While preparing for long term care need to preferably occur years before getting in a retirement home, this is not always possible or even considered till it is too late. The following short article, however, outlines a number of strategies that are offered for people with “a foot in the door” of a nursing home with regard to their readily available possessions.
1. Under a plan frequently known as the “Reverse Rule of Halves”, an individual entering a nursing home can transfer all of his assets (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 denied due to the fact that he has actually moved possessions. He will then be ineligible for Medicaid for a time period equal to the total assets transferred divided by the average month-to-month cost of a retirement home. On Long Island in 2011 that’s $11,445.00 per month. The beneficiaries to whom he moved his assets need to then perform a promissory note to him, consenting to repay, in regular monthly installations a quantity equal to about half of the total properties moved, plus interest at a “reasonable” rate (which the Department of Social Provider says is 5%.)
The nursing house will then be paid the institutionalised person’s regular monthly earnings plus the regular monthly payments on the promissory note till the period of ineligibility ends. If, for example, an individual with $200,000 in possessions requires nursing home care, under the Reverse Rule of Halves, he will have to spend half of his assets on nursing house care before ending up being eligible for Medicaid – simply as under the old Guideline of Halves. However instead of just transfer half of his possessions as before, he would transfer the whole $200,000 to his successor, who would sign a promissory note to him pledging to pay back $100,000, plus interest at 5%. He would then be ineligible for Medicaid for approximately 10 months: $100,000 (or half of the assets transferred) divided by the Medicaid divisor ($11,445.00). If he had $1,000 monthly in income, that $1,000 (less a little personal allowance) would be paid to the assisted living home, and the balance of the nursing houses expenditures would be paid from the successor’s regular monthly payment under the promissory note. Those payments would continue up until the period of ineligibility ends at which time Medicaid will be authorized.
The promissory note should satisfy specific criteria. The repayment should be actuarially sound, meaning the monthly payments need to suffice that the loan can be repaid during the institutionalised individual’s life span. Likewise, the payments should be made in equivalent quantities without any deferment and no balloon payment. The promissory note also needs to forbid the cancellation of the balance on the death of the loan provider. The note needs to be non-negotiable, otherwise it may be identified that the note itself has a worth, which might make the candidate ineligible.
2. Nonexempt possessions under Medicaid can be converted to exempt assets. For instance, the neighborhood partner can purchase a bigger individual house or include capital enhancements to an existing residence. This method 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 purchased with excess money. The annuity agreement need to provide a month-to-month earnings for a duration no longer than the actuarial life span of the annuitant-owner. In case the annuitant dies before completion of the annuity payment period, the policy’s follower recipient would get the remaining installations. This technique can transform a nonexempt excess asset into a profits stream that goes through the more liberal income rules of what the community partner can keep under Medicaid. An annuity with a term going beyond the annuitant’s life span may be thought about a transfer affecting Medicaid eligibility.
4. Liquid resources need to be utilized to pay off customer debts and prepay burial plots and funeral expenses (including a family crypt), therefore investing down excess cash in an appropriate fashion.
5. Kids can be compensated for recorded family and care services as long as the amount is reasonable. An independent quote must be obtained prior to figuring out the quantity of compensation and the family need to have a written contract with the relative supplying care. This is more frequently understood as a “Caretaker Contract”.
6. All joint and individual possessions that remain in the name of the institutionalized partner ought to be transferred to the community spouse. In 2011 the optimum Neighborhood Partner Resource Allowance (“CSRA”) is $109,560.00. After such transfers, possession protection planning can be carried out for the neighborhood partner).
7. Under the Medicaid transfer guidelines, certain transfers are exempt. The transfer of a house is exempt if the transfer is to a spouse, a minor (under 21), or a blind or handicapped kid, a bro or sibling with an equity interest in the house who resided in home one year before institutionalization, or a daughter or son who lived in home 2 years and supplied care so as to keep the individual from becoming institutionalized.
Certain other transfers of any resource may likewise be exempt.