Ted (00:00.066)
Good morning, everyone. This is Ted Goodarth. I have the good fortune today of having a guest with us on our podcast by the name of Dale Krauss. Dale is an estate planning lawyer originally from the state of Michigan, but for many years is what I have termed the inventor of the Medicaid compliant annuity.
a real strategy that we use for our clients, oftentimes who find themselves in crisis and needing Medicaid to pay for their nursing home bill. Welcome, Dale, to our podcast. Thank you for having me. Hey, let’s start, Just give me a little bit of your personal background. Yes, I began practicing law in 1985. I had moved to a small town in the Upper Peninsula of Michigan.
And I joined an estate planning practice that focused on revocable living trusts. And so the whole opportunity with that firm was to build out estate plans so that clients would have the comfort to know that the time of their death or in capacity, the revocable living trust to do everything that they wanted it to do. So they would avoid probate. They would keep things confidential. And they would have an expedited process.
for getting all of their assets to the next generation. Sure. And that’s how I began my career as a traditional estate planner. So how is it as a traditional estate planner that you would enter into the Medicaid realm, which, let’s face it, for traditional estate planners is not what they normally do, really? Well, that happened by accident. One of the tasks I was assigned
as one of the new associates was to work with existing Revocable Living Trust clients. And in Michigan, I would meet with them, find out what changes have occurred since the last time they were in. And we tried to meet with our clients about every one to two years to update the Revocable Living Trust. So if there was a death in the family, someone went to the nursing home, whatever, but we would update the trust and keep it current. Well, one day clients came in and they were rather upset with my partner who had drafted the Revocable Living Trust.
Ted (02:18.479)
and said that the husband was now in a nursing home and she was trying to get her husband on Medicaid. the caseworker told her that because their house was in a revocable living trust, we did what’s called a joint trust, the house was an accountable asset for Medicaid purposes and she’d have to spend down the value of the house before he could go on benefits. And being a new associate, I asked the partner, I said, what do you know about this problem that we’re now facing?
And he said he hadn’t come across it because nursing home care and assisted living care and all of that was quite new. And there wasn’t a lot of it going on. But in order to tackle the problem, I went down and met with the caseworker and the caseworker said, yes, in Michigan, if a house is in a revocable living trust, it becomes a countable asset. It’s no longer exempt. And not knowing anything about Medicaid, I did what I could at the time. We didn’t have the…
We didn’t have computers or access to hands-on information. I said, what if I take the house out of the living trust with a quit claim deed, put it back in her name? The caseworker says, I can’t tell you what to do, but if you do that, he will be immediately eligible. So I went back to the office. I drafted a quit claim deed, put it back in her name, and then we took the recorded deed back down to the caseworker, and she put the husband on. Because the value of the house was their most significant asset,
The spend down was eliminated. He went right on Medicaid. And so I told my partner, said, we have to get all of our clients as part of their update. We have to know before they apply for Medicaid so that we can fix these problems ahead of time. And so clients started coming in. And it was my task to learn about Medicaid. Wow. That’s a great story. How long ago was that? That was 1986, 87. OK. And that rule still is true today.
house is in a revocable living trust in Michigan, it is a countable resource. You know, here in Ohio, they finally passed a statute saying that no longer is the case. So we finally corrected that problem here. It sounds like they have not in Michigan. Yes, but we actually, if you reverse engineer by taking the value of the house out of that, out of the trust and putting it back in her name, because the house was a significant value.
Ted (04:42.735)
had the house not bid in, there still would have been a spend down. Sure. Because it was the value of the house and the value because it was the largest valued asset traded an instant spend down, she didn’t have a spend down. So in that case, going back with hindsight being 2020, I saved them $50,000. Wow. By doing that and taking it out. It just because of how the numbers were. Yeah. And so I said to my partner, said, with a quit claim deed, we saved that family about $50,000.
that they would have had to spend down had the house not been in the living trust. Because they still wouldn’t have had to spend down. And so in looking at that and figuring it out, I mean, I didn’t know anything about Medicaid. I said, boy, this is a real opportunity if we have those similar cases in our file cabs. And we did. And people came back one by one. And so then as I learned about that strategy, which we now had to really focus on, because a lot of people have revoked the living trust, and they always put their house in it.
