As clients progress through their
retirement years, it is incumbent upon the trusted adviser, the CPA, to become
acquainted with the basics of Medicaid in the context of long term care.
Specifically, the CPA should have a working knowledge of the Medicaid laws
preventing Spousal Impoverishment, including the Division of Assets process. In
the past, the CPA could effectively advise clients with only a cursory
knowledge of Medicaid; this is no longer the case. Our clients are living
longer. The number of our clients who are over age 65 is increasing. Baby
boomers are turning 65 at a rate of 10,000 a day and approximately 1 out of
every 4 of these boomers will spend time in a nursing home. At a median cost of
$180 per day, the cost of nursing home care in Kansas can cause financial
hardship and ruin to couples of moderate means; hence the need for Medicaid.
In Kansas, the Medicaid program is
called Kancare. Kancare is a needs based program. It is typically a program for
the indigent (assets less than $2000), except in the case of married couples.
In lieu of impoverishment or divorce, married couples of moderate means may
turn to Kancare when one spouse requires nursing home care. The theory behind
the division of assets process and the spousal impoverishment laws is to
prevent divorce and to protect the financial well-being of the spouse in the
community.
If a married couple has long term care
insurance or adequate assets to pay for a nursing home for a period of two to
three years without suffering financial drain (anticipated cost for two to
three years exceeds $200,000), eligibility for Kancare may not be necessary.
However, if the cost of $200,000 for nursing home care is overwhelming,
then the couple may need to consider Kancare.
In order for an individual to be
eligible for Kancare, a nursing home resident must have no more than $2000 of
“non-exempt” or countable assets. If the nursing home resident is married,
assets of both spouses count toward the $2000 limit. This particular fact is
shocking to many clients. In addition, even if the couple entered into a
pre-nuptial agreement the assets of both spouses count toward the $2000. The
federal and state law is unambiguous on this issue. All is not lost. Spousal
impoverishment is not the only answer. The spouse of the nursing home resident,
called the community spouse, can complete a process called a Division of Assets
to prevent impoverishment.
Division of assets describes the
process of splitting the couple’s assets when one of the two spouses needs
nursing home care. First, all assets of both spouses are considered in the
Medicaid eligibility equation, regardless of how the assets are titled. An
asset is not protected simply by removing the name of the sick spouse from the
asset. In addition, an asset is not protected for Medicaid eligibility purposes
because the asset is titled in the name of a revocable living trust. Quite the
opposite is true in Kansas.
Next in the division of assets process,
certain assets are considered exempt. This means that the community spouse can
keep these assets and the assets are not part of the eligibility equation. For
example, the primary residence is exempt (up to a value of $552,000 in 2016)
and the community spouse may remain living in the family home. The family car is
also exempt. In addition, the pre-paid irrevocable funeral plans for both
spouses are exempt. In Kansas, the retirement assets (IRA, Pension, 401K) of
the community spouse are exempt. This last exemption is a significant benefit
for Kansans. Notably, the retirement assets of the community spouse are not
protected in the adjacent state of Missouri. Income producing assets are also
exempt in Kansas, such as rental properties, businesses and farms. Non exempt
assets include cash, CDs, bank accounts, stocks, bonds, annuities, jewelry and
gun collections, boats and trusts.
Once a list of all non-exempt assets is
complete, the total asset value is divided by two. One half of the value, up to
a total of approximately $119,220 of the non-exempt assets, are allocated to
the community spouse. The least that the state allows the well spouse to retain
is $23,844. In other words, if the combined assets of both spouses is $23,844
or less then the community spouse can keep the total of $23,844. The community
spouse has 90 days after Medicaid eligibility to change the title of these
assets into his or her name. The second half of the assets is allocated to the
spouse in the nursing home. In order to qualify for Kancare the spouse in the
nursing home may have only $2000 in his or her name. The process of reducing
the assets to $2000 is called spend-down.
Spenddown can be accomplished in a
number of ways. The couple may purchase personal supplies, hearing aids,
adaptive equipment, eye glasses, furniture, funeral plans and clothing. In
addition, the couple may make home improvements or purchase a more reliable
vehicle. Legal fees can also be part of spenddown. The couple may also purchase
a Medicaid compliant annuity or loan assets in return for a Medicaid compliant
promissory note.
Once spenddown is complete, the couple
can apply for Medicaid benefits. Additional factors to consider include:
whether either spouse is a veteran, whether the couple has a child with a
disability and whether the couple has transferred assets for less than fair
market value within the past five years. Each of these factors requires
additional analysis and the assistance of an elder law attorney is encouraged.
The Gift Myth
CPAs are often approached to provide
guidance to a Medicaid applicant in the context of gifts and taxes. The
distinction must be drawn between the IRS and its view of gifting and the
Kancare program and its view of gifting. While an individual may gift up to
$14,000 per year (and a couple $28,000) and not be subject to a federal gift
tax, this gift tax rule will not trigger immunity from the a transfer penalty
in the Kancare program. If an individual gives away assets, including a gift of
$14,000 or less, within the 5 year look-back period for Medicaid eligibility,
the gift will be subject to a transfer penalty.
For additional information, please feel free to contact The
Shepherd Elder Law Group, LLC.
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