Tools and Planning Strategies to Minimize Nursing Home Costs

If there is a spouse in the community and one in the nursing home, then the first question becomes, “Can the Community spouse spend down some or all of the excess resources on exempt assets”? Since the house is an exempt asset for the Community spouses, start by first looking at whether any improvements can be made or need to be made to the home. Improvements can range from a new kitchen with granite countertops, a new roof, updating an old bathroom, installing a new driveway, new carpets, a furnace, replacing old windows or putting in new landscaping, to name a few. As an alternative, would the Community spouse rather sell her house and purchase a larger, more expensive house? That is certainly a possibility since the home equity exemption for Medicaid purposes is $858,000 in value.  

 Does the community spouse need a new vehicle? If so, now is the time for her to purchase one if her spouse is in the nursing home. Since there is no limitation on the value of her vehicle, it could be that Porsche she has always dreamed of having or a new Buick.  

 Has the spouse pre-paid for her burial and her spouse’s burial? Most clients will tell me that they have their plots at the cemetery paid for. However, I am talking about going to the funeral home and pre-paying for the wake, casket or urn, vault etc. As morbid as it may seem, the reality is that we are all going to die one day and burial costs are expensive. As such, it is important to pay these costs before one starts forking over $13,000 a month or more to the nursing home and there is no money left to pay for these costs. The Community spouse and/or the Medicaid applicant can also pre-pay for their children’s burials at a funeral home as well as the burial costs of their children’s spouse’s, their siblings’ and their siblings’ spouses’. There is no limitation on how much money can be put into these accounts either but care should be taken to avoid over funding these accounts as they are irrevocable and any monies not used on a person’s burial will be paid over to the County.  

Either before or after looking at all of the potential ways to spend down excess resources another way to protect assets from skilled nursing home costs is to transfer these resources to a disabled child. As such, if a client has a disabled child who is receiving social security disability (SSD) benefits or supplemental security income (SSI) benefits, any assets he or she transfers to that disabled child or into a trust for a disabled child does won’t be sanctioned by the County if he or his spouse needs nursing home Medicaid. That being said, if a disabled child is receiving government benefits, care should be taken to not make the child ineligible for said benefits. As such, these plans usually involve the parent transferring assets into a supplemental needs trust for the benefit of the disabled child so that child doesn’t lose his or her own Medicaid and SSI benefits.

If a client spends down some of their excess resources on home improvements, vehicles, burial accounts etc. and they still have assets over the applicable Medicaid limits that are exposed to nursing home costs, additional planning can then be done. First, we determine the amount of excess resources. Again, the Community spouse can keep non-exempt assets between $74,820 and $123,600 and the Medicaid applicant can keep $15,150. We then look at the clients’ income that is over the applicable thresholds for Medicaid purposes and compare that to the total monthly cost of the nursing home to determine the shortfall.  

As an example, assume that the client has $207,351 in excess resources even after they have spent down on home improvements, burial accounts etc. Let’s further assume the nursing home costs $13,800 a month. Finally let’s assume that the clients’ income is $1,000 more than they can keep every month. In this scenario there is a $12,800 shortfall between the clients’ excess income ($1,000) and the cost of the nursing home ($13,800). After a series of mathematical calculations (which I don’t recommend that you try at home unless you want to end up with a huge headache), we know if we transfer/gift $92,151 of the $207,351 excess resources to the clients’ children, this will result in a nine-month period of ineligibility for Medicaid purposes ($92,151 gift/$10,239 penalty rate). As we discussed in our prior Article, the penalty is calculated by dividing the amount gifted during the look back period by the regional cost of care for a nursing home care in Western NY, which is $10,239 for 2018.  

The other $115,200 in excess resources that was not gifted ($207,351- $92,151), would then be loaned to one of the clients’ children who would in turn sign a promissory note agreeing to repay the $115,200 loan in installments of $12,800 per month over the same nine-month penalty period. The loan creates a stream of income that will cover the nursing home cost for the same time-period that the client is sanctioned for having made the gift. In the tenth month, the note is completely paid out and the Medicaid sanction has expired. The client’s nursing home bill will then be covered by Medicaid going forward.

If your eyes are glazed over by now you are not alone. This strategy can be difficult to understand hearing or reading it for the first time. The big picture to take away from this hypothetical is that a person can still transfer or gift about 40-60% of their excess resources and put a “ceiling” on the amount of money they will spend on the nursing home rather than indefinitely spend their life savings until they reach the applicable Medicaid resource allowances.

Readers should note that this this is not an exhaustive explanation of all asset preservation strategies and should consult with an attorney well versed in elder law and Medicaid planning regarding their particular situation. It is strongly recommended that readers not try to implement any of these planning strategies on their own.  

Jamie M. Smith, Esq.