|One Spouse Institutionalized — The Snapshot Approach
The “income-first” rule under DRA.
August 19, 2010
When one spouse is institutionalized, a “snapshot” of the nonexempt assets of both spouses is taken as of the date of admission to the institution. (Note: The term institutionalization applies not only to someone who is actually in an institution, but also to someone who is expected to remain for a period of at least 30 days. So, for example, a person who suffers a severe stroke and is hospitalized and expected to remain in the hospital for at least 30 days might be classified as “institutionalized,” while another person who is hospitalized for an operation, but is expected to be discharged in a few weeks might not be.) The community spouse is permitted to keep one-half of the total, with the minimum currently being $20,328 and the maximum being $101,640, depending on the level established by his or her state.
If the community spouse has less than he or she is permitted to have, the institutionalized spouse is permitted to transfer an amount to the community spouse that would bring him or her up to the allowable level. If the community spouse has too much, he or she must spend it on the medical care of the institutionalized spouse.
Mark and Mindy live in a state that permits the community spouse to have $101,640. Mark has $70,000 in his name and Mindy has $40,000. Mark is institutionalized.
He is permitted to transfer $15,000 from his funds to Mindy so that they each have $55,000.
Some states permit the community spouse to have the maximum, not merely one-half of the
Assume the same facts as in Example 1, except that Mark is now permitted to transfer
Billy Joe and Bobbie Sue is a married couple. Billy’s income is $1,300 per month from his pension and Social Security and Bobbie’s is $500.
If Billy is institutionalized — assuming the couple lives in a state that permits the minimum community spouse income allowance ($1,650) — Bobbie would receive an additional $1,150 from Billy’s money.
Only the balance, less Billy’s $30 to $60 monthly allowance depending upon the state, will have to be turned over to the nursing home.Under the “snapshot” provision of the law, the community spouse must spend any excess resources (those above $20,328 to $101,640) on the institutional care of the ill spouse before that partner will qualify for Medicaid. If the community spouse feels that this division will be insufficient to provide for his or her needs, the remedy is to request a hearing before the Department of Social Services or to seek a Family Court order increasing the support. Most often this would occur where the transferred assets, when considered along with the couple’s income, will not bring the community spouse up to the allowable income level.
Gil and Gilda live in a state that permits the maximum amount — $101,640 of resources and $2,541 of monthly income. Gil is about to enter a nursing home.
Their state’s snapshot provision requires that the community spouse only be given half of the combined assets of the couple.
Thus, if Gil has assets of $100,000 and Gilda has $90,000, Gil would be permitted to transfer only $11,640 to Gilda to raise her assets to $101,640.
In addition, Gil’s monthly income is $1,200 and Gilda’s is $900, both from Social Security. Of Gil’s income, $1,140 — his $1,200 less the monthly allowable amount of $60 — would go to Gilda. Even after this is done, however, Gilda’s monthly income is only $2,040.
Gilda might choose to request a hearing or to commence a court case in an attempt to convince the hearing examiner or judge that she should be allowed to keep more of Gil’s assets – say $50,000 more — rather than spending it on his care.The rationale is that Gil’s $50,000 will produce an additional $160 of monthly income for Gilda, thus bringing her up to $2,525 — not quite the $2,541 she is permitted, but all that is possible in this case. She could possibly convince the decision-maker that this is a fair thing to do.
Note: Every state has its own procedures and body of law regarding the allowance ofadditional amounts to the community spouse. It is crucial for you to know what your state’s welfare department or court system has seen fit to approve.
What about the case where a couple might possess a small amount of resources but a large income? Say, for instance, that in the above example, both Gil and Gilda’s income was $1,500. If $1,041 of Gil’s income was allocated to Gilda, she would have $2,541 per month and could probably not convince a judge or hearing officer to allocate an additional $50,000 of her husband’s assets to her.
But what would happen if Gilda’s attorney were clever and asked Gil to refuse to assign his Social Security payment to Gilda?
Under a 2000 U.S. Second Circuit Court of Appeals case, Robbins vs. DeBuono, the Court held that because Social Security income is inalienable (in other words it is not subject to judgments or liens) it could not be transferred from one spouse to the other without the former’s permission.
By not giving permission, the institutionalized spouse could provide the community spouse with additional assets to generate the same $1,041 of income.
To illustrate: Say that a community spouse required an additional $1,000 of monthly income as discussed above. If interest rates are currently around three percent, $400,000 of additional resources would be required to produce this annually. ($400,000 × 3% = $12,000/12 months = $1,000 a month, taxes not considered.) If you were the spouse of someone who was institutionalized, which would you prefer: to spend all of your joint husband-wife resources and receive $1,000 from your spouse until he died or to keep $400,000 and use it to generate income for the rest of your life? It is always better to have the resources allocated first, not the institutionalized spouse’s income.
The ‘Income First’ Rule Under DRA
The Robbins case has been effectively overruled by the Deficit Reduction Act (DRA). The law now requires that before additional resources may be transferred from one spouse to another to generate additional income for the community spouse, the monthly income of the institutional spouse must first be allocated. This has come to be known as the income first rule.
* This article has been excerpted from Adviser’s Guide to Counseling Aging Clients and Their Families, which is available on CPA2Biz.
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Ezra Huber, JD, concentrates his practice in elder law — specifically financial planning to avoid bankruptcy from catastrophic medical illness. He has authored or co-authored five books and graduated from Brooklyn Law School.