While preparing for long term care should preferably take place years prior to getting in a retirement home, this is not constantly possible and even considered till it is far too late. The following short article, nevertheless, details several methods that are readily available for people with “a foot in the door” of an assisted living home with regard to their available assets.
1. Under a plan commonly understood as the “Reverse Guideline of Halves”, a private going into a retirement home can move all of his properties (over and above the Medicaid resource allowance ($13,800.00 in 2011) to his heirs, and then make an application for Medicaid – knowing that the application will be rejected due to the fact that he has actually transferred assets. He will then be ineligible for Medicaid for a duration of time equivalent to the total properties moved divided by the average monthly expense of a nursing home. On Long Island in 2011 that’s $11,445.00 monthly. The beneficiaries to whom he moved his possessions should then carry out a promissory note to him, concurring to repay, in monthly installments a quantity equal to about half of the total assets moved, plus interest at a “affordable” rate (which the Department of Social Services says is 5%.)
The assisted living home will then be paid the institutionalised individual’s monthly earnings plus the monthly payments on the promissory note till the duration of ineligibility ends. If, for instance, an individual with $200,000 in properties needs nursing home care, under the Reverse Guideline of Halves, he will have to invest half of his possessions on nursing home care prior to ending up being eligible for Medicaid – just as under the old Guideline of Halves. Rather than just transfer half of his assets as in the past, he would transfer the entire $200,000 to his heir, who would sign a promissory note to him promising to repay $100,000, plus interest at 5%. He would then be ineligible for Medicaid for roughly 10 months: $100,000 (or half of the properties transferred) divided by the Medicaid divisor ($11,445.00). If he had $1,000 each month in earnings, that $1,000 (less a small individual allowance) would be paid to the nursing house, and the balance of the assisted living home expenses would be paid from the successor’s monthly payment under the promissory note. Those payments would continue up until the duration of ineligibility ends at which time Medicaid will be authorized.
The promissory note must satisfy specific criteria. The payment needs to be actuarially sound, implying the regular monthly payments need to be enough that the loan can be paid back during the institutionalised person’s life span. The payments should be made in equivalent quantities with no deferment and no balloon payment. The promissory note also needs to prohibit the cancellation of the balance on the death of the lender. The note should be non-negotiable, otherwise it may be determined that the note itself has a value, which could make the candidate ineligible.
2. Nonexempt possessions under Medicaid can be transformed to exempt properties. For instance, the community spouse can buy a larger personal house or include capital enhancements to an existing residence. This way nonexempt money would be transformed into an exempt residence.
3. An instant annuity that is irrevocable and non-assignable, having no cash or surrender worth (i.e., allowing no withdrawals of principal) can be acquired with excess cash. The annuity contract need to supply a month-to-month income for a duration no longer than the actuarial life span of the annuitant-owner. In case the annuitant dies before the end of the annuity payout period, the policy’s follower beneficiary would receive the remaining installments. This strategy can convert a nonexempt excess asset into an income stream that goes through the more liberal earnings guidelines of what the community spouse can retain under Medicaid. An annuity with a term going beyond the annuitant’s life span might be thought about a transfer affecting Medicaid eligibility.
4. Liquid resources need to be used to settle consumer financial obligations and prepay burial plots and funeral service expenditures (consisting of a household crypt), hence spending down excess money in an acceptable fashion.
5. Kids can be made up for recorded family and care services as long as the amount is sensible. An independent quote must be obtained prior to figuring out the quantity of reimbursement and the family must have a written arrangement with the relative supplying care. This is more frequently called a “Caretaker Contract”.
6. All joint and private possessions that are in the name of the institutionalized spouse ought to be moved to the community spouse. In 2011 the optimum Neighborhood Spouse Resource Allowance (“CSRA”) is $109,560.00. After such transfers, asset protection planning can be undertaken for the community spouse).
7. Under the Medicaid transfer guidelines, certain transfers are exempt. The transfer of a home is exempt if the transfer is to a partner, a minor (under 21), or a blind or handicapped kid, a brother or sister with an equity interest in the home who lived in house one year prior to institutionalization, or a child who lived in home two years and supplied care so as to keep the person from becoming institutionalized.
Certain other transfers of any resource may also be exempt.