Medicaid Planning and Elder Law
It is something nobody wants to think about, but the reality is that either you or your spouse – or both of you – may require long-term or nursing home care one day.
Life expectancy has more than doubled since the turn of the century. If you make it to 65, chances are you’re going to live to 81 if you are a man and to 84 if you are a woman. As a result, nearly one of every two women and one in four men will find themselves in a nursing home sometime in their lives. Unfortunately, Medicare will not pay for it. With the costs averaging at least $6,000 per month, many families will run out of money within the first year when faced with a prolonged nursing home stay. However, there is another option – you can plan to qualify for Medicaid.
Most people think they have to “spend down” or give up most, if not all, of their assets before the federal-state Medicaid program will cover their nursing home expenses. Without a plan, you may be leaving your spouse destitute, unable to properly care for their needs. With solid planning, this does not have to be your fate.
Professionals at the Morton Law Firm can show you legal techniques and strategies that will allow you to be covered by Medicaid and still keep your home and many of your assets, without giving all of your assets away to family members or other loved ones.
The laws governing Medicaid planning are always changing, and some strategies that were once allowed are no longer available. Also, many of the currently available techniques require the passage of time before all assets are fully protected. Accordingly, you should not delay exploring these options if this type of planning seems appropriate to your situation.
Here are quick links to the information you need most:
- Disability Planning and Supplemental Security Income (SSI)
- Elder Abuse
- Long-Term Care
- Medicaid Qualifications
- Medicaid Planning
- Medicare Managed Care (Medicare Advantage)
- Nursing Homes
- Remaining at Home
- Alternatives to Nursing Homes
- Retirement Planning
- The Roth and Education IRAs
- Social Security
- Myths About Social Security
- Asset Protection: Reducing Risk, Promoting Peace of Mind
Supplemental Security Income (SSI)
SSI is the basic federal safety net program for the elderly, blind and disabled, providing them with a minimum guaranteed income. Effective January 1, 2007, the maximum federal SSI benefit is $623 a month for an individual and $924 a month for a couple (the amounts go up every January 1). These amounts are supplemented in most states, but not in Mississippi.
Although the Social Security Administration (SSA) administers the program, the program is quite different from Social Security Disability Income (SSDI), which is also administered by the SSA. Eligibility for SSDI benefits are based upon your length of work and amount you have paid into the Social Security system. Eligibility for SSI benefits is based on financial need alone. However, the financial eligibility rules are quite stringent. If you are seeking SSI benefits because you are disabled, the program’s criteria for determining disability are the same as those outlined in the Social Security disability section.
About 6.6 million persons were receiving SSI payments in December 2000. Fifty-seven percent of these recipients were between the ages of 18 and 64, 30 percent were aged 65 or older, and 13 percent were under age 18. Many older persons who are not eligible for Social Security retirement benefits because they have not accumulated enough work credits may nevertheless be eligible for SSI, and even many of those receiving Social Security retirement benefits may be able to supplement their benefits with SSI payments. It is estimated that 1.5 million elderly who are potentially eligible for benefits never apply for them.
Most states supplement the federal SSI payment with payments of their own, however Mississippi does not. The idea of the SSI program is to provide a floor income level. If you are receiving income from another source, your SSI benefit will be cut dollar for dollar. In addition, the SSA deems food and shelter you receive from another source to be “in kind” income. As a result, actual payment amounts vary depending on your income, living arrangements, and other factors.
While the SSI program’s benefits are meager, SSI recipients in Mississippi are also automatically eligible to receive Medicaid, which can pay for hospital stays, doctor bills, prescription drugs, nursing home care, and other health costs. SSI recipients may also be eligible for food stamps, and in some cases for special programs for the developmentally delayed.
Who Is Eligible for SSI?
To be eligible for SSI:
- You must be either age 65 or older, blind or disabled;
- You must be a citizen of the U.S., or be a long-time resident who meets certain strict requirements;
- Your monthly income must be less than $579 per month ($869 per moth for a couple); and
- You must have less than $2,000 in assets ($3,000 for a couple), although certain resources are excluded in the eligibility determination (see below).
