Preventing Impoverishment of the “Community Spouse”
By H. Clyde Farrell
When one spouse needs long term care, it often spells disaster for the other spouse. In
addition to the inevitable emotional loss, the couple is suddenly faced with additional
bills of $3,000 to $5,000 per month. No wonder that 78% of Texas nursing home residents
are on Medicaid—90% of whom became impoverished and qualified for Medicaid
in less than 26 weeks!
History of Protection of the Spouse at Home
Until 1989, all the assets and income of both spouses were counted by the Medicaid program.
Therefore, neither spouse could qualify until both were impoverished. As a
result, people who had been married for 50 years—and who loved each other—were
forced to go to the District Court to get a divorce, to protect the one left at home.
Fortunately, federal protections against such “spousal impoverishment” now make
such tragedies unnecessary—provided you know the complicated rules for obtaining
those protections. Here is a very brief summary of those rules. (The dollar amounts are
effective in Year 2008 and will change on January 1, 2009 with inflation.)*
How Much Can We Keep?
First, the “community spouse” is entitled to keep a “protected resource amount.” The
starting point is to subtract from all the couple’s property (both community and separate)
certain exempt property including the residence, household goods, personal goods,
one car, and certain funeral and burial arrangements. The non-exempt property is valued
as of the first day of the first month one spouse is in a nursing home. The “protected
resource amount” is one-half of the total value of the non-exempt property, provided
it cannot (in 2008) be less than $20,880 nor more than $104,400—unless it is increased
during the application process, as explained below.
How Can We “Spend Down” Quickly?
Take for example a couple with $100,000 in countable assets, who will be allowed a “protected
resource amount” of $50,000. The one who needs Medicaid can become eligible
as early as the first day of the second month in the nursing home by “spending down”
$50,000 in one or more of the following
ways:
- Pay debts (such as a home mortgage)
- Buy “exempt” property, such as home
improvements or an automobile
- Buy an irrevocable annuity meeting
certain specific requirements, such as
paying in equal amounts monthly in
the name of the spouse at home
Some annuity sales organizations promote
annuities as the best solution in all
cases. However, when they have the
option of “increasing the Protected
Resource Amount,” (discussed below),
most couples choose to protect all their
assets without buying an annuity. Usually,
the annuity option is preferable only when
the “Protected Resource Amount” cannot
be increased. Read on for more information
on that.
What Happens to Our Income?
In addition, the community spouse is
allowed to keep a limited amount of
countable income, known as a “spousal
needs allowance.” In 2008, the maximum
amount is $2,610.00 per month. If the
combined countable incomes of both
spouses (after certain deductions) exceed
the “spousal needs allowance,” the excess
amount (to the extent it consists of
income of the spouse in the nursing
home) must be paid to the Medicaid program;
provided the community spouse can
keep all income coming in her or his
name, without limit. Here are some ways
the community spouse’s income can be
protected:
- Shift pension income of the Medicaid eligible
spouse to the community
spouse (usually requiring a court
order). (This is not necessary if the
spouse at home can have just as much
income through the use of a “Miller
Trust.”)
- Request an increase in the spousal
allowance to prevent hardship
- Transfer all investments to the community
spouse
Although these protections are most
often applied when one spouse needs
nursing home care, they are also available
(to some extent) for those needing home
care under the Community Based Alternatives
program.
How Can We Increase the Amount We Can
Keep?
If the combined incomes of the spouses
are not sufficient to provide the community
spouse the full “spousal needs
allowance,” the couple has a right to
obtain an increase in the protected
resource amount. They will be allowed to
keep an amount sufficient to produce
enough income to provide the spousal
needs allowance of $2,610.00 for the
spouse at home.
For example, if the spouses’ combined
noninvestment incomes (such as Social
Security and pensions, after deducting the
personal needs allowance of $60) total
$2,100, the spouse at home can keep
enough assets (to the extent they own
enough) to produce an additional $510 per
month, at the rate of interest being paid
locally on one-year certificates of deposit.
In this example, if CD’s are paying 4.0%
interest, the spouse at home can keep
$153,000. If CD’s are paying 3.0% interest,
they can keep $204,000.
Moreover, if the institutionalized
spouse first went into a nursing home
and/or hospital for a stay of at least 30
days, before September 1, 2004, a more
generous rule applies. Even if the net combined
incomes of both spouses exceed the
$2,610.00 level, it may still be possible to
keep more than the standard “protected
resource amount,” by “shifting” some
income to the cost of nursing home care.
To increase the “Protected Resource
Amount,” the applicant spouse must
request it and must sign certain important
forms. Those forms determine how much
the couple can keep and how much must
be paid to the nursing home. The rules
and calculations are quite complex, and
the Medicaid program often inadvertently
fails to offer this benefit or makes mistakes
in the calculations. An Elder Law attorney
can help ensure this benefit is protected
and that the application is not denied
unnecessarily.
How can a lawyer help with Medicaid
planning?
A lawyer who is knowledgeable about
planning for long-term care can help in
the following ways:
- By helping you decide whether or not
becoming eligible for Medicaid is consistent
with getting the best care you
can afford
- If Medicaid eligibility is appropriate, by
showing you ways of qualifying sooner
rather than later
- By helping you avoid small mistakes
that cost big money (because each
month’s delay is likely to cost $4,000 or
more in nursing home expenses)
- By helping you understand complex
rules and formulas you need to know,
and keeping you from wasting time
with information you don’t need
- By giving you the peace of mind of
knowing you are considering all your
own needs and those of your loved
ones and that you are utilizing all the
resources available
For more information on Medicaid and
other Elder Law topics, please visit us at
www.clydefarrell.com .
H. Clyde Farrell is Certified as an Elder
Law Attorney by the National Elder Law
Foundation and is a Certified Financial
Planner.
Nothing contained in this publication is
to be considered as the rendering of legal
advice for specific cases. This article is for
educational purposes only. Readers are
responsible for obtaining such advice from
their own legal counsel.
* This article is current as of January 15, 2008.
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