Medicaid is the primary funding source for nursing home care. Medicare and health insurance do not cover this cost on a long term basis. Long term care insurance can but it is very expensive to purchase, many individuals do not qualify and number of insurance companies providing this coverage has dwindled in the past few years. Individuals who did in fact purchase such coverage have been dealing with increasing premiums just to keep their coverage. Finally, many individuals even outlive this coverage. The problem is that for many nursing home residents and their spouses the price of admission to receive Medical Assistance under Medicaid is impoverishment.
At the State Level, the Medicaid program is administered through the Department Of Human Services (DHS) local County Assistance Offices (CAO). Caseworkers at the local County Assistance Offices review Resource Assessments and Medical Assistance applications. They manage the applicants’ files and make determinations of eligibility. The Caseworker’s job is to find all available resources to pay for your care before making you eligible. They work for the taxpayers not you.
How they view the resources are as follows:
Your primary house is a protected asset should an individual need Medical Assistance (Medicaid) from the Department Of Human Services (DHS). However, the Estate Recovery Act requires your loved ones to pay back the Department of Human Services (DHS) formerly called Department of Public Welfare (DPW) from the proceeds of the sale of your home at your death to recover money paid by Medicaid for your long term care or your spouses long term care. Click Here to see the attached claim by DPW to recover $247,441 against an estate of a deceased. This claim has prevented the transfer of title of a home 3 blocks from the beach to the intended beneficiary. The beneficiary must either come up with the money to pay the claim to gain title to the home or else sell the home. Is this the way you want a lifetime of hard work and savings to end!
Retirement Assets, more commonly known as Qualified Plan Money:
The transfer of IRA monies is more problematic because of the adverse tax consequences. The constant however, is that we all acknowledge that someone, whether it be you or the children, will pay federal income tax on all those IRA monies that you have accumulated when those monies are withdrawn. In the event a spouse requires skilled care in the future, that institutionalized spouses’ IRA is 100% exposed and is not protected. In other words, if both spouses have IRA’s only the spouse who requires skilled care is exposed. This situation can prove to be disastrous should the spouse with the only IRA or the larger IRA end up being institutionalized first leaving the community spouse at home with less money.
The balancing act is this-income tax will paid by you or your children-assuming you and/or your children are in a lower tax bracket someday is it worth exposing your life savings for the tax difference between 15%, 25% and 28th tax brackets. I think not.
It is important to know about the ramifications of IRA beneficiary designations. IRAs avoid probate and are left directly to the named beneficiary. As a result of the Clark v. Rameker case, decided by the Supreme Court in 2014, all creditor protection has been stripped from inherited IRAs left to children. The only way to safeguard any remaining money left to children is to leave that money in an IRA Trust.
What are the Benefits of an IRA Trust?
An IRA Trust can be a powerful tool for use in Estate Planning. There are significant benefits for the use of an IRA Trust when there are IRA monies that are going to be passed down to children and grandchildren.
The Supreme Court’s decision in Clark v. Rameker has made it clear than an inherited IRA is not a protected asset from creditors. “Creditors” can include a number of individuals. If you leave an IRA to children or grandchildren, that money has no creditor protection. And if you leave an IRA to your spouse, that money can be protected—except from the costs of a skilled nursing facility.
IRA assets passing into an IRA Trust can be protected from creditors, predators, lawsuits and divorcing spouses, so long as the funds remain inside of the Trust and can only be distributed at the discretion of the Trustee. This allows for the IRA monies to remain protected for the use and benefit of your beneficiaries, in the event that the beneficiary must declare bankruptcy, face a lawsuit, or marry and then divorce. It is also a concern if a beneficiary receives Medical Assistance that then needs to be repaid. Additionally, the Trust itself will allow the beneficiary to protect against himself, keeping the money safe from poor decision making, excessive spending, overreaching spouses, and inexperience with investments.
When you leave money to someone, you want to make certain that they are going to be able to enjoy it for themselves. You don’t want it to be reachable by a bad loan, or lawsuit, or former spouse. Make use of an IRA Trust to ensure that the IRA money being left is properly protected.
NON Qualified Assets: Essentially includes all your other assets outside of your retirement plan money such as Bank Accounts, CDs, Money Market Accounts, and Stock, Bonds, Mutual Funds, and Annuities that are all held outside of your retirement money. All of these assets are 100% exposed.
Life Insurance: Any Life Insurance policy that has a cash value exceeding $1,500.00 is a 100% exposed resource:
To avoid being compelled to spend down our life savings we can perform Medicaid planning. Medicaid planning primarily involves gifting away assets, typically to the natural objects of your bounty namely your children. The caveat here is that the assets must be gifted at least five (5) years prior to applying for medical assistance. Should you apply within five (5) years of your gifts, you will become ineligible for medical assistance. Essentially the CAO (County Assistance Office) “claws back” those gifts. These formally gifted assets are deemed resources which are to be utilized to pay for your care. When the gifted assets are exhausted you become eligible to apply for medical assistance once again. Making gifts of the majority of your assets is a significant leap of faith and trust. To make the gifting concept viable it is paramount that one’s children be trustworthy and honest.
If you are looking for an experienced and attentive Montgomeryville lawyer to answer an elder law question, help you prepare your estate plan, or address any other legal concern, I encourage you to contact my office at (215) 822-9004 or by e-mail to schedule a free consultation.
PA Estate Planning – Elder Law Attorney, Jeremy Z. Mittman – 593 Bethlehem Pike, Suite 10, Montgomeryville, PA 18936