Here is a guest article - edited and reposted from http://www.zeiglerseniornews.com/
Washington DC. Happy fifth birthday, DRA. Only Medicaid workers, nursing home personnel and Elder Law Attorneys would be likely to notice the anniversary of the Deficit Reduction Act. It was signed into law by President George W. Bush five years ago, on February 8, 2006. Now universally called "the DRA", the act generated controversy from its first week and is still generating controversy. The DRA made dozens of changes, but none were more important, controversial and confusing than changes in Medicaid rules for long-term care eligibility.
Seniors seeking Medicaid coverage for nursing home costs or for the small but growing "Medicaid waiver" home care still run into problems qualifying under the DRA. And these problems will continue. Elder law attorneys who mostly opposed the DRA have since been retained by thousands of seniors seeking to tread the difficult path of protecting assets while qualifying for Medicaid.
The DRA made two changes that affect whether Granny is able to get Medicaid to cover her home care or nursing home costs, often $6,000 to $11,000 a month. That is a huge benefit, if she qualifies. It is a huge burden on her and her family if she does not qualify. One DRA provision changed Medicaid's "look-back period" from three years to five years. Gifts by Granny made during the five years before applying for Medicaid are penalized, dollar for dollar.
The other provision is more confusing. It changed the "start date" of those gifting penalties. Prior to the DRA, a gift this month penalized Granny starting next month. Give away $25,000 this month, and you were ineligible for Medicaid for the next month and the next $25,000 in nursing home bills. Under the DRA, the penalty for gifting does start until Granny actually applies for Medicaid and is eligible. That usually means that Granny goes into a nursing home, her assets drop below a certain level -- $2,000 in all but 16 states - and she applies for Medicaid. Medicaid then finds her "otherwise eligible" but imposes a penalty period in which Granny must private-pay nursing home costs. That penalty period will cause Granny to "re-pay" the grand total (pun intended) of all gifting during the past five years.
How is Granny able to re-pay $10,000 or $25,000 or any amount of five-years-worth of total gifts if her assets are now less than $2,000? Best way she can. Likely this Granny who thought she was being generous has just become a serious financial burden on her family. Those recipients of the gifts during the past five years may be asked to give them all back. Guess what? They spent them already. Confused? All generous seniors and seniors with assets who face nursing home admission are confused, along with their families. And any elder law attorney could tell you that the explanation you just read is a gross over-simplification.
First of all, penalizable "gifting" is defined a bit differently under the DRA than normal people would define it. What the DRA penalizes is "transfers without fair market value." If Granny buys or sells something for a reasonable price, that transaction is not penalized. She got fair market value. But if she gives Junior her car or sells it to him for $100, that is penalized. What about the widespread street knowledge that it is legal to give away $10,000 per person per year? First of all, the annual gift exclusion is now $13,000. Secondly, it is not true.
How can it be $13,000 but not true? The annual gifting exclusion is only an Internal Revenue Service rule. If you "gift" someone $13,000 or less this year, you do not have to report it on a Form 709. You do not pay one penny of gift tax. The recipient does not report it and does not pay one penny of tax. Sounds good. But just a second. That was only the IRS. Medicaid has never honored the annual gift exclusion. Not when it was $10,000 (most people still think it is $10,000), not when it was $11,000, not when it was $12,000, and not now that it is $13,000. Every gift is totaled up for the five years prior to Medicaid application, and all gifts count against Granny's nursing home eligibility. Most state Medicaid agencies don't mess with small gifts, say wedding presents, church tithes and small amounts.
There is an epidemic of seniors giving away $10,000 checks each year because someone told them that amount is "legal". The DRA does not say that amount is legal, and Medicaid does not say it. So Granny should stop giving away assets five years before she goes into a nursing home or needs Medicaid home care. How does she know when that five-year period starts? She does not know. That is why it is called a "look-back period." Looking back from nursing home admission, you can tell exactly when those five years started. But looking forward, only the Good Lord knows.
Come to think of it, there was a third Medicaid change in the DRA. If Granny and her elder law attorney want to use annuities to qualify for Medicaid, she can't buy just any annuity from the guy down the street who has an insurance license. She must buy a "DRA-compliant annuity". Few insurance agents have these in their product portfolios and few know much about this. An elder law attorney can guide a senior to a DRA-compliant annuity, and, just as importantly, let the senior know whether annuity strategy or some other strategy will drop assets below Medicaid limits without triggering ineligibility - a narrow path.
Under the "new" five-year-old DRA, a senior needing Medicaid coverage for home care or nursing home would be well-advised to consult an elder law attorney who does Medicaid planning. These are the same attorneys who mostly fought the DRA and have spent five years figuring out how to navigate these strange waters. To locate such an attorney in your area, go online to www.naela.org. That is the site of the National Academy of Elder Law Attorneys.
Navigating the strange waters of the DRA without a "Captain" familiar with the rules would risk not getting eligibility, losing financial assets, suffering gifting penalties, and losing the family home to a Medicaid lien. The Captain, a Medicaid-planning attorney, could minimize or eliminate these multiple risks.
One thing has not changed in the five years since the DRA: The family with a plan to cover elder care costs is miles ahead of the majority with no plan. Some things never change.
