Lawyer offers strategies for protecting assets


– Photo by John Minnis

Elder law attorney Robert Fortunate of Grosse Pointe Woods recently discussed the intricacies of Medicaid qualification and “protecting” assets during a presentation at the ShorePointe Village Assisted Living Facility in St. Clair Shores. He was introduced by Mary Jo Fresard, director of sales and marketing at ShorePointe Village.

By John Minnis
Legal News

If you are fortunate, you have an elder law attorney like Robert Fortunate on board when you or your spouse is committed to long-term care.

Fortunate (pronounced with a long “e” at the end), who has his own office in Grosse Pointe Woods, recently addressed a roomful of concerned late-middle-age and
elderly couples who attended an educational presentation at the ShorePointe Village Assisted Living Facility in St. Clair Shores.

“For a married couple, you can pretty much protect all their money,” he said, “but you got to get to a lawyer quickly.”

The key is the total amount of “countable assets” the spouse has as of his or her “snapshot date” — the first day of the consecutive 30-day period that the spouse spends in the nursing home or hospital.

“If you get them before a snapshot date,” Fortunate advised, “you transfer the house into a trust. Then transfer the house back into the community spouse’s name.”

With that comment, the elder law attorney covered a lot of legal strategy. Fortunate is a magna cum laude graduate of Detroit College of Law (now Michigan State University College of Law). He earned his undergraduate degree at the University of Michigan. He holds a certificate in probate and estate planning from the State of Michigan. He is a member of the Probate and Estate Planning, Elder Law and Disability Rights, Social Security for Lawyers, Workers Compensation and General Practice sections of the State Bar of Michigan. Fortunate is also a member of the National Academy of Elder Law Attorneys and the National Organization of Social Security Claimants Representatives.

At the outset, Fortunate made it clear that he was addressing Medicaid, a needs-based program, and not Medicare.

“I don’t get involved in Medicare very often,” he said, “usually only when the family thinks a patient is being discharged too soon. Medicare will pay for a nursing home for a very short amount of time and only for rehab — if you are improving.”

“With Medicaid,” he said, “you don’t pay anything, because it is a needs-based program.” Fortunate said his Medicaid advice is based on the law as it is “today.”

“Governments are broke,” he said, “so they are changing (qualification rules). Medicaid will pay for nursing home care, but you have to be broke. But there is broke and then there is broke.”

There are many strategies to becoming “broke” for Medicaid purposes — prepay funeral expenses, improve the applicant’s home, buy a car in the applicant’s name (necessary to transport  the patient) and convert “countable assets” into “non-countable assets.”

Savings and checking accounts, mutual funds, IRAs, life insurance policies with cash surrender values — they all count. Most annuities do not, as they are income.
The applicant’s home and car are also non-countable assets, but when the patient dies, the state can come after the Medicaid recipient’s estate. It is called “estate recovery.”

“After the spouse or loved one dies, they will come a-callin’,” Fortunate said. “Even though your house does not disqualify you for Medicaid, when you die, they are going to come a-callin’.”

In order to qualify for Medicaid, the applicant’s countable assets cannot be more than $2,000, “and it hasn’t changed in a long time.”

Unless something is done to reduce the countable assets, the Medicaid applicant will be required to “private pay” for his nursing home care until he or she has reduced the amount to $2,000.

For married couples, however, there is an exception — the Protected Spousal Amount, also called the Community Spouse Resource Allowance. The community spouse is the wife or husband of the Medicaid applicant who lives out in the community at large. The Protected Spousal Amount is one half of the Medicaid applicant’s total countable assets as of the snapshot date up to a maximum of $113,640.

But let’s say that after the community spouse fixes up the house, gets a new car and purchases irrevocable funeral contracts, he or she’s half of the countable assets is still greater than $113,640. The answer is to transfer the surplus into a Solely for Benefit Trust.

Medicaid provides that it is not a divestment (the transfer of assets to others at less than fair market value in order to qualify for Medicaid) to transfer assets to a spouse or to a trust “solely for the benefit of” a spouse. A Solely for Benefit Trust is irrevocable.

