Medicare Planning and Farm Assets
The best bet to make sure that your farm assets are passed to the next generation and you are able to meet your medical needs as you age is to buy a crystal ball and determine when you will need nursing home care for you and your spouse, set aside five years’ worth of care (accounting for social security and fixed income streams during that time period, inflation in cost of care and medicine) for each of you and the spouse and give the rest away. This should provide five years’ worth of “Self-pay” for each person and when the 5 years are up, they can apply for title 19 support for care. You can order your crystal ball at www.amazon.com/tktk.
Mine has been on back order for quite some time. Failing that, we have several principles we can consider for Medicare planning and farm assets. These are different aspects that need to be considered when contemplating long term care.
Spend down.
The general rule is that you need to apply for the spouse in the facility to split the facility bound spouse assets with the spouse that remains out of living in the community. The yearly amount changes as to what exactly the community spouse can have for assets, but the spouse “in the wild” can retain a certain value of assets as theirs to live upon outside the care facility. At a minimum, the spouse in the community will have around $125,000 attributed to them that does not have to be spent down.
Once the excess resource amount is identified, spend it down. Resources can be used to benefit either the nursing home resident or the spouse in the community. Funeral plots and plans, tires, stoves, chairs, beds, roof repair are all valid spend downs. Encourage the community spouse not to skimp on essentials or amenities that they need to function, remembering that their long term partner in crime is no longer available to provide assistance to them.
Understand that once a spouse is made eligible for title 19 assistance, further income or asset collections in the hands of the other spouse are not eligible to be considered a spouses resource for care. That means that a wind fall post title 19 will not cause problems for the spouse in the facility. The “tab” that Title 19 is running will continue to accumulate and become payable when both spouses are deceased.
Specifically turning to Farm Assets. The residence and the surrounding farm ground is exempt from the spend down process. Non continuous chunks are not.
The forty 2 miles from the house is not as valuable as the 40 that touches the homes 120 acres. Consider marshalling assets and trading, swapping, acquiring adjacent ground to create a larger exempt chunk of property.
Gift and Wait.
Gifts made five years prior to the application for title 19 assistance do not count against the applicant. Gifts made within the 5 year period do count against the applicant and can make the applicant ineligible for assistance.
Example
Retiring farmer gave a $500,000 farm to her son 4.5 years ago, prior to entering a
nursing home. She has paid for her nursing home care since then, but
is now out of money. Will she be eligible for Medicaid?
Since the son is not disabled and there is no other exception to the
transfer of assets rules that apply, the retiring farmer will not be eligible since the
gift was within the five-year look-back period prior to her need for
Medicaid.
What is the solution? Son could pay for farmer’s care for another six months, then the
remaining part of the gift could be kept by him without affecting retired farmer’s eligibility. Not only that, but no state agency will get the chance to wax poetic on what the sale price was and whether it was fair in terms and prices.
So, what happens when the kid doesn’t pony up or give back the assets. The gift giver will need a hardship exemption. .A hardship exemption allows resident to be eligible despite a transfer that causes a penalty if:
- Penalty would deprive resident of necessities that would endanger
her life.
- Resident has exhausted all means to recover the resource, including
legal remedies.
- Remaining resources, excluding home, household goods, one vehicle and $4,000 in burial funds, are less than the monthly average cost of facility services.
No hardship waiver will be granted if resource was transferred to person handling the financial affairs of the resident, or to the spouse or children of the person, unless payments cannot be recovered from that person.
Turning back to our example, Retired farmer writes a letter to son and asks for the ground back. If it was a valid gift, that is all the effort retired farmer needs to make. The retired farmer then applies for a hardship waiver. However, the state will likely seek contribution from the son for the value of the asset. The son is foolish not to cover the short fall and now gets to interact with the state agency, which could lead to elder abuse charges in some circumstances.
Life Estates
Life Estates are an asset available to pay for care. For best results, dispose of them prior to applying for Medicare/Title 19. Sell the life estate through a real estate agent or auctioneer. If auctioning an asset, you must document attempts to sell at fair market value and that the auction is properly advertised to the public.
Otherwise, hire an actuary or other disinterested, knowledgeable third party to determine the value of the life estate and sell it at that value after obtaining the consent of DHS.
You can assert the homestead is the life estate and then the life estate value will be collected at time of death if the applicant is otherwise eligible.
Land Contracts
For Medicaid purposes, the seller’s interest in a contract is considered an asset. The contract can be mortgaged or sold so it has value Medicaid considers the land contract as personal property. The value of the contract is determined by identifying the value of the contract on the day it was signed and subtracting payments made on the contract, loans on the contract and valuation discounts. This is the value of the contract. The contract is an available asset unless:
- the contract prohibits its sale
2) no one is willing to purchase the contract. Evidence must be produced by obtaining a letter from at least one individual or organization that is in the business of buying land contracts to say they won’t buy it.
The contract stays in existence and the buyer just shifts who the payments are made to. The seller then has cash which can be used for cost of care, other items, or placed into another exempt Medicaid category
What about the payments? The Medicaid handbook advises the workers to count the interest from land contract payments as unearned income. The principal is not counted because that is a conversion of one asset to another (land to cash). Expenses are allowed to be deducted.
The State will not have a lien on a property owned that is being sold with a land contract because the seller’s interest is considered personal property. However, they may have a claim for the payments being made from the contract or if the contract is sold. Collection could be difficult if there is no probate, but nevertheless, there may be an assertion for the right to receive payment. Also, in the event the contract if forfeited and title returns to the seller, a lien will attach.
Thieving Children
File a complaint with the DHS Elder Abuse Hotline, 1-800-362-2178.
The DHS staff should investigate the abuse, refer the abuse to the county attorney, who should then establish a guardianship and conservatorship to resolve the problem.
Under Iowa’s new elder abuse law, some counties have been very aggressive in pursuit of financial crimes against elders. It is broadly written and those serving as a POA should be careful to document what they do and avoid any implication that they are benefiting by the POA position.
A solution may be for the facility to petition for a guardianship and conservatorship to take charge of the elder’s finances and resolve the problem. The costs of the action would be paid from the Elder’s income and assets. The conservator could then use the legal system end
further looting and recover the misspent assets.
Unmarried Folks
If you are living together, unmarried and old, conventional wisdom says, you should stay unmarried to avoid having to pay for other’s care. However, if one has no assets and is healthy and the other has assets but is sick, they can get married, transfer the asset to the healthy one, apply for care and have the asset and maybe some of the income attributable to the person going into the facility (up to the limits) considered the asset of the spouse not going into the facility.