Washington DC. Happy fifth birthday, DRA. Only Medicaid workers, nursing home personnel and Elder Law Attorneys would be likely to notice the anniversary of the Deficit Reduction Act. It was signed into law by President George W. Bush five years ago, on February 8, 2006. Now universally called "the DRA", the act generated controversy from its first week and is still generating controversy. The DRA made dozens of changes, but none were more important, controversial and confusing than changes in Medicaid rules for long-term care eligibility.
Seniors seeking Medicaid coverage for nursing home costs or for the small but growing "Medicaid waiver" home care still run into problems qualifying under the DRA. And these problems will continue. Elder law attorneys who mostly opposed the DRA have since been retained by thousands of seniors seeking to tread the difficult path of protecting assets while qualifying for Medicaid.
The DRA made two changes that affect whether Granny is able to get Medicaid to cover her home care or nursing home costs, often $6,000 to $11,000 a month. That is a huge benefit, if she qualifies. It is a huge burden on her and her family if she does not qualify. One DRA provision changed Medicaid's "look-back period" from three years to five years. Gifts by Granny made during the five years before applying for Medicaid are penalized, dollar for dollar.
The other provision is more confusing. It changed the "start date" of those gifting penalties. Prior to the DRA, a gift this month penalized Granny starting next month. Give away $25,000 this month, and you were ineligible for Medicaid for the next month and the next $25,000 in nursing home bills. Under the DRA, the penalty for gifting does start until Granny actually applies for Medicaid and is eligible. That usually means that Granny goes into a nursing home, her assets drop below a certain level -- $2,000 in all but 16 states - and she applies for Medicaid. Medicaid then finds her "otherwise eligible" but imposes a penalty period in which Granny must private-pay nursing home costs. That penalty period will cause Granny to "re-pay" the grand total (pun intended) of all gifting during the past five years.
How is Granny able to re-pay $10,000 or $25,000 or any amount of five-years-worth of total gifts if her assets are now less than $2,000? Best way she can. Likely this Granny who thought she was being generous has just become a serious financial burden on her family. Those recipients of the gifts during the past five years may be asked to give them all back. Guess what? They spent them already. Confused? All generous seniors and seniors with assets who face nursing home admission are confused, along with their families. And any elder law attorney could tell you that the explanation you just read is a gross over-simplification.
First of all, penalizable "gifting" is defined a bit differently under the DRA than normal people would define it. What the DRA penalizes is "transfers without fair market value." If Granny buys or sells something for a reasonable price, that transaction is not penalized. She got fair market value. But if she gives Junior her car or sells it to him for $100, that is penalized. What about the widespread street knowledge that it is legal to give away $10,000 per person per year? First of all, the annual gift exclusion is now $13,000. Secondly, it is not true.
How can it be $13,000 but not true? The annual gifting exclusion is only an Internal Revenue Service rule. If you "gift" someone $13,000 or less this year, you do not have to report it on a Form 709. You do not pay one penny of gift tax. The recipient does not report it and does not pay one penny of tax. Sounds good. But just a second. That was only the IRS. Medicaid has never honored the annual gift exclusion. Not when it was $10,000 (most people still think it is $10,000), not when it was $11,000, not when it was $12,000, and not now that it is $13,000. Every gift is totaled up for the five years prior to Medicaid application, and all gifts count against Granny's nursing home eligibility. Most state Medicaid agencies don't mess with small gifts, say wedding presents, church tithes and small amounts.
There is an epidemic of seniors giving away $10,000 checks each year because someone told them that amount is "legal". The DRA does not say that amount is legal, and Medicaid does not say it. So Granny should stop giving away assets five years before she goes into a nursing home or needs Medicaid home care. How does she know when that five-year period starts? She does not know. That is why it is called a "look-back period." Looking back from nursing home admission, you can tell exactly when those five years started. But looking forward, only the Good Lord knows.
Come to think of it, there was a third Medicaid change in the DRA. If Granny and her elder law attorney want to use annuities to qualify for Medicaid, she can't buy just any annuity from the guy down the street who has an insurance license. She must buy a "DRA-compliant annuity". Few insurance agents have these in their product portfolios and few know much about this. An elder law attorney can guide a senior to a DRA-compliant annuity, and, just as importantly, let the senior know whether annuity strategy or some other strategy will drop assets below Medicaid limits without triggering ineligibility - a narrow path.
Under the "new" five-year-old DRA, a senior needing Medicaid coverage for home care or nursing home would be well-advised to consult an elder law attorney who does Medicaid planning. These are the same attorneys who mostly fought the DRA and have spent five years figuring out how to navigate these strange waters. To locate such an attorney in your area, go online to www.naela.org. That is the site of the National Academy of Elder Law Attorneys.
Navigating the strange waters of the DRA without a "Captain" familiar with the rules would risk not getting eligibility, losing financial assets, suffering gifting penalties, and losing the family home to a Medicaid lien. The Captain, a Medicaid-planning attorney, could minimize or eliminate these multiple risks.
One thing has not changed in the five years since the DRA: The family with a plan to cover elder care costs is miles ahead of the majority with no plan. Some things never change.
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