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The largest financial risk that seniors face today is the potential
of assisted living and nursing home costs to devour the nest egg
that has taken a lifetime to build. Many will end up relying on
Medicaid to pay these costs. If that’s the case for you, chances are
that Medicaid will come after your home when you die.
Before you get alarmed, make sure that you are not confusing
Medicare with Medicaid. Medicare, available to seniors who have paid
into the government’s Social Security system, covers roughly the
first 100 days of skilled nursing home care following a hospital
stay of at least 3 days. Medicare doesn’t help with custodial care.
Since Medicare is, in essence, insurance you have paid for through
payroll taxes, the government can’t try to reclaim that money when
you die. Medicaid, on the other hand, is a welfare program that
provides health care to the poor of any age. Qualifying for Medicaid
requires the patient’s liquid assets to be no more than $2,000, not
including their home.
Traditionally, Medicaid has allowed a patient to keep their home
while they’re in the nursing home. Since Medicaid doesn’t force the
sale of the home at that time, many seniors assume they will be able
pass it to their heirs at their death. Recent actions by states are
making that less likely.
Back in 1993, Congress passed a law that required the state agencies
that run Medicaid to make every effort to get reimbursement for the
money spent on each patient. This means the states are required by
law to take any assets remaining at death, up to the amount spent by
Medicaid. So if Medicaid spends $75,000 for your care, the states
will seek to recover $75,000 from your estate when you die.
For years, many states completely ignored this law or only casually
attempted to recover Medicaid costs. But those days are over. Facing
budget crunches and exploding health care costs, many states are now
aggressively pursuing recovery of their expenses.
There is a whole industry devoted to shielding seniors’ assets from
the government so that they qualify for Medicaid. These include the
use of irrevocable trusts, placing assets in the name of a child or
the purchase of an annuity. But there are already rules in place
that disqualify you for Medicaid when assets have been transferred
to a trust or child within 3 to 5 years of your application. It will
not surprise me to see states try to make it harder to move or
otherwise protect assets.
More common are situations like this hypothetical one. A widow named
Thelma develops dementia and Ted, her son, moves his mom out of her
house and into a nursing home. Thelma’s meager bank accounts are
drained and she soon qualifies for Medicaid. For the next two years,
Thelma’s health gradually declines and she finally passes away.
Several months later, Ted is preparing to fix up the old home place
as a retirement home for him and his wife. But he’s shocked when he
receives a notice from Medicaid that $85,000 is owed to cover the
cost of Thelma’s nursing home care. Ted will then have to sell the
old family home, get a mortgage on the home or use other money he
has saved for his own retirement to pay the bill. Regardless, the
result is that the bulk of Thelma’s estate went to the state instead
of to Ted.
What if Thelma’s home wasn’t worth the $85,000 that the state was
trying to recover? States are now beginning to go after other assets
and personal possessions such as vehicles, family heirlooms and
antiques. The state can force the auction of all of Thelma’s
belongings by placing a claim against her estate.
The state can legally pursue any and all of Thelma’s assets in an
attempt to recover what was spent on her care. Fortunately, the
state can NOT seek to recover any remaining shortfall from Ted.
Investigate the procedures of the state where care is being
received, because each state has different standards and procedures
for Medicaid cost recovery. The trend will continue for states to
increase their attempts at Medicaid recovery from estates of
recipients. Be aware so you aren’t caught off guard.
Have financial questions? I’ll personally answer them. Go to
www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide.
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