When your spouse needs long-term care — but you don’t

This article will ... Describe the five-year look-back rule for Medicaid eligibility.  Define the income and asset limits for healthy seniors when their spouse applies for Medicaid benefits. Explain how irrevocable trusts and annuities may potentially help protect more of your wealth for your heirs.

When your spouse requires nursing home care but you’re still able to live on your own, the choices are never easy.

You can either:

• Pay out of pocket for supports and services, which may deplete your savings quickly. Nationally, the median cost of care at a nursing home facility was nearly $8,000 per month for a semi-private room, while a home health aide cost roughly $5,100 per month, according to a survey of 2021 data, the latest available.¹ But monthly costs for a nursing home in urban markets can climb to $15,000 or more.
• Spend down your assets until you qualify for Medicaid, the federal-state health insurance program for low-income seniors and some with a disability. But that, too, may put you at risk of outliving your savings. It also reduces the size of your estate for future heirs.

“Even if you have long-term care insurance, your policy may not cover the daily rate or the entire length of the illness for the services your spouse needs,” said Renata Landskind, a partner with the New York-based elder law firm Landskind & Ricaforte Law Group. “If you are forced to spend down your assets until you have very little left so your spouse can qualify for Medicaid, that could leave you vulnerable.”

With careful planning, however, Landskind said that there are a handful of Medicaid provisions and estate planning strategies that may help you, the healthy spouse, preserve more of your assets while protecting your ailing spouse’s eligibility for Medicaid benefits.

Those include:

• Spend-down strategies.
• Asset-protection trusts.
• Medicaid annuities.
• “Spousal refusal” provisions.
• Long-Term Care Partnership Programs.

Playing by the rules

Before reviewing Medicaid strategies for married couples, however, it bears noting that long-term care planning can be highly complex, in part because the rules often differ by state. An elder law attorney or estate planning attorney licensed in your state of residence can be an invaluable partner in helping you navigate the system without running afoul of Medicaid rules.

For example, assets transferred, gifted, or sold for less than fair market value during the five-year period preceding a Medicaid application for long-term care or home-based services may be subject to the so-called look-back period, which could render you and your spouse ineligible for benefits.²

According to the American Council on Aging (ACA), examples of transactions that may violate the look-back period include the following:

• Gifting money to a grandchild as a graduation gift.
• Transferring a house to a niece.
• Donating a car to a local charity.
• Selling collectors’ coins for less than their value.

Payments made to a family caregiver without a formal personal care agreement can also potentially violate the look-back period, it notes.

“There are many professionals who can assist you in applying for government benefits, but the goal of an elder law attorney is specifically to help preserve your assets for use during your lifetime and ultimately for your heirs while leaving you or your spouse eligible for benefits,” said Landskind, noting an attorney with expertise in Medicaid planning will also consider the tax implications of the estate planning strategy.

Income and asset limits for Medicaid eligibility

Unlike Medicare, the federal health insurance program for those age 65 and older and certain individuals with a disability, Medicaid covers many long-term care services and supports. That may include the costs associated with nursing home care, home health aides, and community-based services.

But Medicaid benefits are only available to those who fall below certain income and asset thresholds, which are determined by each state. The ACA offers a state-by-state breakdown as well as an online eligibility worksheet to help you determine whether you may qualify. Note that income and asset limits may differ depending on which type of Medicaid support or service you request — a bed at a nursing home facility, home-based care, or community-based care.

To qualify for long-term care Medicaid benefits, it may be necessary to spend down your excess income and assets until you fall below your state’s limit.

Medicaid: Spending down your income

Generally speaking, the income of a non-applicant spouse is not counted when determining their husband’s or wife’s eligibility for Medicaid. Your incomes are considered separate, which is a provision intended to help the healthy spouse remain in their home and provide for themselves even after their spouse enters the Medicaid system.

In cases where a healthy spouse who is still living “in the community” does not earn enough on their own to pay the bills after their spouse becomes eligible for Medicaid, they may even be entitled to some or all of their “institutionalized” spouse’s monthly income under the spousal impoverishment rules. A breakdown of the maximum amount of resources and income that can be protected by the spouse in the community can be found on the Medicaid website.

If your spouse does not qualify for Medicaid long-term care based on their income, they can potentially still receive benefits in certain states after spending down a portion of their excess income on qualified health care expenses, including health insurance premiums, doctor’s visits, and prescription drugs.

Medicaid: Spend down rules for assets

While income is assessed separately for married couples in the Medicaid eligibility formulas, their assets, including stocks, personal savings, and brokerage accounts, are considered jointly owned.

In some states, your IRAs, 401(k)s, and other retirement accounts may count as either income or an asset, which is sometimes determined based on the type of account and its payout status. The ACA offers an online table of state Medicaid policies pertaining to retirement assets.

Under current rules, the spouse receiving nursing home care or Home & Community-Based Services through the Medicaid waiver program is generally permitted to keep $2,000 in total assets under federal law. This amount may vary under state law. The non-applicant spouse can retain half of the couple’s combined countable resources up to $148,620 in 2023 depending on the state.

Here again, you may be able to help your spouse qualify for Medicaid benefits by spending down a portion of your countable assets. For example, you may be able to pay off your credit card bills, car loans, or even your mortgage. You may also be able to apply excess assets toward home improvements, according to Paying for Senior Care. But always consult a Medicaid professional for guidance first.

For many seniors, their home is their biggest asset. Generally, if a non-applicant spouse is still living in their home (or primary residence), it is considered exempt from Medicaid calculations. But be aware that your state may file a lien against the home or a claim against your estate after you pass away to recover some of the costs associated with your spouse’s care, said Landskind.

