As an introduction, Florida Medicaid planning is basically Florida estate planning with a twist. The required documents and legal issues are similar to those needed for conventional Florida estate planning.
However, if aging adults are involved, there is a greater emphasis on a planning strategy that is focused on paying for long-term medical care. One very common solution is adding Florida Medicaid planning or pre-Medicaid planning to the estate planning discussion. These discussions also involve a greater emphasis on issues such as incompetence and possible undue influence of family members on vulnerable aging adults.
Including Florida Medicaid planning as an important part of long term medical care planning.
There are a number of ways for elderly people in Florida to pay for long-term medical care including but not limited to self-funding, purchasing long-term care insurance, and applying for long-term Florida Medicaid benefits.
A simplified overview of the available options for paying for long-term medical care is as follows:
- Veteran’s benefits
- Private long term care insurance
The area that most involves a high level of legal involvement for Floridians is Florida Medicaid planning because it is “need based” and has “spend down requirements”. Thus, under current laws, Florida Medicaid planning is often a strategic exercise that is aimed at preserving as much of the individual’s estate as possible while allowing them to qualify for Medicaid in order to pay for long-term medical care.
In setting the stage, it is important to obtain a working understanding of the elder law landscape by learning the basics about the programs available to pay for long-term medical care. It is also necessary to understand the basic strategies that lawyers adopt in order to preserve as much of the estate as possible while finding a way to get the long-term medical costs covered.
Distinguishing Between Florida Medicaid and Medicare
Medicare is a social insurance program that has been administered by the federal government since 1966 and currently is using about 30 private insurance companies across the United States. This insurance is for individuals who are 65 and older who have paid into the system as well as certain young people with disabilities or people with end-stage renal failure requiring dialysis or a transplant. Medicare is a cost-sharing program with co-pays and deductibles and has about 50 million insureds. For you baby boomers, the last of you will be turning 65 in 2029, bringing the total insureds to approximately 80 million.
Currently, Medicare covers up to 100 days at a skilled nursing facility if a 3-day hospital stay requirement has been met and a doctor orders that “skilled services”, such as skilled nursing care, physical or occupational therapy, or speech or language therapy, are required. Medicare will also provide a home care benefit if ordered by a physician. Medicare will cover the first 20 days in full and days 21-100 all less the daily co-pay amount. There are Medicare supplements that can be purchased and may cover the deductible and co-pay requirements. To become empowered, I humbly suggest that you research the various supplements available to determine the level of coverage desired.
Florida Medicaid planning is a huge issue for the aging “baby boomer” population in Florida. Planning for long-term medical care costs is not as simple as it may sound due to the exponentially rising cost of long-term medical care for seniors. At an average cost range of at least $5,000 per month, life savings can be wiped out in a relatively short period of time.
To address the problem of providing for our seniors who cannot afford medical care, Medicaid was enacted in 1965, and its voluminous provisions are housed in Title XIX of the Social Security Act. The Medicaid program is a “need-based” federal program that is administered by the states, and this means that the rules can vary between states. The program is designed to pay the cost of long-term medical care once the individual meets the income and eligibility requirements. To qualify, you need to be both financially eligible and medically needy.
The states must provide Medicaid coverage to “categorically needy” individuals who are age 65 or who meet the Social Security criteria for disability. Applicants must meet strict income and asset limitations. Generally, anyone on SSI (social security “need-based” disability) must qualify for Medicaid, but there are certain states that have allowed stricter standards where they were adopted before 1972. The numbers provided in this chapter are accurate as of 2015 but keep in mind that these numbers can change annually. To qualify for Medicaid at the time of this writing, an individual may have not more than $2,000 in his/her name; however, this number varies from state to state. There are also assets that may be exempt or “non-countable” from Medicaid, and these may include essential personal property, funeral contract, a life insurance in some states, and a car of limited value. In some states a home that was a primary residence may be exempt; however, generally this is not allowed if home care is not being applied for and there is no intent by the Medicaid applicant to return home. If an applicant is applying for home care services, then home equity may be exempt.
Unlike the asset limits, most states do not impose an income cap on a Medicaid applicant and thus rely upon the federal limits to determine if the applicant’s income exceeds the federal income cap which as of this writing is $2,199 per month. For those states that do impose an income cap, many lawyers recommend a strategy called a Qualified Income Trust (“QIT” a/k/a “Miller Trust”) to hold the excess income (amount over the cap). This and other strategies will be discussed in greater detail to follow.
Common Medicaid Misconceptions in Florida
There are many assumptions about Florida Medicaid planning that should be addressed first and then we’ll move on to discuss tools and options for effective pre-Florida Medicaid planning. Common misconceptions are:
- They will take away my home.