We could reverse engineer out, but then I developed the first Medicaid compliant annuity for the other assets. Now how in the world does a associate attorney in Michigan who is just starting to do or dabble in the Medicaid planning world, how is it that you come about to be really the inventor of the Medicaid compliant annuity? How does that happen? Well, as I got more cases in and had I had that same case and
they would have had a $50,000 spend down. I said, what is it that you want to spend half of the life savings on to the extent of $50,000? And the woman said, well, boy, when my husband passes, I’m going to lose one half of our income because I’m going to keep the larger of two Social Security checks. But I really don’t want to spend it on something. I’d like a stream of income. And I said, well, maybe I can get some type of an annuity. I knew nothing about financial products, nothing about insurance products.
I was trained as a lawyer, I understood legal documents and law, but I met with a couple financial advisors and I said, can you get me an annuity that’s an immediate annuity because it has no cash value. And I put it through the system and the caseworker said, that works, that works, that’s fine. Has no cash value. And so then I went to an insurance company and said, I think there’s more of this business out there, but I need to have a good product.
Ted (07:09.232)
So did you immediately form Kraus Financial then, or did that come about a few years later? A few years later. When the Hickford Transmitted 64 came out in November of 94, it was the first time we had the first life expectancy table. And at the time, the insurance companies didn’t have short products. So if I had an 85-year-old client, I needed a relatively short annuity, or if my client was 96.
And all the traditional insurance companies said, we don’t have products that short. Ours are 10, 20, 30 years long. And because we had to have the life expectancy table meet the criteria in Transmyl 64, I went and got an insurance company to follow that table. And they said, we can do it. We can build you that product. So it’s really you going to an insurance company and working with them to design the first Medicaid compliant annuity. Yes. And then I took it to.
Nail it and I set up a table. remember the table, know, a four by eight table and I had a single color brochure and I said, I’m not sure if it’ll work in every state because I just used it in Michigan and the insurance company had developed it to work in every, well, to be used in every state. They didn’t know if it would work. And I remember a good friend of mine, an attorney there, Eric McDonald from Arizona said, do you think it’ll work in my state? And I said,
We could try and we tried and it worked. And then he was the start of it. The snowball started to make its way down the hill and I started getting phone calls. My 800 line was going crazy. My 800 bills were getting longer and longer and I said, I’ve got to focus on one thing. And so it took a few more years after that to kind of get things to settle. But then I started Kraus Financial Services. So let’s take a little bit of a step back.
Let’s talk the basics between Medicare and Medicaid and when somebody might be eligible for one versus the other and what’s the difference. And then let’s talk a little bit about the different types of annuities before we jump into the immediate annuity. Talk a little bit about what Medicare covers today and what Medicaid covers today and the fact that it’s both, I think, a federal and a state program.
Ted (09:35.122)
Yes, most clients know they have Medicare, but they don’t know anything about Medicaid. And so everyone has Medicare once you turn 65. And when it comes to long-term care, Medicare really covers short-term care. They cover skilled care in a nursing home where some doctor has put someone on a treatment plan. Typically, someone falls, fractures a hip. They go to the hospital for a hip replacement. They can’t go immediately home because they need physical therapy.
And so they go to a nursing home to get that. So Medicare can help with up to 100 bed days of nursing home care if it’s accompanied by a doctor’s treatment plan for an illness or injury that commenced that. So Medicaid and Medicare are different. Medicare is short-term care in a nursing home. Medicaid is long-term care. So talk a little bit about Medicaid.
and what it will or won’t pay for in the various states. Well, when I think of Medicaid, I know that every state has a Medicaid program, the long-term care Medicaid program, and that covers nursing home care. And when you’re in a nursing home under Medicaid, you’re there for custodial care, which is care, know, eating, bathing, dressing, transferring, toileting, basic things in life.
