Myths and Misconceptions about Medicare and Indiana Medicaid
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We have written articles about estate planning and long-term care for more than a decade to debunk myths and misconceptions that may lead people into unnecessary problems. This article addresses some of those myths and misconceptions about Indiana Medicaid for the elderly.
Permitted Annual Gifts. People frequently tell us that they know they can give gifts each year of up to a certain value (they usually state a figure of $10,000 – $14,000). Indiana Medicaid excludes small gifts from the Medicaid transfer penalty system, but the total value of all such gifts must be $1,200 per year (that is a total of all gifts to all people as a single figure). The larger gift value ($14,000 in 2016) that most people think about has nothing to do with Medicaid, but is part of the federal gift tax law that applies mostly to people with exceeding $5.45 million. As a practical matter, that annual gift value does not apply to most people with less than $5.45 million of wealth. People wanting to give or transfer money or assets to other people should always discuss their plans with an experienced elder law attorney in advance to make sure that they are not creating gift tax or Medicaid problems.
Asset Co-Ownership. Some people think that assets owned by two or more people are protected from nursing home expenses. In some co-ownership cases involving real estate motor vehicles, and a few other assets, the state does not require a Medicaid applicant to sell such assets. A Medicaid applicant must disclose his or her share of co-owned assets. The Medicaid system assumes that the applicant owns joint bank accounts and other co-owned accounts completely unless the applicant can prove that other co-owners have invested some of their own money in the account.
5-Year “Lookback.” Many people understand that a 5-year period applies to certain transactions concerning nursing homes and Medicaid, but they usually misunderstand the rules. Medicaid’s 5-year “lookback” rule provides that a nursing home resident must report any transfer of asset ownership made during the 5-year period immediately preceding the resident’s Medicaid application.
Married Couples. Most people misunderstand Medicaid rules about married couples. Most people do not realize that if a nursing home resident has a spouse living at home, the spouse at home can keep the residence and its contents, a vehicle, and other real estate, plus 1/2 of other assets worth up to a maximum value ($121,220 in 2016). Medicaid considers all assets owned by the couple, regardless of whether the couple owns the assets together, or one person owns assets in his or her name alone. Remarried couples often misunderstand the Medicaid rules about each spouse’s separately owned assets and assume incorrectly that Medicaid will not consider one spouse’s assets in the other spouse’s Medicaid application. The Medicaid rules about married people are extremely complex, so married people should speak to experienced elder law attorneys about nursing home issues when they make their estate plans and as soon as possible when health issues develop.
Medicare and Health Insurance. Four major misunderstandings exist about Medicare. First, many people are surprised that Medicare and Medicare supplemental insurance does not pay for nursing home care if a patient enters a nursing home directly from home. Second, Medicaid is implementing a more tolerant case-by-case standard, but most people do not realize that Medicare usually does not cover medical or nursing home expenses unless a patient is admitted as hospital inpatient through two midnights or longer (the “2-midnight rule”). Third, many people (including some nursing home officials) misunderstand that the 100-day Medicare coverage of nursing home expenses will only continue if the patient is “improving,” but the true standard is if “services are needed to maintain the individual’s condition, or prevent or slow their decline.” Finally, many people fail to apply for Medicaid before Medicare coverage expires, creating financial crisis for nursing home residents that cannot pay nursing home expenses privately.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
Find more information about these and other topics at www.HawkinsLaw.com, add us to your Google+ circles, like us on Facebook, follow us on Twitter @HawkinsLawPC or call us at 812-268-8777. © Copyright 2016 Hawkins Law PC. All rights reserved.
How do I go about transferring my house to my son in case I need to go to the nursing home later and need Medicaid to pay for it?
As we have written in several articles on this site, transfers are common estate planning steps, but they require careful planning by an experienced elder law attorney that understands estate planning concepts and the latest developments of Medicaid law. Some transfers create big Medicaid eligibility problems. If you will send a private message through our “contact us” link and tell us in which county and state you live, we either assist you directly or help you find a lawyer in your area that can advise you.
My widow Mother entered a nursing home in December 2016. We have sold her house and are in the Medicaid spend down, it won’t take long to be at $0 dollars. We learned this year about the $1200.00 gift per year to divide between siblings. Is it legal to also take a $1200.00 gift for year 2016 at this point in 2017 or did we simply miss out on the gift?