The amount of income you can earn and still qualify for SSI differs from state to state. In Mississippi, the income limit for eligibility is the same as the maximum federal benefit — $579 a month for an individual and $869 in 2005. If your income falls below these thresholds, you are eligible for benefits. Your benefit will be the difference between your income and the SSI benefit. For instance, if your own income is $400 a month, and the SSI benefit for a single individual is $579 a month, you will receive an SSI check of $179 a month.
At some level, it may not seem worth the trouble to apply and stay eligible for SSI, but as is mentioned above, the ancillary benefits, especially Medicaid, may make it worthwhile to maintain SSI even if the financial payment is only a few dollars a month. If you are unsure whether your income is low enough, apply anyway. Certain sources of income and support are not counted in determining eligibility, and what may appear to you to be income may not be counted as such by your local Social Security or welfare office. Therefore, if you are living on a small fixed income and you have few resources (assets), it’s worth applying for benefits.
In determining whether your income is low enough to qualify you for benefits, the SSA counts the money you earn in wages or from self-employment, as well as any investment income, pensions, annuities, gifts (except gifts of clothing), rents and interest. Social Security and Veterans benefits are also considered income. Free housing received from friends or relatives may be counted as income as well, based on what such housing would cost in your area.
However, in totaling your income the SSA does not count:
- The first $20 per month you receive from most income;
- The first $65 a month you earn from wages or self-employment, and only half of the amount you earn above $65;
- Irregular earned or unearned income of not more than $10 and $20 a month, respectively;
- Food stamps, home energy assistance, and most food, clothing or shelter received from non-profit organizations.
As noted above, you can have no more than $2,000 in countable resources ($3,000 for a married couple living together) to be eligible for SSI. Countable resources (assets) include bank accounts, investments, real estate (other than your residence), and personal property. Also included is any money or property that you hold jointly with someone else. The SSA determines how much your partial ownership is worth and counts that as a resource.
However, certain property of value is not counted in determining eligibility for SSI, including:
- Your home and the land it is on, no matter how valuable it is;
- Your personal and household goods;
- One car of any value if it is used for transportation for you or a member of your household;
- Wedding and engagement rings;
- Property for self-support, such as tools, up to $6,000 in value;
- Burial plots;
- Life insurance and burial funds up to $1,500 for each person.
Transferring Resources to Qualify for SSI
If your resources are still above these limits, you may be able to “spend down” to qualify for SSI, similar to the process to qualify for the Medicaid program. After you apply for benefits, you have a certain time period — six months for real estate and three months for personal property and liquid assets — to sell or spend your excess resources for fair market value and come under the benefit limits.
If you give away a resource or sell it for less than it is worth in order to get under the SSI resource limit, you may be ineligible for SSI for up to 36 months. The SSA looks at whether or not you have transferred a resource within the previous three years. If you have, it computes a penalty period by dividing the amount of the transfer by your monthly benefit amount.
Thus, if you give your son a $6,000 gift and then apply for a monthly SSI benefit of $600 within three years of the gift, you will not be eligible for SSI for 10 months (6,000/600=10). That 10-month period will begin on the date of the transfer and end 10 months later. In other words, although you can be ineligible for up to 36 months due to a transfer, that is only a cap. The actual period of ineligibility is based on the value of what you transferred divided by the monthly benefit in your state.
You should be aware that the transfer penalty applies only to transfers occurring on or after December 14, 1999. No penalty applies to transfers that took place before that date. You should also be aware that transfers may be “cured” by the person to whom you made a gift returning it to you. And, finally, there are certain exceptions to the transfer penalty, these include gifts to:
- A spouse (or anyone else for the spouse’s benefit);
- A blind or disabled child;
- A trust for the benefit of a blind or disabled child;
- A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the applicant, under certain circumstances).
