Raleigh Elder Law | How Does Estate Recovery Work?

At least once a week, I have a Client that will ask about Medicaid's Estate Recovery Program.  Admittedly, they don't use those words.  It's more commonly phrased in the way in which they've heard about it: the government selling the house or taking everything you've got.  This generalization isn't necessarily incorrect, but it oversimplifies the issue.  Hopefully this post will provide some clarification.

Estate recovery is the law, and it's codified in the North Carolina General Statutes in Chapter 108A.  A link to the statute is here.  What the statute says in simpler terms is that anyone who receives one of six types of medical care that is paid for by the North Carolina Medicaid Program will open themselves up to a claim being filed by the Program to recover the amount paid for those services on behalf of the individual.  This includes nursing home services and home and community-based services.

So how does this work in practice?  Once a person is approved for and begins receiving medical assistance that is paid for, in part, by the North Carolina Medicaid Program, they start running up a tab with the Program.  The program tracks expenditures made on behalf of the individual, and when the person receiving services dies, a letter is sent to the recipient or person responsible for the recipient that basically says "you were made aware that estate recovery was a possibility when you applied for services. Since you have passed away, your estate may be subject to estate recovery."  That letter will also normally set out the amount paid on behalf of the recipient, and what the State believes is in the estate of the recipient.  This letter is not the actual claim, however.  The actual claim will follow, and will include a copy of the tab the recipient ran up during their time in care.

Now, there are a few key points to remember.

1. If the deceased recipient's estate has a value of less than $5,000.00, the State will waive its right to estate recovery.
2. If the recipient's tab is less than $5,000.00, the State will waive its right to estate recovery.
3. If the recipient is survived by a spouse, the State will waive its right to estate recovery.

If any of these situations applies, you do not need to be concerned about estate recovery.  It is important to send a response to the State, however, outlining why they should waive their claim if the reason is either 1 or 3 above.

If one of these exemptions does not apply, you will face an estate recovery claim that will have to be satisfied.  I will outline the process for satisfying those debts in a later post, but the final important point to remember about estate recovery is this: the state cannot get any more out of your estate than it paid on your behalf.  So if your home sells for $300,000 after your death, and the State paid $50,000 on your behalf for medical services, the State is only entitled to $50,000 -- not the full amount.

So back to that oversimplification: the state will take your house, or the state will take everything you have.  The State will not take your house.  The State's claim will likely result in it being sold (depending on the decision of your Executor -- which will be discussed in my next post), but it cannot take the full amount of sale proceeds unless the sales price is only equal to or is less than the amount it paid on your behalf.

There are ways to avoid estate recovery completely with proper planning.  Call our office today and set up a time to discuss your options if you're facing a long-term care situation.

Raleigh Elder Law | How To Shop for Long Term Care Insurance

NPR had a segment on Morning Edition this week about shopping for long term care insurance.  A link to the story and the audio is here, and it has some useful information, but I really like it because within the article is a link to a federal website that shows the average annual cost of care on a state-by-state basis.  Since we're a Raleigh, NC and Burlington, NC firm, however, I want to point out the costs for North Carolina:

A private room in an assisted living facility will cost up to $36,000 per year, or $3,000 per month.

A semi-private room in a nursing home facility will cost anywhere from $64,000 to $74,000 per year, or $5,300 to $6,100 per month.

A private room in a nursing home facility will cost anywhere from $72,000 to $86,000 per year, or $6,000 to $7,100 per month.

Think about these numbers, and then think about what you are either receiving in retirement, or expect to receive in retirement.  Do you have enough to cover that cost of care?  How much does it leave your spouse with per month in income?  Chances are, not much.  That's why it's imperative that you consider these issues when you are looking at your estate plan and your finances.  What can you do to help supplement your income to cover the cost of care?  Have you checked on long term care insurance?  If you have and you either don't qualify, or you can't afford it, have you talked to an attorney that focuses their practice (like us!) on estate planning and long term care issues?

Don't let these things creep up on you.  Plan!

Raleigh Elder Law | Long Term Care Insurance?

We don't sell long-term care insurance through our office, but we've seen the difference it can make for clients who have it in place when they come into to see us about long-term care issues.  This article provides a good overview of the current state of long-term care insurance.  I'm not going to rehash the contents of the article in this post, because I think the article does a great job of explaining things.

What I do think is important (because it relates to what we do) is to elaborate on one of the points made towards the end of the article.  The idea of self-insurance -- paying for care out of your own assets -- is a prospect that many of our clients face.  The article seems to indicate that the only option for folks with modest assets is to spend down to the point you or your loved one qualify for Medicaid.