Thank you
Tom, Indiana’s $1,200 de minimis gift allowance is a calendar year item that only applies to gifts made within a particular calendar year. Therefore, your mother could make a single gift of up to $1,200 this year by making the gift to one person or breaking it up into smaller gifts among multiple beneficiaries, but she cannot make a gift for the 2016 calendar year at this time.
Your facts make a good example of a case in which consulting with an elder law attorney very early in the process can make a tremendous difference. Usually, we can work with the family to protect far more than $1,200 per year through a variety of planning strategies. I encourage you to use your experience to spread the word to others that they should engage in advance planning with knowledgeable elder law attorneys as early as possible when a family member’s health problems make nursing home care a probable future necessity.
Please note that the $1,200 de minimis gift rule requires proof of the relationship between the donor and the donees, such as birth certificates showing biological family relationship. For instance, you would have to produce your birth certificate showing that you are your mother son, and a gift to your children would require production of their birth certificates and your birth certificates to show the biological link between your children and your mother.
The de minimis gift rule is very helpful for cases when a Medicaid applicant’s resources are in adequate to pay a nursing home bill, but they exceed the $2,000 resource eligibility limit. The gift ruled does not make a very good asset protection strategy, however, because the dollar value limitation is so small that it provides little help for most people except in those last minute situations in which an applicant needs to deal with a few excess dollars.
My grandmother has moved into an apartment from her mobile home in the woods on 7 acres. My husband and I are interested in purchasing the land from her (she’s had the mobile home removed, no value). If we purchase the land and give her fair market value for it and she has to go into a nursing home within 5 years, other than the $1200 per year gift potentially subtracted out of the amount, will they require her to keep all of the money and basically just sit on it? She is worried about spending it and getting penalized, but what if she needs it for medical bills or other personal items such as a new TV or bed? Also, with the mobile home having no value (actually had to pay someone to remove it, it was in bad shape) is it possible Medicaid could try to place a value on that?
Thank you
Mrs. Briles:
Thank you for reaching out to us on our website about your question. This response will also be posted on the website, but we always try to follow up with people by direct email in case they do not check the website regularly.
If you purchase the real estate for fair market value, the real estate transaction should not affect your grandmother’s future Medicaid eligibility. The Indiana Family and Social Services Administration considers the assessed value published for the real estate by the County Assessor to be an adequate value constituting fair market value. more information about property tax assessment of mobile homes is available through the Indiana Department of Revenue at: https://www.in.gov/dlgf/files/pdf/150121_-_McKinney_Presentation_-_Mobile_Homes.pdf.
If the mobile home was listed as part of the real estate for property tax purposes, it may be necessary to explain the condition of the mobile home and why your grandmother disposed of it. It is difficult to know ahead of time exactly what kinds of questions state officials will ask about such things, so I like to make sure that I have more information that I need so that I am prepared for almost every kind of question. If there is a realtor who would be willing to give a written opinion (sometimes referred to as a broker’s price opinion or “BPO”) explaining that the mobile home value was less than or equal to $0.00 because the cost of removing the mobile home exceeded the mobile home value, that kind of written statement would be helpful for responding to a question about the mobile home removal. If a mobile home dealer remove the mobile home, the dealer might be able to give a similar written opinion. You may not have to deal with such a question in a Medicaid application, but it is always a good practice to be prepared if possible. Of course, if your grandmother can avoid long-term care and the need to apply for Medicaid for at least 5 years after she has disposed of the mobile home, the Medicaid lookback period will have expired and she will not have to answer any questions about it from that point forward.
Your grandmother will be free to spend the sale proceeds for things that she needs or wants, including food, clothing, medical expenses, rent for her apartment, gas for her car, and many other personal expenditures.
Deteriorated mobile homes are troublesome. Some mobile homes are shown as houses on property tax records, while other mobile homes are shown as personal property that are not part of the real estate. If the mobile home was shown as part of the real estate, your grandmother should report that the mobile home has been removed from the property so that the assessor will remove the mobile home from the property tax record. If the mobile home was not shown as part of the real estate, your grandmother should still report that she has disposed of the mobile home so that she will not receive a personal property tax bill for the mobile home.
