Wednesday, October 2, 2013
Spousal Refusal - a Powerful Planning Tool for "Crisis" Medicaid Planning
Many married couples of advancing age fear that they may be forced to deplete virtually all of their assets if one or both of them requires long-term care. Given that the private pay rate for nursing home costs in the Hudson Valley averages over $11,000 per month, and 24-hour per day home care runs about $250 per day, that fear is not unfounded.
Under current law, the spouse applying for Medicaid will be eligible if his non-exempt resources do not exceed $14,400. The “well spouse” – also referred to as the “Community Spouse” – is permitted to retain their residence, and other “non-exempt” resources in the maximum amount of $115,920 (the Community Spouse Resource Allowance, or “CSRA”). Because there are no Medicaid penalties imposed for transferring assets from one spouse to another, rendering the ill spouse Medicaid eligible is often as simple as putting virtually all of the couple’s assets in the Community Spouse’s name.
In addition to the resource allowance, in 2013 the Community Spouse’s income allowance (the Minimum Monthly Maintenance Needs Allowance, or “MMMNA”) is $2,898 per month. If the Community Spouse’s own income is below the MMMNA amount, a portion of the institutionalized spouse’s income will be “budgeted” to the Community Spouse so that she will be entitled to receive enough of the institutionalized spouse’s income to bring the Community Spouse’s total monthly income up to $2,898. For example, if the Community Spouse has monthly pension and Social Security income totaling $1,898, and her husband in the nursing home has monthly income of $2,000, $1,000 of the husband’s income will be allocated to the wife to bring her total monthly income to $2,898, with $950 of the husband’s remaining monthly income paying for his care (the husband is allowed to keep the other $50 in a personal needs account). On the other hand, if the Community Spouse’s own income is in excess of the MMMNA, he or she will not be entitled to receive any portion of the institutionalized spouse’s monthly income, which will be payable towards the institutionalized spouse’s cost of care (less the $50 personal needs allowance).
In circumstances where the Community Spouse’s resources and/or income exceed the CSRA and MMMNA exemptions, in most states the Community Spouse would be required to “spend down” such excess amounts towards the cost of the other spouse’s care. Faced with such a scenario, some Community Spouses may decide that their best option is to divorce the ill spouse to preserve as much of the couples’ assets as possible. Under New York law, however, divorce should rarely be contemplated, since a Community Spouse may submit along with their spouse’s Medicaid Application a “spousal refusal.” In effect, a spousal refusal provides that the Community Spouse refuses to make his or her income and/or resources available towards the cost of care for the ill spouse. Upon the filing of a spousal refusal, the Department of Social Services must consider only the resources and income of the applicant spouse in determining that spouse’s Medicaid eligibility, regardless of the Community Spouse’s net worth at the time the Medicaid application is filed.
But submitting a spousal refusal doesn’t necessarily let the Community Spouse off the hook financially. In such a case, the Department of Social Services retains the right to bring an action in state Supreme or Family Court to seek support from the Community Spouse towards the cost of the other spouse’s care. Historically some counties have been more aggressive than others in seeking recovery against a refusing spouse, but even when recovery is sought, the Community Spouse’s obligation to reimburse the County is at the Medicaid rate, which is significantly less (often 40-50% less) than the private pay rate.
For Community Spouses with resources significantly above the CSRA level (which is often the case after the couple’s assets have been transferred solely to the name of the Community Spouse), one effective technique is for the Community Spouse to consider using a portion of their excess resources to purchase an immediate annuity, which effectively converts the excess resources into a stream of income. For example, assume a Community Spouse with total excess resources of $300,000 uses those funds to purchase an immediate annuity that pays her $1,500 a year per life (the actual income stream will be determined by the Community Spouse’s age at the time the annuity is purchased as well as the prevailing interest rate). If the Community Spouse’s other income was $2,000 per month, the additional annuity income will bring her recurring income to $3,500 per month. Although that sum is over the MMMNA amount of $2,898, DSS will request a spousal contribution of only 25% of the Community Spouse’s income above the MMMNA level. In the above example, the spousal contribution would be only $150.50 per month (or 25% of the difference between the Community Spouse’s monthly income of $3,500 and the $2,898 MMMNA amount). While it is true that in using this technique the Community Spouse may forfeit the right to receive any of the ill spouse’s income, the Community Spouse would also remove any threat that they can be sued for having excess resources, which may be of paramount importance.
Used appropriately, spousal refusal can help a couple preserve a significant amount of their hard-earned assets. Consultation with an experienced elder law attorney is advised whenever long-term care needs arise.