or you could have a cognitive impairment like Alzheimer’s dementia, where you have to be in a safe environment. And so when you’re in a nursing home on Medicaid, Medicaid will pay all of the costs associated to that stay. Now Medicaid when it comes to assisted living, Medicaid does have programs in individual states, but they’re not as vast as they are for nursing home care. And I suspect that’s what because of the
strong interest of the nursing home lobby to lobby Congress to make that happen? I think most nursing homes find it very difficult to have a self-pay facility because the cost of nursing home care and I’ve seen you know it’s 14,000, 15,000 a month in New York, Alabama could be 5,000, 6,000, Michigan’s know 8,000 to 12,000 and so it’s rather expensive and I think most nursing homes have to have Medicaid
Ted (11:58.822)
to pay for the ongoing costs of their facility. And so Medicaid is their payer source that they rely on to operate their facility. So as I understand it, under the federal program through regulation, the federal government establishes some real basic criteria in order to be eligible for long-term care Medicaid. What are those basic requirements? Well, know, the federal government sends out the rules and then the states agree to
follow those rules. And so that’s how you get the federal state funding. And so the federal government says, we’ve got money earmarked for this type of care. Here are our basic rules. So a state can be more liberal, it just can’t be more restrictive. And so the states then sign on to the program. And so the federal government doesn’t take the applications or process any of that. All of that done is at the state level, usually in a county office. You know, where I see a lot of confusion these days from
clients is over, are we talking about Medicaid for health insurance versus long-term care Medicaid? You know, two different programs with two different eligibility requirements, right? Yes, every state has multiple Medicaid programs for all different levels of things. So I think of long-term care and nursing home care as a separate program. And the rules are pretty much the same state to state.
for those programs and not every state has all the other supplemental Medicaid programs like for health insurance, know things like that. So most people think when they think of long-term care Medicaid they think hey I can’t have any assets I’ve got to be totally emboverished. Talk a little bit about the basic requirements and and whether that’s true or not.
Well, you know, when you’re all alone in the nursing home, and I know that in most states, an individual in the nursing home can have a prepaid funeral plan, some personal property, things that make their life comfortable, and then they can have $2,000 in a savings account. And that’s really where you got to get down to in order to be eligible. And the whole reason for that is, you know, the government wants to be the payer of last resort. And so if you have any ability to pay on your own,
Ted (14:20.178)
they want you to use that. if Medicare is going to take care of part of the nursing home bill because you’re in skilled care, you’d go under the Medicare program. If you don’t transition out of the Medicare program because let’s say you didn’t rehab very well and now you can’t go home and you still have, you you need help with basic functions in life, you would stay in on the Medicaid side. So for an individual, you know, they’re told that you can have $2,000, anything more than that makes you ineligible.
with a husband or wife it’s a little different because the healthy spouse does not want to be impoverished. Sure. Well why don’t we just then say, all right, if you’re going to put me on Medicaid the day before I go on Medicaid, let’s say I’ve got $100,000 in the bank that’s going to make me ineligible. I’ll just give it to my spouse or give it to my kids and now I’m below $2,000. Why doesn’t that work? It did work many years ago.
before the Deficit Reduction Act in 2005, you could give away assets and then there was a penalty associated to it. So a simple example would be every state has a penalty divisor for gifting. Let’s just say for example it’s $5,000. Before the Deficit Reduction Act, before 2005, if I gave away $10,000, I would be penalized for two months. And so if I gave it away two months ahead of time,
By the time I went into the nursing home, I could be eligible. But the DRA said, no, we’re not going to start the penalty when you give the money away. We’re going to start the penalty when you’re eligible to qualify for nursing home care. And then we’ll start the penalty. So the Deficit Reduction Act changed the way penalties were applied. And so you can no longer give things away and expect to go on Medicaid. If you’ve given anything away in the 60 months prior to the application,
you’re treated as though you still have those assets. about your income? know, let’s say you’ve got Social Security or you got a pension or you’ve got maybe an immediate annuity. You have something like that and you go into a nursing home. Are you able to protect or save any of that or does that as a part of your patient liability, does that have to go to the facility? Yes, so that’s the patient pay responsibility.
