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There are five criteria an individual must satisfy in order to qualify for New Jersey long term care Medicaid for seniors (known as Medicaid Managed Long Term Services and Supports). First, the applicant must be a United States Citizen or an Eligible Alien. An Eligible Alien is an individual who has lived in the US for at least five years as a permanent resident.
Second, only New Jersey residents are eligible to collect Medicaid in New Jersey. New Jersey statute defines a resident as any person who is living in NJ voluntarily and not for a temporary purpose, with no present intention of leaving. This is easily satisfied when an individual relocates to a facility or a private residence and files for benefits in that county.
Third, by definition the applicant must be over age 65. However, New Jersey will allow one under the age of 65 to receive Medicaid if she meets the criteria to be deemed disabled under the Social Security Disability laws.
Fourth, the applicant must be within the State’s financial eligibility criteria for both income and assets. This depends on certain criteria, including whether the individual is single or married.
Fifth, the applicant must be “disabled” under New Jersey Medicaid standards. It must be determined that the applicant requires long term institutional level of care. An applicant is considered medically eligible if she needs assistance with at least three activities of daily living. Activities of daily living include toileting, transferring, bathing, dressing, and walking, and eating. Mental deficiencies also satisfy this requirement if the applicant’s mental condition places his or her health or safety at risk.
In the last few years a number of Medicaid application service businesses have appeared. While it may be tempting to employ a service to aid you in applying for Medicaid, families are most often better served using an elder law attorney to guide them in this important and complicated process. Not only is the application process fraught with pitfalls, but there are also many legal strategies that can make the process easier and save the family tens or hundreds of thousands of dollars. Only attorneys are licensed to counsel applicants on these legal strategies – many of which are unknown and beyond the expertise of Medicaid service providers.
There are generally two types of Medicaid coverage: Medicaid home care (also referred to as community based Medicaid), which provides home health care, some hospital coverage, doctor appointments, medications, etc. And, Medicaid nursing home care (also referred to as institutional Medicaid), which is care in a skilled nursing facility or similar institution.
To qualify for Medicaid, a Medicaid recipient (whether for home care or nursing home care) may only keep a small amount of assets and income. In 2016, a Medicaid recipient living alone may keep no more than $14,850 in non-exempt assets and have no more than $825 per month in income (both of these amounts increase depending on the number of family members who live with the Medicaid recipient), plus an unearned income credit of $20 if the applicant is over 65, blind, or disabled. An individual in a nursing home or similar institution is restricted to a personal needs allowance of $50 per month. Income includes Social Security payments, distributions from IRAs and other retirement accounts, interest, and dividends, etc.
Transfer of Assets
Giving assets away to qualify for Medicaid is not permitted. A Medicaid applicant who does so is “penalized” – denied Medicaid benefits – for a period of time following the transfer; provided, however, that there are certain transfers which are considered “exempt transfers”.
The Look-Back Period
In determining the penalty period, Medicaid will “look back” at the applicant’s assets over a period of five (5) years. The “look back” period examines account statements, deeds, tax returns, etc., and is intended to discover any transfer of assets which would disqualify an applicant from Medicaid. The transfer of assets penalty period begins on the date the applicant makes his or her Medicaid application, is in an institution receiving care, and would otherwise be eligible for Medicaid but for the transfer of assets.
The Planning Process
Because of the threat of a penalty period, the obvious solution would be to merely wait the five (5) years from the date of the transfer to apply to Medicaid. That way, Medicaid will not see the transfer within the look-back period.
But, what if, as happens many times, the applicant needs Medicaid to pay for the nursing home within the five (5) year look-back period? Or, as happens quite often, the applicant needs Medicaid nursing home care immediately? This is where the Good Elder Law Practitioner’s long-term care planning techniques are useful.
One technique that we use to protect assets AND qualify a person for Medicaid nursing home benefits is what we call the promissory note (i.e., loan) / gift plan. It entails a transfer of some of the exposed assets and a loan of the remaining exposed assets, and is explained as follows:
Under Medicaid’s rules, whereas a transfer of funds is a penalty transfer, a loan of those same assets instead is not a transfer but is a conversion of those assets into an income stream. In other words, loaning money, instead of gifting it, will not create a penalty period nor will it create an exposed asset for Medicaid purposes. The loan would merely create an income stream to the Medicaid applicant and income does not disqualify a person for Medicaid benefits.
