Determining the Client’s Resources, Income & Expenses

During nursing home planning, it is vital that we understand the nature and extent of the client’s financial resources. In order to meet the client’s goals and protect the client’s assets, the attorney must have an honest accounting of the client’s resources, income, and expenses to develop a successful nursing home plan. Medicaid planning is complex because assets have particular characteristics and tax attributes that impact their suitability for Medicaid planning. The attorney must know exactly what the client owns and how that asset is titled in order to provide competent legal counsel to the client and his or her family.

Income

Before Medicaid will pay toward nursing home care, the patient must use virtually all of his or her income to pay for nursing home care. The attorney must carefully investigate and consider several matters related to including but not limited to:

• All current sources of income including but not limited to Social Security benefits, pensions, retirement, annuities, and any earned wages
• Current and past medical bills
• Health insurance premiums for the client, spouse, and any dependent children
• Medicare Part A and Part B benefits
• Any withholding taxes

A full accounting of the person’s income and the spouse’s income is essential in order to determine how much of that income must be paid toward the nursing home cost. The spouse cannot be forced to pay toward the nursing home care and the spouse may be entitled to a Monthly Income Allowance” needs to be changed. Please correct to, “Medicaid does not require the spouse at home to pay for the nursing home care. In fact, the spouse at home may be entitled to a Monthly Income Allowance from the income of the spouse in the nursing home.

Expenses

Expenses are a moving target; however, we must have a clear indication of what the person’s average monthly expenses are right now and what we expect them to be after moving into the nursing home. We must take into consideration how moving into a nursing home will impact such expenses as travel plans, gifts, automobile expenses, etc. Careful consideration must be given to how the lives of both the client and the spouse will change after moving into a nursing home when evaluating expenses.

The Burn Rate

The burn rate is simply the difference between the monthly expenses of the nursing home resident and his or her spouse. The burn rate is usually a negative number because expenses exceed income in many cases.

Assets

Medicaid planning requires a careful inventory and appraisal of assets. Due diligence and thoroughness are important because if we do not have a full accounting of all assets, the planning will suffer. In that regard, one of the hardest hurdles to overcome is the fact that most parents do not share financial information with their children. Sometimes children must wade through mountains of paperwork and documents to determine what the parents own. Income taxes can help determine assets as can country tax records.

Long Term Health Care Insurance

The annual cost of Long Term Health Care Insurance (LTHC) is usually less than one month’s nursing home care; however, most people do not have LTHC and do not consider purchasing it due to the cost. If a client does have LTHC, this dramatically affects our planning for the better because LTHC provides a source of funds to pay for nursing home costs. LTHC also has other benefits including keeping more wealth in the family, the patient does not need to deplete resources to the same extent, it acts as an additional source of income, and it decreases the Burn Rate.

Distilling Income, Expenses, and Assets

Once we have a full understanding of the income, expenses, and assets, we calculate how quickly the Burn Rate will dissipate the client’s resources. Only after we have a firm understanding of all of the client’s assets, income, and expenses can we prudently put together a nursing home plan that accomplishes goals, meet desires, and protects assets. In some cases, we may need to formulate different plans due to the tax consequences of sales and/or gifts.

You Need an Attorney Now

Guide to Medicaid Planning