Ted (16:40.743)
Everyone who’s in nursing home typically pays something for their care. So Medicaid is really not free for almost everyone. That’s true. And that’s why it’s very difficult for someone who’s all alone to still maintain a house and be in a nursing home, because they’re not allowed to maintain any of their assets except for $2,000. And then their income all goes to the facility. So it’s very difficult for that person who’s all alone to have.
any other assets that they might want to keep or retain. so typically, the individual in the nursing home is going to give up all of their monthly income from all sources, and they’ll keep a small stipend for personal items. if they need toothpaste, razor blades, things of that nature. So usually it’s somewhere around $50 a month they get to maintain. So every month as their income comes in, they pay it all to the nursing home.
And then the facility has a Medicaid rate. And so whatever the patient didn’t pay towards the per diem rate, they bill Medicaid the difference. Very good. Well, let’s move into the annuity conversation. You watch TV and you see these ads from certain financial companies that say annuities are bad, never go into an annuity. Let’s talk a little bit about
that and the different types of annuities. Why is it that there are companies out here who are really bad mouthing annuities across the airwaves and trying to persuade people that they’re no good? Well, I think the problem with annuities, you know, if you have a traditional annuity and the typical client will put money into an annuity because they want to have tax deferred income. And so if I put money, let’s say I have, I put
open up a $10,000 tax-deferred annuity, they’ll tell me that it’ll grow over time and I won’t pay any taxes on the growth until I take the money out. And so if I have a CD with the same amount, every year I got to pay taxes on it. And so they’ll tell you that by having it in the tax-deferred annuity versus the CD is you’ll get a stronger rate of return on the annuity because it’s going to grow faster with the compounding.
Ted (19:03.677)
and no taxation. But as you get older, you’ll have this product without this significant hidden tax liability that can be a problem for some people. And so that’s the primary criticism is that the gain in the deferred annuity is going to be subject to an ordinary income tax versus a capital gains tax that you might get in a stock portfolio.
Yes, that’s exactly what they do. So it’s a little higher rate you’re going to pay or your kids are going to pay versus what you’re going to pay when you sell the stock or you get a step up in basis on the stock, but the annuity gets no basis increase at death. Yeah, so if I keep the $10,000 and I have it over 20 years and I die with the tax deferred annuity, when my kids cash it in, they’ll be required to pay all of the income tax due at that time. Whereas with your example with a stock certificate,
they would get a stepped up basis at death, meaning there’s no taxation. And so that’s the distinction that individuals will make when they say like a tax deferred annuity is a ticking time bomb. So here when we talk about Medicaid crisis planning and Medicaid compliant annuities, we’re not talking about the typical deferred annuity product, right? That’s correct. Because a tax deferred annuity always has cash value.
Whereas a Medicaid compliant annuity has no cash value. Once you buy the product, it’s only a future stream of income. Explain to me how that works from a real basic standpoint. If I want to purchase this Medicaid compliant annuity, what does that look like? How does that work? How do I acquire it? How does it pay out? What kind of interest does it earn? Do I make anything or not?
Give me the mechanics of it. Yes, if like let’s say in a husband or wife situation, the husband goes into the nursing home and the wife’s at home and she knows that she gets a certain level of income and any income that comes in her name stays with her. She does not have to contribute any of it to the facility. Now the husband would give up all of his monthly income, less $50 to the facility.
Ted (21:25.203)
So if she takes, let’s say they have $100,000 of assets that need to be spent down in order for eligibility to come about. If she invests that into an immediate annuity with an insurance company, she would get a monthly payment starting a month after she purchases it, and the payments would continue for a duration of time, depending on what she wants. So she could say, I want the money back and.
25 months 26 months 36 months 40 months We try to give her a reasonable amount of monthly income so that she can meet all of her needs and so the goal of the annuity is the hundred thousand was causing ineligibility because it was available to them by putting it into the product in creating a future stream of income Because the no law the money is no longer available. That’s what afforded the husband Medicaid eligibility Yeah, that almost sounds too good to be true
It almost sounds like I’m taking a hundred thousand dollars that we have to, quote, spend down and I’m really not spending it. I’m buying an annuity, that’s true, but I’m creating a stream of income for the spouse at home. Presumably, that spouse at home, is it accurate to say that over whatever period of time she gets it, she’s going to get
all that hundred thousand dollars back as an income street? Yes, she’s going to get all of it back. Now these products were not designed to grow the money. They’re really designed to protect the money because most insurance companies don’t want to get involved with a Medicaid compliant annuity that has a short payback. So she said to me, Dale, I need the money back. I’d like 22 years worth of payments, 24 months. I divide 24 into 100,000. I say this is what you’re going to get each month.
