Robert M. Slutsky Associates
Elder Law Newsletter

Newsletter16: October 2007

October is here. The weather is still great. Pumpkins soon. Read on . . . . .

Note from Last Month

One thing from last month that should have been discussed is that if there are issues with care in a nursing home (or other long term care facility) you can contact the Ombudsman with the local Area Agency on Aging. The Ombudsman can act as a liaison to help correct care issues. Each facility should have the contact information for the local Ombudsman posted conspicuously. The number for the local Area Agency on Aging should also be in the blue pages of your telephone book.

The Need for Planning Reviewed: Part 1

One of the greatest fears of older Americans is that they may end up in a nursing home. This not only means a great loss of personal autonomy, but also a tremendous financial price. Depending on location and level of care, nursing homes cost between $35,000 and $150,000 a year.

Most people end up paying for nursing home care out of their savings until they run out. Then they can qualify for Medicaid to pick up the cost. The advantages of paying privately are that you are more likely to gain entrance to a better quality facility and it eliminates or postpones dealing with your state's welfare bureaucracy‑‑an often demeaning and time‑consuming process. The disadvantage is that it's expensive.

Careful planning, whether in advance or in response to an unanticipated need for care, can help protect your estate, whether for your spouse or for your children. This can be done by purchasing long‑term care insurance or by making sure you receive the benefits to which you are entitled under the Medicare and Medicaid programs. Veterans may also seek benefits from the Veterans Administration.

Medicare:

Medicare Part A covers up to 100 days of "skilled nursing" care per spell of illness. However, the definition of "skilled nursing" and the other conditions for obtaining this coverage are quite stringent, meaning that few nursing home residents receive the full 100 days of coverage. As a result, Medicare pays for only about 9 percent of nursing home care in the United States.

Medicaid:

For all practical purposes, in the United States the only "insurance" plan for long‑term institutional care is Medicaid. Lacking access to alternatives such as paying privately or Medicare, most people pay out of their own pockets for long‑term care until they become eligible for Medicaid. Although their names are confusingly alike, Medicaid and Medicare are quite different programs. For one thing, all retirees who receive Social Security benefits also receive Medicare as their health insurance. Medicare is an "entitlement" program. Medicaid, on the other hand, is a form of welfare ‑‑ or at least that's how it began. So to be eligible for Medicaid, you must become "impoverished" under the program's guidelines.

Also, unlike Medicare, which is totally federal, Medicaid is a joint federal‑state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state's Medicaid costs. (The state picks up the rest of the tab.)

This complicates matters, since the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (The states also sometimes have their own names for the program, such as "MediCal" in California and "MassHealth" in Massachusetts.) Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. This has most recently occurred with the passage of the Deficit Reduction Act of 2005 (the DRA) which significantly changed rules governing the treatment of asset transfers and homes of nursing home residents. The implementation of these changes will proceed state‑by‑state over the next few years. The rules for gaining eligibility to the program are explained in detail in the Medicaid section of this site. But to be certain of your rights, consult an expert. He or she can guide you through the complicated rules of the different programs and help you plan ahead.

Those who are not in immediate need of long‑term care may have the luxury of distributing or protecting their assets in advance. This way, when they do need long‑term care, they will quickly qualify for Medicaid benefits. Giving general rules for so‑called "Medicaid planning" is difficult because every client's case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent.

Transfers:

Congress has established a period of ineligibility for Medicaid for those who transfer assets. This period of ineligibility is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state. The DRA significantly changed rules governing the treatment of asset transfers. For transfers made prior to enactment of the DRA on February 8, 2006, state Medicaid officials will look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so‑called "lookback" period for all transfers is 60 months.

Another significant change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the penalty period created by a transfer would begin either on the first day of the month during which the transfer occurred, or on the first day of the following month, depending on the state. Under the DRA, the period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.

For instance, if an individual transfers $100,000 on April 1, 2006, moves to a nursing home on April 1, 2007, and spends down to Medicaid eligibility on April 1, 2008, that is when the 20‑month penalty period will begin, and it will not end until December 1, 2009. How this change will be implemented from state‑to‑state will be worked out over the next few years.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five‑year lookback period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

One of the prime planning techniques used prior to the enactment of the DRA, often referred to as "half a loaf," was for the Medicaid applicant to give away approximately half of his or her assets. It worked this way: before applying for Medicaid, the prospective applicant would transfer half of his or her resources, thus creating a Medicaid penalty period. The applicant, who was often already in a nursing home, then used the other half of his or her resources to pay for care while waiting out the ensuing penalty period. After the penalty period had expired, the individual could apply for Medicaid coverage.

Example: Mrs. Jones had savings of $72,000. The average private‑pay nursing home rate in her state is $6,000 a month. When she entered a nursing home, she transferred $36,000 of her savings to her son. This created a six‑month period of Medicaid ineligibility ($36,000 ¸ $6,000 = 6). During these six months, she used the remaining $36,000 plus her income to pay privately for her nursing home care. After the six‑month Medicaid penalty period had elapsed, Mrs. Jones would have spent down her remaining assets and be able to qualify for Medicaid coverage.

While you could generally give away approximately half your assets, the exact amount depended on a variety of factors, including the cost of care, the transfer penalty in your state, income, and possible other expenses. One of the main goals of the DRA was to eliminate this kind of planning. Some planning options still exist but they are more sophisticated and more difficult. Protecting assets is more difficult but still available with different tools. Under the old law someone could accidentally plan correctly. Under the new law the need for professional assistance is heightened because seemingly innocent actions can cause a legal nightmare.

Any transfer strategy must take into account the nursing home resident's income and all of her expenses, including the cost of the nursing home. Also, be very, very careful before making transfers. Also, bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well‑intentioned they may be, your children could lose the funds due to bankruptcy, divorce or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.

