When meeting with clients to discuss estate planning, they often ask what can be done to protect their assets from the high cost of nursing home care. The private payment for nursing home care in Massachusetts averages close to $15,000 per month. If you qualify, MassHealth will pay for your nursing home care. However, qualification for MassHealth while still preserving your assets requires careful planning.
The rules used to determine if you qualify for MassHealth are very complex and each person’s situation is unique. If you or someone you know may need to go into a nursing home you should speak with an attorney familiar with the various MassHealth rules and regulations to see what you can legally do to help protect your assets from being depleted. This article provides a basic overview of some key issues related to MassHealth and various asset planning techniques.
- What if the nursing home applicant does not have a spouse? If you need to go into the nursing home and you do not have a spouse, MassHealth will pay for the nursing home expense only if you have $2,000 or less in total countable assets. In general terms, a countable asset is any asset that you, as the prospective nursing home resident, own that is not excluded by MassHealth regulations.The most significant exclusion is up to $828,000 in equity in your home. This means that MassHealth will pay for nursing home care if the only asset you have is a home with equity of $828,000 or less. (Note, even though the equity in a home is excluded, when determining if MassHealth will pay for the nursing home care, MassHealth will still put a lien on your house which must be addressed if and when you die with any probate assets.)Other exemptions include up to $1,500 cash value in a life insurance policy and prepaid burial plans. If you have an asset that is not excluded, e.g. $5,000 in a bank account, MassHealth rules require that $3,000 from the bank account be used to pay for nursing home care before MassHealth begins paying for the cost of your care.
- What if the nursing home applicant has a spouse? If either you or your spouse goes into the nursing home and the other spouse does not live in a nursing home (the spouse that does not live in the nursing home is called the “community spouse” because they continue to live in the community), the community spouse is allowed to keep a community spouse allowance. The community spouse allowance is adjusted annually and for 2015 the community spouse can keep 50 percent of the otherwise countable assets, up to $119,220. For example, if the sole countable asset owned by a couple is an investment account worth $102,000, the community spouse can keep $52,000: $102,000 minus a $2,000 (the amount of cash that is excluded and thus not countable), divided by 2. Of the $102,000, the couple must spend the $50,000 on nursing home care prior to MassHealth making the payments. Note that as a married couple, you will be able to exclude up to $828,000 in equity in your home.
- What happens if I give assets away before applying for MassHealth? When determining if you will qualify for MassHealth, you must report all gifts you have made within the past five years (called “the five year look–back” rule) to MassHealth. Gifts (i.e., transfers for no consideration) made within five years will be considered a “countable asset” and used to disqualify you from MassHealth coverage for a period of time, which is calculated based upon the size of the gift and the annual exclusion amount. The annual exclusion amount is the average cost which MassHealth pays for nursing home care, which for 2015 is approximately $9,000. You calculate the exclusion period by dividing the total amount of the gifts by the annual exclusion amount. For example, if you gave away $90,000 two years before you applied for MassHealth you will be denied MassHealth coverage for approximately 10 months from the date of the application because of this gift ($90,000 gifts / $9,000 exclusion amount). Note: the average that MassHealth pays for nursing home care is significantly less than what a private person would pay. Gifts include both outright gifts to a person as well as transfers to an irrevocable trust or the transfer of real estate with a retained life interest.
- Are some transfers allowed? The law permits certain transfers by the person who is going into a nursing home. These transfers can be critical in protecting assets. For example, transfers of assets to your spouse or to a disabled child are permitted. In addition, transfers may also be permitted to a family member who provided care to you which delayed your need to enter a nursing home. The potential benefits of these transfers are very significant. In current practice, MassHealth may attempt to recover payments it has made for the benefit of a person only from that person’s probate estate. If as a nursing home resident you own a house and you transfer it to your (community) spouse, when you die the house will not be part of your probate estate, and that will protect it from any MassHealth lien.
- When is the best time for asset protection planning? There are a few last minute planning techniques that you can use to help protect your assets from being depleted by the cost of nursing home care. Annuities and pooled trusts may provide some potential savings. However, the best time to plan is before you have an urgent need for nursing home care, when you can sit down and evaluate your current assets and determine what you can transfer to others or into an irrevocable trust that was designed to provide protection from nursing home costs. Remember, any property transferred to others or to a trust is subject to the five year look-back period; therefore, the best time to plan is when you are perhaps in your 70s or early 80s and in good health. If you have an asset that you would like to pass to your loved ones (e.g., the family home or an investment account), and you are willing to give up control of that asset, you should consult an experienced estate planning attorney who is familiar with MassHealth regulations.
Most of us work for many years to accumulate assets so that we can pass them on to the ones we love. If you are concerned about the cost of nursing home care and how those costs could consume most of what you have saved, you should consult with an attorney on how the MassHealth regulations allow you to protect assets from being used for nursing home care. If you do not have an attorney, please contact my office at 781-934-8200 to schedule an initial no cost consultation.