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Elder Law Center One Essex Street Saugus, Massachusetts 01906 Telephone 781.233.4444 Fax 781.231.2222
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August 25, 2005
PARENTS SHARING A NURSING HOME ROOM
What’s worse than having to place one of your parents in a nursing home? Having to put both of them in a nursing home. One of my readers sent in a question, summarized as follows: My mom and dad both entered a nursing home this month. Six years ago, they placed their home in an irrevocable trust. On January 1st of each year they have made $10,000 gifts to my brother and I. They currently have about $50,000 in savings. The nursing home has offered to prepare MassHealth long-term care applications for both of them. What should I do? This situation is not that uncommon. We have had several occasions where a husband and wife are sharing a nursing home room. When you consider that you will be paying about $600 per day, it won’t take long to spend that $50,000! When both husband and wife are in a nursing home, they each must have less than $2,000 to qualify for MassHealth. Here are some things that you should consider. I’m going to assume that both of your parents had been hospitalized for a minimum of three nights in a hospital prior to going to the nursing home. Three nights in a hospital is important because it would mean that they entered the nursing home under Medicare. Medicare will pay for up to 100 days of nursing home care for each of them, as long as they are showing signs of improvement. The first 20 days are paid in full and the following 80 days is subject to a daily co-payment of $109.50. Many supplemental health insurance policies will pay the $109.50 co-payment, and that means that the first 100 days of their nursing home stay will not cost anything. Let’s assume that their health is not that good and that they only receive two months of coverage under Medicare. This means that two months from now they will either private pay or go onto MassHealth. So, let’s take a look at what you should be doing in the meantime. Since we are not seeking MassHealth coverage at the present time, you should make some gifts to reduce their assets. When a husband and wife both enter a nursing home at the same time, the regulations allow a splitting of the gifts that allows you to gift twice as much as you could if this were a single individual. I would recommend that they make a gift of $14,000 to you and $14,000 to your brother. Gifting these amounts will result in a 2-month disqualification period. Since we are not seeking MassHealth coverage for two months, the disqualification period will have passed by the time we apply for coverage. As a side note, you mentioned that they have made gifts of $10,000 to you and your brother each year. The $10,000 (now $11,000) gifts relate to a gift tax rule that says that if you give more than $11,000 per person, per year, you have made a taxable gift. This limitation is only important if you have over $1,500,000 because you can give away up to 1.5 million without paying any tax even though the excess over $11,000 is a “taxable gift”. Receipt of a gift is not income. The person making the gift is responsible for paying the gift tax, if any. These $10,000 gifts are not a factor in determining their eligibility for MassHealth because the disqualification period has passed. So, they had $50,000 and after making gifts of $28,000, they now have $22,000 left. What else can be done? The next step would be to get a prepaid funeral. Prepaying for your parent’s funerals is an allowable way to spend down excess assets without incurring any penalty period. Everyone who is in a nursing home should prepay for his or her funeral. Your choice is to either take care of this now, or privately pay the nursing home and have the children be responsible for paying for the funerals. In this case it makes sense to prepay the funerals. Let’s assume that each funeral will cost $8,500 for a total of $17,000. This leaves us with $5,000 left. The final step to achieve MassHealth eligibility is to fund something called a “burial account”. A burial account is a bank account that may be used to pay for incidental expenses, not covered by a prepaid funeral. Each Mass applicant may set up a burial account with a maximum of $1,500. Setting up a burial account for each parent will use up an additional $3,000, leaving a balance of $2,000. Your parents are now financially eligible for MassHealth. One final caveat when dealing with nursing homes. Many nursing homes offer to prepare the application for long-term care benefits under MassHealth for free! Whether the nursing home prepares the application, or one of their sub-contractors, their primary concern is getting approval for MassHealth. Frequently, their solution to excess assets is to have you privately pay the nursing home. In this case, assuming that they were to inform you of your rights to prepay your parent’s funeral expenses, having the nursing home prepare the long-term care application for MassHealth for free would have actually cost you $28,000. That is the amount of gifts that you were eligible for under the MassHealth regulations. This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different). Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds masters in accounting and a masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org
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