She said, that’s perfect. And so most insurance companies don’t want a 24-month product because there’s no profitability for them. They take in the investment, they have to return it, and they don’t see the real opportunity. So they don’t want to get involved. The companies I work with understand that this is what we do, and they’ll make it up on volume. So even though it’s a small piece, the pieces add up.
Ted (23:47.605)
So is she getting any return at all, or is it simply a return of the full $100,000? Well, know, with interest rates as low as they are, a 24-month payback. So the moment she gives up the $100,000, next month she’ll get a payment of 1 24th of the amount. She’ll get a slight amount of interest. But again, it’s a 24-month payback. In 24 months, all of her money will be back in her bank account. And she doesn’t have to after she gets it back.
She doesn’t have to give that to the nursing home. She doesn’t have to give it back to Medicaid during her lifetime. No, that’s correct. As long as she lives the full 24 Well, there you go. That’s interesting. What happens if she dies? Well, then the state is going to be the primary beneficiary. And they’re going to say that at the time of her death, if payments remained, they want to collect those payments as the beneficiary of them.
to offset what they paid for his care. Well that makes some sense that there would be a reimbursement or if you will or a payment made if she dies, I suppose. Yeah, I mean the government looks at it like, you know, it’s nice for her to have it while she’s living but if she predeceases the term then they think at that point the need that she had is no longer there and the government then has the right to collect. And I suppose if you think that the goal here
is not to impoverish a spouse who’s well at home just because her spouse is in the nursing home from a public policy standpoint, I think that makes some sense. Yes, I look at it this way. mean, the typical couple today comes to me and I say, well, what does it cost for your financial needs every month? And the healthy spouses say, well, know, my husband’s now in a nursing home.
I haven’t seen a change in the real estate taxes, the utilities, the food bills slightly less. I’m going to the nursing home every day, so I’m spending more on gas and transportation. So my needs are still there, but now because his check is going to the nursing home, rather than going to her, that she can keep for those bills, she really needs that source of income that’s reliable. Sure. So you’re calling that a Medicaid compliant annuity.
Ted (26:09.429)
I think I heard you also call it an immediate annuity. Those are the same thing, right? Yes. A Medicaid compliant annuity. And we called it, I called it Medicaid qualified back in the 90s. Then I used Medicaid compliant after the DRA came out. Because I wanted people to understand what it is they’re buying. A Medicaid compliant annuity is an immediate annuity. Once you give up the $100,000 to the insurance company,
The insurance company gives you back a contract that says they will pay X number of payments over X number of months for a total return of those funds. The community spouse, know, that healthy spouse will name the state as primary. She’ll be the owner annuitant payee, meaning she owns the contract. Her measuring life is the trigger for the beneficiary provisions. And then she’s the payee, she gets the monthly payments. The state’s primary, and then the children would be secondary.
And so that contract has no cash value and we wouldn’t advise someone to set that contract up unless the husband was in a facility, he was going to remain there for the rest of his life and they needed the benefit of Medicaid. so that’s the only time you would use a Medicaid compliant annuity for that situation when the family’s in crisis and they want to stop the financial bleeding. So what happens in a situation where we have a single individual?
I understand the concept if we have a well spouse at home, we have too much assets for the husband to qualify or the institutional spouse to qualify. We want to quote spend it down. And so we buy this annuity and that those assets now become an income stream. get all of that. But how does it work when I’m a single person and I want to qualify for Medicaid? Is there a place here for
a Medicaid qualified annuity or a Medicaid compliant annuity to work in that scenario? Yes. Now with the husband and wife situation, we can typically protect 100 % of what’s at risk by utilizing those funds into a Medicaid compliant annuity for the healthy spouse. That’s pretty incredible. Yeah. When we have an individual, we have to tell the family that your dad’s in a facility, mom’s gone, and
Ted (28:32.348)
you know, dad has $100,000, let’s say. Well, we know that he can only have $2,000, a prepaid funeral, and some personal property. So we’ve got to spend the $100,000 down. And so what we do then is we intentionally create a divestment penalty period. That’s where he’s ineligible. Now, what does that mean? You went, that’s a big word, a divestment penalty period. Explain that. Yes, it’s that rule where if you give away assets, you can’t be eligible for Medicaid.