Scenario One: John has $450,000 in non-exempt assets. John must be admitted to a nursing home. John does nothing with his assets. His family pledges to use his assets to pay for his care. The nursing home costs $400 per day. On average, this amounts to $12,000 per month. $450,000 divided by $12,000 per month is 37.5 months. In 37.5 months, John’s $450,000 will be spent entirely on his nursing home with nothing left to show for it. After the money has all been spent down, then John could make a Medicaid application to pay for his Medicaid. Because John would then have less than the threshold for purposes of Medicaid nursing home care benefits, Medicaid would pay for John’s nursing home.
Scenario Two: John has $450,000 in non-exempt assets. John must be admitted to a nursing home. John gives all $450,000 to his daughter, Darla. While John now has less than the $14,850 threshold for purposes of Medicaid nursing home care benefits, the $450,000 gift created a penalty period of approximately 38 months … or a little more than three years. $450,000 divided by $12,029 per month (which is what Medicaid believes is the average cost of nursing home care in NYC) or 37.41 months.
Scenario Three: Rather than gifting the entire $450,000 to Darla, John gifts only half of it but loans to Darla the other half. Medicaid applies a penalty period on the half that he gifted, but not on the half that is a loan. So John, who transferred $225,000 to his daughter, will incur a roughly 18 month penalty period during which he will not be able to receive Medicaid but will use the monthly loan repayments from his daughter to pay for nursing home care. After the roughly year and half penalty period, John starts getting Medicaid while his daughter legally keeps $225,000.
In Scenario One and Two, John’s family will have preserved nothing from John’s assets. In Scenario Three, John’s family will have preserved at least half of John’s assets, with the savings likely being greater when an actual calculation can be made. The question boils down to whether, in this hypothetical, John’s family wants to do the planning … or not. The bottom line is that Medicaid will likely be needed at some point. Is it better to get Medicaid involved sooner and save a good amount of money? Or, wait until it become necessary and get Medicaid involved when there is nothing left to save.
Nursing home Medicaid planning is not to be entered into lightly. Use only a qualified Elder Law attorney. If you would like to learn more about nursing home Medicaid benefits, or other types of Medicaid planning, or have questions regarding the above, please contact us at (877) 207-6803 or email@example.com.
There are generally two types of Medicaid: Home care (or Community) Medicaid and nursing home (or Institutional) Medicaid. To qualify for either type of Medicaid, in New York (in 2016), an individual cannot have more than $14,850 in non-exempt assets. Exempt assets generally include, among other things, your home (provided that the equity in your home is less than $828,000) and your retirement accounts (provided that your retirement accounts are in “payout status”). Any asset that is not exempt is called an exposed asset or otherwise called a non-exempt asset or an available resource for Medicaid purposes.
Imagine the following scenario: Applicant owns a home worth about $700,000. He also has an IRA worth approximately $500,000. Applicant is currently withdrawing his Required Minimum Distributions (RMDs) from the IRA. Applicant also has a checking account with approximately $10,000 in it. Applicant’s monthly income includes his Social Security Retirement income of $1,260, pension income of $1,800, and a small other pension of $800.
Because the equity in the Applicant’s home is less than the $828,000 threshold, his home is not counted as an available resource for Medicaid purposes. Because the Applicant’s IRA is in payout status (i.e., he is withdrawing his RMDs), the IRA is not counted as an available resource for Medicaid purposes. And, finally, because the Applicant’s checking account is less $14,850, the checking account is not counted as an available resource for Medicaid purposes. This means that the Applicant is qualified for home care Medicaid.
Imagine the following modification to the above scenario: In addition to the above, the Applicant also has a $250,000 brokerage account. The home is still not counted as an available resource. Nor is the IRA or the checking account. But, the $250,000 account at UBS is not an exempt asset. In fact, it is an exposed asset and will be counted as an available resource for Medicaid purposes. What should the Applicant do if he wants to qualify for home care Medicaid?
In New York, there is no penalty period or look-back period for home care Medicaid. That’s not true for nursing home Medicaid, but that’s for a different discussion. One thing that the Applicant could do to qualify for home care Medicaid would be to create a Medicaid Irrevocable Income-Only Trust and transfer the $250,000 brokerage account into the Trust (or, some say re-title the $250,000 brokerage account into the name of the Trust).
The Applicant is the grantor (a/k/a creator) of the Medicaid Irrevocable Income-Only Trust and someone the Applicant appoints (e.g., child or children) is the Trustee (a/k/a manager). The Trust agreement provides that the Applicant gets all of the net income from the Trust, but he cannot get any of the principal from the Trust. By preventing the Applicant’s access to the principal of the Trust, we prevent Medicaid’s access to the principal of the Trust. And, since income does not disqualify anyone from Medicaid, it is safe to pay the income from the Trust to the Applicant.
