What if I told you that when your parents get old and pass on, under certain conditions, the Montana state government would have the right to cash in on a lien on your parents' house and cars and other personal property in order to satisfy the federal recovery mandate to collect on long-term Medicaid bills? You might shave your head and look up the local chapter of the Militia of Montana.
If you have an interest in leaving something behind to your heirs, then an estate planning strategy is essential.
In my mother's case, we spoke to a lawyer who specializes in the practice of elder law and how to best prepare a family's finances for a future that most often means some form of care for some period of time. This meeting gave us a very candid look at the end of life that few of us had ever looked in the eye.
Nursing home costs continue to rise. On average, nursing home care in Montana costs $155 per day. That comes out to $4,650 for a 30-day month. That's $55,800 per year, and this doesn't include special medication, physical therapy or special rehabilitation costs in cases such as strokes, or Parkinson's or Alzheimer's disease. These additional services have the potential to raise the yearly expense to $70,000 or more.
Many people believe that Medicare pays for our health services, including nursing home care, once we reach the age of 65. This is only true for medical expenses or nursing home care resulting from an illness that required a minimum of three days as a hospital inpatient. Otherwise, you are expected to pay for your own nursing home care.
If you can't pay these expenses, then Medicaid will pay for nursing home care, after personal assets are depleted. If there is a surviving spouse or disabled person living in the elder's home, that individual
would be able to remain in the home until he or she dies. However, a lien is placed against the home, so the government can reimburse itself once the home is available for sale.
The federal government pays 70 percent of Montana's Medicaid costs. Federal law mandates that states “recover” Medicaid expenses paid out for long-term care once a patient dies. The theory is simply that we pay our own way as much as we can, all the way through our death and even afterward. This policy may not sit well with potential beneficiaries of the deceased's estate, but makes sense when you consider that otherwise other taxpayers would be footing the bill.
In 2004, when records became available, Montana recovered nearly $2.4 million from individuals' estates. While this is a sizeable amount, it pales when measured against the more than $164 million spent on Medicaid in Montana that year. This equals only
1.4 percent.
One of the primary goals of estate planning as part of a financial planning strategy is to shelter one's wealth from the government and these federal recovery programs. The more individuals engaged in estate planning before death to protect their assets for heirs, ensure an income stream from retirement savings during life or avoid inheritance taxes after death, the more they reduce the portion of their estate subject to recovery by claimants (including Medicaid) after their death.
This means the state of Montana is required to recover from Medicaid recipients who receive services at the age of 55 or older, or in a nursing home, in order to help pay Medicaid-covered expenses for the increasing number of individuals needing medical care.
The regulation says, “The State may also place a lien on a nursing home or institutionalized recipient's home when there is not a reasonable expectation that the recipient will return home within six months. Proceeds from the sale of the home are used to reimburse the Medicaid Program for medical expenses paid on the recipient's behalf.”
What estate planning and elder law seek to achieve is often to allow Medicaid funds to be used so as to avoid decimating a family estate, whether it be a third-generation family residence, farm or business. The operative word here is planning.
Although the laws are tightening all the time to fill in loopholes, some tax sheltering can be accomplished if they are initiated at least five years prior to care. These include personal service contracts, transfer of annuities, home title transfers or home
repairs and additions, gifting or creation of irrevocable trusts.
Lawyers and financial advisers should be contacted to consider a number of things to have in place besides those mentioned above. These include long-term care insurance, durable and health care trusts, trusts for any special needs, disability insurance and health care power of attorney, among others.
Again, the operative word is planning. Leaving it to fate or chance or probate court may not get your heirs the results you wish to bequeath them.
Stephen Horowitz is a business and marketing consultant living in Whitefish with his wife Lisa, 5-year-old twins Jack and Kate and Early, a yellow dog. His column appears regularly in Western Montana InBusiness Monthly.
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