by Lori Leu & Erin Peirce
The costs of long-term care in the United States are skyrocketing. Many have not planned adequately, not anticipating the need. Further, standard estate planning advice may leave clients with fewer choices. Attorneys need to be able to identify issues to ensure proper advice is obtained in advance.
There are three ways to pay for long-term care: private pay, long-term care insurance, and public benefits. Private pay is expensive ($3,000 - $16,000/month). Long-term care insurance is limited, must be obtained before medical records indicate a potential risk of long-term health problems, and can be too costly for some people. Thus, clients may end up relying on public benefits.
Many people incorrectly assume Medicare will pay for long-term care. Medicare is health insurance for individuals who are 65 or older and contributed to the system. Medicare covers some rehabilitation following hospitalization but does not cover long-term care. There are two public benefits available to pay for long-term care: Medicaid and VA Pension. Both programs are needs-based and require an evaluation of income, resources and care needs.
Medicaid is federally funded but state-managed. Eligibility and coverage vary between states. In Texas, Medicaid primarily applies to skilled nursing facilities. Although there is limited coverage for assisted living and memory care through the Medicaid Star+Plus Waiver program, the lengthy waiting lists and limited facilities reduce the viability of this option.
Medicaid eligibility in Texas includes the following elements: U.S. citizen/Texas resident; medical necessity for skilled nursing; minimum 30-day period in a Medicaid-certified facility; available Medicaid bed; income below the monthly income cap, currently $2,250, or qualified income trust in place; and countable resources below the limit, currently $2,000 for a single applicant and up to $123,600 for a married applicant, unless the spouses’ total gross income is less than the monthly maintenance allowance for the community spouse (currently $3,090), which allows for expansion beyond the limit.
A Texas homestead valued up to $572,000 is an excluded resource, unless it is in a revocable living trust. All assets in a revocable living trust are countable, including a homestead. Therefore, any homesteads in a revocable living trust will need to be transferred back to individual names prior to applying for Medicaid.
Medicaid penalizes transfers for less than fair market value that occurred within five years of filing an application. Such transfers include gifts within the annual gift tax exemption. Standard life estate deeds also constitute transfers for Medicaid purposes. However, enhanced life estate deeds, known as Lady Bird Deeds, do not constitute transfers because full ownership rights are retained in the grantor. Lady Bird Deeds allow the transfer of assets to named heirs and avoid Medicaid estate recovery after the applicant dies.
VA Pension, a non-service connected disability pension for wartime Veterans and surviving spouses, is federally funded and regulated. Eligibility requires an honorably discharged Veteran to have served a 90-day continuous period, at least one day during a wartime period. VA wartime periods can be found at www.va.gov.
VA Pension pays a monthly benefit up to $2,169 for a married Veteran, $1,830 for a single Veteran, and $1,176 for a surviving spouse. There are three levels of payments, depending on need, including Basic Service Pension, Housebound (cannot leave home on own), and Aid & Attendance (needs assistance with at least two activities of daily living).
Like Medicaid, VA Pension is needs-based, depending on income and net worth. Effective October 18, 2018, the VA will allow a net worth of $123,600, including countable assets and annual income. A primary residence, regardless of value or location, is exempt. Care expenses may reduce the amount of annual income included in net worth. Recent changes prohibit the transfer of assets for less than fair market value within the three-year period prior to filing the application, although the penalty period begins upon the date of the transfer, rather than the date of eligibility. This prohibition includes transfers to irrevocable trusts and the purchase of annuities and requires reporting to licensing agencies.
Clients who may need to apply for public benefits need competent legal advice. Advice on Medicaid eligibility includes the interpretation of statutes and administrative rules and constitutes the practice of law. The VA requires accreditation and continuing education requirements to provide advice regarding VA Pension. All attorneys can help protect clients by identifying issues and obtaining proper advice on all options so that estate planning decisions do not result in mistakes that prevent the clients from qualifying for public benefits.