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Division of Assets
DIVISION OF ASSETS Perhaps a little history will help put division of assets in context. The original Medicaid laws were passed in 1965. The purpose of the legislation was to provide health care for the elderly, blind, and disabled poor. It is income and assets sensitive. If you have too much of either, you will be disqualified from Medicaid. As the program progressed through the years, a problem arose. It was discovered that if one spouse became ill, all of the couples assets would be spent trying to care for the ill spouse. Once the assets were spent down, then the ill spouse became eligible for Medicaid benefits. But what about the well spouse? Now the well spouse had nothing to live on, or any assets to care for him/herself, and thus the well spouse would end up broke and on government assistance merely because of lack of resources. There were even stories about the well spouse living on dog food, because of the exhaustion of assets trying to pay for the care of the ill spouse. Congress then decided that it did not make sense to take everything away from the ill spouse and the healthy spouse, only to end up with both of them needing government benefits of some sort. In 1988, Congress passed the Medicare Catastrophic Coverage Act of 1988 , commonly referred to as MCCA(pronounced “Mecca”). It is from this legislation that the anti-impoverishment philosophy was developed. The idea of MCCA is that it is better to protect the well spouse by leaving the well spouse with some assets and only impoverish the ill spouse. As a result, division of assets was developed. The purpose of the division is to set aside to the well spouse one half of the couple's assets, with a minimum amount and maximum amount of assets. Division of assets only applies to situations where we have a married couple. Once it is determined that one of the spouses is going to need long term care, Medicaid allows the couple to divide their assets between each other. Then the ill spouse's assets must be “spent down” to no more than $2000. The minimum and maximum amount the well spouse is entitled to keep is adjusted each year by the Centers for Medicare and Medicaid Services. For 2007, the federal guidelines provide the community spouse (the well spouse) can keep one half of the couple's assets, but not more than $101,640. The least amount the community spouse is entitled to keep is $20,328, even if that figure is more than one half of the couple's assets. These minimum and maximum amounts are referred to as the “Community Spouse Resource Allowance” (CSRA). Perhaps an example will show us some various ways to handle the division of assets. Bob and Sarah are a couple living in a small community. Sarah, age 71, falls ill and is going to require long term care. She checks into Shady Rest nursing home. She has twelve months of long term care insurance that pays $60 per day. Shady Rest charges $130 per day. Thus, Bob will need to pay $70 a day just to keep Sarah in the nursing home. (That is $25,550 per year. After the long term care insurance runs out, the cost for just the nursing home will be $47,450 per year.) Bob and Sarah have the following assets: home $75,000; Bob's IRA $30,000; Sarah's IRA $20,000; jointly checking account $15,000; time share $10,000; annuities $100,000; one Buick $5000; one Chevrolet $3000; life insurance cash value $8000; personal belongings and clothing $10,000. If you add all these together, the total value is $276,000. Many would say that at this point it is too early to engage in a division of assets; that Bob can only keep $101,640 as his CSRA, and so the rest needs to be spent down. Some even believe that you can not do a division of assets if you have long term care insurance. They could not be more wrong on both accords. Before doing the division of assets, the law allows you to deduct certain “exempt” items. In Bob and Sarah's case their exemptions are the house ($75,000), one of the vehicles ($5000), the personal belongings and clothing ($10,000), and part of the life insurance cash value not to exceed $1500. A lesser understood exemption is the well spouse's IRA (Bob $30,000). As a result, we have reduced the total value of the assets by $121,500 (the total value of the exemptions). The remaining assets total $154,500. Those remaining assets are referred to as the “countable assets”. Now the division of assets can occur. But many times people in Bob and Sarah's situation fail to engage in the division of assets until much later. Instead they continue to private pay, even after the long term insurance policy runs out. They may even spend some exempt assets, such as Bob's IRA. By the time they do the division of assets, the countable assets of $154,500 may be spent down–many times to almost nothing. Bob and Sarah may not do anything until they are down to $50,000 or even less. If they do the division of assets then, Bob will receive only $25,000. The other $25,000 will be assigned to Sarah and then must be spent down to $2000. However, if Bob and Sarah engaged in a division of assets from the very beginning, Bob would have been given $77,250. The other $77,250 would be assigned to Sarah. Here is the great part. Once the division of assets has occurred, then all legitimate expenditures should be from Sarah's $77,250–not just expenses for Sarah (such as the nursing home), but also all of Bob's expenses. Yes, that is right–even Bob's expenses. I would encourage Bob, once the division of assets has occurred, that he invest his $77,250 in some safe investment. In theory, if Bob does this right, when Sarah has finally spent all her share of the division of assets, then Bob should still have his $77,250 as his Community Spouse Resource Allowance, plus whatever growth that has occurred in those assets. In addition, he will have his home, the Buick, $1500 of life insurance, and $30,000 in his IRA (total of exempt assets $121,000 plus Bob's CSRA of $77,250, for a total of $198,250). There are other steps that can be taken to protect Bob, but even with this minimum planning you can see we have achieved the goal of MCCA to not impoverish Bob. W:\OFFICE\WPWIN\ELDER LAW Public Relations\Kansas Senior Times\2007- 07 Division of Assets.wpd
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