Oct. 21, 2011
There is rarely a week that goes by that a client does not call or come to my office to ask: “What do we need to do to keep from losing Momma’s home if she goes into the nursing home?”
No two families are exactly alike when trying to answer this question. The conversation with the family must take into account many different factors when determining a plan for how to best preserve Momma’s assets. In order to properly answer the question about Momma’s home, the conversation with the family must seek to find an understanding of the various levels of care that Momma will need for the remainder of her life and the resources available to pay for that care. The resources that should be discussed before determining a plan include Momma’s income, savings, Medicare, Veteran’s benefits, Medicaid and the value of her home.
Most clients incorrectly believe that having Medicare, as a form of health insurance, provides them with long-term care insurance. Unfortunately, Medicare Part A only pays for skilled care in a nursing home for a short period of time. After that, the nursing home patient must use their savings, income, or long-term care insurance. It is very rare for a client to have purchased long-term care insurance. If the savings and income are not sufficient to pay for the nursing home, the family must pay for the nursing home care or apply for Medicaid.
Medicaid is a joint state and federal program that was originally designed to provide health care for low-income individuals. Today, Tennessee’s Medicaid program is commonly referred to as TennCare. While not originally intended to serve the elderly long-term care population, this program has become the primary method of financing nursing home care for those individuals that cannot afford to pay for it. In Tennessee, the process of qualifying for Medicaid requires the applicant to meet certain income and asset tests. In most cases, Momma’s home is an exempt asset for Medicaid eligibility purposes. In other words, her home is not counted as an asset so long as she intends to return home from the nursing home. In Tennessee, the intent to return home is presumed.
While the home may not be considered an asset for eligibility purposes, you will be told by a counselor for Medicaid that the State of Tennessee has the ability to recover all sums paid for Momma’s nursing home care against her home after her death. By now, most of us have heard of a family farm or home being auctioned to satisfy a lien from TennCare. The number of estates where the home is liquidated just to satisfy the lien from Medicaid/TennCare has grown substantially in the past few years.
“Should we just get Momma to deed the home to her children?” It depends. This may not be the right answer in every situation. Before you rush to a law office and get Momma to sign a quitclaim deed transferring the property to the children, there are several consequences that must be discussed with an attorney. There are gift tax issues, loss of control, a Medicaid penalty period and possible liens by the children’s judgment creditors that must be considered in each case. This attempt to meet the requirements of Medicaid combined with the fear of “losing Momma’s home” often results in the family making transfers without considering all of the consequences. In some cases, the transfer of Momma’s home may only make matters worse.
Momma’s home cannot be transferred at just any time. Medicaid law requires that the applicant reveal all gifts (transfers for less than fair market value) that occur in the five years preceding the Medicaid application. If she has made a transfer during the sixty months preceding the application for Medicaid, the Medicaid agency will impose a Medicaid penalty. The length of this article doesn’t provide a sufficient space to discuss how the penalty period is calculated. Further, it would be as clear as mud without providing several examples of how this penalty period actually applies to the facts of different cases. In general, during the penalty period, Momma’s nursing home care would have to be paid for by the family. Further, the Medicaid penalty period will not begin to run until after Momma is “otherwise eligible” for Medicaid. As such, it is important to understand that the penalty period may exceed the time remaining in the sixty month look-back period.
The rules are confusing to most individuals. The date of a real estate transfer or the date an application is made for Medicaid could have substantial consequences. Discussing estate planning with a parent is often difficult for the children. However, failing to discuss an estate plan can directly impact the quality of care for your parent and the preservation of assets for the benefit of the family. A proper estate plan could benefit most families dealing with this important issue.
– Eric Thornton is a partner with the law firm of Ramsey, Thornton & Barrett, PLC.
The foregoing article is not intended as, nor shall be used, relied upon, or otherwise construed as legal advice or an attorney-client relationship. You are advised to seek independent legal advice from an attorney licensed in the State of Tennessee.