In addition, special exceptions apply to the transfer of a home. The SSI applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:
- The applicant’s spouse;
- A child who is under age 21 or who is blind or disabled;
- Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the applicant, under certain circumstances);
- A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or
- A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Under a new statute effective January 1, 2000, the contents of most trusts you create for yourself will be considered available to you in determining your eligibility for SSI. On the other hand, assets of most trusts that someone else creates and names you as a beneficiary of will not be considered to belong to you for purposes of determining your SSI eligibility. If you created and funded an irrevocable trust for your own benefit prior to January 1, 2000, it will be grandfathered, and in most cases its assets will not be considered to belong to you.
When Congress created the rules limiting trusts for SSI purposes, it created a “safe harbor” permitting you to place money into two types of trusts for your own benefit. In doing so, it adopted safe harbors already created for Medicaid purposes. The safe harbors apply to “supplemental needs trusts” established by a parent, grandparent or court solely for the benefit of a disabled person under age 65; “pooled trusts” established by non-profit associations under Section 1917(d)(4)(C) of the Social Security Act; and “Miller Trusts” established in “income-cap” states under Section 1917 (d)(4)(B) of the Social Security Act.
The SSA has revised its online publication, “Understanding SSI — Spotlight on Trusts.” The document applies to trusts established on or after January 1, 2000, and applies to trusts established under Section 1396p(d)(4)(A) and (C).
Given the complexity of this field, any trust should be drafted by an experienced attorney knowledgeable about SSI matters.
How to Apply for SSI Benefits
If you think you may qualify for SSI benefits, you can call or visit your local SSA office and apply. You will need to provide the SSA with proof of age and citizenship or legal residence, as well as provide detailed information about your financial situation. Usually, an SSA claims representative interviews you and completes the forms using the information you supply.
You should apply as soon as possible so that you do not lose benefits. If you call SSA to make an appointment to apply, SSA will use the date of your call as your application filing date.
If your application is denied, you can appeal. The appeals process is similar to that for appealing Social Security claims denials. Once you begin receiving benefits, the SSA reviews your SSI eligibility once every one to three years.
Supplemental Needs Trusts and Planning for Disabled Children
Planning for Disabled Children
Americans are living longer than they did in years past, including those with disabilities. According to one count, 480,000 adults with mental retardation are living with parents who are 60 or older. This figure does not include adult children with other forms of disability nor those who live separately, but still depend on their parents for vital support.
When these parents can no longer care for their children due to their own disability or death, the responsibility will fall on siblings, other family members, and the community. In many cases, expenses will increase dramatically when care and guidance provided by parents must instead be provided by a professional for a fee.
Planning by parents can make all the difference in the life of the child with a disability, as well as that of his or her siblings who may be left with the responsibility for caretaking (on top of their own careers and caring for their own families and, possibly, ailing parents). Any plan should include the following elements:
A Plan of Care
Where is your son going to live when he can no longer live with you? Will he move in with a sibling? Or into a group home? Who will make the decision? Who will monitor the care he receives? It’s never too soon to begin answering these questions and making sure that the living and support arrangements are in place.
In some cases, it can ease the transition for all concerned if the child moves to the new living arrangement while his parents can still help with the process. In many parts of the country, non-profit organizations and private consultants can help set up the plan, research available options, and assist in the move.
It will help everyone involved if the parents create a written statement of their wishes for their child’s care. They know him better than anyone else. They can explain what helps, what hurts, what scares their child (who, of course, is an adult), and what reassures him. When the parents are gone, their knowledge will go with them unless they pass it on.
In almost all cases where a parent will leave funds at death to a disabled child, this should be done in the form of a trust. Trusts set up for the care of a disabled child generally are called “supplemental” or “special” needs trusts, which are described in more detail below. (To go directly there, click here.)
Money should not go outright to the child, both because she may not be able to manage it properly and because receiving the funds directly may cause the child to lose public benefits, such as Supplemental Security Income (SSI) and Medicaid. Often, these programs also serve as the entry point for receiving vital community support services. In the case of SSI, at the end of 1999 Congress enacted laws making it much more difficult to create a trust for a disabled individual after she has received an inheritance, making it even more important that the parents create the trust as part of their estate plan.