- If I sell my home after my spouse is on Medicaid, they will take ½ the proceeds.
- I will have to give the nursing home half our assets.
- If I transfer assets to my spouse, it will disqualify me.
- I can give my children $14,000 per year and be eligible for Medicaid.
- If my spouse goes on Medicaid, he/she will be moved to a different nursing facility or different room
The Marital Home
Your homestead in Florida is exempt from the Florida Medicaid planning asset calculation if a spouse or child lives there. The equity and homecare discussion above applies if you’re single, and, depending on your state of residence, a home may be deemed exempt even if you’re single if there is some remote possibility that you could return to it, and this is often a very speculative question.
Selling the Marital Home
If the “well spouse” of an “ill spouse” who has qualified for Medicaid sells the marital home, this will have no negative effect on the ill spouse’s Medicaid. In fact, the “well spouse” can make any financial decision concerning his/her half of the estate, and it will not affect the ill spouse’s Medicaid. However, keep in mind that financial decisions may affect the “well spouse’s” own Medicaid needs due to the “look-back period” for asset transfers to be discussed.
The Marital Assets
While it is true that all of your marital assets will be included for purposes of Florida Medicaid planning, and your spouse can essentially only keep a portion of all the non-exempt marital assets (currently around $116,000), the overage that is being “transferred” to the “well spouse” from the “ill spouse” can be used in ways that can still protect the total value of your estate. For example, an overage could be used to repair and even remodel exempt assets such as the home. The spouse could also use the overage to pay for a new car, pay down debts or provide for other needs of the Medicaid, applicant spouse.
Spousal Refusal of Support
In limited jurisdictions (i.e. currently New York and Florida) a spouse may, by a spousal refusal of support for Medicaid, refuse to pay for the other spouse’s medical care. What this means, practically speaking, is that the ill spouse’s assets may be transferred to the well spouse. The ill spouse can then apply for Medicaid in Florida and thereafter the well spouse may file a document refusing to pay for the ill spouse’s cost of care. Thereafter the ill spouse files something with the state assigning the right to collect from the well spouse. This strategy involves some very specific filings and timelines and should not be attempted without the assistance of a seasoned expert. There are pitfalls that need to be recognized. For example, spousal transfers cannot be made after the well spouse files the notice of refusal.
Gifting and Medicaid Rules
While the $14,000 IRS gift exemption for Medicaid purposes allows you, under the IRS rules, to give away this amount to as many beneficiaries as desired without a “gift tax,” this rule does not apply to Florida Medicaid planning. So this approach would likely result in a penalty period, which would delay payment of Florida Medicaid benefits due to the “look-back period” for transfers. This will be discussed later in this chapter.
When to Use Outright Gifts
For all of the reasons discussed above, you know by now that an outright gift to an adult child (or other family member) will trigger a penalty for Florida Medicaid planning purposes unless the child is under 21 or is blind or disabled and under age 65. Nonetheless, an outright gift may be advisable under certain circumstances where the giver is elderly or has estate tax concerns, and it is likely he/she will not require long-term skilled nursing assistance for at least 5 years. Another reason that gifting may be advisable is that there are significant exempt assets or other resources to provide for long-term skilled nursing care. There are significant drawbacks to outright gifts to adult children that extend beyond the Medicaid penalty issues. For example, adult children may be irresponsible or predisposed to squandering resources, or other life events such as divorce or bankruptcy.
The Medicaid “Look Back Period” and Penalties in Florida
One of the keys to understanding Florida Medicaid planning is to understand how the “look back period” and penalties work. You need to know that, when you’re planning to apply for Medicaid to pay for long-term medical care, you cannot simply transfer assets out of your estate to third parties for less than fair value, and then apply. Many people make this mistake when they transfer assets to adult children without considering the ramifications. The Deficit Reduction Act of 2005 (DRA) increased the look-back period to 5 years and changed the penalty period, so it now begins from the time of eligibility and not from the time of application. In practical effect, this means if someone makes a prohibited transfer and then applies for Medicaid, the penalty period will not start until the person has spent down the assets to the limit. The penalty is generally calculated by dividing the value of the transferred asset by the average monthly cost of full nursing home care in the area where the applicant resides. So a $10,000.00 transfer might result in a 2-month penalty where the average cost of care is $5,000.00. Before the DRA, the penalty period began in the month that the transfer was made and the look-back period was only 3 years for most transfers.