What people need to understand is that completely wiping out your assets is NOT the only way to qualify for Medicaid, and I want to illustrate this with a few points:

1. If you are married, and your spouse is needing care, there are basic spousal protections built into the Medicaid regulations that absolutely should be taken advantage of by the healthy spouse.  In North Carolina, the healthy spouse (or community spouse, as they are called in the regulations), is allowed to keep one half of the couple's assets, up to roughly $115,000.  This amount does not include the home, life insurance with a face value of $10,000 or less, and one vehicle.  
2. If you are single or widowed, and you have significant cash assets, there are ways to plan using gifting and annuity combinations to protect at least some of those assets. 
3. If all you have is your home, don't assume that you have no choice but to expose it to estate recovery.  There are deeds that can be used to keep your home protected and leave something for your children.

There are a lot of other points related to crisis planning that we touch on on our website that I could spend thousands of words discussing here.  But just remember, if you meet with a social worker and they tell you that you either don't qualify because you have too many assets, or that what you do have will be subject to estate recovery after your death, that isn't always the case.  The social worker's job is to give you the rules.  Our job is to explain how the rules can still benefit you and your family.  

Raleigh Elder Law | Gifting, Taxes, and Long Term Care

One of the more common concepts that clients get confused about is taxes on gifts to children or grandchildren, and how it all works together when you're thinking about planning for Medicaid or long-term care.  This normally happens with our older clients who are getting to a point where paying for care is a concern.  The conversation normally goes something like this:

Client: "I want to give my kids $50,000.00 each.  I know I can give some amount away each year to my kids and the government won't count it, right?"

Me: "You're allowed to give $14,000 to an individual without incurring any gift tax liability."

Client: "So they can't come back and get it if I need to go into the nursing home?"

And this is where the confusion begins.  Many clients confuse the rules related to taxes on gifts with the rules related to gifts related to the Medicaid lookback, or they assume that one rule covers everything.  Unfortunately, this isn't the case.

The website "The Motley Fool" had a good, succinct article yesterday about when a person should consider making gifts to heirs.  The article, which can be found here, has as straightforward an explanation of gifts and taxes as I've seen.  It also raises a good point, namely, have you considered how you are going to pay for long-term care after you've made these gifts?

The important points to remember are:

1. Gifts made for tax purposes are not always protected from the Medicaid lookback rules, if such gifts are made within five years of applying for Medicaid assistance.  This five year period is also called the "lookback" period, and it is what it says.  Social Services is looking back through your financial history to determine whether you have made gifts of assets that should have instead been used to pay for your long-term care.  There are certain situations in which you may be able to overcome this presumption, but the safe rule of thumb is that Social Services will count those gifts against you.
2. If you have your cost of care covered, either with long-term care insurance, or with other assets, remember to take into consideration the assets you are gifting.  Gifts of stocks or real property can result in adverse tax consequences down the road for the recipient.  Why?  Because generally speaking, gifts during the life of the donor (donor is the person making the gift) retain the basis of the donor in the hands of the donee (the person receiving the gift).  In English?  OK, OK.  Let's say I bought 5,000 shares of stock in ABC Corporation for $1.00 each 20 years ago.  My basis in these shares is $5,000.00.  If today they are worth $10.00 per share, and I sold them, I would have a taxable gain of $45,000.00.  

If I give the shares away to my sister when they are worth $10.00 per share, my sister's basis would not be $50,000.00, it would be what I paid for them: $5,000.00, meaning that if my sister were to sell the shares, she would be taxed on the $45,000.00. 

If I retained my shares, and gave them to my sister via my Will when I died, she would receive the shares with the basis "stepped up" to the value of the shares the day I died.  So if when I died, the shares were worth $100 per share, my sister's basis would be $100 per share.  If she sold the stock that same day, she would owe no taxes on the money received from the sale.

So what does this mean?  If you're going to make gifts, think about the type of asset you're giving.  If it's something you didn't pay much for but is worth an awful lot now, consider holding onto that asset and passing it at death.  

Where does this tie in with the Medicaid lookback rules?  If you're worried about protecting assets for long-term care and/or Medicaid eligibility, but want to make sure that your beneficiaries retain the advantages of a stepped-up basis in the asset, consider estate planning that will do both.  There are several different ways to ensure that assets will not be subject to estate recovery should you need Medicaid assistance, while retaining the step-up in basis provided by an on-death transfer.  Irrevocable trusts and gift deeds reserving life estate are one common way of doing this, but it needs to be done properly, and it needs to be part of an overall plan that will leave you with the assets you need and access you need to be able to live comfortably during retirement.