Some parents choose to avoid the complication of a trust by leaving their estates to one or more of their healthy children, relying on them to use the funds for the benefit of their disabled siblings. Except in the case of a very small estate, this is generally not a good idea. It puts the healthy child in the difficult position of having to decide how much of her money to spend on her sibling. Such funds also will be subject to claim by creditors and at risk in the event of divorce or bankruptcy. Finally, the child who receives the funds may die before the disabled child without setting these funds aside in her estate plan.
As a final matter, a parent with a disabled child should consider buying life insurance to fund the supplemental needs trust set up for the child’s support. What may look like a substantial sum to leave in trust today may run out after several years of paying for care that the parent had previously provided. The more resources available, the better the support that can be provided the child. And if both parents are alive, the cost of “second-to-die” insurance — payable only when the second of the two parents passes away — can be surprisingly low.
The good news is that advance planning for a disabled child can make a significant difference in his life. You just have to take the first step.
Supplemental Needs Trusts
Supplemental needs trusts (also known as “special needs” trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, or other funds and yet not lose her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining her eligibility for public benefits. As their name implies, supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee can use trust funds for food, clothing and shelter, if the trust provides him with such discretion, if the trustee decides doing so is in the beneficiary’s best interest despite a possible loss or reduction in public assistance.)
Very often, supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be set up in a will as a way for an individual to leave assets to a disabled relative. In addition, the disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits. These “self-settled” trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement.
Each public benefits program has restrictions that the supplemental needs trust must comply with in order not to jeopardize the beneficiary’s continued eligibility for public benefits. Both Medicaid and SSI are quite restrictive, making it difficult for a beneficiary to create a trust for his or her own benefit and still retain eligibility for Medicaid benefits. But both programs allow two “safe harbors” permitting the creation of supplemental needs trusts with a beneficiary’s own money if the trust meets certain requirements.
The first of these is called a “payback” or “(d)(4)(A)” trust, referring to the authorizing statute. “Payback” trusts are created with the assets of a disabled individual under age 65 and are established by his or her parent, grandparent or legal guardian or by a court. They also must provide that at the beneficiary’s death any remaining trust funds will first be used to reimburse the state for Medicaid paid on the beneficiary’s behalf.
Medicaid and SSI law also permits “(d)(4)(C)” or “pooled trusts.” Such trusts pool the resources of many disabled beneficiaries, and those resources are managed by a non-profit association. Unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself. In addition, at the beneficiary’s death the state does not have to be repaid for its Medicaid expenses on her behalf as long as the funds are retained in the trust for the benefit of other disabled beneficiaries. Although a pooled trust is an option for a disabled individual over age 65 who is receiving Medicaid or SSI, those over age 65 who make transfers to the trust will incur a transfer penalty. (See Medicaid: The Transfer Penalty.)
Income paid from a supplemental needs trust to a beneficiary is another issue, particularly with regard to SSI benefits. In the case of SSI, the trust beneficiary would lose a dollar of SSI benefits for every dollar paid to him directly. In addition, payments by the trust to the beneficiary for food, clothing or housing are considered “in kind” income and, again, the SSI benefit will be cut by one dollar for every dollar of value of such “in kind” income. Some attorneys draft the trusts to limit the trustee’s discretion to make such payments. Others do not limit the trustee’s discretion, but instead counsel the trustee on how the trust funds may be spent, permitting more flexibility for unforeseen events or changes in circumstances in the future. The difference has to do with philosophy, the situation of the client, and the amount of money in the trust.
Choosing a trustee is also an important issue in supplemental needs trusts. Most people do not have the expertise to manage a trust. An alternative is retaining the services of a professional trustee. For those who may be uncomfortable with the idea of an outsider managing a loved one’s affairs, it is possible to simultaneously appoint a trust “protector,” who has the powers to review accounts and to hire and fire trustees, and a trust “advisor,” who instructs the trustee on the beneficiary’s needs. However, if the trust fund is small, a professional trustee may not be interested. This can be an argument for pooled trusts.