By Deirdre R. Wheatley-Liss, LL.M, CELA
Medicaid is governed by federal law. Marriage and divorce are governed by state law.
When a married individual seeks to qualify for Medicaid in New Jersey, the couple’s house is an exempt asset. The person looking to qualify for Medicaid cannot have more than $2,000 of assets. The spouse cannot have more than approximately $125,000 in assets.
In New Jersey, retirement plans are not excluded from that calculation. You can be forced to spend down your entire retirement security to get down to that magic 5,000 number.
I am often asked if one can get around these limitations by transferring assets – between spouses or to children or others.
Under Medicaid rules, you can't qualify for Medicaid if you have given away any money within five years of applying for it. The federal government takes the approach that, in order for a divorce not to be a transfer of assets, it must have taken place more than five years before an individual applies for Medicaid benefits.
Example: You have a prenuptial agreement which says that one spouse gets 80% of the assets and the other spouse gets 20% of the assets and you've been married for 20 years. Medicaid will take the position that the person with the 20% – assume this is the person who needs the long-term care – intentionally gave away 30% in order not to have to spend it down before qualifying for Medicaid. In this case, a prenuptial agreement is irrelevant because eligibility for Medicaid is defined by the federal government, which imposes this “spend down” requirement.
Again, this is why we talk about long-term care insurance, because marriage brings the support obligation. Long-term care insurance is helpful because it can provide you with the money that you need for care at the time that you need it, and it protects the wealth of the other spouse because they are not forced to reduce their assets to pay for long-term care.
(Note: One option to secure long-term care insurance is to buy a life insurance policy with a long-term care rider, which may be more affordable than a standard long-term care policy.)
Tip #1: Other Options to Protect Your Assets Against Medical Costs
Given the marital obligation to pay for the care of an ailing spouse, besides the purchase of long-term care insurance, it’s worth considering additional options to protect your assets:
Tip #2: Have You Thought About a Domestic Partnership?
In New Jersey, the law recognizes a domestic partnership as a very specific relationship: two people who are over the age of 62 who cohabitate and are financially responsible for each other.
To create a domestic partnership, you go to the clerk in your city and register as domestic partners and the clerk gives you documentation of the partnership.
A domestic partnership allows you to file joint state income tax returns and, if you inherit assets from your domestic partner, you do not pay New Jersey inheritance taxes. This is particularly helpful when it comes to passing your ownership interest in a house. If you have a domestic partnership and you die, the house will pass to your domestic partner with no inheritance tax and, since you are not married, you do not incur the duty to provide care.
Tip #3: Co-habitation Agreements within Prenuptial Agreements
Many people, by the time they reach 60, have multiple homes. In the course of crafting a prenuptial agreement, it can be advantageous to write a co-habitation agreement into the prenuptial which designates one of the houses as the marital home.
Essentially, the agreement says this house belongs to one spouse, it is always going to belong to that spouse, the other spouse is going to live in it also, and the spouses are going to share expenses according to a certain formula which is laid out in the agreement. That way, the agreement is clear that spouses are sharing the costs of living in the house, but ownership remains with the spouse that owned the house before the marriage.
Tip #4: Consider Moving to a Neighboring State
Eligibility requirements for government assistance vary from state to state.
For example, New York and Pennsylvania do not have the same rules as New Jersey regarding whether retirement accounts must be included in an applicant’s assets when calculating eligibility for government benefits. In Pennsylvania, as an example, as long as the retirement account is in payment status, it is not deemed an asset that needs to be spent down to $2,000, as is the case in New Jersey.
I have had clients who, if they were looking at aging issues (particularly issues related to degenerative diseases such as Parkinson's or Alzheimer's) considered moving across the border to Pennsylvania as a financial strategy. Doing so could put them in a more financially secure position as they faced paying for long-term care for degenerative conditions and other prolonged illnesses.
New York has a rule called “spousal refusal.” In New York, unlike New Jersey, you can choose not to support your spouse. In some instances, then, it could be advantageous to relocate to New York when planning for the expenses associated with long-term care.
This post is for general informational purposes only. The specifics of your situation could affect the applicability of the information provided in this blog post. For a video presentation of this information, please visit Graying Marriage and Divorce, here. For more detailed information, please visit www.porzioplanning.com or contact us for a free 20 minute telephone consultation.