Based upon the fact that you presented in your message, gifts to other people would be her only behavior that would disrupt her Medicaid eligibility in the future. You have keyed in on the annual $1,200 de minimis gift exception to the Indiana Medicaid transfer penalty system, but we do not encourage people to rely on that exception because it is too small to use strategically. The only time we rely on the exception in a Medicaid application is if someone has forgotten about a small gift to a closely related family member during the application process, and we need to use the exception to avoid a Medicaid transfer penalty.
We encourage people to use debit cards and checks to pay for such items, instead of paying for things with cash, so that their bank statement will show a paper trail of their expenditures. The lack of paper trail resulting from cash expenditures creates a problem during the Medicaid application process because the Medicaid system follows the paper trail and requires clarification about cash withdrawals from accounts. If a Medicaid applicant cannot explain a cash expenditure with receipts or other evidence that the expenditure was not a gift, the Medicaid system will presume that the expenditure was a gift and will impose a transfer penalty, which is a temporary disqualification from Medicaid benefits. Shopping with a debit card and paying bills online or with checks written on a checking account captures all transactions within the account statements issued by the bank, and it is easy to present copies of the account statements as evidence of the financial paper trail.
It is important to keep copies of account statements for bank accounts, investment accounts, retirement accounts, insurance policies, and every other kind of financial asset for at least five years. Medicaid can require copies of such documents for accounting periods as far back as five years from the date of Medicaid application. People who dispose of their account statements regularly create large headaches for their family members when Medicaid requires extensive documentation that no longer exists.
We have established a family irrevocable trust recently with our home, its contacts and our properties within the trust. It is an AP-1 plan. Would this be subject to the Medicaid 5 year look back?
Please forgive the length of this response. Your inquiry raises numerous issues that probably pertain to many of our readers, so we are taking this opportunity to use the very limited information in your inquiry to illustrate several problems that we see about estate planning services. We hope this reply is beneficial to you and others, but we have no crystal ball or special ability to know any of your pertinent facts or circumstances beyond what you have provided, and we certainly do not intend this reply to be critique of a situation about which we lack sufficient information to form a professional opinion. We simply want to help you and our other readers ask critical questions about past and future estate planning decisions and make well-informed decisions about future estate planning alternatives.
The general rule is that any transfer of assets to a person other than your spouse, including to a trust that you can neither amend, nor invade unilaterally to withdraw assets, constitutes a transfer of assets that triggers temporary disqualification for Medicaid eligibility (the Indiana Health Coverage Program Policy Manual (IHCPPM), which contains the procedures that Indiana Family and Social Services Administration employees and contractors follow to administer the Indiana Medicaid system, provides an explanation of the rules and procedures concerning transfer of property in Chapter 2600 at Section 2640.00.00.
The 5-year look back period is the most basic limit established by Congress on the authority of the Medicaid system to penalize someone for a transfer of assets. If you make a transfer that would otherwise trigger a Medicaid transfer penalty (temporary disqualification for Medicaid benefits) and either avoid the need to apply for Medicaid benefits, or have the ability to pay for nursing home care until 5 years have elapsed after the date of the transfer, the look back period concept prevents the transfer of assets from affecting Medicaid eligibility thereafter. If, though, you require Medicaid benefits because you cannot pay long-term care expenses privately within the look back period, the transfer penalty period calculation disqualifies you from Medicaid benefits for a period of months that is calculated in Indiana by dividing the total value of the value of the transfer by the average monthly cost of nursing home care Indiana for the year in which a person applies for Medicaid ($6,439 for Medicaid applications filed after July 1, 2017, with the next possible change in that value to take place on July 1, 2018, as published in the IHCPPM Chapter 3000 in Section 3006.00.00). So, for example, if you transfer property worth $64,390 to an irrevocable trust, the transfer will disqualify you for Medicaid benefits for 10 months ($64,390 ÷ $6,439/month = 10 months). The transfer penalty does not begin until a Medicaid applicant simultaneously requires the level of care provided by a nursing home AND has reduced the applicant’s household’s total countable resource value to or below the Medicaid resource standard for the household
The term “AP-1” is not a generally recognized estate planning term. Presumably, it is a branded trademark for a particular law firm’s version of an asset protection trust. Generally, trusts marketed as asset protection trusts may be appropriate for people with high net worth (multiple millions of dollars of assets in excess of debt) or high income (multiple hundreds of thousands of dollars per year) in high liability occupations (e.g., surgeons, owners of closely held companies that develop medical devices or products, high-risk investment promoters, etc.). Most reputable estate planning lawyers would consider such an asset protection trust inappropriate for a client whose occupational liability exposure is low to moderate, and who has neither high net worth, nor high income.