Note, too, that if you sell your home while your spouse is receiving long-term care Medicaid benefits, the state may view those sale proceeds as a countable asset, which could bump your spouse out of eligibility for government benefits.

Medicaid Asset Protection Trusts

Those who wish to preserve their assets for future generations often turn to estate planning tools, such as Medicaid Asset Protection Trusts (MAPTs).

An MAPT may permit you to transfer enough countable assets (savings and investments) into the trust that your spouse would become Medicaid eligible. In most cases, you would also be able to transfer your primary residence, said Landskind.

If structured properly, an MAPT would permit your trustee (often an adult child) to retain control over the assets placed inside the trust. If you sell your home and move, the proceeds would remain protected from any liens against your estate.

“Estate planning strategies are typically viewed as a tool for the wealthy, but with the lifetime estate and gift tax exemption limit now so high (nearly $26 million for married couples in 2023) estate taxes are no longer an issue for most Americans,” said Landskind. “These days, Medicaid planning for long-term care is the new estate planning priority — especially for middle-income Americans.”

An MAPT is a type of irrevocable trust and generally cannot be altered once it is set up, meaning you must be prepared to lose control over those assets. But Landskind said flexibility exists in some states, which may enable you to collect income from the trust, change the beneficiaries, and remove or replace the trustee(s).

Be aware, too, that assets moved into a trust are generally subject to the five-year look-back. And not all irrevocable trusts meet the compliance standard for Medicaid eligibility.

It is important to consult an estate planning professional for guidance.

Medicaid compliant annuities

Annuities represent yet another potential pathway to Medicaid eligibility.

By purchasing a single-payment immediate annuity, married couples may potentially be able to reduce their nonexempt assets while creating a consistent monthly income stream for the healthy spouse. (Related: Types of annuities)

“Depending on how many assets you have, you can’t always — or wouldn’t always want to — spend it all down,” said Walter Katz, a financial professional with The K Corporation in Houston, Texas. “If you have $400,000 in excess assets, you would have to start spending down $50,000 per year to become Medicaid eligible in eight years, at which point that money will be gone. What if you took that $400,000 and bought a Medicaid annuity instead to create guaranteed income?”

Not surprisingly, Medicaid-compliant annuities come with a litany of restrictions. For starters, they must be irrevocable, meaning they cannot be canceled or changed once created. And they cannot include a cash value component, which could potentially be passed along to your heirs. Medicaid programs are run by each state, and not all states treat annuities the same. Thus, they may not be the right option for couples who wish to implement this planning strategy. It is wise to consult a financial professional and your personal legal and tax advisors before you buy to be sure the product you are considering aligns with your goals.

Spousal refusal

In limited cases and depending on the state, you may also be permitted to refuse payment for your spouse’s long-term care.

According to the ACA, spousal refusal is when the healthy spouse of a long-term care Medicaid applicant who depends on their joint income and assets refuses to help pay the cost of long-term care for their spouse.

“While spouses are legally obligated to financially support one other, Medicaid cannot legally deny care if a non-applicant spouse refuses to contribute towards the cost of care of their spouse,” the ACA writes on its website.

But the spousal refusal provision is not available in all states. ACA reports that Florida, New York, and Ohio are the only three states in which it is generally practiced.

Long-Term Care Partnership Programs

Depending on where you live, you may also have access to a Long-Term Care Partnership Program, a joint initiative between individual states and insurance providers to help promote the purchase of private long-term care insurance and reduce costs to the state.

The benefit of purchasing a qualified long-term care policy under a partnership program is that the policyowner (you or your spouse) may receive a dollar-for-dollar Medicaid asset “disregard” for every dollar of long-term care benefits they receive.

In effect, it can help you achieve Medicaid asset eligibility without spending yourself into poverty.

Here’s an example provided by the Insurance Information Institute (III) of how it works: You purchase a qualified partnership long-term care policy when you’re still in good health that eventually pays out $75,000 in benefits. You get to retain the equivalent amount ($75,000) in investments or savings and still qualify for Medicaid — above and beyond the maximum asset level your state would otherwise allow you to keep (typically $2,000).³

The partnership program also protects those assets from Medicaid estate recovery after you die, thereby sheltering more of your estate for your heirs. The III notes that while partnership programs may protect more of your assets, you may still be required to use part of your income to pay for long-term care expenses.

The types of partnership policies available and the benefits they provide are different for each state. You can contact your state insurance department for specifics.

Special considerations: Do you really want Medicaid?

Spending down your assets to qualify for Medicaid can be an effective financial strategy when your spouse requires long-term care.

But Katz, who is helping his parents navigate long-term care challenges, cautions seniors who are focused exclusively on Medicaid eligibility to ask themselves some tough questions about what they’re really looking for as they age.

“How much control do you want over your money?” he asked. “Are you going to give your kids $700,000 just so you can qualify for Medicaid down the road? Many of my clients aren’t really willing to let that go when it comes down to it.”

And most importantly, he said, does being accepted into a Medicaid facility fit with your vision? They may not be as comfortable as the nursing home you would choose if you had private long-term care insurance, and you may not get the choices you want in terms of location.

Conclusion

Planning for long-term care is an important but challenging process, particularly when your spouse requires support before you do. An elder law attorney or estate planning attorney can provide advice specific to your situation.

However, by taking advantage of Medicaid provisions that protect the healthy spouse, estate planning tools, and LTC partnership programs, however, you may be able to preserve more of your wealth for future heirs.

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For more information regarding benefits provided by Medicare or Medicaid (Medi-CAL in California), visit www.cms.hhs.gov. Medicaid guidelines vary by state. Contact your local Medicaid office for details.