ADVISING THE ELDERLY: What Every CPA Should Know About Medicaid Eligibility and Spousal Responsibility

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s clients progress through their retirement years, it is incumbent upon the trusted adviser, the CPA, to become acquainted with the basics of Medicaid in the context of long term care. Specifically, the CPA should have a working knowledge of the Medicaid laws preventing Spousal Impoverishment, including the Division of Assets process. In the past, the CPA could effectively advise clients with only a cursory knowledge of Medicaid; this is no longer the case. Our clients are living longer. The number of our clients who are over age 65 is increasing. Baby boomers are turning 65 at a rate of 10,000 a day and approximately 1 out of every 4 of these boomers will spend time in a nursing home. At a median cost of $180 per day, the cost of nursing home care in Kansas can cause financial hardship and ruin to couples of moderate means; hence the need for Medicaid. MEDICAID IN KANSAS In Kansas, the Medicaid program is called Kancare. Kancare is a needs based program. It is typically a program for the indigent (assets less than $2000), except in the case of married couples. In lieu of impoverishment or divorce, married couples of moderate means may turn to Kancare when one spouse requires nursing home care. The theory behind the division of assets process and the spousal impoverishment laws is to prevent divorce and to protect the financial well-being of the spouse in the community. If a married couple has long term care insurance or adequate assets to pay for a nursing home for a period of two to three years without suffering financial

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drain (anticipated cost for two to three years exceeds $200,000), eligibility for Kancare may not be necessary. However, if the cost of $200,000 for nursing home care is overwhelming, then the couple may need to consider Kancare. In order for an individual to be eligible for Kancare, a nursing home resident must have no more than $2000 of “non-exempt” or countable assets. If the nursing home resident is married, assets of both spouses count toward the $2000 limit. This particular fact is shocking to many clients. In addition, even if the couple entered into a prenuptial agreement the assets of both spouses count toward the $2000. The federal and state law is unambiguous on this issue. All is not lost. Spousal impoverishment is not the only answer. The spouse of the nursing home resident, called the community spouse, can complete a process called a Division of Assets to prevent impoverishment. DIVISION OF ASSETS Division of assets describes the process of splitting the couple’s assets when one of the two spouses needs nursing home care. First, all assets of both spouses are considered in the Medicaid eligibility equation, regardless of how the assets are titled. An asset is not protected simply by removing the name of the sick spouse from the asset. In addition, an asset is not protected for Medicaid eligibility purposes because the asset is titled in the name of a revocable living trust. Quite the opposite is true in Kansas. Next in the division of assets process, certain assets are

considered exempt. This means that the community spouse can keep these assets and the assets are not part of the eligibility equation. For example, the primary residence is exempt (up to a value of $552,000 in 2016) and the community spouse may remain living in the family home. The family car is also exempt. In addition, the prepaid irrevocable funeral plans for both spouses are exempt. In Kansas, the retirement assets (IRA, Pension, 401K) of the community spouse are exempt. This last exemption is a significant benefit for Kansans. Notably, the retirement assets of the community spouse are not protected in the adjacent state of Missouri. Income producing assets are also exempt in Kansas, such as rental properties, businesses and farms. Non exempt assets include cash, CDs, bank accounts, stocks, bonds, annuities, jewelry and gun collections, boats and trusts.

ways. The couple may purchase personal supplies, hearing aids, adaptive equipment, eye glasses, furniture, funeral plans and clothing. In addition, the couple may make home improvements or purchase a more reliable vehicle. Legal fees can also be part of spend-down. The couple may also purchase a Medicaid compliant annuity or loan assets in return for a Medicaid compliant promissory note.

Once a list of all non-exempt assets is complete, the total asset value is divided by two. One half of the value, up to a total of approximately $119,220 of the non-exempt assets, are allocated to the community spouse. The least that the state allows the well spouse to retain is $23,844. In other words, if the combined assets of both spouses is $23,844 or less then the community spouse can keep the total of $23,844. The community spouse has 90 days after Medicaid eligibility to change the title of these assets into his or her name. The second half of the assets is allocated to the spouse in the nursing home. In order to qualify for Kancare the spouse in the nursing home may have only $2000 in his or her name. The process of reducing the assets to $2000 is called spend-down.

THE GIFT MYTH

SPEND-DOWN

Once spend-down is complete, the couple can apply for Medicaid benefits. Additional factors to consider include: whether either spouse is a veteran, whether the couple has a child with a disability and whether the couple has transferred assets for less than fair market value within the past five years. Each of these factors requires additional analysis and the assistance of an elder law attorney is encouraged.

CPAs are often approached to provide guidance to a Medicaid applicant in the context of gifts and taxes. The distinction must be drawn between the IRS and its view of gifting and the Kancare program and its view of gifting. While an individual may gift up to $14,000 per year (and a couple $28,000) and not be subject to a federal gift tax, this gift tax rule will not trigger immunity from the a transfer penalty in the Kancare program. If an individual gives away assets, including a gift of $14,000 or less, within the 5 year look-back period for Medicaid eligibility, the gift will be subject to a transfer penalty. For additional information, please feel free to contact The Shepherd Elder Law Group, LLC.

Spend-down can be accomplished in a number of

Samantha L. Shepherd, JD, LLM, CELA* practices exclusively in the areas of Elder Law, Special Needs Law, and Estate Planning. She received her Juris Doctorate from Boston College and her LLM in Taxation from the University of Missouri at Kansas City. She currently serves on the National Board of the National Academy of Elder Law Attorneys, an elected position. * Certified Elder Law Attorney as certified by the National Elder Law Foundation 25