A large portion of my practice involves qualifying clients for Medicaid benefits. Medicaid is a health payment plan for needy individuals. Medicaid is a federal and state program, with both governmental entities contributing to the costs associated with the program.
There are various Medicaid programs in New Jersey. I assist clients with a program called Managed Long Term Services and Support or MLTSS. MLTSS pays for institutionalized services and support. Institutionalized services are things such as nursing home services, assisted living services, home health aide services, and adult day care services.
Institutional or long-term services such as these are very expensive. For instance, in New Jersey, a nursing home costs anywhere from $10,000 to $14,000 a month. An assisted living residence costs anywhere from $4,500 to $11,000 a month. A home health aide costs about $28 per hour or about $250 per day for a live-in aide, if you pay the aide above-the-table.
Few people could afford to pay these costs for very long without bankrupting themselves. For this reason, a great many people come to me concerned about the costs associated with long-term care.
Many clients are interested in protecting their homes. For years, elder law attorney such as myself have been protecting clients’ homes from the ravages of the costs of long-term care. The home might be transferred outright to the client’s children or it might be transferred to an irrevocable trust for the benefit of the client’s children. Either way, the idea is to remove the home from the client’s name and start the clock running on the Medicaid five-year lookback.
Since Medicaid is a health payment plan for needy individuals, that is, a welfare program, an individual must have a very limited amount of assets in order to qualify for Medicaid. Having limited assets is part of the “needy” requirement of Medicaid. If an applicant could simply give all his assets away and apply for Medicaid the next day, people would simply hold onto their wealth until the last minute, then transfer the assets and apply.
To stop this, Medicaid punishes applicants who have given away their assets within the five-year period leading up the date of application. For instance, if Mr. Smith applies for Medicaid benefits on January 1, 2020, then the application will ask Mr. Smith if he has given away any assets since January 1, 2015. If he has, then he will be ineligible for Medicaid for a period of time, called a penalty period.
Though the lookback period is five years, a penalty period can be of unlimited duration. A penalty period is calculated by taking the aggregate of all gifts that Mr. Smith made during the lookback period and dividing that figure by a divisor number, which is based upon the average monthly cost of a nursing home in New Jersey, currently about $11,000. So, if Mr. Smith gave away $111,000 in the past five years, he would be ineligible for Medicaid for 11 months ($111,000/$11,000 = 11).
When protecting the house, elder law attorneys typically leave the client with life rights in his house. For instance, Mr. Smith’s house will be transferred to his children either outright or in trust and Mr. Smith will retain the right to live in the house for the remainder of his life and the obligation to pay all the carrying costs associated with the house.
Because Mr. Smith retains life rights and the obligation to pay the carrying costs, he is entitled to the New Jersey homestead rebate, which is a credit on real estate taxes paid. The average rebate is about $500.
Every year, I receive dozens of calls about the rebate. I think the rebate is nice and I think my clients are entitled to the rebate because of the life rights and the payments of the taxes. In fact, I have called several town tax collectors, and the collectors I have called agree with this assessment. But let’s assume the client wasn’t entitled to the rebate. The rebate is $500, which is about the cost of a nursing home for one day. Losing the rebate is not the end of the world.
My point is, whether you receive the homestead rebate or not should in no way alter your decision to plan against the financial ravages of long-term care costs. The rebate is nice. Long-term care costs are devastating.