by Chadwicke L. Groover, Attorney, Upstate Elder Law
Seniors spend their lives building up wealth to hand down to their children. In the face of the astronomical costs of long term care, many seniors struggle with having to spend down on their care what they spent a lifetime building. Naturally, these seniors want to find a way for the government to pay for their long term care without losing their house and other assets.
The primary government program offering assistance to seniors with the cost of long term care is South Carolina Medicaid. The program will pay the cost for long-term care in a skilled nursing facility or an intermediate care facility for those who meet certain financial qualifications.
To qualify, an individual applying for SC Medicaid can have no more than $2,199 in monthly gross income. Additionally, the applicant may have no more than $2,000 in available resources. If the applicant is married to a person who is not in need of care, the spouse may keep an additional $66,480.
The following resources are exempt from consideration:
- A primary residence to which the applicant intends to return
- A vehicle of any reasonable value
- Any IRA accounts in payout status (the applicant is over 70.5 years old and is receiving Required Minimum Distributions)
- A non-refundable pre-need funeral policy
- Two cemetery plots
- Life insurance policies with a collective face value of less than $10,000
Because SC Medicaid pays for an applicant’s long-term care needs, the State prohibits the applicant from giving away assets in order to qualify. The South Carolina Department of Health and Human Services (SCDHHS), which administers the Medicaid program, generally prohibits the transfer of assets by an applicant in the five years prior to the filing of the application for Medicaid. In fact, after an application is submitted, the SCDHHS will conduct a thorough five-year review of all banking and investment accounts to determine if any prohibited transfers have been made.
If the SCDHHS finds that the applicant has made impermissible transfers in the five years prior to the application date, they will either deny the Medicaid application or assess a substantial penalty, which is more often than not larger than the actual gift itself.
For seniors who have the ability to plan five years in advance of applying for Medicaid, there are at least two common ways to protect assets, including the house. First, a senior could create an irrevocable asset protection trust and fund that trust with their residence or other real property and investment accounts. In order for such a trust to be considered an unavailable resource, the grantor of the trust is prohibited from serving as the Trustee or having any control over the operation of the trust or being able to direct any distributions from the trust. While the Grantor would be entitled to any income generated by the trust, the Trustee would be prohibited from distributing any of the principal of the trust to the Grantor. However, the Grantor could retain the right to live in the primary residence held within the Trust without jeopardizing his ability to qualify for Medicaid.
Second, the senior could simply transfer title to the real property to his children. The senior could deed the property outright or retain a life estate in the property guaranteeing the right to reside on the property as long as the senior lives. A senior considering this option should talk with a tax accountant or elder law attorney about any potential capital gains tax implications.
For seniors who do not have the ability to plan five years in advance, all hope is not lost. Prior to applying for Medicaid, the senior may transfer the residence to the following individuals without being denied or assessed a penalty:
- A spouse living in the community and not in an institution
- A minor child of the applicant’s who lives in the home
- A disabled adult child
- An adult child who has cared for the senior while living in the home with the senior for more than two years.
All this being said, it is best to seek the advice of a competent elder law attorney before making such transfers.