So the first question when looking at a transfer of assets for Medicaid purposes whether it is exempt. There are certain situations where the exemption is clear. For example, transfers between spouses are exempt notwithstanding the fact that both spouses’ assets are included on the Medicaid application. So a transfer of any amount to a spouse will not trigger a penalty period. Other exempt transfers include a transfer to a child under age 21 who is blind or disabled and transfers to a special trust for a disabled person under the age of 65. Transfers of a residence to a sibling with an equity interest or to a caregiver who has lived in the home for the past two years and, but for that care, the applicant would have been institutionalized are also exempt.
When elder law attorneys strategize over this kind of Florida Medicaid planning, they may suggest attempting one of the above exempt transfers or they may recommend making a transfer well in advance of the need for Medicaid assistance (for long-term medical care) so that the look-back period is not an issue. The recommendation of a transfer in advance will depend largely on the financial situation of the client and whether there are adequate resources, either exempt or available to spend down (pay for care), in order to bridge the 5-year look-back period gap. Caregiver agreements, special annuities and promissory notes are other specific strategies to be discussed.
Transferring to Medicaid from Medicare
If a spouse is on Medicare and becomes qualified for Medicaid, the facility will generally accept both, and thus, he/she may not have to move. Although a facility may make more money through “private pay” or Medicare, they are often bound to accept Medicaid if it becomes “medically necessary” as described above.
Finally, transfers between spouses do not create any penalty period for Medicaid purposes. However, remember that the total marital estate is considered for the Medicaid application. So, while transferring 100% of the marital estate to the non-applicant spouse will not create a penalty, the couple will need to deal with the “overage” by applying it to exempt assets like the home or car, as discussed above.
Other Florida Medicaid planning strategies that may be effective, depending on specific circumstances are:
- Caregiver agreements
- Promissory notes
- Irrevocable trusts
- Reverse mortgages
- Qualified income trusts
Using Caregiver Agreements
Also called personal service contracts for Medicaid, these personal care agreements are currently allowable under the Florida Medicaid planning rules for the purpose of compensating family members (such as an adult child) for providing necessary services related to the activities of daily living such as bookkeeping, housekeeping and monitoring health care.
Personal care agreements are often funded by lump sum payments for future services, and the term is often based on the life expectancy of the Medicaid applicant. The basic premise is that a lump sum of cash may be transferred to the caregiver pursuant to the agreement and if the agreement is valid and enforceable there will be no penalty because the exchange was made for the fair value of the services to be provided. Remember that the premise behind transfer penalties is that there was an exchange for less than fair value or an uncompensated transfer.
Whether a caregiver agreement will be upheld if challenged by the Medicaid administrators is always a question. The effectiveness of this strategy and the options available depends on whether the particular state laws make it a legal obligation to care for parents and/or other family members and this does vary from state to state. The case precedent to date suggests that contracts for past services are generally not enforceable and that the services are such that they have not historically been provided for free as a matter of love and affection.
Historically, annuities have been utilized as a strategy to transfer assets so that they become “uncountable” for Florida Medicaid planning purposes and to avoid transfer penalties allowing an applicant to qualify. This is a complicated area involving a good deal of debate among the states, so I’ll speak generally and try to simplify.
First, an annuity is basically an investment account that receives a contractual rate of return at a predetermined rate of interest or a rate that floats on an index. An immediate annuity is one that receives a lump sum deposit, and the proceeds start paying immediately following your initial investment. With a deferred annuity, payments are made to the annuity and accumulate over a period of time and income is usually deferred until retirement. For Medicaid purposes, immediate annuities are the ones concerned because annuities that accumulated over time with deferred income would not typically be subject to penalties. This circumstance usually involves transferring a sum of cash into an immediate annuity in exchange for an immediate payout.
Second, there are qualified, and non-qualified annuities and these appear to be handled differently for Florida Medicaid planning purposes. A qualified annuity is one that has special tax treatment where monies are deposited pre-tax, similar to an IRA or 401k. The case law suggests, because a qualified annuity gets special tax treatment and is regulated by the internal revenue code, it may be determined not to be an available or countable asset because it cannot be sold on the open market due to IRS rules.
With all of that in mind, the DRA (Deficit Reduction Act) expanded the ability to utilize an immediate annuity to convert an otherwise “countable” asset into an income stream for a community spouse or applicant for Medicaid. Two questions have been hotly contested in the courts in deciding whether an immediate annuity is non-countable for Florida Medicaid planning purposes. First, is the purchase of an annuity a transfer of assets for Medicaid purposes? Second, or as a second step in the analysis, is the annuity an available asset for Medicaid purposes?