If you have questions about these issues, or need advice about planning for long-term care, talk to an attorney (like me!) who deals specifically with these matters. 

Raleigh Elder Law | Expectations & Reality - Long Term Care

A joint venture between the Associated Press (AP) and the NORC at the University of Chicago (if you're curious about what NORC means, visit this page, and anticipate confusion) released the results of a national survey it conducted related to the population's understanding of long-term care and the impact it has on families.  This is a follow-up to a survey it conducted last year related to peoples' understanding of long-term care. 

The results of the survey may be surprising to some, but not to folks that have experienced a situation related to the care of a loved one.  Some key points from the survey:

1. The US Department of Health & Human Services estimates that 70% of people who reach the age of 65 will need some form of long-term care.
2. Six in 10 Americans aged 40 or older have experience with long-term care, either as caregiver, recipient, or person paying for care. 
3. Americans aged 40 or older who have experienced long-term care issues are more likely to be concerned with planning for long-term care for themselves and not relying on family.
4. One-third of Americans in that same age bracket are very concerned about not doing enough planning to provide for their own care, but two-thirds indicate that they've done little to no planning.
5. Americans lack information about ongoing living assistance, but what information they do have the tend to get from friends, family, or co-workers, even though they place much more trust in the information they receive from professionals.

There are additional critical points in the survey, including how the nation will pay for the growing care needs of its aging population.

But the big takeaway for me, as an elder law attorney, is this: there are professional sources of information on these issues, from attorneys to elder care groups to financial planners, that can be tapped for often-times minimal or no cost to provide education and understanding related to these issues.  There is no reason to face these problems without planning or direction.  Our website has many examples of how planning can assist folks facing these situations -- take a stroll through the links on the right-hand side of our homepage for more information.

Some basic points to consider:

1. Have you talked about your long-term care desires with your family?  If so, have you talked about how to pay for them?  For example, if you want to stay at home, have you advised in which order assets should be consumed, and which ones should not be (if any)?  Or if you'd like to move into an independent or assisted living home, have you discussed paying for care?
2. Do you have the basic estate planning documents in place that will allow family to make decisions on your behalf?  Power of Attorney?  Health Care Power of Attorney?  Living Will?  Have you explained your wishes to your family?  If not, DO SO.  
3. Have you considered long-term care health insurance?  Many insurance companies nowadays offer policies that are long-term care/whole life insurance combinations, meaning you can get more than just care coverage from your investment.  Many long-term care policies also include home-health riders, allowing coverage for in-home care.  Talk to an insurance professional about these options.
4. Have you considered planning to protect assets in the event you need long-term care?  As the survey indicates, 72% of the folks that have received some sort of long-term care have incomes of $50,000 or less.  Our experience has shown that many of these people do not have the types of long-term savings or assets to pay for ongoing care, and when the assets they do have run out, they're normally left needing Medicaid assistance.  The laws related to the Medicaid program allow for planning to preserve some of your assets.  Talk to an attorney (like me) that understands these rules and what can be done.
5. Finally, don't wait until you're faced with a crisis situation to do something.  We deal with these situations regularly, and they're never good.  So, if you're reading this blog, make an appointment with an attorney to talk about things.  The consultation fee is worth the peace of mind.

Raleigh Elder Law | A New Firm

I'm John Paschal, and I'm an Elder Law attorney here in Raleigh.  I'm titling this first post "A New Firm", even thought it's a bit of a misnomer.  Our firm, J. Ray Deal, PLLC, isn't new.  We've been practicing elder law for a combined 25 years.  But we are new to the Raleigh area.  We recently opened an office on National Drive, just off of Glenwood Avenue.  So -- why?

A couple of reasons.  First, my wife and I (along with our dog, Stevie) live in Raleigh, and have for the last two years.  We aren't Raleigh natives, but we're making it our home, and we're excited to be a part of this growing and vibrant community. 

Second, we see a need.  There are plenty of attorneys in this area that can draft a will and a trust, and do it well.  But the practice of elder law doesn't begin and end with estate planning documents.  It's an approach that views wills and trusts as one component of an overall plan that is structured to achieve the long-term goals of the client, while providing the flexibility to deal with anything life throws their way.  Nobody has a crystal ball -- but we can use our experience to help our clients be ready when the future becomes clear.

So we're here, and we're ready to help.  Visit our website at www.jraydeallaw.com for more information on us and ways to schedule appointments.  You can also follow me on Twitter @raleighelderlaw  We look forward to helping you soon!