I ponder this nursing home question from time to time as I look around at my friends and family. My conclusion is a lot of families stand to lose financially (and unnecessarily) absent Medicaid planning.
The essential question starts with what demographic group needs to consider Medicaid nursing home planning? Is it only the poor who get (or should get) Medicaid benefits? Does anyone not in this poor group need even to think about Medicaid eligibility? As you read this blog post keep in mind the average monthly nursing home expense is in the $6,000 and up range in most states. Significantly more in certain areas, such as New York.
Here are five broad points to consider:
One is that preventive Medicaid planning significantly protects the continuing standard of living (e.g., economic) lifestyle of the non-nursing home spouse if the other spouse goes into a nursing home. This planning goes simply to getting the nursing home spouse in a position as soon as possible to receive government-paid Medicaid nursing home care, without depleting the family’s funds for the non-nursing home spouse (and any children who still are living at home, etc.) The key point here is to have Medicaid planning already in place in the event of a head injury, stroke, accident, or other tragic event that might put one spouse into a nursing home much earlier than expected.
Two is that Medicaid has an extremely harsh 5-year rule essentially meaning Medicaid planning ideally needs to be in place at least 5 years prior to a need for nursing home care. The inter-vivos QTIP trust for a married couple, in my view, helps address this 5-year factor. Below is how this 5-year rule applies.
Three. Assume grandfather Bob makes a gift of $200,000 to his grandchildren to pay for their college. Two years later Bob falls and needs to enter a nursing home.
Assume Bob has few remaining assets, primarily as a result of this $200,000 college funding. Because Bob’s $200,000 transfer occurred within 5 years prior to Bob’s need to enter a nursing home, Bob is ineligible for nursing home Medicaid assistance for 26.6 months. This is the $200,000 divided by the average monthly Medicaid nursing home expense (assume $7,500 per month in this example; $200,000 divided by $7,500 = 26.6 months of ineligibility).
Also assume 4 years ago Bob funded an irrevocable gifting trust for his children and grandchildren with $1.5 million, in addition to the above $200,000 college funding. His ineligibility in this second example is 226.6 months ($1,700,000 divided by $7,500 = 226.6 months of ineligibility).
By contrast, if Bob’s transfers had occurred simply one day outside the 5-year period, the transfers would not have been subject to the above Medicaid limitation.
Four, and this is important, all is not lost even if one fails to plan outside the above 5-year period. The available options, however, are limited, but still exist to help maintain the financial well-being of the other non-institutionalized spouse (and children). This means Medicaid should virtually be on everyone’s checklist, unless financial resources are substantial enough to remove all concern about a nursing home stay.
Five is that at a minimum families should consider Medicaid planning to keep the family home. Absent planning, the family home is protected from Medicaid / nursing home problems while at least one spouse remains living in the home. But, if a widow or widower vacates the family home in order to go into a nursing home, the home generally is subject to spend-down before Medicaid nursing home eligibility. A transfer of the home within the above 5-year period will trigger the same ineligibility as in Bob’s case with his college funding and trust gift.