The consensus on the first question is that the purchase of a “non-qualified” annuity after February 8, 2006, is a transfer for less than fair market value UNLESS the state is named a remainder beneficiary for the total amount of the medical assistance paid on behalf of the individual. However, a community spouse, children under age 21 or a disabled child may be named a beneficiary in the first position and a state may be named in the second position. Also, the expected return on the annuity must be commensurate with the life expectancy of the beneficiary in order to be actuarially sound and thus not a transfer for less than fair market value.
As for the second question, in order for an immediate, non-qualified annuity not to be considered a transfer of available assets and not to be counted as an available resource for Florida Medicaid planning purposes, the annuity must be irrevocable and non-assignable and should even include additional language stating that any attempt to assign is void. The annuity should be paid out in monthly installments with no balloon payments, the terms may not exceed the life expectancy of the applicant, and the state must be named as the beneficiary to the extent of long-term care medical bills.
Using Promissory Notes
Promissory notes are more flexible than annuities and offer an interesting planning option for family members. A promissory note is a fairly simple legal document that is essentially a promise to pay someone back on a debt. This strategy can work because a loan should not be deemed a “transfer” under the Florida Medicaid planning rules provided the promissory note does not include a “debt forgiveness” provision and is based on a reasonable rate of interest. Remember that the penalty period on a transfer is based on the amount transferred divided by the average cost of full nursing home care in your local jurisdiction. In this simplified example, if the Medicaid applicant has $100,000.00 left in countable assets, they could gift $50,000 to a family member, and this would result in a penalty of 5 months if the average cost of care is $10,000 per month. The applicant can then loan the other $50,000 to the family at a reasonable rate of interest with a 5-month repayment. Upon making this loan, the applicant will become eligible and can apply for Medicaid. Upon eligibility, the penalty period begins. The numbers need to be figured out so that the loan repayment combined with other sources of income will cover the cost of the long-term medical care during the penalty period. If there are shortfalls in the amount available for care, they shouldn’t be paid until the applicant is qualified for Medicaid. In this example, at the end of the penalty period, the Medicaid applicant would be able to gift out $50,000 and maintain resources for needed long-term medical care by spending the loan repayment proceeds and other exempt assets during the penalty period.
Using Irrevocable Trusts
Irrevocable trusts in Florida are often a favorable alternative to an outright gift for reasons discussed above. This type of trust is an independent legal entity that holds the assets for the beneficiaries with a trustee appointed to preside over the assets. This can be a valuable tool for Medicaid planning in Florida with an income only trust. This allows the bulk of the assets to be transferred to an irrevocable trust, with the children as beneficiaries AND the income reserved and protected for the Medicaid applicant parents.
Where adult children are concerned, an irrevocable trust offers the same benefits as an outright gift while allowing some restrictions on the access to funds. There are also favorable tax options as well as asset protection that would be unavailable with outright gifts, and these options will be discussed in more detail in the chapter on asset protection. Keep in mind that, for Florida Medicaid planning purposes, the penalty period applies to most transfers to irrevocable trust just as it does to outright gifts. You should understand that the irrevocable trust described here would be treated differently than a transfer to a special needs trust to provide for a disabled child. Remember, as discussed above, transfer to a disabled child is typically exempt as would be a transfer to a special needs trust for a disabled beneficiary.
Another irrevocable trust planning option is established on the death of one spouse as a “supplemental fund” for a surviving spouse who is on Medicaid for long-term medical care purposes. This type of trust is used along with a Florida Medicaid will and works in tandem with the spousal refusal of support. Even if the spousal refusal is not allowed, if the spouses assets are within the asset limits and then that spouse dies, the other spouse who is on Medicaid may be disqualified unless something like a Medicaid will is in place.
Using Reverse Mortgages
The equity in a senior’s home can be utilized to pay for long-term medical care. If proceeds from the reverse mortgage are kept separately from other assets, they are not-countable assets for Medicaid either if the applicant applies for home care services or otherwise if a spouse is living in the home. Generally, 30-60% of the equity can be accessed with a maximum established by FHA and proceeds can be taken in either a lump sum or annuity (monthly) payment. Applicants must be 62 years of age or older and own the home outright or have a mortgage balance that can be paid off from the proceeds.
A Reverse mortgage may be taken in the form of a lump sum payment, an annuity (monthly) payment, or as a line of credit—generally, this is a primary residence provided there is sufficient equity. The cool part is that the payments may be deemed “equity” and not “income” for purposes of equity and so this approach can provide a supplemental fund that is not “countable” for Florida Medicaid planning purposes. This approach may be beneficial depending on the laws governing Reverse mortgages in your home state of residence. Of course, this approach will also depend on whether the local Medicaid rules will allow the Medicaid recipient to keep the home if he/she is not living there, and some states appear to be more stringent about this than others. It is very important to analyze the costs associated with any reverse mortgage program, because these costs vary and can be very substantial.
