As the average life expectancy of the general population rises, there is more of a chance that at least one spouse will need to go into a nursing home or assisted living facility during his or her lifetime. The monthly cost of a private nursing home room in New Jersey is more than $11,000 per month. For those with sufficient assets or long term care insurance, this is not a problem. However, for those that cannot afford to spend in excess of $100,000 per year on a nursing home room, there is federal funding known as Medicaid that can help. Medicaid is a welfare program funded by the federal government and administered by each state.
Qualifying for Medicaid:
As Medicaid is a welfare program, a recipient must qualify. In order to receive Medicaid funding, a person must qualify medically and financially. To qualify medically means that you need to live in a nursing home or assisted living facility or have help come to your home. To qualify financially means that you have less than $2,000 to your name and receive less than $1,400 per month in income for a single person or less than $1,900 per month for a couple. Additionally, the community spouse, that is the spouse not going into the facility, can only have less than $138,000 to his or her own name. When calculating assets, all assets, including qualified retirement accounts, are included.
When determining financial qualification, there are four assets that are exempt:
- Residence, if applicant plans on returning to the home, or a spouse, child under 21 years of age or disabled person lives in the home;
- Prepaid funeral; and
- Life insurance policy with a face value of no more than $1,500.
Although the home is an exempt assets under the conditions set forth above, when qualifying, it is not exempt from reimbursement once the home is sold. That is, the government has a lien on the home and will be reimbursed for outlays on behalf of the applicant from the applicant’s equity in the home when the home is sold.
In order to qualify for Medicaid, most people have to “spend down” their assets to achieve the asset threshold for a single person or couple. Spending down assets means paying for exempt assets or gifting. While planning, one must keep in mind the “Five Year Look Back” rule. At the time a person applies for Medicaid the government will review the person’s financials for the prior five (5) year period. All of the gifts made during the five year period immediately preceding the application are added together. The total amounts of the gifts are then divided by approximately $11,000 (the average monthly stay in a nursing home in NJ). The quotient is the number of months the applicant must wait for Medicaid Benefits. Accordingly, it then behooves one to retain an amount sufficient to “self pay” during the waiting period.
For an applicant that exceeds the accountable monthly income limit, a Qualified Income Trust (QIT) will need to be created. The QIT allows a portion of the applicant’s income to be diverted into a trust for the benefit of the applicant and not counted as income for income limit purposes. The trustee of the trust will have limited power to invade the principle of the trust while the applicant is receiving Medicaid. Upon the Medicaid recipient’s death, the government is allowed reimbursement from the trust for benefits paid.
If you would like more information about Medicaid or wish to discuss if Medicaid planning is appropriate for you, please call to schedule a consultation (908-450-7250).