If assets are transferred but something of value is received in return for the transfer than "fair consideration" has been received and a period of ineligibility has not been triggered. Paying someone to assist you or your spouse for your care falls into this category. This can be a very helpful asset reduction technique if used properly.

     However, Medical Assistance personnel are likely to carefully scrutinize payments to younger relatives, i.e., children. Only reasonable payments can be made - for instance, you can't pay someone $2,000.00 each time they drive you somewhere and expect Medical Assistance to overlook it. But, if full time care provided at home costs $30,000 a year in your area, a child providing the same services could be fairly compensated that same amount. You should definitely consider using a portion of assets to pay a reasonable amount for services rendered.

     The Medical Assistance personnel may presume that payments to children are really gifts and thus should trigger an ineligibility period. To bolster your argument that you should be allowed payments for actual services, treat the arrangements - in advance if possible - as if it were truly an employer-employee relationship. For example, reporting the payments on your income tax return as income would bolster this argument

     To take advantage of this planning tool, the annuity generally must meet three requirements. It must be immediate, irrevocable, and non-assignable. Irrevocable and non-assignable mean that you can't cash it in or sell it - under those circumstances, an annuity purchased for or on behalf of someone going into a nursing home has no market value as a resource, and so it doesn't count as part of that person's countable assets.

     Immediate means that it starts paying you a monthly payment immediately rather than on a deferred basis. If some or all of the payments were deferred, the state would probably argue that the annuity is really a gimmick to leave assets to one's heirs after you pass away. When the annuitant passes away, the annuity payments should end. Again, by setting up the annuity payments in this way, the state can't argue that this is simply a trick to pass assets to heirs.

     What if you should die the day after buying an immediate annuity? Answer: All the money would be gone and your heirs would get nothing. To avoid this financial disaster, most people obtain a guarantee from the insurance company that payments will continue for a fixed number of years. For example, if the annuitant arranged for a ten-year guarantee period and died after three year, payments would be made to that person's heirs for seven more years.

     To prevent people from using unreasonably long guarantees to pass assets to heirs, the federal HCF requires states to limit the guarantee period to a person's life expectancy. Purchasing an annuity with a guarantee longer than the annuitant's life expectancy would be considered a transfer of assets to that person's heirs and would trigger an ineligibility period.

     Pennsylvania can recover payments for medicaid benefits from the estate of a Medical Assistance recipient, including most notably (and painfully) the house. But Pennsylvania cannot recover assets from the estate of a Medical Assistance recipient's spouse (unless a lien had been placed on the property while it was still in the nursing-home spouse's name.) This is critical: Federal law clearly prohibits states from "grabbing" the house if it is in the community spouse's name.

     Since the will of the community spouse should have been changed leaving everything to beneficiaries other than the institutional spouse - usually the children - the institutional spouse has been disinherited. However, under Pennsylvania law, a disinherited institutional spouse has the right to "elect against" the community spouse's will and will be awarded 1/3 of the community spouse's estate. The Medical Assistance office will require that this be done. Therefore, the institutional spouse will receive either 1/3 if the house or 1/3 of the proceeds of the house. So, we have initially saved 2/3 of the home from being taken. After the election is made, the institutional spouse receives their 1/3 which we immediately gift 1/2 of this 1/3 back to the beneficiaries. This allows us to protect 5/6ths of the home!

Transfers of the home to the following class of people will not trigger any ineligibility period:

     We may transfer a "remainder interest" in the house to the children, which means that the children will automatically own the home when the parent dies. The parents will create and keep a "life estate" or a "right to use and occupy," which gives them the legal right to live in the house as long as they are alive.

     By parents giving away a "remainder interest," they are passing a majority of the value of the house. If they enter a nursing home, at most only the value of the life estate or the right to use and occupy (which Medical Assistance will calculate based on the parent's life expectancy and the home value) would be counted against them.

     How would the above information apply if the parent gave their house to the children and retained a "life estate." Let's assume that the parent's house is worth $125,000.00. (We would determine the value by doing an appraisal on the home just prior to the gift.) Let's also assume that the oldest parent is 75 years old.

     Based on the Health Care Financing Administration Life Estate Tables (State Medicaid Manual, subsection 3258.9 (HCFA Transmittal No. 64), the value of an 75 year old persons life estate is calculated at .52149 and the remainder is .47851. Applying these numbers to the property, the parent's life estate - the portion she retains - is worth $65,186.25. While the portion she has given away is worth $59,813.75. If we apply Pennsylvania's Medical Assistance Law, we would divide $59,813.75 (the remainder interest value) by $4,589.88 (Average Monthly Cost of Nursing Home in Pennsylvania) which would translate to a 13.03 month period of ineligibility for Medical Assistance. As you can see, the Medical Assistance ineligibility period which may be created as a result of the gift of the "remainder interest" will be shorter than if the entire property was given away without the "life estate."

     Based on the above facts, the institutional spouse would not be able to apply for Medical Assistance for 13 months after deeding the house to the children if the house was the only asset given away and fair consideration was not received.

     Please note that under Pennsylvania Inheritance Tax and Federal Estate & Gift Tax law that the home in the above example would still be considered part of the parent's estate, i.e., the beneficiaries of the house would have to pay inheritance tax on the fair market value of the house at the parent's date of death. The good news is that the children would also receive a "stepped up" basis in the property and will not have to pay the 20% capital gains tax if the property was later sold.

     On occasion, drastic measures are required to deal with a catastrophic event such as paying for the cost of nursing home care. There are some situations when the only apparent solution for the healthy spouse is to take legal action against the institutional spouse for divorce. The reason that divorce may be your only out is that a court order for the payment of income or the transfer of assets from the-institutional spouse to the healthy spouse constitutes an exception to the standards for monthly income allowance or Spousal resource allowance under medical assistance laws.

     Obviously, the problem with this strategy is that divorce is easier to talk about then it is to go through. A spouse who has been married 40 or 50 years will find it very difficult to publicly file for divorce. The healthy spouse will feel that they are deserting the institutional spouse. Although drastic, divorce is one of the options that must be explored.

     As you can see, qualifying for medical assistance to pay for nursing home care for you or a loved one while at the same time preserving your assets may be difficult. Please do not attempt to implement any of the above asset protection strategies without the assistance of a competent elder law attorney.