The Deficit Reduction Act of 2005 and its dramatic changes to Medicaid laws will have drastic affects on those who will require nursing home care in their lifetimes. The following is the very simple case of Georgina W. Bush, a widowed 65 year old woman living in Cambridge, Massachusetts. We will examine the affect on Georgina's assets and her ability to receive nursing home care given the changes in the new law. Georgina has not planned for the disposition of her estate except for a simple living will which leaves her estate to her adult son and a bequest to her dear 24 year old granddaughter. Georgina has saved about $100,000 during her lifetime and her only other asset is her home in Massachusetts, valued at $542,000. Her only income is social security, which amounts to $1,060 per month.
Georgina's granddaughter has met the man of her dreams and would like to have the wedding of her dreams. The groom's family, however, is not of means and although he is hard working, the exorbitant cost of diamond engagement rings has left the groom with little to contribute to the wedding expenses. Georgina's granddaughter is buried in hundreds of dollars a month in student loan payments and is earning $35,000 a year. Living in the greater Boston area is expensive and leaves little opportunity for savings and funds for her wedding. Georgina has held her granddaughter very dear and would like to give her the wedding she deserves and honeymoon to match, so Georgina pays $24,000 to cover the wedding and honeymoon on June 1, 2007. She now has $76,000 left and her home and is overjoyed to have helped a dream come true for her beloved granddaughter.
Over two years later, in the fall of 2009, at age 68, Georgina's health begins to decline and it is becoming increasingly difficult to remain at home. Georgina needs someone to help her 24 hours a day which only institutionalized care can provide, although she would rather remain home and hopes to improve her health and return home someday. Georgina and her family finally decide that nursing home care is required, and reserve a bed for her at a nearby institution costing $8,000 per month. Georgina enters the nursing home on June 1, 2010 with about $70,000 left in the bank and her home. Georgina exceeds the asset limits for qualification for Medicaid benefits because of the $70,000 in the bank. Under both the old law and new law, she would have to spend down $70,000 to the nursing home until her bank account had dwindled to $2,000. Furthermore, all of her social security income except for $60 per month would have to be paid to the nursing home during that time, meaning the $70,000 would be depleted at the rate of $7,000 per month ($8,000 cost minus $1,000 paid from SS income). It would take ten months (until April 1, 2011) to spend down to $2,000.
Under the old law, Georgina would now qualify for Medicaid. This is because although her home is now worth $542,000, old law allowed unlimited value for the value of the home (as long as Georgina intends to someday return home, which she does). Furthermore, the $24,000 transfer from June 1, 2007 would have occurred more than three years prior to April 1, 2011, and under old law would not factor into Medicaid eligibility. The look-back period under old law was only three years. However, under the new law Georgina will have to suffer a disqualification period based upon the $24,000 transfer from over three years ago under the new law ($24,000 gift / $8,000 per month= 3 months disqualification). When does her penalty period begin to run? Under old law, the three month waiting period would have begun on the date of transfer, June 1, 2007 and the penalty period would have ended on September 1, 2007. After that date, with no other transfers, the wedding gift would have no adverse consequences. Under the new law, Georgina's penalty period will not begin to run until the date that she would have otherwise qualified. This would be the date when she was both in the nursing home and had spent down her assets to $2000 (which took 10 months). But wait! Georgina cannot even qualify yet because her home is worth $542,000 and the limit on exemption for the home is $500,000. There are no disabled or minor children and Georgina is a widow so she cannot transfer the home without triggering a huge disqualification penalty. The excess $42,000, under the new law, is a countable resource and Georgina must take out a Home Equity Loan of $42,000 and pay the nursing home costs ($8,000 cost minus $1,000 paid from SS income) of $7,000 per month from the loan proceeds. This will last six months, until October 1, 2011. Only then will the penalty period from the wedding gift almost four years ago begin to run because it is only then that she would otherwise be qualified. The three month penalty will end on January 1, 2012, and only then would Medicaid begin to pay for nursing home care, while still taking $1,000 per month of her income.
During the three month penalty period, Georgina will have no assets with which to pay for nursing home care, having spent down her money to $2,000. She will have no choice but to burden her son with the expense or take further loans out on her home to pay during the three months. Once on Medicaid, a lien would be placed on Georgina's home during her lifetime, restricting her ability to sell or re-finance the home without paying the state. Georgina dies on October 11, 2013, after two more years in the nursing home under Medicaid coverage. Georgina's estate will face a claim from Medicaid's estate recovery program for money paid by Medicaid during that time ($8,000 per month cost minus $1,000 paid by Georgina's social security income, or $7,000 per month for 24 months) amounting to $168,000. Georgina's estate will include $2,000 and the remaining home, which will need to be refinanced or sold by the executor to pay the $168,000 claim. Only the remainder of what is left will pass to her family.
Planning ahead can help you avoid many of the problems Georgina faced late in her life. There were options available to Georgina, such as:
- Protective trusts that are settled five years ahead of time.
- Georgina also could have consulted an attorney about helping her granddaughter out without having to worry about it haunting her years later should she require institutionalized care.
- If Georgina had depleted all of her assets below the $2000 threshold and put her home in a protective trust more than 5 years before entry to the nursing home, there would have been no disqualification period.
- If she did not have the home and assets protected for a 5 year period and she needed nursing care, the other assets needed to pay could have been gifted back from the protective trust to pay for her care until the 5 year period passed or the disqualification period passed.
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