In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren's eligibility for financial aid in college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it.

Transfers should be made carefully, with an understanding of all the consequences. In any case, as a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid; and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.

Remember: You do not have to save your estate for your children. The bumper sticker that reads "I'm spending my children's inheritance" is a perfectly appropriate approach to estate and Medicaid planning.

Next month we will continue this article with Part 2.

Real Estate and Mortgages

Last month we discussed the implosion of the subprime market and the effects on the stock market. The Federal Reserve Bank surprisingly dropped rates by ½ % and the financial markets cheered loudly. The loss from the summer was completely erased.

What to do now? Interest rates for those with excellent credit are where they have been, lower 6s for a 30 year no point fixed rate loan. For those with poorer credit loans are harder to find. Finding loans is not impossible for people with less than stellar credit but you will find it more difficult if you have credit scores under 620 and rates will be higher.

People with adjustable rates should still try to refinance into fixed rate products if they can.

Housing is still dropping. New home builders are having a hard time moving their homes and are giving many incentives. The bottom has not dropped out of the market in our area but it is certainly not as robust as it was 18 months ago. Buys are better and analysts and not really seeing a recovery until late 2008 or in 2009. If you do not have to sell, it is probably better to wait.

In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.

How to Choose a Nursing Home

Choosing a nursing home is stressful. No one wants their loved one to live in a nursing home and the horror stories abound. The following are some items to consider when choosing a nursing home:

Location: No single factor is more important to quality of care and quality of life of a nursing home resident than visits by family members. Care is often better if the facility knows that someone is watching and cares. Visits can be the high point of the day or week for the nursing home resident. So, make it as easy as possible for family members and friends to visit.

Check certifying agency reports. CareScout is an unbiased source for ratings and reviews of eldercare providers nationwide. Detailed, 7‑10 page Nursing Home reports are available for a small fee, and include over 100 pieces of information on quality, resident population profiles, and health violations. Each local Area Agency on Aging also has a Long Term Care Ombudsman who receives complaints about local long term care facilities. A call to the Ombudsman when you have narrowed the choice never hurts nor does a review of the state survey which each nursing home must have available for your review.

Tour the nursing home. What matters most is the quality of care and the interactions between staff and residents. See what you pick up about how well residents are attended to and whether they are treated with respect. Also, investigate the quality of the food service. Eating is both a necessity and a pleasure that continues even when we're unable to enjoy much else.

Include all family members in the decision. Let them know what is happening to the person who needs care and what providing that care involves. If possible, have family meetings, whether with the family alone or with medical and social work staff where available. If you cannot meet together, or in between meetings, use the telephone, the mail or the Internet.

Research other options. Find out what care can be provided at home, what kind of day care options are available outside of the home, and whether local agencies provide respite care to give the family care providers a much‑needed rest. Also, look into other residential care options, such as assisted living and congregate care facilities. Local agencies, geriatric care managers, and elder law attorneys can help answer these questions.

Positive Thinking

With all of the worries about war, terrorism, the value of your house imploding, kids, parents and all of the other stresses of daily life it can be difficult to maintain a positive attitude. It is worth the effort to try to remain positive. Positive thinkers are healthier, live longer, are more likely to achieve their goals and generally get more pleasure out of life.

Some tips:

Look at the Big Picture: The wars in Iraq and Afghanistan seem like they are engulfing our country because we have had such a long period of peace in the recent decades. Many people seem to have a relatively dim view of the economy even though unemployment is in the 4.5% range and the stock market is doing relatively well. Compared to the boom of the late 1990s things are worse. Compared to the historical boom and busts of the last 60 years the economy is doing very well and the economic downs over the last 20 years have been very mild (do we all remember the 10%+ unemployment of the 1970s?

View Sacrifice as Necessary To Achieve Your Goals: Suffering is worst when it serves no purpose. Most suffering is temporary and needs to be put in perspective of the goal (usually worthwhile) you are trying to achieve.

View Change as an Opportunity: Change is tough. We are hardwired to get in a routine and want to stay there. Reassess and recognize that nothing better comes from sitting still. Change is going to happen whether you like it or not. Often change leads you to something better.

Stay Calm: Most tasks that seem insurmountable can be broken down into achievable tasks. Each smaller challenge should be considered a victory in its own right. Do not let temporary setbacks shake your confidence in yourself. Set reasonable interim goals and recognize that from failure comes lessons.

Connect with Others: Reaching out to others will confirm that you have support and that whatever the problem it is usually surmountable.

Make a List of Things that Make You Feel Good: This will usually put things in perspective. When you list these things the problem you may be experiencing looks small in comparison.

*WE WANT TO HEAR FROM YOU. TELL US WHAT YOU THINK, GOOD OR BAD*

If you do not want to receive this newsletter, please email or call the office and we will remove you from the list.

Robert Slutsky, Esq. has been practicing Elder Law for 14 years. He helps families in Montgomery, Delaware, Philadelphia, Chester and Bucks Counties. Mr. Slutsky has represented local Area Agencies on Aging, long term care facilities and was a member and officer on the CAPS Board of Directors for over 10 years. Home visits are available. You may reach him at (610) 940-0650, robslutsky@comcast.net or the website at www.slutskyelderlaw.com.

DISCLAIMER: The content of this Newsletter is for general information only. It is not intended to be legal, tax, financial, medical or other advice. The reader should obtain legal, tax, medical or other advice from a competent professional to address his or her specific needs. We do not endorse any particular service provider. If a service provider is mentioned in an article it is simply because we may have come across them in our travels and cannot speak to their quality of service or integrity.