Your question of whether your funding of the trust would affect Medicaid eligibility is concerning. It is hard to understand why a competent estate planning lawyer would recommend funding an asset protection trust without explaining the funding impact on Medicaid eligibility unless you fit the profile of a high net worth or high income client in a high liability occupation.
A lawyer’s responsibility to recommend estate planning options to a client is similar to a doctor’s responsibility to propose medical treatment to a patient and an investment advisor’s responsibility to make investment recommendations that are appropriate for the investment client. There is no single recommendation that always fits every person’s circumstances perfectly, so it is important for the lawyer and the client to discuss all relevant facts and issues concerning the client’s circumstances (including health, wealth, income, and family dynamics) and objectives, and the benefits and consequences of each reasonable recommendation and its alternatives.
An excellent estate planning lawyer’s advice serves two important purposes in the estate planning process. First, the lawyer maintains a perspective of objectivity about the client, and can evaluate the client’s circumstances and needs without the personal biases and emotional influences that cloud the client’s judgment of those circumstances and needs. Second, a skilled estate planning lawyer can draw upon a wide array of estate planning tools to design an estate plan that strengthens the client’s ability to deal with vulnerable issues and enhances the client’s ability to take advantage of future opportunities.
Unfortunately, increasing numbers of companies are offering online DIY estate planning tools for people to make their own estate plans without consulting lawyers. The best of those companies include written statements on their websites recommending that people consult reputable estate planning lawyers for advice about the estate plans. However, it is unlikely that a person would pay money for an online estate plan, and then pay more money to have a lawyer evaluate the plan, because it would cost less money to hire the lawyer to write the estate plan than to spend money on both the online system and the lawyer’s services. Thus, many people purchase inappropriate estate plans because they lack the benefit of estate planning lawyer’s professional skill and objectivity – much like a patient performing DIY brain surgery.
Irrevocable trusts vary widely in their terms and conditions. If the person who recommended the estate plan to you did not provide complete analysis about the plan, you should engage an estate planning lawyer with an excellent reputation for knowledge of estates, trusts, and elder law issues to examine your plan and advise you of any opportunities to make adjustments that would improve the potential outcome in difficult future circumstances. You may have to spend unbudgeted money on the second opinion, but it is better to invest in reliable information about your previous estate plan investment than to remain uncertain about the estate plan’s appropriateness for your circumstances, potential consequences for your future, and flexibility for corrective revisions.
My sister is our mother’s caregiver and has lived in her house for over 10 years. They are thinking of selling her and taking those funds along with the rest of her investments and buying another more handicapped accessible home – One story. Can Medicaid Look Back go after the new home?
John, we are sorry for delaying this response to your question until now.
Are you saying that your sister has lived in your mother’s house for over 10 years? If so, it is possible under the right circumstances to protect the current home from long-term care expenses through a carefully coordinated transfer strategy, but it would be important not to sell the current home until completing the strategy.
The strategy would result in your sister owning the home and being entitled to sell the home without disrupting your mother’s Medicaid eligibility, and without exposing the real estate sale proceeds to the cost of your mother’s care if your mother whatever require nursing home care. Your sister could then use the sale proceeds to purchase the new home, and the new home would be completely protected from long-term care costs.
Please note, however, that this strategy requires special coordination so that your family can prove that the existing home qualifies for exemption from the Medicaid lookback and other aspects of the Medicaid transfer penalty rules.
Is the Indiana gift de minimis based on a January 1st to December 31st calendar year?
Mick, we like to quote our sources to provide information directly from the sources direct quoting is feasible. This is what the Indiana Family and Social Services Administration (FSSA) has published in its Medicaid policy manual about the de minimis gift allowance: