President Bush today (February 8, 2006) signed into law the Deficit Reduction Act of 2005, which among other provisions places severe new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care.
The law extends Medicaid's "lookback" period for all asset transfers from three to five years and changes the start of the penalty period for transferred assets from the date of transfer to the date when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage. In other words, the penalty period does not begin until the nursing home resident is out of funds, meaning she cannot afford to pay the nursing home.
The law also makes any individual with home equity above $500,000 ineligible for Medicaid nursing home care, although states may raise this threshold as high as $750,000.
The new federal law applies to all transfers made on or after the date of enactment, February 8, 2006. However, the law gives states that must pass legislation to meet the new requirements more time to come into compliance. This gives many people in most states a little time to plan. The deadline for states to enact their own laws varies from state to state, but generally it is the first day of the first calendar quarter beginning after the end of the next full legislative session.
Any transfer made before February 8 falls under the old transfer rules. But what about someone who transfers assets after that date but before his state comes into compliance with it? In all probability, this will depend on the date of the application for Medicaid. If the application is filed before enactment of the state law, it will probably come under the old transfer rules. If it is filed after the enactment of the state law, it will come under the new transfer rules.
The bottom line: if you have considered protecting some assets for your loved ones in case you later require long-term care, you should contact a qualified elder law attorney now. (To find an ElderLawAnswers member attorney in your area, click here).
The new law also:
- Establishes new rules for the treatment of annuities, including a requirement that the state be named as the remainder beneficiary.
- Allows Continuing Care Retirement Communities (CCRCs) to require residents to spend down their declared resources before applying for medical assistance.
- Sets forth rules under which an individual's CCRC entrance fee is considered an available resource.
- Requires all states to apply the so-called 'income-first' rule to community spouses who appeal for an increased resource allowance based on their need for more funds invested to meet their minimum income requirements.
- Extends long-term care partnership programs to any state.
- Authorizes states to include home and community-based services as an optional Medicaid benefit. (Previously, states had to obtain a waiver to provide such services.)
In addition, the law incorporates provisions in the original budget bill passed by the Senate closing certain asset transfer "loopholes," among them:
- The purchase of a life estate will be included in the definition of "assets" unless the purchaser resides in the home for at least one year after the date of purchase.
- Funds to purchase a promissory note, loan or mortgage will be included among assets unless the repayment terms are actuarially sound, provide for equal payments and prohibit the cancellation of the balance upon the death of the lender.
- States will be barred from "rounding down" fractional periods of ineligibility when determining ineligibility periods resulting from asset transfers.
- States will be permitted to treat multiple transfers of assets as a single transfer and begin any penalty period on the earliest date that would apply to such transfers.
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