Can one spouse keep assets while other spouse obtains long-term care benefits from Medicaid? (column)
John has Alzheimer’s and requires expensive long-term care, but he and his wife, Susan, have too many assets to qualify for Medicaid. What can Susan do to preserve assets while providing for John’s care under Colorado and federal laws?
Preliminarily, this is a situation where prior planning would have helped immensely. The best option may have been for the couple to purchase long-term care insurance before John’s health failed. Many people mistakenly believe that Medicare or other health insurance covers long-term care. Long-term care insurance actually requires a separate policy that should be investigated by at least one’s early 50s.
To become eligible for Medicaid, an individual must eliminate assets in excess of eligibility levels. This can be accomplished through spending or gifting these assets (or, most likely, a combination of both). Depending on the circumstances, the best answer may be a special trust, an annuity, a reverse mortgage or another approach. Planning for Medicaid eligibility is extremely complicated. If not done properly, it results in a period of ineligibility for the program during which a person may have no means to pay for long-term care.
But, we’re assuming that Jack and Susan don’t have long-term care insurance and that it’s otherwise too late for them to plan for Medicaid eligibility (which often requires a five-year period). What now? One answer is the Spousal Impoverishment Protection (SIP) rules. Under the SIP rules, the spouse who will receive Medicaid — John in our example — is called the “institutionalized spouse” (even if the spouse still lives at home) and the spouse not receiving benefits — Susan in our example — is called the “community spouse.” The community spouse can retain a certain amount of assets without affecting the institutionalized spouse’s Medicaid eligibility.
In Medicaid parlance, the amount retained by the community spouse is known as the Community Spouse Resource Allowance (CSRA). The CSRA is in addition to $2,000 that the institutionalized spouse is entitled to retain as well as assets that have become “exempt” through Medicaid eligibility planning. The CSRA is equal to one-half of the couple’s non-exempt assets or a minimum of $23,488 (in 2014) — whichever is greater. The maximum CSRA was $117,240 in 2014. The minimum and maximum CSRA amounts are typically adjusted annually. In Colorado, the maximum CSRA of $117,240 is always permitted, even if a couple has substantial exempt assets. Basically, the institutionalized spouse will be eligible for Medicaid when the couple’s total non-exempt assets are equal to or less than the CSRA plus the $2,000 the institutionalized spouse is entitled to retain.
Medicaid uses the acronym “MMMNA” to refer to the amount of monthly income the community spouse needs to pay for basic needs. The MMMNA amount is adjusted on July 1 each year. Medicaid uses the term “MIA” to refer to the amount of income the institutionalized spouse can contribute to the community spouse if the community spouse’s income does not equal MMMNA. If the MIA is not sufficient to increase the community spouse’s income to MMMNA, the community spouse may request an increase in CSRA.
It bears mentioning that another option (in lieu of relying on the SIP rules) may be what is known as “Medicaid divorce,” meaning a divorce intended to help the community spouse keep assets while allowing the institutionalized spouse to qualify for Medicaid. Like all Medicaid eligibility planning, Medicaid divorce is extremely complicated and should only be undertaken with a professional.
In sum, prior planning is the best way to qualify for Medicaid (or avoid the need to do so). The alternatives are for John and Susan to expend all of their assets on John’s care until eligibility is reached under the SIP rules or pursue a Medicaid divorce.
Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or Noah@TheKlugLawFirm.com.
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