Quarterly Newsletters

December 2007: Will Medicaid Take My Home?

In the past month, I've heard people say, "I want to protect my home (or some other assets) from Medicaid taking it" no fewer than ten times. So, although I've written about this subject several times, I'm going to give it another go.

Whenever I hear one person say something incorrect, I assume that ten others harbor the same misconception. So, when I hear ten people say something incorrect, I assume that most people harbor that same misconception, making this topic a good topic on which to write.

Medicaid is a welfare program. In order to qualify for Medicaid, a person must be indigent. Medicaid is a health insurance program; however, unlike most health insurance programs, Medicaid pays for the costs of long-term care, such as care in a nursing home or assisted living residence.

Most of the people whom I qualify for Medicaid benefits never received a welfare program in their lives. Of course, most of my clients were never presented with the prospect of paying $8,000 a month to a nursing home for the rest of their lives.

From what people tell me - or at least from the manner in which they tell me - it would appear that some people believe the Medicaid office is some form of collection agency. In other words, these people seem to believe that if you apply for Medicaid benefits, the Medicaid office (or just "Medicaid," as they say) will take their house.

Others seem to believe that nursing homes are imbued with super collection powers and those nursing homes can take their homes. "I want to know how to stop the nursing home from taking my home," they'll tell me. "The nursing home took my aunt's (mother's, neighbor's, etc.) home, and I don't want that happening to me."

The truth of the matter is, neither the Medicaid office nor the nursing home, in the ordinary course of things, can take your home. If you failed to pay a justly owed nursing home bill, the nursing home could sue you, obtain a judgment, and place a lien on your home, but a nursing home cannot take your home simply because it is a nursing home.

The Medicaid law does contain an estate recovery provision, but in most circumstances, Medicaid recipients die with assets of such low value that there is nothing to recover against. For instance, if a person owns a home and she enters a nursing home, once she runs out of her cash assets, Medicaid would require her to list her house for sale. When the house sells, she would have to use the proceeds of sale to pay for the nursing home. When her money then runs out, she will qualify for Medicaid.

I guess you could look at the above-mentioned scenario as Medicaid "taking your home," but the reality is, Medicaid is simply requiring you to spend your assets before Medicaid spends its money.

By the way, if a spouse lives in the home, Medicaid does not require the home to be sold.

When a person enters a nursing home, the nursing home may ask the resident to sign a contract. The contract typically contains a daily rate, which can be adjusted periodically. The daily rate is the amount of money that the resident will pay on a daily basis, for instance, $250 a day.

So, contrary to what many people believe, you do not turn over the keys to the home when you enter a nursing home. In fact, you are only paying by the day. If you paid for a month's worth of care in advance, which is typically the case, you would be entitled to a partial refund if you left the nursing home in the middle of the month.

My point is, you don't have to worry about Medicaid or the nursing home "taking your home." On the other hand, you do have to worry about the need to sell your home and use the proceeds that you realize from that sale to pay your nursing home bill.

If you need it, I have the number of a good elder law attorney who I recommend to people.

GIVING IT AWAY CAN COST YOU

Next week is Thanksgiving, so I thought I'd write this week's column on giving.

I've written a number of columns on gift tax and Medicaid planning, yet given the almost universal interest from my clients in gifting, I would venture to guess that I could never say too much on the subject.

In this column, I am going to write about both subjects - gift tax and how gifting affects Medicaid eligibility. People with whom I have spoken inevitably confuse the two issues, for instance, believing that they can gift $10,000 a year without affecting eligibility for Medicaid benefits.

First, gift tax. Gift tax is a tax levied against the person who makes the gift. The receipt of a gift is a non-taxable event.

There are certain credits that a person receives against gifts, and in most instances, these credits completely eliminate any gift tax that would have to be paid. The most significant credit against gift tax is the $1,000,000 lifetime exclusion. In other words, a person would have to gift more than $1,000,000 in his lifetime to ever pay gift tax.

If that were not enough to cover your benevolence, there is also the annual exclusion credit. The annual exclusion permits a person to make a $12,000 gift each and every year to an unlimited number of people without reducing the person's $1,000,000 lifetime credit. In other words, Mr. Smith could gift $12,000 to every person in his family and every friend he knows, this year and every year after this year without reducing his $1,000,000 lifetime credit by one penny.

If Mr. Smith gifted $22,000 to one person (let's say that's me), his $1,000,000 lifetime credit would be reduced to $990,000, because the gift that he made to me of $22,000 exceeded the annual exclusion amount ($12,000) by $10,000.

The annual exclusion amount is indexed for inflation. Soon, it will be $13,000, then $14,000, and so on. It used to be $10,000 for the longest time, and many people still think of it as that amount.

In addition to the $1,000,000 lifetime credit and the $12,000 annual exclusion, a person can pay a family member's medical bills and tuition directly to the provider of the services without reducing his $1,000,000 lifetime credit. So, in other words, Mr. Smith could pay for his grandson's college education by paying the college the grandson attends directly without reducing his $1,000,000 lifetime credit.

This gift would be in addition to the annual exclusion, so Mr. Smith could pay his grandson's tuition and give the grandson $12,000 in any one year without reducing his $1,000,000 life time credit.

