship Exception
Before the DRA’s passage, federal law allowed for an exemption from the transfer penalty if it would cause “undue hardship,” but the law did not establish procedures for determining undue hardship and left it up to states to create their own. The DRA finally sets out some rules and requires states to create a hardship waiver process that complies with specific language in the federal law. The new law provides that undue hardship exists when enforcing the penalty period for asset transfers would deprive the Medicaid applicant of (1) medical care necessary to maintain the applicant’s health or life or (2) food, clothing, shelter, or necessities of life.
If an applicant asserts an undue hardship, state Medicaid agencies must approve or deny the application within a reasonable time and must inform the applicant that he or she has the right to appeal the decision, and provide a process by which this can be done. In addition, the applicant must be told that application of the penalty period can be halted if undue hardship exists.
With the resident’s consent, nursing homes may now pursue hardship waivers on the resident’s behalf.
Continuing Care Retirement Communities
The DRA now expressly allows continuing care retirement communities (CCRCs) to require residents to spend down their declared resources before applying for Medicaid. However, the spend-down requirements must still take into account the income needs of the Medicaid applicant’s spouse. The DRA also requires that three conditions be met before a CCRC entrance fee can be considered an available resource of someone applying for Medicaid coverage of nursing home care. The entrance fee must be able to be used to pay for the individual’s care, the fee or any remaining portion must be refundable on the institutionalized individual’s death or on termination of the admission contract when the individual leaves the CCRC, and the fee must not grant the individual an ownership interest in the CCRC.
If you or a loved one has questions about Medicaid planning and Medicaid eligibility, we encourage you to contact a Elder Law & Medicaid planning and eligibility attorney to discuss your situation with the Smith & Haskell Law Firm today at 864.582.6727 to schedule an appointment. The Medicaid planning attorneys at the Smith & Haskell Law Firm can help, don’t wait and act now.
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