medicaid planning

James A. SinglerCalfee, Halter & Griswold [email protected]

Calfee, Halter & Griswold LLP, 2800 First Financial Center, 255 East Fifth Street, Cincinnati, Ohio 45202

Cincinnati | Cleveland | Columbus | Calfee.com

Long Term Care Planning

Introduction

Calfee, Halter & Griswold LLP 1

• Establish legal documents

• Healthcare Power of Attorney• Living Will• DNR• Organ Donation, Burial Wishes• Durable General Power of Attorney• Last Will• Revocable Living Trust

Cost of Long Term Care

Calfee, Halter & Griswold LLP

• Baby boomers started turning 65 in 2011 • Elderly population will jump from 35,000,000 in 2000 to

71,500,000 in 2030• Probability of becoming disabled in at least two activities of daily

living: 68% of all individuals 65 years and older • Average length of claim: 3.9 years• Average cost of long term care: $6,327 per month• Four years of care at $6,327 per month: $303,696 liability per

person• Sources of payment are: (1) Medicare, (2) Private Pay,

(3) Long Term Care Insurance and (4) Medicaid

Note: Data derived from the American Association of Long Term Care Insurance and Pro Seniors

2

Understanding Medicaid


• What is Medicaid?

• Not all facilities accept Medicaid

• Not all facilities that accept Medicaid have Medicaid beds available

Understanding Medicaid


• Income eligibility• Resource eligibility:• $1,500 single individual• Community Spouse Resource Allowance (CSRA) minimum

$23,844; CSRA maximum $119,220• Exempt assets:• Car• Prepaid burial contract• Home equity up to $552,000• Life insurance with less than $1,500 cash value• Household goods

• Five-year look back for improper transfers

Medicaid Planning Examples


Single IndividualProfile:

• 75 years of age with early diagnosis of dementia• Not married• Two children, both healthy, no creditor or divorce issues• No long term care insurance

Assets:• $300,000 home with $100,000 mortgage• $250,000 brokerage account• $10,000 paid off car• $50,000 cash value life insurance with $200,000 death benefit• $250,000 retirement account

TOTAL COUNTABLE ASSETS: $760,000Income:• $3,000 per month pension income



Home: $200,000Brokerage: $250,000Car: $10,000Life Insurance: $50,000 $510,000

Transferred to one or more of the children

Children transfer to irrevocable trust for benefit of parent

Irrevocable Trust Trustee: One or more of the childrenBeneficiary: Parent at parent’s death to children



Implications:• Assets are protected if parent does not enter into a long term care

facility within the next 5 years• Completed gift when assets transferred to the children

• Need to file a Gift Tax Return (Form 709), but no tax due• Trust income taxed at highest marginal tax rate, plus 3.8%

surcharge• Trust income taxed at beneficiary tax rate if distributed to the

beneficiary• Trust irrevocable• Trust becomes its own taxpayer• Trust needs to file income taxes each year• Basis issues: No increase in basis at parent’s death



What if the parent needs long term care three yearsafter the transfer?

Let’s assume:

• Cost of care is $7,000 per month• Parent’s income is $3,000 per month• Burn rate of $4,000 per month• Private pay for two years with assets from retirement account• Liability limited to $96,000• Assets of trust protected• Assets may or may not be left in retirement account



Single IndividualProfile:• 80 years of age and in poor health • Fell and broke a hip• Two children who do not live in the area• Will need care from a long term care facility• No life insurance policyAssets:• Car• $100,000 brokerage account• No real estate

TOTAL COUNTABLE ASSETS: $100,000Income:• $3,000 per month pension income



$50,000Transferred to one or more of the children

Irrevocable Trust Trustee: One or more of the childrenBeneficiary: Parent at Parent’s death to the children

Children transfer to irrevocable trust for benefit of the parent

$50,000 remaining



Implications:• Completed gift

• Must file a Gift Tax Return, but no tax due• Trust irrevocable• Taxes at highest marginal tax rate, plus 3.8% surcharge, unless

distributed• Transfer is improper transfer• Creates disqualification period of eight months



How to cover cost of care for eight months?

$50,000 Medicaid Compliant Annuity:

• Single premium• No cash value• Not assignable• Immediate annuity• Income paid to long term care facility

to cover cost of care for eight months• Following those eight months, parent

qualifies for Medicaid



Married CoupleProfile:

• Husband: 85 years of age with dementia; entering long term care facility• Wife: 80 years of age and in good health• Two children• No long term care insurance policy

Assets:• $250,000 home with $50,000 mortgage• Two cars• Husband’s IRA: $250,000• Wife’s IRA: $250,000• $100,000 in savings

TOTAL COUNTABLE ASSETS: $600,000 (Home Equity Exempt)Income:

• Husband's Social Security: $2,000• Wife’s Social Security: $1,500

Note: Cost of care is $7,000 per month



Spend down your money:

• Allocate $1,500 to the patient account• Pay off $50,000 mortgage on the house• Purchase a new car for $30,000• Reinvest in property with home improvements of $50,000• Pre-pay utilities and real estate taxes totaling $10,000• Transfer house into the wife’s name• Establish Community Spouse Resource Allowance (CSRA) with

$119,220

TOTAL COUNTABLE ASSETS: $339,280 remaining



What do we do with the remaining $339,280 in countable assets?

We are going to convert countable assets into an income stream forwife because wife’s income is exempt.

$339,280

• Single premium• No cash value• Not assignable• Takes effect immediately• Paid out over a term of less than

wife’s lifetime• State of Ohio beneficiary to the

extent of funds paid for care

Medicaid Compliant Annuity:

This presentation is provided by Calfee, Halter & Griswold LLP for education and information purposes only. This presentation is not intended to provide legal advice on specific subjects. The resolution of legal issues depends upon the specific facts of a particular situation and the laws involved. This presentation may be considered advertising under applicable laws. Nothing contained herein or in any attachment hereto is intended to be used, or can be used, to avoid penalties imposed under the Internal Revenue Code.

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medicaid planning

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