Using Qualified Income Trusts (QIT)
Remember that once the asset test is satisfied for Medicaid application purposes, the applicant still needs to pass the income test. As stated, the current federal limit is $2,199 per month and this amount is gross income from ALL sources. This means that even tax exempt income or income from public benefit programs must be included. Sounds grim, doesn’t it?
Well, fret not because the overage may be placed in a properly formed and administered Qualified Income Trust in Florida (“QIT”). So, for example, if the applicant’s income is $2,499 per month, the additional $300 per month would be deposited in the QIT account and the applicant may be qualified for Medicaid. It is important to note that these accounts may be audited regularly and thus must be managed in accordance with the rules. These accounts include Medicaid repayment provisions so upon the death of the applicant, the balance is paid to the program.
A Word of Caution
With all of the above in mind, my experience has been that Florida Medicaid planning and asset transfers is an area of law in which, to put it bluntly, people make mistakes that cost applicants and families dearly. For this reason, any transfer of assets or other planning for Florida Medicaid planning purposes should involve an expert who is most likely an experienced elder law attorney. A recognized expert would NOT be the DCF case worker or a private company or non-profit. Remember that, oftentimes, the legal fees for utilizing an elder law expert are part of what must inevitably be spent down anyway so they become a minor issue, and the benefits of dealing with an expert in this area are significant.
- Other Non-Medicaid Approaches
As discussed earlier in this chapter, there are some other approaches to paying for long-term medical or nursing home care and yet the bulk of this article was spent on Florida Medicaid planning because it is by far the most common and lends itself to planning much more so than other options, which are very straightforward. We discussed Medicare at the beginning of the chapter because folks often get it confused with Medicaid. So to round out this chapter, I will briefly address other options without too much detail because, as I said, each is relatively straightforward.
Financial assistance is available to veterans or their spouses who have low income or are disabled or age 65 or older. Generally, veterans may be granted what is called an “Improved Pension,” which provides veterans and spouses with a Special Monthly Pension (SMP) to offset the cost of necessary medical care. Two SMP benefits are Housebound Benefits and Aid & Attendance. To qualify for either of these benefits, the beneficiary (veteran or spouse) must: 1. Have been discharged other than dishonorable; 2. Served 90 days or more in an active conflict with at least 1 day of active duty in wartime; 3. Be permanently disabled or age 65 or older; 4. Have countable family income less than a maximum set by law; 5. Submit an application to the VA.
Housebound benefits or a Housebound Pension is available to a veteran or widow/widower who meets the above criteria (disabled or over age 65) and is substantially confined to the home. If these criteria are met, then cash resources are available with the maximum amount based upon a formula. Aid & Attendance requires that the beneficiary be 100% disabled and blind, living in a nursing home, or so helpless that he/she requires the assistance of another to carry on the activities of daily living. If these criteria are met, cash assistance is similarly available pursuant to a formula for maximum income distributions available to the veteran or the veteran’s spouse. The amount available to the veteran varies based upon whether there are dependents.
As a side note, my experience with VA benefits is that some of the advantages have unfortunately been rolled back in recent years. For example, there used to be no look-back period for assets transferred to veteran’s trusts and this allowed assets to be moved into a trust with no penalty. It appears that this benefit has been recently revoked. A veteran’s benefits for long-term medical care are provided in coordination with other government benefits such as Medicare and Medicaid, as discussed above.
Private Long-Term Care Insurance
Private insurance is another option for paying for long-term medical care and is especially beneficial for paying for programs that are not covered by Medicare, other health insurance, or Medicaid. Long-term care insurance is designed to provide added coverage needed for the “activities of daily living” such as home care or assisted living services that are less than full nursing home care although coverage may be provided for full skilled nursing care within the policy limits.
This kind of insurance will reimburse the beneficiary for amounts expended for this care and it is very important to read the disclosures and fine print concerning these policies. In my experience, long-term care insurance is useful for bridging the gap during the look-back period when transfers of assets may have been made, and full nursing home care is looking imminent yet further down the road. Some insurance companies are now offering long-term care insurance as “riders” on life insurance policies, and some are even offering reimbursement of premiums where the care is not used or needed.
This article is an excerpt from the book Legal Mumbo Jumbo written by Steven J. Gibbs which is available in hard copy and includes similar guides on a number of other related legal topics.