... Continued from main page

Before DRA-2005, "spend down" plans that included gifting assets to children were effective in preserving most of the applicant's assets, even if the gifting took place after the applicant entered the nursing home. After DRA-2005, this type of strateg won't work because the penalty period is calculated from the date the applicant is broke and would "otherwise be eligible for Medicaid". In other words, the penalty starts when the applicant (a single person) has only $2,000.00 in countable assets or, if the applicant is married, between $52,000.00 and $101,540.00 in assets. the amount a married couple can keep is 50% of the assets the couple ownedon the date the applicant was first institutionalized(this is called the "snapshot date") with $52,000 being the minimum amount the couple can keep – the applicant can keep $2,000 and the community spouse can keep $50,000.

Under DRA-2005, a $20,000 gift that was given four (4) years before an applicant (a single person) is ready to apply for Medicaid because he/she has only $2,000 left, will face a penalty period (a period of time when Medicaid benefits are denied), of 3.75 months. This penalty period is calculated by dividing the total gift by the "penalty divisor". In 2006 the "penalty divisor" is $5,339.00 (the average cost of nursing home care per month in Wisconsin). The "penalty divisor" for 2007 will be announced later in January and apply to applicants who file after January 1, 2007. it is fair to assume that the divisor will be higher than $5,339.00 in 2007. You can find this information on the following website: www.emhandbooks.wi.gov/mech/

What can individuals and families do to preserve assets in light of the drastic changes in Medicaid rules? A few of the "old" strategies still work and most of the same advice still applies regarding the types of records you should keep and the documents you should consider creating.

KEEP GOOD RECORDS of all financial transactions so the application process goes smoothly. The records will need to cover the previous five (5) year period. if you can prove that a transfer was not a gift, you will be able to avoid a penalty period for the transfer.

Make sure your documents include a DURABLE POWER OF ATTORNEY FOR FINANCE that allows gifting and provides prtections against financial abuse. For example, a Durable Power of Attorney for Finances could contain a gifting clause but could also require that at least two (2) of your financial "agents" must approve any gifts. The gifting clause could also limit the recipients of the gifts to people you name as your beneficiaries in your will in proportion to the shares those beneficiaries would have received.

A LIFE ESTATE DEED, a deed that says you have a lifetime right to live in the home and your children own the home after you die, is a useful strategy to consider when your goal is to transfer the home or proceeds from the sale of the home to your children after you and your spouse die. The Life Estate is considered an "exempt asset" assuming you apply for Medicaid at least 5 years after you sign the deed. The property will transfer outside of the probate process after you and your spouse die. The time to create a Lefe Estate Deed is when you are sure the home you are living in is your permanent residence. The cost to create a Life Estate Deed will range from $250 to $800 depending on the complexity of the family situation.

LONG TERM CARE INSURANCE is another option for some individuals and couples. If you are considering transferring some of your assets to your children to assure that they will have funds available to supplement your care, you may wish to obtain Long Term Care insurance for at least five (5) years – the five (5) year period after you make the "gift". Look for a policy that covers in-home services, assisted living services and nursing home care.

Other strategies that still work involve purchasing assets that are exempt under the Medical rules, transferring assets to "protected persons" and/or using a "Family Care Agreement". I will discuss these strategies in a subsewuent article to be posted on this website. Until then, don't give away your property unless you are sure you understand the new Medicaid rules AND make sure you have up-to-date estate planning documents that grant the authority to gift to someone you trust who also understands the new rules.

Article by: Attorney Iris M. Christenson
© January 2007