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Mark Freeman, attorney practicing elder law and dedicated to protecting your family's assets from the cost of nursing home care. Mark Freeman, protecting your assets and savings from going to the cost of nursing home care.

New Nursing Home Law Update

The provisions of the new law that affect payment for nursing home care are part of a larger bill called the Deficit Reduction Act of 2005. The Deficit Reduction Act was signed by President Bush on February 8, 2006.

The major provisions of the bill are as follows:

  1. Extend the general look-back period from 3 to 5 years.

    The former law provides a three year look-back for transfers to individuals and a five year look-back for transfers to trusts. The new law provides a five year look back for transfers to individuals as well as trusts. What is a look-back? When an application for benefits is made, the reviewing authority has the right to examine all financial transactions of the applicant within the look-back period, which will now be five years for all transactions.
  2. Delay the start of the penalty period for transfers of assets within the look-back.

    Under the former rules, the penalty period started in the month of the transfer. This was especially helpful when transfers are made when a person is living at home and the cost of living is significantly below the $6,000.00 or more per month that it can cost for a person to reside in a nursing home. The new rule delays the start of the penalty period to a time on or after a person actually enters a nursing home. The language of this provision continues the time honored tradition that our federal law in this area is an "aggravated assault on the English language." As a result, there is some debate on exactly when, after a person is admitted to a nursing home, the penalty period may begin. For purposes of sheltering assets from being used to pay for nursing home care, this is the most detrimental provision. This is also the provision that provides the most concern about how ordinary acts of giving to the natural objects of your bounty such as gifts to churches and charities, and to children and grandchildren for things like weddings, tuition and cars will be treated under the new rules. The concern is that these ordinary acts of giving will cause ineligibility for benefits which may lead to a demand that such gifted funds be repaid.
  3. Limit the amount of home equity that will be exempt.

    Under the former rules there is no limit to the amount of home equity in a residence that can be exempt from being considered as an available asset to pay for nursing home care. Under the new law an applicant cannot have more than $500,000.00 of equity in their residence and still qualify for benefits. Under the new provisions each State may choose a limit for home equity higher than $500,000.00 up to a maximum of $750,000.00.
  4. Mandatory designation of the State as contingent beneficiary of annuities.

    Where an individual receiving benefits or a spouse of an individual who is receiving benefits owns an annuity, the new law mandates that the State be named as a remainder beneficiary. The amount of recovery is limited to the amount of benefits provided to the individual who received benefits.
  5. Mandatory Income First Rule for the Community Spouse.

    When there is a married person in a nursing home, that person in the nursing home is considered the Institutionalized Spouse and the other spouse who is living at home is called the Community Spouse. Ordinarily a person receiving benefits in a nursing home gives up their income to the nursing home. In the case of a Community Spouse whose income is very low compared to the Institutionalized Spouse, this can place the Community Spouse in an extremely difficult position when it comes to paying for taxes, utilities and the expenses of living. This is a very common situation where the husband is in the nursing home and during the earlier years he worked while the wife stayed home and raised the children. Under the former rules, some states including Pennsylvania, allow a Community Spouse to keep more assets in order to allow them to be able to survive financially. Under the new rules no additional assets can be kept unless the income from the Institutionalized Spouse is first used to make up the income deficiency that would be created if all of the income of the Institutionalized Spouse was first diverted to the Community Spouse. New Jersey already applies these Income First rules.

Concerns about what this new law may mean for you if you are not in a nursing home

Concerns about the new law have been raised about the following types of actions that occur within the five year look-back:

  • Weekly contributions to church or other charitable giving.
  • Paying for college or private secondary school tuition of a child or grandchild.
  • Helping a child or grandchild with a down payment to buy a house.
  • Gifting the annual federal estate tax exclusion (which just went up to $12,000.00 in 2006) amount to children and grandchildren.

The concerns that have been raised are that if people make these ordinary types of distributions to their family members and subsequently need care in a nursing home, the State may seek reimbursement of these distributions from the family members. Under existing law this does not happen however, in Pennsylvania a law passed in July of 2005 called Act 43 authorizes the Commonwealth to seek support for parents from their children.

Will the State sue children to pay for parents' nursing home care?

When you couple the new federal law regarding nursing homes and the new Pennsylvania Act 43 regarding children supporting parents it is not a big stretch to see a time coming when the State will sue children to pay for their parents nursing home care. Another bad consequence could be that nursing homes end up providing care for extended periods of time without being able to get reimbursed for their services. You may hear about a hardship waiver that would address this situation, however, there is a hardship waiver now and it does not help nursing homes in this situation. Under the new law nursing homes are at even greater risk of not getting paid which will likely lead to more aggressive pursuit of children to pay for the care of their parents.

Implementation and effective date

Although Pennsylvania has implemented the provisions of the new law effective March 3, 2007, they are retroactively applying some provisions to transactions that occured after February 8, 2006. However, Pennsylvania has implemented the new provisions by publishing them in the Pennsylvania Bulletin and they have not yet followed the procedure required by law to make the new provisions part of the State regulations. Exactly what this means will be determined by appeals that are currently in process. In New Jersey the Division of Public Welfare has issued verbal instructions to implement the new federal provisions, however, like Pennsylvania, New Jersey has not taken the steps required to change their regulations. New Jersey is also retroactively applying some provisions of the new federal law. Appeals in New Jersey are currently in process and the outcome is yet to be determined. Check back here for more details as they develop.

Consult a qualified attorney NOW

While there may be some uncertainty as to the exact shape the new provisions will take when they are actually implemented, what is clear is that by acting before the new provisions are implemented at the State level will allow you to structure your affairs as much as possible under the old, more advantageous law. If you wait until these new more restrictive provisions take effect and you end up needing skilled nursing care, more of your estate is at risk to be consumed paying for your care.

If you were considering making a gift to your church, synagogue, family member or a charity, or if you had thought maybe you should transfer the house (or part of the house) to the kids or if you wanted to take affirmative steps to limit how much of your lifetime of hard work and savings would be consumed on paying for your long term care, then you should consult an attorney who can advise you on these matters in light of this new law.

Links relating to the new law

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Attorney practicing elder law and dedicated to protecting your family's assets from the cost of nursing home care.