A person can also make an unlimited amount of gifts to charities without reducing his $1,000,000 lifetime credit.

In short, a person can give away a lot of money without paying gift tax. Most people, and by most I mean 98% to 99% of the United States population, will never come close to paying gift tax.

On the other hand, if you're elderly, you may have to worry about being ineligible for Medicaid benefits because you made a gift. Everything that I have said to this point about gift tax has nothing to do with the laws governing the Medicaid program.

Medicaid is a welfare program. Many people who require long-term care (nursing home, assisted living residence, home health aides) seek to qualify for Medicaid because Medicaid pays for the costs of long-term care. Because Medicaid is a welfare program, the program punishes people when they give money away.

The manner in which Medicaid punishes people is by making them ineligible for Medicaid benefits. The person must then pay privately for their care. The more money a person gives away, the longer he is ineligible for Medicaid.

If Mr. Smith gave away $12,000, he would not have to pay any gift tax on that gift and the gift would not even reduce his $1,000,000 against gift tax; however, he would be ineligible for Medicaid benefits for about two months.

IS LONG-TERM CARE INSURANCE RIGHT FOR YOU?

From time to time, clients ask me about long-term care insurance. "Do I think long-term care insurance is a good thing?" the client will ask.

As a general statement, I think long-term care insurance is a good thing; however, the devil is always in the details. Long-term care insurance is not cheap. Annual premiums for long-term care insurance range anywhere from $2,000 to $4,000 a year.

For most people, paying $3,000 a year for something they hope they will never use is a lot of money. Many would consider it a waste of money.

In my opinion, knowing long-term care the way I do, I think $3,000 a year is a drop in the bucket, if you were ever to require long-term care, and since there is a probability that anyone over the age of eighty will require long-term care, long-term care insurance could produce an excellent return on investment. Of course, for many people who buy long-term care insurance, they will never use the product because they will never require long-term care.

I'm not old enough to consider purchasing long-term care insurance, but I analogize the premium for long-term care insurance to a health insurance premium. I pay $600 a month for health insurance, but if I were to think about it, I would hope that no one in my family would ever need to use the health insurance for which I pay. I guess you could say that I'm throwing $7,200 a year out the window, but if someone in my family or I ever needed health insurance, I'd be very happy that I paid those premiums.

Most people can understand that analogy and most people would agree that if they can afford to pay for health insurance, they will. I think the reason most people balk at paying a few thousand dollars a year for long-term care insurance is that most people do not want to believe that they will ever require long-term care. If we think about it all (and most people don't), I think most of us believe we will simply drift out of this world peacefully, in our sleep. That may be true, and hopefully it is, but the bed we are sleeping on when we do may be in a nursing home or assisted living residence.

There are several factors that affect the cost of long-term care insurance: the daily benefit amount, the term of the policy, and the applicant's age and health.

The "daily benefit" is the amount the long-term care insurance policy will pay on a daily basis when the beneficiary requires long-term care. For instance, the daily benefit amount might be $150 a day, meaning that the policy will pay the beneficiary $150 a day for each day that the beneficiary is residing in a nursing home.

The "term" of the policy is the period of time during which the policy will pay the daily benefit amount. For instance, the policy might pay $150 a day for five years. Five years is the term of the policy.

Your age and your health when you purchase the insurance is something anyone can understand. Obviously, the older you are the higher your premium will be because it is more likely that you will require long-term care the older you are.

Most people require long-term when they are in their 80's. If a client asks me at what age I think they should purchase long-term care insurance, I can only tell the client that if you are younger, your premium will be lower but you will probably being paying that premium for a greater number of years. If you are older, your premium will be higher but you pay the premium for fewer years; however, if you wait, your health might be such that you cannot obtain insurance at any price. So, waiting is a bit of gamble.

What reignited my interest in long-term care insurance is a recently decided Florida case that held the payments from long-term care insurance are considered income for purposes of Medicaid eligibility. The problem with counting long-term care insurance payments as income is that certain programs of Medicaid have income caps, so if a beneficiary's income exceeds those caps, the beneficiary will be ineligible for Medicaid.

For instance, in New Jersey, the Medicaid program that pays for assisted living residences has an income cap of $1,809 per month, so if the beneficiary had fixed monthly income of $1,000 and received an additional $2,000 from his long-term care insurance, he will be ineligible for the program. Of course, if your daily benefit from the long-term insurance is high enough, you may not need Medicaid.

WHO RUNS THIS PLACE?

This past week, Governor Corzine signed into law a bill that requires at least one member of the governing board of a continuing care retirement community to be held by a resident of the community. My thoughts: big whoop.

A continuing care retirement community, or CCRC, is a long-term care facility that provides various forms of living arrangements to senior citizens. A CCRC has an independent living section, in which residents live independently with no assistance. CCRCs also have an assisted living section, in which residents who require some assistance can obtain that assistance. Finally, CCRCs have a nursing home section, which provide advanced care to residents.

