Medicaid Planning and Legal Documents

 

THE VALUE OF THE RIGHT LEGAL DOCUMENTS IN

NURSING HOME CRISIS PLANNING

 

Legal documents are extremely useful in nursing home Medicaid planning. Many people are aware of some functions of legal documents such as a Power of Attorney (POA) to allow someone (like a spouse or adult child) to pay their bills if they are unable to do so due to short or long term inability.  A Living Will is basically, a document that allows you to express your choices as it relates to end of life.  A Will pays any debts you may have and distributes your assets after death.  Well, that is all true.  However, the POA and Will can be invaluable documents when used to protect your assets and minimize the cost to the family from a catastrophic illness if used correctly. 

What do I mean by a catastrophic illness?  I will give you a real life example.  Fred was diagnosed with Alzheimer’s.  He was married to Rita who watched over him seven days a week twenty-four hours a day.  Rita was wearing herself down to a point that her health was also in danger.  The doctor finally recommended that Fred be admitted to a nursing home facility where he spent his final years.  By the way, Rita went to the nursing home every day, seven days a week to be with Fred.  This is what I mean by a catastrophic illness.  It is when one cannot stay at home anymore and the only answer is an inpatient nursing home facility. 

Having a family member in a nursing home can be a devastating event for the individual, the spouse and the family both mentally and financially.  The cost of care in Louisiana of approximately $4000 per month or $48,000 per year can frequently wipe out the sum total of couples entire life’s savings in short order.  For those who have accumulated assets, most hoped these assets could provide for them without impoverishing their spouse and family in the process.  There is a way to plan for both but it requires that parents and their children act.  Time can be a friend or an enemy, which depends on making a plan and acting on that plan.

How can a POA or a Will help your situation?  First, if you are a couple, you need a POA that allows gifting from one spouse to another.  There is special wording required and it is not generally included in a POA prepared by an attorney, unless they are doing this type of planning.  Second, most couples have what is referred to as “I Love You Wills”, what’s mine if I die is yours, what’s yours if you die is mine, and after we are both gone, the remainder goes to the children.  The problem is if one becomes ill and goes into the nursing facility, the cost may eat up what there is and nothing will be left for the at home spouse to live on or to leave to the children.  This is because of the “spend down” and “five year look-back” provisions related to having too much in assets and gifting.

Most couples have a home (most are even paid for) and accumulated life savings (some have a little and some have a lot – it is all important).  We will give one example of protecting the home but the same thoughts can apply to one’s life savings.  In this example, the home is worth $150,000 and is owned jointly by the couple (each spouse owns half of the house).  One spouse has a stroke and cannot communicate; this spouse requires nursing home care.  Assume this ill spouse is a resident of the nursing home for three years and passes away.  Without planning, the “at home spouse” would have paid out their available monies in the first few years.  Or, if Medicaid pays, after the ill spouse dies, Medicaid can place a lien on the ill spouse’s one half interest in the home and after the “at home spouse” later passes, looks to recover what they have paid.  The children can pay Medicaid $75,000 (representing the ill spouse’s one half interest in the home) owed to Medicaid and keep the house but, most likely, the children will have to sell the home, pay Medicaid and keep what is left.  With planning, all this could have been avoided.

Using the POA described above, the at home spouse may gift the ill spouse’s one half interest in the home to themselves.  The at home spouse now owns one hundred percent of the home.   At this point a new Will is drafted to give the at home spouse’s interest in the home to the children or a trust at their death.  This is done because you never know which spouse may pass first and it would be unfortunate to give the assets to the ill spouse in the nursing facility where all the assets would be at risk of loss.  Wala! We have just saved the entire value of the home for the heirs.

So, there you have it.  Utilizing the right legal documents in Mediacaid planning is critical.  However, it is highly recommended that you work with a specialist in this area of planning.  Our example was for a couple.  Yes, there are planning options for single individuals as well.   As I said before, early planning saves the most.  Our experience has been that a couple can save one hundred percent of their assets with planning.  A worst case scenario for most singles is that they are able to save approximately 50%-80% of the assets with planning.  After all, 50-80% saved is better than zero, right!

You can reach us at 318-855-4690 or toll free at 866-323-4125. We are located at 1900 North 18th Street Ste 211, Monroe, LA 71201.