Paying for Long-Term Care – Part V (Exempt Assets and the Medicaid Death Tax)
The Greatest Financial Risk for Seniors:
Paying for Long-Term Care –
Part V (Exempt Assets and the Medicaid Death Tax)
In the United States, unlike nearly all other developed countries around the world, we do not have a universal healthcare system – that is, one that provides health care and financial protection to all citizens. Instead we have a largely private system in which healthcare is view not as a right of citizenship but as a commodity best left to the private market, governing not by the democratic mechanism of one person = one vote, but by the market-based mechanism of one dollar = one vote.
The main exception to the market model in this country concerning healthcare is Medicare, a government-run healthcare program for seniors and people with disabilities. Medicare, however, was never meant to cover the cost of long-term nursing care. The primary public benefit program that will pay for long-term care is Medicaid. But, unlike Medicare, it is not enough that you be elderly or disabled and ill in order to qualify, you also have to be impoverished — that is, your “countable assets” have to be spent down to just a few thousand dollars. Thus, in order to understand Medicaid qualification, you first need to know how Medicaid treats your assets.
Basically, Medicaid breaks your assets down into two separate categories. The first are those assets which are exempt and therefore not countable, and the second are those asset which are countable.
Exempt assets are those which Medicaid will not take into account (at least for the time being). While the laws differ somewhat from state to state, in Pennsylvania the following assets are exempt:
- Household and personal belongings. Household goods such as furnishings and appliances commonly found in a household are excluded. So are personal effects, included (but not limited to) clothing, jewelry, items of personal care, recreational equipment, musical instruments, and hobby items.
- Motor vehicle. The federal law exempts one motor vehicle, regardless of value, if it is used for the owner’s (or spouse’s) benefit.
- Life insurance. Life insurance that does not accumulate cash value, such as group or term insurance, is excluded altogether.
For policies that do accumulate a cash value, Medicaid regulations exclude the entire cash surrender value if the combined face value of all policies does not exceed $1,500 for each insured person. If the life insurance policies owned by a Medicaid applicant have a total face value in excess of $1,500, the total cash surrender value in excess of $1,000 is a countable resource of the owner.
- Irrevocable Burial Reserves. Burial reserves (also known as pre-paid funerals) are excluded if the money is deposited with a funeral director or cannot be withdrawn before the death of the named beneficiary. The agreement may include such items and services as casket, cemetery plot, flowers, and obituary. The total amount cannot be exorbitant, and Pennsylvania Medicaid regulations updated yearly provide an upper limit for each Pennsylvania County that the Medicaid office will approve.
- Note: What often works well is for the Medicaid applicant to transfer the ownership of a life insurance policy to a funeral home instead of cash as a way of financing the funeral cost. If properly done this is not a gift for Medicaid purposes, and it frees up more cash to be used in other ways.
- Retirement Plans. For a married couple, the IRA (or 401k or other “qualified” retirement plan) of the “community spouse” (that is, the spouse who is not applying for Medicaid) is fully exempt, regardless of value. However, the IRA of a single person or the spouse in the nursing home is countable.
- Property used in a trade or business. Real estate and personal property is excluded if used in a trade or business and is essential for self-support. These resources are excluded regardless of value. Rental properties creating income necessary for the Medicaid applicant’s or spouse’s support are one such example.
- Cash. Cash or other liquid financial assets owned by the Medicaid applicant not exceeding $2,400 is exempt, or not exceeding $8,000 for Medicaid applicants whose gross monthly income is below a certain level. (For 2018, that maximum monthly income amount is $2,250.)
- The Home. Your residence with up to $572,000 of “equity value” (that is, fair market value lass any mortgage loan balance), provided it is the principal residence of the Medicaid applicant or spouse.[1] If you are single and a nursing home resident, then obviously you are not “residing” at home, but your house can still qualify as your “residence” and so remain exempt if you show “an intent to return home.” This can be done by simply checking the “Yes” box on the Medicaid application under the question “Do you intend to return home?” (even if it is clear to your family and the doctor that you will never in fact be able to return home).
- Although checking this box is enough to allow you to keep your home and still qualify for Medicaid, unless you take steps during your lifetime to transfer some interest in your house out of your name, at your death it will be in your “probate estate” and therefore subject to an “estate recovery claim” by the Pennsylvania Department of Human Services (DHS) for all the Medicaid benefits that had been paid out on your behalf. In that case, unless you had been receiving Medicaid for only a short period of time, your house would then have to be sold and the proceeds sent to DHS to off this “Medicaid Death Tax.”
- Note: Transferring your entire house to one or more of your children is the worst way to protect your home. There are much better ways to do this, but you would need to get advice from an experienced elder law attorney.
These are the principal assets that Medicaid will ignore, at least for now. But keep in mind that any exempt assets that end up in your probate estate at your death (that is, any assets in your name alone that do not have beneficiary designations) will be subject to the “Medicaid Death Tax.”
Nearly all other assets are “countable.” This includes bank accounts, certificates of deposit, stocks and mutual funds, savings bonds, annuities, the retirement accounts of the Medicaid applicant, second homes or other real estate, all motor vehicles except one, and so one. While there are some minor exceptions to these rules, in general all money and property not listed above as exempt are countable assets and subject to the harsh Medicaid spend-down rules:
- For a single person in Pennsylvania, his or her entire life savings, beyond a few thousand dollars is at risk of having to be spent down, either to pay the nursing home during lifetime or the Pennsylvania Medicaid Agency after death.
- For a married couple, all of their life savings beyond a resource allowance for the community spouse (half of the couple’s total “countable assets” up to a maximum of about $120,000) is at risk of being spent down on the nursing-home spouse’s care.
However, it is important to keep in mind that the Medicaid laws currently permit single folks to protect anywhere from 30% to 60% or more of their assets otherwise at risk – and married couples with one spouse living at home 50% to 80% or more of their assets otherwise at risk – even if someone is already in a nursing home. But the rules are complicated and must be strictly followed, so seniors will need the advice of an experienced elder law attorney to help them navigate the bureaucratic Medicaid maze.
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The content here is for general information purposes only and does not constitute legal advice. For specific questions about your own situation you should consult a qualified elder law attorney.
Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at schelly@losscaleselderlaw.com. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.
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Also exempt is all land “adjacent” to the home is listed on the same deed (which means an exempt residence could include not only a farm house but the surrounding 250 acres or more). ↑
