Frequently Asked Questions
Q. I understand that if I go into a nursing home, I will be forced to sell my house and use the proceeds to pay for my care before I will be eligible for Medicaid. Is this true?
A. In Massachusetts, as long as you indicate that you intend to return home, a personal residence is a non-countable asset for Medicaid eligibility purposes and you are not required to sell it and use the proceeds to pay for your care. However, if you received Medicaid, the Commonwealth has the right to recover the funds it has paid for your care from your probate estate after your death. Therefore, in certain circumstances, it makes sense to transfer your home to your children while retaining a life estate to live there during your lifetime. This removes the house from your estate and under current law in Massachusetts, from Medicaid's right of recovery. As with all techniques in the Medicaid planning area, there can be negative consequences to this action as well because transfer of the house with a retained life estate is a "disqualifying" transfer that would interfere with immediate eligibility for Medicaid. Any transfers of the principal residence must be part of an integrated plan, not an isolated event.
Q. My mother and father are each 82 and own a home worth $350,000 and have $175,000 in joint bank accounts. My father just had a stroke and will probably have to go to a nursing home for the duration of his life. I understand that Medicaid can't force my mother to move or sell the house, but will she have to spend the entire $175,000 on his care before he becomes eligible for Medicaid? How will she maintain herself at home?
A. As an initial matter, (and under current law), your mother will be able to keep the first one-half of your parents' combined assets to a maximum of $92,760 (in 2004). In your case, that amount would be $87,500 (one-half of $175,000). Then, depending on how much income she receives independently (from social security or a pension, for example) and what her living expenses are, your mother may be able receive some of your father's income and, perhaps, if this is still insufficient to maintain her in the community, to keep more of their joint assets (over the initial $87,500) to produce additional income to support herself. The Division of Medical Assistance has regulations for assigning a rate of return to these "excess" assets to calculate how much additional income they generate for purposes of this calculation. Absent a hardship or a Court order and depending on certain shelter costs, your mother may be entitled to keep enough of your father's income and additional assets to generate income that, when combined with her other income, would not exceed $2,239 per month (in 2004).
Additional strategies for increasing your mother's income include the purchase of an immediate annuity with the excess assets. No single strategy is appropriate for every case.
Q. If I give my assets to my children now, will I be ineligible for Medicaid for three years in the event I need to go to a nursing home?
A. It depends on the amount you give. The Division of Medical Assistance which administers the Medicaid program in the Commonwealth can look back for the prior 36 months from the date of your application to see if you made any gifts or, in the event the gifts were made to trusts, the Division can look back 60 months. However, the period of disqualification is limited to the amount of the gift divided by the average cost of nursing home care in the Commonwealth as determined by the Division. Currently, the Division maintains that the average cost is $7,320 per month. Assuming you made a direct gift of $125,000, then, you would be ineligible for slightly over 17 months ($125,000 divided by $7,320 = 17.07), not 36.
Q. Based on what you have said above, why wouldn't a parent facing these issues always just give his assets to his children with the understanding that the children will use the money for the parent's benefit?
A. Because the children do not have a legal obligation to use the funds for the parent. Because divorces, business failures, judgments against the children and the premature deaths of children do occur and the gifted funds may not be utilized as the parent intended. Moreover, gifts may not be the most tax efficient way to transfer assets to children.
Q. What basic estate planning documents do most people need?
A. Almost everyone needs a will, durable power of attorney and health care proxy. Depending on the size of one's estate, one or more trust may also be appropriate. The durable power of attorney is particularly important. Without it, one may have to go to the expense and public exposure that results form having a guardian appointed in the event of incompetency.
Q. I have an adult child who is disabled. He lives in a group home and receives SSI and Medicaid. Are there any special issues for me to consider when creating my estate plan?
A. Yes. Since your child is on SSI, he or she can only have limited assets. Therefore, a bequest of any value to your child would render him or her ineligible for SSI and, perhaps, Medicaid as well. Therefore, the bequest should be directed to a properly drafted supplemental needs trust which is a non-countable asset for SSI purposes. The trustee will be able to use the funds to supplement your child's quality of life while not interfering with his or her eligibility for benefits. Some people disinherit their disabled children with the hope and expectation that healthy siblings will provide for them but this is usually not the best practice.
