As the cost of nursing care skyrockets, we seem to be receiving more and more inquiries concerning nursing home planning. Unfortunately, such questions are typically asked a few weeks or even days before nursing home care is inevitable. By this time it is usually too late for adequate planning. At an average cost of almost $5,000 a month, nursing home expenses can result in a substantial burden for many families.
In Pennsylvania nursing care costs may be covered under Medicare or Medicaid. Medicare is an insurance program covering fully the first 20 days of skilled care and about one-fifth the cost for the next 80 days. To qualify, the individual must be at least 65 years of age or disabled and have been in the hospital for three of the past 30 days.
Medicaid, on the other hand, is a welfare program. In Pennsylvania it is referred to as Medical Assistance. To qualify, certain eligibility standards must be met. They are as follows:
- Assets must be below $2,400. Exempt assets include one home, a car, a burial fund, and a limited amount of insurance.
- After assets are reduced to $2,400, the Commonwealth will look at income. Any income will directly reduce the amount of assistance provided to the individual. However, $30 per month can be kept for personal needs.
- A 36 month “look-back” period from the application date will be examined for gifts made by the individual. Gifts will not necessarily disqualify the applicant but may impose a penalty period during which Medical Assistance will not be granted.
- If the individual is married, the spouse has some protection and will be allowed to keep one-half of joint assets up to $81,960.
Long-term care insurance involves a variety of services (plan options) for people with prolonged physical illness, disability or disorders such as Alzheimer’s disease. It can be affordable for those who plan ahead and purchase it before the need arises. Having certain health conditions that are likely to require a nursing home stay in the near future will probably disqualify the individual from coverage.
A long-term care policy can buy time for additional nursing home planning. For example, if you purchase a four-year policy, it will allow assets to be consolidated and managed with sufficient time to exceed the state’s 36 month look-back period.
One drawback to relying on Medical Assistance is the Pennsylvania Estate Recovery Act. This Act allows the state to make a claim against the estate of any individual who received Medical Assistance after age 55. This claim is generally paid before any estate assets are distributed to the beneficiaries.
Currently, Pennsylvania, through the Department of Public Welfare, may make a claim only against the “probate estate.” Therefore, one technique to protect your assets involves evaluating how they are titled. For example, transferring your home from sole ownership to joint ownership with rights of survivorship can offer significant protection. The transfer will be subject to the eligibility penalty if it is done during the 36 month look-back period; however, the penalty should be based on only a portion of the value of your home. As a result of the transfer your home will no longer be considered a probate asset and should not be subject to estate recovery.
In transferring a home it is important to keep in mind other issues, including the stepped-up basis rules, the $250,000/ $500,000 capital gain exclusion, and the gift tax implications. Furthermore, the Estate Recovery Act gives leeway to the state, with the Governor’s approval, to expand recovery to include any other property in which the individual had any interest. So far this has not occurred. Since nursing home costs can create a substantial financial burden on the individual and the family, planning is of utmost importance. Proper and timely planning can reduce out-of-pocket expenses and help to preserve your estate or that of a loved one.