And, what, you may be asking, is the income from the Trust? Income from the Trust depends on what the Trust assets are invested in. In this case, the Trust asset is a $250,000 brokerage account. In that account may be stocks, bonds, some cash, etc. So, income from the brokerage account would be dividends, interest on the bonds, interest on the cash account – in other words, whatever type of income one would normally earn on an investment account. All of that income would be paid from the Trust to the Applicant – monthly, quarterly, semi-annually, however often the Applicant wants it.
You may be also asking: what happens if the Applicant needs more than just the income from the Trust? What happens if the Applicant needs some of the principal from the Trust? Just because we said above that paying principal from the Trust to the Applicant makes that principal available to Medicaid (which it does), it is not impossible to get some portion of the principal back to the Applicant. This is where the Trustee(s) and Beneficiary(ies) come into play.
A Medicaid Irrevocable Income-Only Trust agreement generally provides that, although the Trustees cannot pay principal to the Applicant, the Trustees may pay principal to the Beneficiary(ies). Imagine the following further modification to the above scenario: In addition to the above, we know that the Trustees of the Trust are the Applicant’s two children. We likewise know that the Applicant’s two children are also the Beneficiaries of the Trust. In addition to paying the Applicant the net income from the Trust, the Trust agreement also allows the Trustees to pay to the Beneficiaries any portion they want of the principal of the Trust. This means that the Applicant’s children, as Trustees, can pay a portion (or all) of the Trust principal to themselves, as Beneficiaries, legitimately, pursuant to the terms of the Trust agreement. And, if the Beneficiaries, as the Applicant’s children, choose to give to their father, the Applicant, all or some portion of the principal they received from the Trust, then that’s their business and they do not need to explain anything to Medicaid.
So, with the Medicaid Irrevocable Income-Only Trust, the Applicant has protected the brokerage account, as follows: The Applicant transferred the brokerage account to the Trust; the Applicant will keep the same amount of income from the Trust as he had been receiving from the account before he transferred it to the Trust; none of the principal will be available to Medicaid; but, if the Applicant ever needs principal, then his children can decide at that time to give him some.
Here are a few points to consider when using a Medicaid Irrevocable Income-Only Trust:
- A Medicaid Irrevocable Income-Only Trust-based plan should only be considered with the help of a qualified Elder Law attorney.
- Penalty periods and look-back periods are real, but only in the world of nursing home Medicaid benefits.
- A Medicaid Irrevocable Income-Only Trust based plan should be contemplated with great caution if there is a real risk of imminent nursing home care.
The Medicaid Irrevocable Income-Only Trust is only one tool in the Medicaid planning toolbox. If you would like to learn more about Medicaid Irrevocable Income-Only Trusts and other types of Medicaid planning, or have questions regarding the above, please contact us at (877) 207-6803 or firstname.lastname@example.org.
Medicaid is an extremely complicated yet valuable program that can provide health care services to a senior living at home, in an Assisted Living Facility, or in a Skilled Nursing Facility. We meet with many families who have tried unsuccessfully, or are in the process of applying for Medicaid, who require guidance in order to receive Medicaid approval. Due to the complexity of the application and the documentation required for an approval, many families retain us to guide them through the process.
Although a Medicaid Application processing company can prepare an application, there are limitations. These companies are specifically prohibited from providing legal advice regarding transfers of assets that are allowed by Medicaid. In addition, there are several exceptions to the general rule that an individual cannot transfer assets within five year years preceding a Medicaid Application. Medicaid processing companies are not aware of these valuable exceptions. This lack of guidance often results in financial hardship for other members of the family.
On the other hand, an Elder Law Attorney provides guidance on potential opportunities for spending down along with filing an application on the client’s behalf. To put it simply, the main goal of a processing company is to have the applicant approved for Medicaid, whereas the goals of an Elder Law Attorney are to have the applicant approved for Medicaid while saving as much money as possible using allowable legal strategies. Some examples of the benefits of working with an Elder Law Attorney are: Saving the spouse from impoverishment; providing for a disabled child; saving a home from estate recovery; or merely allowing the Medicaid recipient some extra money to provide for a better quality of life in her final years.
Our guidance takes into account the appropriate healthcare considerations for our client, combined with the financial and tax consequences. A Medicaid processing company will not have these considerations in mind when handling your loved one’s application. Who would you rather guide you during the process, a processing company with a singular focus or an Elder Law Attorney that takes a holistic approach and considers all the legal consequences involved with submitting a Medicaid Application?
Your home may be hiding a significant amount of cash that could otherwise be used to pay for such things as household expenses, renovations, travel, or retirement expenses. A Reverse Mortgage allows a homeowner to convert the available equity in the home to cash. The cash from a Reverse Mortgage could also be used to pay for long-term care.
