CASE STUDY: Developing an Estate and Elder Law Plan for Joe and Henrietta

Susana Lannik, Attorney at Law
Lannik Law, LLC
Newton, Massachusetts  02458
617-658-2980

Member of the national ElderCare Matters Alliance, Massachusetts chapter

Joe and Henrietta, ages 80 and 75, have been married for fifty years. They have two children, Joe, Jr. and Liz. Joe and Henrietta own their own home and have savings of $170,000. The home is held jointly; the bank accounts are also held jointly with right of survivorship to each other. Joe is a World War II veteran and has Social Security benefits of $1,200 per month, while Henrietta receives $600 per month. Liz lives with her parents, but works outside the home.

Joe was recently diagnosed with Parkinson’s disease but won’t admit that anything is wrong. He remains mentally competent enough to understand that his assets can be depleted by long-term care needs. Liz and Henrietta are taking care of Joe at home, but it is very difficult. He does not sleep at night and has episodes of lashing out physically. Joe is not in need of nursing home care now, but as his condition worsens, this may be the only alternative.

The family came into the office for a meeting. They are concerned because they have heard that the “nursing home will take away the house” if Joe needs nursing home care. What is going to happen to Henrietta in the home? She can’t live on $600 per month. What will happen with their savings?

What can Joe and Henrietta do now, and what must they consider?

The first step for Joe and Henrietta is to protect themselves with good legal documents. Each should sign a Durable Power of Attorney, a Health Care Proxy, an Advance Directive (living will), a HIPAA (Health Insurance and Portability Act of 1996) Release, and a will.

The Durable Power of Attorney is a document naming someone to manage one’s affairs when he or she is no longer able to do so. A Health Care Proxy appoints an agent to make health care decisions during one’s incapacity. In some states, the appointment of a health care agent may be incorporated into a living will describing one’s wishes, but in Massachusetts an Advance Directive is required to express those wishes. A HIPAA Release is a document that gives a health care agent or other designated person access to health care records to enable that person to make health care decisions based on medical needs. These documents empower others to manage one’s affairs if he or she is alive but lacks competency. A will, on the other hand, takes effect only upon death.

Joe and Henrietta’s concerns are more focused on life than on death, and their fear concerning the high cost of nursing home care (at $140,000 per year and rising) is legitimate. They need to be aware of the programs that will help them pay for long-term care. Here are three possibilities:

Homebound Programs: Every state has its own version of homebound programs. This article covers programs in Massachusetts, where Joe and Henrietta live. Under the Home and Community Based Services Waiver Program, an applicant or member certified by a Medicaid agency to be in need of nursing facility services may receive certain waiver services at home if he or she “is age 55 years or older and if under age 65 is permanently and totally disabled in accordance with Title XVI standards; and would be institutionalized in a nursing facility unless he or she receives one or more of the services administered by the Executive Office of Elder Affairs under the Home and Community Based Services Waiver authorized under § 1915 (c) of the Social Security Act.” Once eligibility is established, the Program for All-Inclusive Care for the Elderly (“PACE”) could take over Joe’s care. This means that he would have to become part of an HMO that does not necessarily include his present caregivers. However, the benefits are that Joe could receive 24/7 home care at a subsidized rate, which could significantly preserve Joe and Henrietta’s current assets and quality of life.

These programs have certain eligibility requirements, which are ever changing. There are financial qualifications to meet, but with a spousal waiver only Joe’s assets would be considered. There is also a three-month look-back period. Assuming that Joe and Henrietta followed the guidance of an elder law attorney in this matter, and transferred assets in an appropriate way, they could become financially eligible for the homebound program. If Joe were to require further assistance not available at home, there is the option to transfer to an assisted living facility that accepts the PACE program.

VA (Veterans Administration) Benefits for Joe – Aid and Attendance: A VA program could enable Henrietta and Liz to keep Joe at home for a longer period of time, or could help pay for an assisted living facility. This program is available to U.S. veterans if they meet certain conditions: (1) a veteran is presumed to be disabled if over age 65; (2) the veteran is required to have served 90 consecutive days in service; and (3) the veteran is required to have served at least one day during a period of war.

Here’s how VA benefits work: Unreimbursed medical expenses are subtracted from gross income to derive the net income for VA purposes. At this point, Joe is over age 65. He served more than 90 consecutive days in WWII. The couple’s income is $1,800 per month and their expenses are $2,000 per month, so Joe nets out at $0 for VA purposes. Based on his financial picture, Joe can have $100,000 protected while qualifying for VA benefits now. Unlike Medicaid rules, VA benefits are not affected by transfers of assets and the couple may keep the remaining $70,000 in their names.  They may also be able to receive $1,949 per month from the VA. Only an accredited VA agent may file an application, and that agent must do so free of charge.  Many attorneys will make VA benefits part of an elder law plan or strategy, but they can charge for preparing the strategy. In many instances, attorneys will defer to local VA agencies to file the actual application, while they do the overall planning to ensure eligibility for VA benefits.

