Sandra Reed’s Life Care Planning: Additional ways to reduce resources to qualify for Medicaid

Attorney Sandra W. Reed answers your life planning questions.

Attorney Sandra W. Reed answers

your life planning questions.

Last week’s Life Care Planning column discussed strategies to qualify the spouse of a married couple for Medicaid long-term care assistance while the other spouse remains at home when the couple’s combined assets exceed the allowable amount.  The column discussed specifically three methods: (1) spending on care; (2) converting countable resources into non-countable ones and (3) gifting.  This column will discuss two additional methods for married couples.

 Purchasing An Annuity

Clayton needs skilled care in a nursing home facility. He and his wife, Iris, own a $250,000 home and a 2009 Lexus. They have purchased pre-burial policies. None of these are countable resources.  Therefore, they do not disqualify Clayton for Medicaid. However, the couple has saved $150,000, held in separate bank accounts, $100,000 in Clayton’s name and $50,000 in Iris’ name. These bank accounts are countable resources.

Iris receives a monthly Social Security check in the gross amount of $850. Clayton’s gross monthly retirement income is $2,000.  What happens when Clayton applies for Medicaid?

Iris’ and Clayton’s accounts are combined to determine the resource amount, regardless of which one owns each account. Therefore, they have $150,000 in combined countable resources.  ris can keep half – $75,000. But they must spend down Clayton’s half to qualify him for Medicaid. As previously, discussed, they could do this by spending the money on Clayton’s care, paying off a mortgage, credit cards, making improvements to the home, purchasing a newer car or by gifting and accepting the penalty.

However, Iris and Clayton can purchase an annuity for Iris. The purchase of a non-revocable annuity will convert the cash assets into a monthly income payment.  If they choose this route, they should seek professional assistance in doing so because there are strict regulations and confusing implications surrounding annuities.

The annuity extends no longer than Iris’ life expectancy according to the Social Security tables. If Iris is 85 years old, her life expectancy is 6.77 years. If she and Clayton purchase a five-year annuity at $75,000, this converts that cash into a monthly income stream for Iris of $1,250 a month – $75,000 ÷ (60) [12 months ×5 years] = $1,250). Iris’ combined income from Social Security and the annuity will then be $2,100 a month, less than the $2,898 allowed the stay-at-home spouse. That means Iris can keep that portion of Clayton’s income to bring her income to that amount with the balance paid to the nursing home.

Clayton’s income is divided like this:  $2,000 – $60.00 (allowance to him) – $798.00 (to Iris to bring her income level to $2,898) = $142, the monthly balance of Clayton’s income that must be paid to the care facility.

Expanded Protected Resource Amount

There is an additional option available for couples when both spouses’ income levels are low. They can shelter substantial value in assets by converting these into an income stream for the stay-at-home spouse. When an incapacitated spouse enters a long-term care facility, Medicaid allows a spouse who stays at home to retain a Protected Resource Amount at the maximum amount of $115,920.  However, if the couple’s income produces less than the minimum monthly needs allowance of $2,898  for the stay-at-home spouse, the Medicaid caseworker may be able to increase the Protected Resource Amount (PRA) above the $115,920 PRA allowed by Medicaid.

Example 1: Howard has Alzheimer’s and needs long-term care in a facility. His spouse, Peggy, retains full capacity, mentally and physically. Howard and Peggy have a combined gross monthly income of $1,857, which is $1,041 less than the maximum allowed amount of $2,898.  We must first give all the income to Peggy, the stay-at-home spouse. Then we multiply the $1,041 per month by 12 to calculate the amount of unearned income allowed to Peggy per year. Take this figure of $12,492.00 and divide it by the prevailing rate of interest of a one-year certificate of deposit (CD). For purposes of this calculation, we will use 2 percent. Using that rate, we determine it would take the sum of $624,000 to create that income stream. Peggy and Howard may be able to shelter that entire amount and still qualify Howard for Medicaid.

Example 2:  Same scenario as Example 1, but Howard and Peggy have $250,000 in CDs. Medicaid puts a ceiling on the Protected Resource Amount allowed to the stay-at-home spouse. In this case, the PRA can be increased to $250,000 because at 2 percent interest rate, that amount will produce only $416.67 per month.  If we add that figure to their combined monthly income of $1,857, Peggy is still $624.33 below the allowable monthly needs amount of $2,898. Howard can be immediately qualified for Medicaid, all the income will be diverted to Peggy and all the assets will be preserved.

The current interest rate paid on a one-year CD is closer to 1 percent than 2 percent, meaning that couples with low income may be able to shelter even more assets. This strategy can work well when couples have accumulated cash assets or appreciated property (which can be sold and converted to cash) but their current income is low.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is located in Fort Worth.  She lives and practices in Somervell County.  If you have questions or concerns, please contact her by email at swreed2@yahoo.com or by phone at 254-797-0211.

 

 

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