Medicaid: An Estate Planning Opportunity? Part 2... by Wendy McMahon

As promised in the last issue of Of Counsel , the following is a brief summary of income and resource rules of Medicaid concerning married individuals and Long-Term Care. For a more general discussion of Medicaid including brief descriptions of the two main areas of services; Long-Term Care and Short-Term Services, please see the Fall 2004 issue of Of Counsel .

Long-Term Care as defined by the Medicaid eligibility rules is an institution or extended care at home for someone whose condition is severe enough to justify institutional care. The most complex issues concerning Medicaid arise when one spouse requires long-term care and the other spouse does not. The spouse requiring long-term care is called the “ institutionalized spouse, ” and the other spouse is called the “ community spouse. ” In order to meet the financial requirements for Medicaid, two areas are considered in determining eligibility: income and resources.

Income: To determine income eligibility for an institutionalized spouse, income is broken down into his, hers and joint. What’s his is his; what ’ s hers is hers; and the rest is joint. The institutionalized spouse ’ s income will be combined with half of the joint income to determine the income the government considers when determining eligibility. The income limit for an institutionalized spouse this year is $1,692 per month. However, there is some planning available to still qualify with monthly income up to $2,500. The institutionalized spouse is allowed to decrease his or her income by taking out $50 per month for a personal needs allowance, paying health insurance premiums, and giving enough money to the community spouse to bring their income up to $2,319 per month. The money remaining after these deductions will be given to the nursing home.

Resources: The institutionalized spouse qualifies for long-term care when the couple’s total countable resources (see the Fall 2004 issue of Of Counsel for more detail regarding countable resources) as allocated to the institutionalized spouse are $2,000 or less. There are four steps in determining which resources are allocated to the institutionalized spouse and which resources are allocated to the community spouse.

The first step is to combine the value of all countable resources for both spouses. This includes joint property as well as separate property and any resources covered by a prenuptial agreement, as of the date the institutionalized spouse entered the long term care. The total is then divided in half.

The second step is to make sure the community spouse has at least $25,000 of resources. If the community spouse’s half is less than $25,000, the amount needed to bring the community spouse up to $25,000 can be subtracted from the institutionalized spouse’s half.

The third step is to make sure the community spouse’s half does not exceed $92,760. If half of the total countable resources is greater than $92,760, then the amount over $92,760 is subtracted from the community spouse’s half and allocated to the institutionalized spouse’s half.

The final step in determining eligibility for resource purposes is to take the institutionalized spouse’s allocated share after adding or subtracting from the community spouse’s share and comparing it to the $2,000 resource limit. The amount exceeding the $2,000 resource limit for the institutionalized spouse must be spent-down before the institutionalized spouse will be eligible for Medicaid.

A couple can spend-down resources in any way that benefits either one of them, but the resources cannot be gifted or transferred. Examples of appropriate ways to spend-down include paying debts, doing household repairs and remodeling or buying exempt resources. There are special rules regarding the couple’s home, which should be considered when Medicaid planning is appropriate.

The penalties for transfers made prior to the institutionalized spouse becoming eligible for Medicaid are the same as for a single person. The Department of Human Services (DHS) usually looks back thirty-six months from the date of entry to the nursing home to determine whether assets have been disposed of for less than fair market value. The penalty is determined by a formula resulting in a longer ineligibility period for the institutionalized spouse. Transfers after the spouse has become eligible for Medicaid may also impact eligibility.

In considering resources and income, two areas that warrant further discussion include treatment of the elder’s home and planning opportunities involving annuities. These topics are too involved to include in this brief discussion of married individuals and Medicaid; however, a more detailed look will be provided in a future issue of Of Counsel .