On the other hand, let’s say the community spouse’s half of the countable assets is less than the maximum? In this case, a couple has $80,000 in the bank and a home worth $150,000. Since the home is non-countable, then the couple’s countable assets total $80,000. The community spouse is allowed to keep half — $40,000.

However, if the house is transferred into a trust prior to the snapshot date, it becomes countable. Together with the savings, the couple now has countable assets totaling $130,000. The community spouse is allowed to keep half of the countable assets to a maximum $113,640. Then the community spouse transfers the house out
of the trust, making it once again non-countable, and transfers the $80,000 in her personal checking account. The spouse in the nursing home is now “broke” and
qualifies for Medicaid, and all the wealth is kept.

Even for single individuals, there are ways to protect some of their wealth. On strategy is the “Half A Loaf Technique.”

First, the single individual’s income (Social Security and pension) has to be less than the nursing home’s private pay rate. Second, countable assets have to be less than $2,000. And, third, the individual must be found to require nursing home assistance.

Let’s say the individual’s total income is $3,400 a month, much less than the nursing home’s private pay rate of $7,500 a month. He or she requires nursing home care. However, the individual has $200,000 in the bank.

The individual gives $128,000 to a niece or nephew. That triggers a divestment penalty of 19 months. The penalty is calculated by dividing the amount divested by the Divestment Divisor, the average monthly cost of a nursing home stay as determined by the Department of Human Services. The divisor is currently $6,816.

The individual then buys a $70,000 annuity (non-countable asset), thus reducing his or her countable assets to $2,000 and qualifying for Medicaid.

Of course, the individual has to “private pay” the nursing home for 19 months. Along with the Social Security and pension income of $3,400, the annuity pays $4,000,
thus covering all but $100 of the nursing home’s private pay rate. After 19 months, the single individual is covered by Medicaid.

Had the single individual and his or her attorney not taken advantage of the Half A Loaf Technique, the Medicaid applicant would have had to spend down $198,000 of savings and after 26 _ months of private pay would have ended up on Medicaid anyway. Further, that fortunate niece or nephew would not have benefited.

A windfall bonus is when the nursing home’s private pay rate is less than the Divestment Divisor. Say the above single individual (or his clever niece or nephew) finds a good nursing home with a private pay rate of just $5,500 a month. In that case, the Divestment Penalty would only have to be paid back at $5,500 a month for a built-in savings of $1,316 ($6,816 minus $5,500) a month.

Fortunate warns that the Department of Human Services has suggested that it is going to change the rules, so the Half A Loaf Technique may not work in the future. “Stay tuned!” he said.

Returning the estate recovery efforts by the state, one way to protect a couple’s home before the government “comes a-callin’” is to grant to themselves a life estate in their residence but retain power of sale. Known as a “Lady Bird Deed,” this avoids probate and (as of now) estate recovery and is not considered divestiture.

Of course, since the community spouse will most likely need long-term care at some point, all those assets he or she retains will need to be protected.

“You need to put the community spouse’s assets in a trust or joint account,” Fortunate said. “The saying goes, ‘You can disinherit your children but not your spouse.’”

For veterans who have not be dishonorably discharged, there is a needs-based “Aid and Attendance” benefit that would not only cover nursing home and assisted living
care but also provide at-home care. It requires a lot of paperwork and takes three to 12 months to process.

“You need a lot of documentation. It’s a big pain in the neck,” Fortunate said. “It’s a useful benefit if you are trying to stay out of a nursing home, and it keeps you from using your resources. You don’t have to be in a nursing home.”

Fortunate concluded his presentation by discussing various trusts and powers of attorney, including the “springing power of attorney” that only kicks in when one is disabled. One woman asked, “But what if you have no one your trust?”

Another woman questioned the propriety of shielding assets so she as a taxpayer has to cover someone else’s nursing home stay.

Fortunate responded, “Is it fair that someone who has not been frugal all their life get Medicaid?”


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