Friday, August 01, 2008

Kiplinger explains federal rules on Medicaid "look-back" for nursing homes "simply"

Kiplinger has an important article “The Crackdown on Medicaid Planning” link here. The article is authored by Mary Beth Franklin, Senior Editor, and has the additional byline subtitle: "New government rules require creative strategies to protect your assets."

The article explains more wrinkles in the Medicaid “look-back rules” which took effect February 2006.

Let’s say you give away $140000 to children, and nursing home costs are $7000 a month in your area. The new rules would divide the $140000 by $7000 to get 20 months. (Yup, you have to do some grade school arithmetic, with dimensions like in physics problems! It’s back to school, folks, in August.)

Now, you can’t apply for Medicaid until you’ve spent down your assets. So from the day you apply, you have 20 months to apply, which means family members have to pay the bills. But the federal law is set up to make the time approximately equal mathematically to the amount that the family members took out. Essentially, it makes the earlier "gift" behave like a “loan.”

It used to be that this "start of care" lookback period applied from the day the elder transferred the assets. Now, it’s the day that the elder applies, and is almost without assets. Apparently, there is also a five year time from the time of Medicaid admission to the time a gift was actually given to the relatives (that used to be 36 months).

There is also a device of setting up a trust, where the elder person receives income from the trust and continues to live at home and age in place. Beneficiaries of the trust can use the principal and sell the residence to raise cash for nursing home expenses, and this would seem to apply if the beneficiaries names were not already on the accounts (often they are not). At the end of five years (from the time of setting up the trust), inheritance is protected from federal reimbursement rules. This is fairly complicated, and the Kiplinger article goes into some detail.

It’s also possible to set up an agreement defining caregiving as a “job” for one or more of the adult children or relatives. That spends down some of the money. It’s tricky, because then the caregiver income is taxable according to normal rules (including social security earnings limits if the caregiver herself or himself is a premature retiree – a situation that may become more common with demographics). This may be advisable for some but not all families. Caregivers may find themselves under more scrutiny in such situations.

Visitors should study the Kiplinger article carefully, as it is one of the clearest explanations of Federal lookback rules yet to appear.

None of this precludes the possibility that a state could apply its own filial responsibility laws in a situation where an elder parent is actually impoverished (never had any wealth to pass on to begin with) and uses Medicaid. This could become more common in the future with demographics.

See also the July 5, 2007 entry on this blog for links to S 1932 (109th Congress), the new law upon which the look-back is based.

Please check the "BillsMovieReviews" blog (see profiles) for review today on a Kiplinger video on long-term care.

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