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Avoiding the estate tax, also called the “death tax,” is often an integral part of a high-net-worth-person’s estate plan.  However, there is another “tax” that is often overlooked by those of more modest means and which is a significantly greater threat to the financial well-being of a substantially greater number of families: the “nursing home tax.”

Life Care Planning, Estate Protection, Disability,
VA & Medicaid Assistance Lawyers

“Nursing Home Tax”.

 

Article 10

1194 words, 5828 characters

 

Mildly Concerned About the "Death Tax"?

Smart Families Worry More About the "Nursing Home Tax".

 

            Avoiding the estate tax, also called the "death tax," is often an integral part of a high-net-worth-person's estate plan.  However, there is another "tax" that is often overlooked by those of more modest means and which is a significantly greater threat to the financial well-being of a substantially greater number of families: the "nursing home tax."

 

            "What is the ‘nursing home tax'?" you ask.  Read on.

 

            Most persons who reside in a nursing home eventually outlive all of the savings they have worked a life-time to accumulate.  Typically, they sell their home or farm and cash out all of their investments just to pay for their care.  As with the "death tax", a nursing home resident who out lives their savings is denied the dignity and peace of mind of being able to pass on to their loved ones the fruits of their labors.  In effect, a tariff or levy is assessed against them for their temerity to suffer from a debilitating medical condition - a medical condition that their doctor has certified requires care in a nursing home.  I like to refer to this levy on nursing home residents and their families as the "nursing home tax."

 

            The "nursing home tax" can be devastating, particularly to our older parents who did not have the opportunity to purchase long term care insurance due to age or health.  We should not wonder then that smart families look for ways to reduce or eliminate the "nursing home tax" - just as they would do to avoid the "death tax."

 

            "Hold on," you say.  "Mom has Medicare.  It has always paid her medical bills."

 

            There is a great deal of confusion about Medicare and what it will cover.

 

            There is a limited long term care component to Medicare.  In general, if your loved one has a hospital stay of at least three days, and then they go into a "skilled nursing facility" (often for rehabilitation), then Medicare may pay for a short period.

 

            Typically, in the best case scenario, Medicare will pay the full cost of a skilled nursing home stay for the first 20 days and will continue to pay the cost of the nursing home stay for the next 80 days, but with a deductible of $105.00 per day.  In the best of cases, there is a supplemental health insurance policy that will pay the cost of that deductible.  But in order to qualify for a full 100 days of coverage, the nursing home resident generally must continue to "improve."

 

            While it's never possible to predict at the outset how long Medicare will cover the rehabilitation, from my experience it falls far short of 100 days.  But even if Medicare does cover the 100 day period, what then?  What happens after the 100 days of coverage have been used?

 

            After Medicare has paid all that it will pay, there are only three ways to pay for care in a nursing home: (1) long term care insurance; (2) pay with your own funds; and (3) Title 19 Medicaid.  Since the first two methods are self-explanatory, I'll concentrate on Medicaid.

 

            At this point, you may be saying to yourself "What, my mom on Medicaid? No way!"

 

            Keep in mind that there is no alternative if your loved one does not have long term care insurance and outlives his/her savings.  The reality is that the majority of persons who reside in a nursing home in southern Illinois have outlived all of the savings they had worked a life-time to accumulate and had no recourse but to apply for financial assistance.

 

            Medicaid truly has become the primary way the middle class finances long term care.  The program is authorized by Title XIX of the Social Security Act, and gives a person a legal right to financial benefits if they qualify.  Sometimes Medicaid is referred to as Title 19.

            We all know that the tax code is complex and takes an expert to guide one through its intricacies in order to maximize one's tax savings.  The same holds true for Title 19 Medicaid planning.  Accordingly, to achieve the greatest "nursing home tax" savings one is well-advised to work with someone who has an intimate knowledge of the arcane and complex interrelated federal and state statutes, regulations, directives, rules, program operation manual systems, policy manuals, workers action guides, the Illinois state plan, HCFA and CMS releases and guidelines, etc.  This highly specialized knowledge must then be combined with a broad-based understanding of tax law and policy in order to not create expensive tax consequences.

 

            In prior articles in this series, we have read how a number of different families with proper planning were able to legally preserve their family's homes and other assets and still get their loved one the good care and Medicaid benefits they deserved.  Harold and Mildred were able to make financial gifts to their children and still qualify Harold for Medicaid; but it had to be done "just right" or Harold would be disqualified.  Alice and Ralph were able to keep $30,000 more than allowed by the Medicaid rules, plus their $80,000 home, through an appeal to an administrative law judge.  Sally moved from being a care provider to being a care advocate for her mother and was able to receive $47,520 from her mother without jeopardizing her mother's eligibility for Medicaid benefits. Pearl deposited $100,000 with her children in return for a very specialized promissory note, which met a variety of technical requirements, which in her case allowed her to pass on 70% of her estate to her children and still qualify for Medicaid.  Good daughter Sarah was able to receive mom's $150,000 home without disqualifying her mother for Medicaid benefits.  Mary was able to avoid the need to "spend down" more than $106,000 and still qualify her spouse for Medicaid by obtaining an increase in the Community Spouse Maintenance Needs Allowance.

 

            We also have read of heart-breaking cases where the wrong "advice" had cost other families dearly.  June and Ward fell victim to the wide-spread belief on the part of some advisors that a revocable living trust would protect their assets in the event one of them needed nursing home care.  There are certain types of highly specialized trusts that can help in some circumstances, but a revocable living trust will not protect assets from Medicaid "spend-down" requirements, liens, or estate recovery.  In another case, Pat and Harold received bad advice from someone that cost them $140,000.  Their "advisor" consulted resources written for a national audience and did not understand that there are significant differences in the Illinois Medicaid program.

 

            In future articles, we will talk about other factual situations which hopefully will serve to educate you about your loved one's legal entitlement to Title 19 Medicaid benefits to pay for their care and how you might work with a knowledgeable and experienced advisor to help your family reduce or eliminate the "nursing home tax" by legally protecting the family's assets, including a home, farm or business.

 

            Richard Habiger is an elder law attorney. You may reach him toll-free at 800-336-4529, 618-549-4529, or www.HabigerElderLaw.com.