Medicaid: How can Joe and Henrietta benefit from Medicaid? Medicaid is a federal program that is managed by each state. As Joe and Henrietta’s residence, Massachusetts rules will be applied for this article. The rules for other states may be very different. Thus, it is important to contact an elder law attorney who practices in your state.

One of the most basic things to understand is that Medicare is not Medicaid, and does not pay for long-term care. Medicaid is the only program that presently addresses long-term care needs. Joe and Henrietta are fortunate in that there are special rules for married couples.

If one spouse requires nursing home care (in this case, Joe), the spouse living at home (Henrietta, the “community spouse”) is permitted to keep a maximum of $109,560. The nursing home spouse is entitled to keep an additional $2,000. Joe and Henrietta’s principal residence is not included as a countable asset for Medicaid purposes, as long as certain criteria (discussed below) are met.

Joe and Henrietta’s assets break down as follows:

Countable assets                                                                     $170,000

Less community spouse’s allowable assets                    109, 560

Less nursing home spouse’s allowable assets                      2,000

Excess Assets                                                                          $58,440

In the unlikely event that both Henrietta and Joe were simultaneously seeking to qualify for Medicaid benefits at some future point, their combined countable assets could be no more than $3,000.

The principal residence of a Medicaid applicant, if held individually by the applicant, is not considered a countable asset as long as (1) his or her spouse (the community spouse) is residing in the home; or (2) the applicant, while in a nursing home, has the subjective desire to return home and the equity in the principal residence is less than $750,000. However, if either Joe or Henrietta were to receive long-term care Medicaid benefits, the Commonwealth of Massachusetts would have two liens on the home. The first, the “lifetime lien,” is activated if a Medicaid recipient and his or her spouse were to sell the home while the recipient was on Medicaid. In that event, the Commonwealth could recover all the money it had paid for the recipient’s care from his or her share of the sale proceeds. Then the recipient would be required to spend down any remaining proceeds from the recipient’s share to re-establish Medicaid eligibility. The second lien is the “estate recovery lien.” This is a lien on the recipient’s probate estate which is activated at death. This lien enables Medicaid to be reimbursed fully for all costs it has paid for the recipient’s care during his or her lifetime. If the community spouse were to predecease the recipient, the recipient would own the principal residence alone, which would pass to the recipient’s heirs as part of the probate estate. In that instance, the Commonwealth could force the heirs to sell the principal residence to pay off the lien. Thus, if the size of the lien were to exceed the value of the home, the children would receive no inheritance.

There is a five-year look-back period during which Medicaid can scrutinize any transfers made by an applicant. If transfers were made during this time, the law imposes a period of ineligibility for any transfer for less than fair market value other than transfers between spouses. The period of ineligibility is calculated by dividing the value of what was transferred by the average monthly cost of private pay nursing homes in the Commonwealth. The current figure used for this calculation (in 2011) is $274 per day (approximately $8,220 per month). Pursuant to Medicaid rules, for all transfers made after February 8, 2006, the disqualification period does not start to run until the applicant is “otherwise eligible” for Medicaid. Applicants are “otherwise eligible” if they meet three requirements: (1) they have reduced their assets to below $2,000; (2) they require a nursing home level of care; and (3) they have applied for Medicaid long-term care benefits.

Joe and Henrietta have not made any transfers within the past five years. If they do nothing, the government will plan for them, and they stand to lose just about everything with the way that things are presently set up. However, this will not happen with appropriate planning. Joe and Henrietta’s plan will protect the home from the potential costs of Joe’s nursing home care; set up Henrietta’s estate so that if she dies first all the money will go into trust for Joe, which cannot be spent down on nursing home care; protect all the savings if Joe needs nursing home care; help Henrietta keep a significant amount of Joe’s income if he is in the nursing home; and help Joe get up to $1,949 in VA benefits for his home care if he qualifies under the applicable regulations.

It is vital to understand that the choice of one program over another, or the choice of programs that work in conjunction with each other, should be made with great care. Sometimes what works for one program will bump a second program that might be needed. The best example is a veteran who is sold an annuity to qualify him for VA benefits, but ignores the fact that he could be precluded from Medicaid or forced to cash in the inappropriate annuity to spend down.