15th May 2015
Before a loved one enters a nursing home power of attorney options should be considered. Most families probably find themselves helpless when a loved one incurs a long (sometimes lifetime) nursing home stay. Care now costs upward of $70,000.00 per year. Medicare only pays for a short time, after which you pay full price, or go broke and apply for Medicaid. Medicaid only allows residents to retain $2,000.00 in countable assets.
A common problem is not arming family members with proper tools to cope. Durable powers of attorney can be the very tool that grants exactly the right legal authority to others to take action when it may seem that all is lost.
The right powers of attorney can allow the following:
Gifts to a Spouse
Transfers to a spouse are not divestment and no penalty is imposed. Spouses may then have options to retain much and sometimes all of a couple’s resources by use of special contracts designed to qualify under Medicaid regulations. I once had a client, an incapacitated stroke victim, who had one asset he did not own jointly with his wife – an old life insurance policy. The policy had a death benefit of $2,500.00 and a higher cash value, making him ineligible for Medicaid without further action. Without a power of attorney explicitly allowing it, there would have been no legal right to transfer the policy to his wife and the insurance company would not have complied. With it, the policy was transferred and the client qualified with no loss to his wife. I fully expected this man to qualify but without the power of attorney it would have required court action and likely the liquidation of his policy, perhaps using it to pay for his care to get him under the $2,000.00 limit instead of getting it to his wife. There are limits on what a well spouse can retain in countable assets but there are also methods that often allow those assets to be made “non countable” while making them exclusively available to the spouse.
Gifts to Children
Gifts to children or others can trigger divestment penalties – often for long periods. Gifts are examined for 5 years after they are made but there are routine and successful strategies that allow well timed and calculated gifting so that family can get the greater portion of property with no interruption in care. Again, these gifts must be explicitly allowed in the power of attorney.
Special deeds, called “Lady Bird” deeds, can be prepared. Michigan now seeks reimbursement for Medicaid costs by taking part of the value of patient’s homes after their death. These special deeds create no divestment penalty but skip probate and thus the state’s Medicaid liens allowing beneficiaries to avoid sharing their inheritance with the State of Michigan. I have had (once) a overly friendly and retiring Medicaid caseworker even suggest the use of a Lady Bird deed, which very thing I was doing anyway.
Protect Real Estate
While on Medicaid we can keep our homes (as long as equity value is no more than $500,000.00) but that does not mean we will have any money to keep them up. Unless there is a spouse at home, taxes, utilities and insurance still have to be paid for with money we will not have because Medicaid “takes” all but a few dollars of your income. A power of attorney allowing for “triple net leases” with family members serving as agents paying a nominal rent can allow for leasing our homes to others to raise these resources.
Family Care Contracts
A common trap involves care given by family. A Medicaid divestment penalty is commonly applied when family is paid for the hard work they do because Michigan law presumes these services are for love and affection only, not pay. Powers of attorney can specify that this legal presumption does not apply, allowing family reasonable pay without penalty as long as the other requirements, such as contractual formalities are abided by.
Powers of attorney can be lifesavers and, like a fire insurance policy, must be in place before a crises occurs that makes creating one impossible. As part of a complete estate plan, which may include Wills, Trusts and Health Care Powers of Attorney, we can give our loved ones assurance that in difficult circumstances they will not be left without an adequate defense.