Have you heard of this new phenomenon called the “Medicaid Divorce”? Ok maybe it isn’t a phenomenon, but it is a new concept some couples are doing, not very successfully I might add. I’m sure you are wondering what on earth is a Medicaid Divorce, so let me explain.
As people get older, and need assistance, they might have to go to a nursing home depending on their health and condition. Nursing homes can be a great option and sometimes the only option for people with dementia, or if they can’t perform the “activities of daily living.” These activities include: using the restroom, eating, transferring from one place to another, dressing yourself, and bathing yourself. However, as great as these homes are, they can be very expensive. How expensive? In New Jersey, the average nursing home costs $10,000 a month. That is a lot of money to dish out! So who pays this large bill? There are different ways to fund the monthly costs, such as using your assets, using your social security benefit (for part of it), any pension or annuity income, Long Term Care Insurance policy, or Medicaid.
Sure Medicaid looks like a great option, right? Let’s keep our money and income and have Medicaid pay for it. Sorry to burst you’re nursing home bubble, but the only way Medicaid will pay is if you are poor? How poor? You can have $2,000 to your name, and not a penny more! Your spouse is allowed to keep a certain amount of assets, but it isn’t much. So what happened when people realized this? Of course they found a loophole, I’ll just “gift” my money away and go on Medicaid. Well Medicaid realized this, and created the “look-back” period, which states that you will have to wait 5 years to qualify for Medicaid from the time you gifted assets away. There is a whole formula to figure out your waiting period, and if you want more information on this, click below. Warning: don't try to figure it out by yourself. It is more than worth it to do a little planning first.
Now back to the Medicaid Divorce…One family thought outside the box with transferring money to qualify for Medicaid. The husband/father was becoming very sick with Alzheimer’s, and the children came to their mother with a proposal. They told the mom to “divorce” the father so he can qualify for Medicaid. The mother had inherited a large sum of money before the marriage started, and there was even a pre-nuptial agreement stating her money was hers and his money was his. I have to give the children some creativity points on this one! On the other hand, I’m not sure this was a great scheme to put their father through especially since he was dealing with Alzheimer’s.
Subsequently they got divorced, and the father applied for Medicaid with the children’s help. The state of New Jersey said Whoa, stop the clock…NO WAY! The division of assets is not deemed a “fair division,” and hence you will not get Medicaid coverage. Uh oh…what a mess! The family had to lawyer up, spend lots of money, and try to fight that there was a pre-nuptial agreement stating how the division of assets was to be. The state did not care about the agreement, and the judge ruled in favor of the state. A lot of time, money, and emotions spent for nothing.
The point of my tale is to get a laugh over a very serious and boring topic, but more importantly, to say there are much, MUCH better ways to plan for elderly care costs than getting a “Medicaid Divorce.” My advice is to speak with an elder care attorney or estate attorney, not your real estate attorney. Talk to them about your situation to find out your options. And schedule a call with my firm to find out ways to fund a nursing home, assisted living facility, or at home-care costs. There are more ways out there than you think, so schedule now! Your spouse and children will be so happy you did some planning. As anyone who has been through it with their parents can attest, it can be a complete mess when you are in the midst of it. Why put your family through it when you don’t have to? Remember the legacy you want to leave your children and grandchildren, and get the conversation started.
Happy Long Term Care Planning!
Jessica Weaver, CFP®, CDFA™, CFS®
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