Eldercare & the Economics of Aging
Add complexity to the modern aging equation
By LYNN WOODS

Unbeknownst to many people, the federal Deficit Reduction Act of 2005 resulted in some significant changes to the eligibility requirements for Medicaid, which could impact the amount of Medicaid provided to qualifying seniors. Unfamiliarity with the regulations could be financially devastating.

Louis Klein, an attorney with the Ulster County Office for the Aging, explained the changes, plus other intricacies of elder-care law, at the UCOA meeting Nov. 9 at the Hudson Valley Senior Residence in Kingston. The meeting was timed to commemorate the designation of November as National Family Care Givers Month and was attended by about 20 family caregivers.

Elder-care law is complex, as was revealed by the different scenarios presented by the attendees in response to Klein’s solicitation for questions. The upshot was that every spouse and child of an aging parent should familiarize themselves with the nuances of the law to best protect their loved one’s assets and ensure the person will qualify for Medicaid if he or she has a need.

The Deficit Reduction Act of 2005 extended the time in which a transfer of assets would incur a penalty for a person seeking Medicaid coverage. Before, the penalty would kick in if the transfer was made within three years of a person having to enter a nursing home or obtain long-term home health care, but now it’s five years, Klein said.

Another, more complicated change has a dramatic impact on the amount of Medicaid coverage that’s provided. Before, when a person transferred assets and subsequently had to apply for Medicaid, the penalty period would kick in the first day of the month following the date of the transfer. This meant the penalty often was applied prior to the senior’s residence in a nursing home. But under the act, the penalty period kicks in only after the senior has entered a nursing home, or has begun requiring equivalent care at home, which means much more of the cost of the care will fall on the individual. The new policy applies for any transfer of assets that was made after Feb. 8, 2006.

Klein provided a theoretical example that demonstrated how the system works and at the same time revealed it to be maddeningly complex and confusing:

If Donald Davis gave each of his three children $50,000 on Feb. 7, 2006, and had to enter a nursing home on Oct. 1, 2007, the penalty would commence on March 1, 2006 and end on June 30, 2007, with Davis getting his first Medicaid payments in the first 16 days of July 2007. That means he’d be covered for his nursing home stay, since he wouldn’t enter the facility until October 2007. But if he had distributed the assets two days later, on Feb. 9, 2006 ­ after the break-off point established by the new law ­ the transfer penalty wouldn’t kick in until Nov. 1, 2007, by which time Davis would be in the nursing home. The penalty period would apply to the next 16 and a half months of his stay and hence require him to foot more of the bill.

Among Klein’s other points:

• When a spouse is in a nursing home or getting the equivalent care at home under Medicaid, the healthy spouse is allowed to have the house, the car and one-half of the couple’s assets (up to a maximum of $101,640 and minimum of $74,820), under what’s called the community spouse resource allowance, which exempts those assets from the Medicaid qualification requirements. In addition, a spouse can exercise a spousal refusal claiming to be unable to make his or her other additional assets available for the cost of care. But if most of the couple’s assets were transferred to their children, the healthy spouse wouldn’t be able to claim this refusal.

• In most states, including New York, the spouse has the right to take a minimal share of the deceased spouse’s assets, even if this is not in the will. The minimal share is $50,000 or one-third of the estate, depending on which figure is larger. If the assets were transferred by the deceased spouse to the children within three years or his or her death, the surviving spouse could reclaim the minimal share of the assets from the children.

• A parent can purchase a “life estate” in his or her child’s home as a way to reduce his or her income and qualify for Medicaid. The parent must live in the home for at least one year. However, if the house is sold while the parent is still alive, the child must pay back the value of the life estate to the parent, which would disqualify him or her for Medicaid.

• Income from a reverse mortgage is excluded from Medicaid qualification, so it is a good source of support in addition to the monthly Medicaid income allowances of $700 for a single person and $900 for a couple.

• If a parent wants to transfer property to his or her children, it may be better to do this by including it in a trust rather than by deeding it to the children, to avoid paying capital gains taxes. For example, if the property was purchased years ago for $25,000 and it’s worth $225,000 upon the parent’s death, the capital gains tax would amount to $40,000. That compares with $4,000 or $5,000 for the cost of the trust. Unless the children purchased the property from the parent for the full assessed value, selling it to them for less would carry the same tax burden.

• When receiving a notarized power of attorney (POA), people should file the original copy in the county clerk’s office. Some parties, including the Internal Revenue Service, will only accept an original of the POA. Certified copies from the county clerk’s office are accepted by all parties and ensure that the original doesn’t get lost.

 

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