To qualify for a Reverse Mortgage, the homeowner(s) must be at least 62 years old, and must reside in the home. The Reverse Mortgage typically does not have to be repaid until the last homeowner dies, sells the home, or moves out of the home.
With a Reverse Mortgage, the homeowner(s) receives a lump sum of money from the lender. The amount received by the homeowner(s) is based on the value of the home, the age of the homeowner(s), and current interest rates.
For a client in need of quick cash to finance long-term care, a Reverse Mortgage may be a great idea. However, for those clients that wish to pass on their home to their loved ones, it probably will not be. With a Reverse Mortgage, there is no obligation on the homeowner(s) to make monthly payments. Interest on the loan is tacked onto the outstanding balance of the loan. At the time the loan becomes due (e.g., when the last homeowner dies, sells the home, or moves out of the home) the lender gets paid the original amount borrowed plus all of the accrued interest. The potential for exposure is if the house value is out-stripped by the outstanding balance on the loan. However, Reverse Mortgages are non-recourse loans. This means that the homeowner(s) is not responsible for the unpaid balance of the loan if there is not enough value in the home to satisfy the outstanding balance. So, even though the homeowner(s) would not be able to pass the home onto his or her loved ones, the homeowner’s(s’) loved ones are not obligated to make the lender whole.
Disadvantages of the Reverse Mortgage include the possibility that the homeowner will not be able to pass the home onto loved ones; the forced sale of the home in the event the homeowner moves out (e.g., into a nursing home); and the closing costs – which are higher than normal closing costs on conventional mortgages/home equity loans. Reverse Mortgages are usually offered by commercial financial institutions. The typical Reverse Mortgage is offered as a line of credit, but it is not required. This means that the Reverse Mortgage proceeds, although still offered as a lump sum, are instead deposited into the financial institution’s account for the homeowner. When the homeowner needs money from the account, the line of credit dispenses the amount. One of the advantages of this program is that the money is protected, even invested for the homeowner, and the homeowner does not incur interest on the amount borrowed until actually received by him or her. However, one of the disadvantages of this program is that the homeowner does not receive his or her financing right away but has to set up a system with the financial institution whereby the homeowner can make withdrawals from the line of credit account. Plus, because the closing costs are paid out of the loan proceeds, the homeowner already has an amount outstanding from day one. Many times, the homeowner is unaware that he or she is already accruing interest on this amount, especially when the homeowner does not withdraw any money from the line of credit.
Another disadvantage is the treatment of Reverse Mortgages for government benefit purposes. For most Medicaid applicants/recipients, Reverse Mortgages are disregarded as income but countable as a resource if the proceeds from the Reverse Mortgage are kept beyond the month received, but this may be inconsistent with state law. However, if the Reverse Mortgage is in the form of an annuity, then the annuity payments are unearned income in the month received and a resource thereafter.
If you would like to learn more about reverse mortgages, and how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or email@example.com.
Question: Can Medicaid Take My Home Away From Me?
Answer: No. A home is exempt from Medicaid for so long as it has an equity value of less than $750,000, and it is the Medicaid applicant’s primary residence or the primary residence of a spouse, minor child, or an adult child who is certified blind or certified disabled. When a Medicaid applicant is living outside of the home, but has an intent to return home, the home will continue to be exempt for Medicaid purposes, without regard to the applicant’s actual ability to return home. However, if the home has an equity value of $750,000 or more, or if the applicant or his or her family member(s) no longer reside in the home, then the home is deemed a “countable resource” for Medicaid purposes. This means that Medicaid can include its value in the applicant’s list of assets to determine whether or not he or she qualifies for Medicaid. This, still, does not mean that Medicaid or a nursing home can take the applicant’s home. It merely means that Medicaid may have the ability to place a lien on the home to be repaid the cost of its services when and if the home is ever sold. However, there is a different answer when a guardian is appointed by the court to assist in obtaining Medicaid benefits. For example, if you reside in a nursing home and the nursing home is not being paid, the nursing home may apply to the court for the appointment of a guardian in order to pay the bills and/or obtain Medicaid. When this happens, the guardian is typically given the power by the court to sell your assets, whatever they might be, including your home. So, while Medicaid and/or the nursing home cannot take your home, the court-appointed guardian may have to sell your home in order to pay the nursing home and/or qualify you for Medicaid benefits. A proper elder care plan, including planning for a nursing home and/or Medicaid, will typically avoid this scenario. But, it is always good to know ‘what if?’ when it comes to your disability and long-term care planning.