Incapacitation strategy said to be key to wealth management
Power of attorney, asset transfer useful to qualify for Medicaid assistance
Mike McLeanDecember 5th, 2013
An incapacitation plan can help protect family assets if one spouse loses the ability to make financial and health-care decisions due to conditions such as Alzheimer's disease or severe stroke, which are among the top causes of disability for older people, elder law attorneys here say.
Such planning is invaluable when it comes time to qualify the disabled spouse for Medicaid assistance for expensive nursing-home care, while helping the healthy spouse avoid destitution, they say.
Medicaid, the joint federal and state program that helps qualified individuals and families pay for medical and custodial care, is supposed to be the payer of last resort, so states are required to recover assets to help pay for the program expenses when possible.
Measures are in place, though, to protect the family home and certain other assets from Medicaid recovery requirements, says Richard Gilleran, principal at Richard E. Gilleran PS, specializing in elder law.
For example, the state exempts the value of the home and allows the transfer of some assets between spouses, because it doesn't want to make both spouses indigent when one needs care, Gilleran says.
"Then it would have two people to care for," he says.
Richard Sayre, a partner at Spokane elder-law practice Sayre & Sayre PS, says incapacity planning for Medicaid eligibility is becoming a big issue for baby boomers who worry that if they develop a disease like Alzheimer's, their spouse will have to spend all of the family assets on care.
"It's important to discuss asset-protection planning and put appropriate documents in place before there's a health issue," Sayre says. "It's done through durable power of attorney executed while people are competent, even though they might not use it for a number of years."
A durable power of attorney gives the spouse or a family member the appropriate authority to transfer assets so the disabled person can qualify for Medicaid assistance, he says. Without that authority, asset transfers are much more difficult, and certain assets could be at risk of recovery by the state, or they could make the applicant ineligible for Medicaid assistance.
"If one (spouse) already has Alzheimer's, it becomes difficult to plan after the fact," Sayre says. "It can be three times as expensive and not as efficient as prior to incapacity."
If a situation arises where one spouse has to transfer assets to qualify the other for Medicaid, Sayre recommends that the healthy spouse create a will that would set up a trust to benefit the disabled spouse.
That way, if the "healthier" spouse should die first, the Medicaid recipient wouldn't lose benefits because of inherited assets. Instead, the trust would be handled by a trustee—likely a family member or trusted friend—to be supplemental to Medicaid.
"It could be used for nongeneric drugs, clothes, and additional care beyond what Medicaid pays," Sayre says.
Any assets left in the trust upon the death of the incapacitated person would pass to other heirs, Sayre says.
Scott Miller, a Spokane attorney specializing in Medicaid and elder law, says it's important to create a durable power of attorney to meet specific needs rather than from a generic form.
"You really need an elder-law attorney to draw it up," Miller says
If one spouse loses mental or physical capacity without creating a durable power of attorney, a guardian has to be established to give somebody authority to do the financial and health planning, he says.
Guardianship is a court action that appoints someone to take control of finances and health care decisions of a disabled or incapacitated person, likely at more expense than a durable power of attorney, Miller says.
"Most guardian services are for-profit businesses that do take a chunk out for handling a case," he says.
Though Medicaid originally was meant for low-income elderly, Miller says qualifying a family member for the program often is the only viable option to keep other family members from losing everything they've worked for.
"People don't realize how expensive boarding-home care is," Miller says. "It can be from $2,000 to $3,000 a month on the low end to over $10,000 a month on the high end."
For people with dementia, the cost of full-time care is on the high end of that scale, he says, adding, "For most people around here, that would wipe out their savings within a couple of years."
To be eligible for Medicaid, an applicant can have no more than $2,000 in assets exclusive of the home.
The Medicaid applicant is allowed to transfer some assets to a spouse to qualify for Medicaid.
"An interspousal transfer of assets is definitely a way for spouses to preserve some assets," Miller says.
The Washington State Department of Social and Health Services lists the 2013 maximum asset allowance at $115,920 for the spouse of a recipient of Medicaid. That allowance doesn't include the value of a home and one vehicle, which are exempt from Medicaid restrictions.
By coupling the power of attorney with a solid will, the healthy spouse can pass assets on to heirs, Miller says.
"That way, a healthy spouse who dies first can give remaining assets to children," Miller says.
Parents can't qualify immediately for Medicaid by giving assets to children, he says.
Medicaid applicants are required to disclose transfers of assets, which, if transferred to someone other than the spouse, could make the applicant ineligible for Medicaid benefits for up to five years, Miller says.
The person looking to become eligible for Medicaid can spend their assets on themselves, he says.
"You can get a roof done, or buy a new TV, or new clothes," Miller says. "You can't give it to your grandkids."
Gilleran says he recommends that spouses who have assets beyond the allowance buy a specialized annuity that converts the assets to income, making it exempt from Medicaid restrictions.
He also advises clients to look into long-term care insurance as another tool to help defray potential future costs of care.
"A lot of people say it's too expensive," Gilleran says. "I don't think it's expensive compared to the cost of care. It does, however, cost a lot of money."
For those who can afford it, he recommends clients invest in long-term care policies that cover in-home and assisted-living care in addition to nursing-home care.
Sayre says a carefully designed long-term care policy can be exempt from Medicaid restrictions, or it can act as a bridge during a period of Medicaid ineligibility.
He adds, however, "Long-term care insurance isn't particularly valuable for people without a lot of money."