Proactive planning–that is, planning at a time when you are healthy, or at least when long-term care is not imminent–is always the best way to protect one’s assets against the growing costs of long-term care, but even at the last minute, even if someone immediately requires in-home or nursing home care, they have options.

According to the New York State Department of Health, the average cost of a nursing home in our region is $12,805 per month (as of 2020).  If an elderly family member requires nursing home care, many facilities would be happy to have the family simply pay out-of-pocket, and unfortunately, many people do.  Oftentimes, the family is vaguely aware of the “5-year look back”, and assumes that because they didn’t plan five years in advance, there is nothing they can do.  And definitely too often, the nursing home’s finance office itself tells the family that is what they must do.  But that is simply not the case.

Instead of paying out-of-pocket, there are ways to qualify for Medicaid, even if you have as respectable amount of savings or investments.  Medicaid rules state that it is available to people with resources under $15,750 (as of 2020). Neither the applicant nor their spouse would ever get “kicked out of their house”, but the equity in the home may be in danger since it remains subject to a Medicaid lien.  It is a common misconception that the law prohibits or makes it illegal for a person to give away money or assets in order to qualify for Medicaid.  It is definitely not illegal–rather, the law merely discourages asset transfers, as follows: when you apply for Medicaid, you must submit five years’ worth of financial records (this is the 5-year “look back”). The Department of Social Services (“DSS”) examines those records to see whether the individual has given away any money, property, or anything of substantial value. Some transfers are considered exempt, such as transfers to a spouse or disabled child, as well as other limited exceptions. As but one example, a spouse can “give away” all assets to the other spouse, and qualify for Medicaid immediately (although there are spousal resource limits that must be taken into consideration, and additional planning for the spouse that must be done).

However, many people who require nursing home care may be widowed or otherwise unmarried. Most non-spousal transfers, such as those to adult children, are typically “non-exempt”. If the DSS sees that there have been non-exempt transfers, a “penalty period” is imposed. The penalty period is a period of time during which Medicaid will not be made available to cover the cost of the individual’s care. The length of that period is directly related to the value of the assets given away: the higher the value of assets transferred, the longer the penalty period. Medicaid will then begin coverage at the end of the penalty period. So, it is not illegal to give away assets—there is merely a period of non-coverage that results from giving assets away.

What, then, is an unmarried person to do? Since we know how the DSS calculates that period of non-coverage, we can set up a plan where we “give away” approximately half of a person’s assets, which creates a penalty period, but we can loan the other half (documented by a special type of promissory note) to pay for the Medicaid applicant’s care during the penalty period.

When the plan is complete, even though half of the person’s assets have been paid to the nursing home, the original half that we “gave away” remains protected with the family, and Medicaid coverage begins. Neither the nursing home nor the DSS is legally permitted to insist that the gifted funds be spent on the applicant’s care, thereby avoiding the need to spend down all a person’s money.

Since we’re typically saving about half of someone’s assets, this type of planning is often referred to as a “half-a-loaf” plan, from the old adage that “half a loaf is better than none”. Of course, if the person had done proactive planning, significantly more than half of the assets can be protected, so it is always advisable to consult with an experienced Elder Law attorney sooner than later. But if that ship has sailed, an Elder Law attorney should still be able to help–you should almost never write a check to a nursing home unless you’ve consulted with an experienced Elder Law attorney first.