Planning for your senior years is a complicated and emotionally tough task. It is often made all the tougher by the myriad misconceptions that exist about your options. There is a lot of misinformation about all aspects of senior planning, from nursing home decisions to appropriate legal documents and structure.
In this final article in a four part series, we will discuss the last of the common costly misconceptions about planning for your senior years. Please see parts one, two, and three for previous misconceptions. We hope this discussion will help set you on the right track and make your planning decisions easier.
Misconception #20: You can only spend down your resources on medical or nursing home bills. Hardly. Nursing homes may tell you that you have to spend your savings on the “private pay” rate before applying for Medicaid, but this is not true. In fact, it’s against the law for nursing homes to discriminate in the care that they provide to people who are receiving or applying for Medicaid benefits. You can spend down your resources on anything, as long as it benefits you or your spouse.
Misconception #21: The agent you appoint in your Durable Power of Attorney automatically has the power to take property out of your name if you ever need Medicaid. Not automatically. When planning for Medicaid eligibility, the best and most effective General Durable Power of Attorney includes proper “gifting” powers. Your agent under the Power of Attorney will be able to re-title your assets only if your Power of Attorney contains authority to make gifts.
Misconception #22: All General Durable Powers of Attorney are created equal. Completely false! A General Durable Power of Attorney is a highly customized legal document – and NOT a form! Most Durable Powers of Attorney don’t contain even the most basic gifting authority. Without a gifting power, your agent is usually limited to spending your money on your bills and selling your assets to generate cash to pay your bills. Some Durable Powers of Attorney contain a gifting provision, but often it is limited to the federal gift tax exclusion amount per year. This figure may be too small for effective asset protection planning and relates to a completely different type of federal estate and gift tax issue. Other Durable Powers of Attorney allow transfers only to certain people and do not take into account that you may want your agent, spouse, or children to receive your property.
Misconception #23: Since you are married, your spouse will be able to manage your property and make financial decisions without a General Durable Power of Attorney. Not true. If you become incapacitated and your spouse needs to sell or mortgage the family home—or gain access to financial accounts that are in your name only—your spouse will need a General Durable Power of Attorney. Without one, your spouse will be forced to petition the court to be appointed your guardian. This process can be costly because it requires a court hearing and involvement by your physician.
Misconception #24: Even if your spouse qualified for Medicaid, your income may have to be used to pay the nursing home bill. Not true. You do not have to use any of your income to pay for your spouse in a nursing home when he or she qualifies for Medicaid benefits. Also, if you have an IRA or 401(k)-type plan, these resources are exempt and do not count; only the IRA and/or 401(k)-type plan of the spouse in the nursing home would count.
Misconception #25: All of your spouse’s income must go toward the nursing home bill if he or she is on Medicaid in a nursing home. Not true. The law allows you to keep a portion of your spouse’s income if your income is below certain limits. In addition to this minimum maintenance allowance, you may be entitled to a greater allowance, based upon your income and monthly expenses. The nursing home spouse will always be entitled to keep a small personal needs allowance.
Misconception #26: You can hide your resources while you become eligible for Medicaid. False! Intentional misrepresentation in a Medicaid application is a crime and can be costly. The IRS shares any information concerning your income or resources with the local County Assistance Office (CAO) for DHS. You—or whoever applied for Medicaid—may have to repay Medicaid to avoid prosecution.
Misconception #27: Medicaid rules that applied to your neighbor when he went into a nursing home will also apply to you. Maybe not. Medicaid rules change. Don’t assume the law that applied to your neighbor will also apply to you. In addition, there may have been facts about your neighbor’s situation that you just don’t know.