The major selling point of a CCRC is that residents can "age in place." In other words, if you enter the facility, you will never have to leave the facility no matter what care you require because the facility has an assisted living residence and nursing home on site. Of course, sometimes the care that a person requires is so intensive that not even a nursing home can care for them, so that person may have to leave the CCRC.

Most CCRCs are very nice facilities that are well-run. Personally, at this stage in my life, I would not like to live in tight quarters such as those provided by CCRCs; however, as you age, having a small space of your own to maintain is probably a good thing.

There are only twenty-seven CCRCs in New Jersey. So, despite all of the stand alone assisted living residences and nursing homes in New Jersey, a true CCRC is a rare creature.

The law signed into being last week requires each of those twenty-seven CCRCs to have one member of the community on its governing board. While I think that concept is nice, quite frankly, I'm a little surprised that such a law needed to be put in place in the first instance.

If you had asked me who made up the governing board of a CCRC before I read about this new law, my answer probably would have been that it was comprised of an equal number of residents and employees of the company that owns the CCRC. I'm not quite sure what a governing board of a CCRC does, but the bottom line is, a CCRC is a business.

I would think that the governing board establishes policies that affect the quality of residents' lives within the bounds of the budget they are given while the company, itself, controls the financial aspects of the facility, that is, how much residents pay, who gets to become a resident, who is discharged from the facility, etc.

For instance, I don't believe that a resident-member on a governing board should be making a decision as to whether or not a resident of a CCRC's nursing facility should be discharged because the nursing home resident requires a level of care that cannot be provided by the facility. I don't believe that a resident member of a governing board should make decisions as to which residents should be admitted to the facility in the first instance, as such decisions are inherently financial issues that would require the decision of the facility's corporate office.

So, maybe I'm just looking at the whole situation from the incorrect perspective, but if the governing board of a CCRC is there to ensure that residents' concerns are being met, why wouldn't half of the board be made up of residents? One member on a governing board is going to have little effect on the outcome of any contested issue.

Bottom line, while this new law sounds nice and is a step in the right direction, I don't see it being a big step.

HOW MUCH SHOULD MY LAWYER COST?

How much should you pay for a lawyer's services? The answer varies depending on the type of work that the lawyer is performing for you. Being an elder law attorney, I can only speak about elder law services with any degree of competency.

Every day I meet with clients, primarily to discuss Wills and Medicaid planning. With almost every potential client with whom I meet, I can tell there is a genuine apprehension about the fee I am about to quote them for my services.

I think most people think attorneys are rich and that those lawyers got rich by charging exorbitant fees. While I cannot speak for all lawyers, or even all elder law attorneys, I do not think that characterization is accurate.

I think people hear about lawyers charging $400 an hour, and they think that lawyers just sit around all day racking up $400 hours. They break down their own hourly rate and realize that they are only making $20 to $50 an hour, so they figure lawyers are rich. The thing is, the lawyer is running an entire business, paying several people's salaries, based on the $400 an hour he's charging. (For the record, I don't charge $400 an hour for any of the work that I perform.)

My practice consists of estate planning (Wills, trusts, powers of attorney, living wills), Medicaid planning, guardianships, and estate administration. With the exception of estate administration work, most of the work that I perform is billed on a flat fee basis, meaning that I tell the client what the fee will be and it does not increase.

I prefer to bill clients on a flat fee basis. For one thing, clients feel more comfortable with this method of billing. The client is aware of what the bill is and does not have to worry about calling me and getting a bill for the two minutes that he spoke to me about his Will.

Lawyers whose practice involves litigation (for instance, divorce law) frequently bill on an hourly basis, so the client never knows what the final bill will be until the end. Even more frustrating for the client are charges for copying documents and mailing documents. These small charges, which can add up over time, annoy most clients.

Lawyers who bill on a flat fee basis typically do not bill for incidental charges.

The only segment of my practice for which I do bill on an hourly basis is estate administration. Estate administration is the process of administering the estate of a deceased individual. My client is typically the executor of the estate who is charged with paying the debts of the estate and distributing assets to the beneficiaries.

I charge on an hourly basis because I never know how much time the process is going to take me. The executor might perform most of the work himself, or he may rely upon my services heavily.

I recently presented a seminar to a senior group and a member of the audience came up to me to ask me a question about lawyer's fees and estate administration. The man was the executor of an estate worth approximately $800,000. The decedent had died about one month ago and the man had received bills from his lawyer totaling $8,000 for work already performed.

Now, I don't know what this lawyer had done, whether his bill was high or low given the amount of work that he had to perform. In the abstract, $8,000 for work actually performed on an estate one month old sounds high.

The lawyer was charging an hourly rate of $275. For estate administration, I think this rate is quite high. For instance, I charge $120 an hour for estate administration, which I think is low, but is, in my opinion, adequate. Most lawyers probably charge in the $175 to $225 range.

Some lawyers in my field charge a percentage of the value of the estate. For instance, they may charge 5% of the value of the estate. Personally, I think percentage billing makes no sense at all. If an estate is worth $2,000,000, why should a lawyer receive $100,000 for helping the executor administer the estate?

The bottom line is, like everything you need to shop around. While you do not want to sacrifice quality for price, price alone does not always ensure quality.