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Dave Olson, Published June 21 2010

Planning for long-term care is crucial

A change in Medicaid rules Congress made in 2005 greatly limits the ability of families to shield assets from the financial drain of long-term care.

But many don’t believe the change, which took effect in February 2006, could affect them.

They should think again.

“So many people don’t believe that this law really applies to them,” said Susan E. Johnson-Drenth, an attorney with the Vogel Law Firm who specializes in elder-care law.

When someone applies for Medicaid to help pay for nursing-home care, federal rules now allow states to look back five years to scrutinize and potentially demand a return of every dollar someone gave away.

The rules are complex, and in the case of Minnesota, the five-year look back is being phased in.

In basic terms, a person applying for medical assistance can have no more than $3,000 in assets and must be able to say they gave away nothing of value in the previous five years.

If someone did give something away during that time, they may be subject to a waiting period before they are eligible for assistance.

The ineligibility period is determined by taking the total value of what was given away and dividing it by the monthly cost of staying in a nursing home.

In North Dakota, that cost is deemed to be about $5,900 a month. In Minnesota, the number is about $5,000 a month.

So, as an example, if the total value of things someone gave away – say, money for plane tickets or the title to real estate – came to $100,000 and the individual applying for Medicaid lives in Minnesota, they wouldn’t be eligible to receive assistance for about 20 months.

The ineligibility period may be shortened if assets can be retrieved from those who received the gifts.

States can be strict about gifting, according to Johnson-Drenth, who is chairwoman of the North Dakota Bar Association’s elder law section.

In talks she gives to groups, Johnson-Drenth cites the example of an administrative law judge who in deciding a long-term care case in Minnesota penalized an 80-year-old nursing home resident for $20 gifts she gave to people on their birthday.

Few workarounds

Options for shielding assets from the five-year look back are limited, said Johnson-Drenth.

Irrevocable trusts used to be one tool, but they are now useless for protecting assets when it comes to long-term care in Minnesota and North Dakota, according to Johnson-Drenth.

One avenue that remains open is something called a life estate deed.

Under that option, parents may sign a quit claim deed to transfer ownership of a lake home or farm property to their children.

The children own the property, perhaps through a partnership or a limited liability corporation, but the parents may continue to enjoy use of the property for as long as they live.

After five years, the land itself would not be subject to a look-back period as far as having to be sold, but the real estate would have to be rented at the going rate and the money put toward nursing home costs.

The option is not for everyone, however.

Johnson-Drenth said she won’t set up such transactions if she feels a family does not have the financial wherewithal to weather a look-back period without having to liquidate the entire arrangement.

“I’m not going to set them up to fail,” she said, adding that people should start planning for long-term care much sooner than they think they need to.

“Oftentimes people come to see me when a crisis has happened,” she said.

One planning step that makes sense for anyone who owns assets, according to Johnson-Drenth, is to find a trustworthy person to grant durable general power of attorney to. She said trusted alternates should also be found.

In some cases, being a spouse isn’t enough to give a person decision-making power over certain assets the other spouse may have.

If a husband, for example, is in a nursing home with dementia and his wife is trying to qualify him for medical assistance, she may run into trouble when it comes to accessing individual retirement accounts or life insurance policies, Johnson-Drenth said.

“Just being married doesn’t give her those rights,” Johnson-Drenth said.

Readers can reach Forum reporter Dave Olson at (701) 241-5555