We talked about it a little bit earlier in the show. under the Medicaid rules, if you give something away, you’re going to be penalized for a certain length of time. Well, when the DRA came out, I said to myself, how do I help single people? Because it looks like it’s game over from a planning viewpoint. And I said, well, what if we give half the money away and we use the other half to privately pay the facility during the penalty period? Would they then be eligible for Medicaid? And the answer was yes.
And so with an individual, we can save 50 to 60 % of the funds by utilizing a formula which we call the gifting Medicaid compliant annuity plan. And so we give away half the money. We know we’re penalized for a certain period of time. Dale, let me stop you there. When you say we’re going to give it, who are we giving it to? In that individual case, let’s say dad’s all alone. It’s got two kids. We could give the money directly to the kids in cash.
or we can set it up into an irrevocable trust. So the parent is in the nursing home is giving the assets directly or indirectly through a trust to the kids. So here we are, we’ve transferred half the assets over to the kids. Medicaid says, look, we’re going to impose a penalty for a certain number of months because you transferred this amount over to the kids.
And your response is, well, we have to pay the nursing home for those months above and beyond dad’s income. Yes. And so what we then do is, the formula is pretty easy. We take the cost of care, what is the private pay rate, what is dad paying, what is he short? OK, so we figure out what the shortfall is. Then we look at the state divisor.
Ted (30:55.995)
So I know, you know, when I look at the state divisor in Ohio, it’s $7,787. So I know that for each $7,787, we have a one-month ineligibility penalty. So if you gave away $77,000, it would be a 10-month penalty. So then we use the other half of the funds to buy a 10-month annuity. Very good. And that annuity, how is that structured in that scenario? Is it just like?
the spouse situation? Well that annuity, the person in the nursing home would be the owner annuitant payee, the state would be the primary beneficiary, and then the children would be the secondary. Now what happens is we make the gift, so we advise them to make the gift. So let’s say the gift goes out today to the kids, and then we buy the annuity, and then we apply for Medicaid. We’ve got to do it all at the same time.
The caseworker picks up the Medicaid application and says, I see here he’s down to $2,000 of prepaid funeral and some personal property. So he’s qualifies. I see here a gift. It’s a 10-month penalty. We say, yes, we understand that. And I see an annuity here with a 10-month term that just happens to pay enough to privately pay with dad’s other income. And so the caseworker says, he’s eligible for Medicaid, but we don’t pick up an economic benefit until month.
So will they have to, go ahead. The goal of the plan is to protect half the money with the gift. Bottom line is when we’re single we can still protect 50%. Yes. Very good. So here’s the catch all is families will come in and say my dad’s all alone, mom’s gone, he’s in the nursing home, we don’t know how long he’s going to be there, he’s doing better than he was when he was at home.
So we think he’s got some longevity. What do we do and how do we do it? And I say, let me calculate it. I calculate it rather quickly. And I say, it looks like a 10-month plan. And they say, we don’t know what to do. I said, well, whatever you do, you have to move fast. Because every month that we don’t make a decision is one more month of money that we lose. And then the plan will keep shrinking. Yeah, and if the cost is $10,000 a month for each month, goes by you’re basically losing $10,000.
Ted (33:22.391)
Yeah, so that plan, you would know at about 20 months they would be out of money. So if they don’t do anything at all, somewhere between 10 and 20 months, all the money’s gone. So does every insurance company have a Medicaid complaint annuity or are there just a handful of companies that you work with? There’s just a handful of companies because they’ve got to understand like with this Medicaid gifting annuity plan,
on an individual, the formula tells me the term of the annuity. And so if I need a seven month annuity, because it’s a smaller case, they got to provide a seven month annuity. There’s not very many insurance companies that want to take on the responsibility of these products. And so I work with just a couple companies that have been in the business since the 90s that have been working with me on these projects. And is the money that we send to them, are there any?
Ratings for those companies are there any guarantees on those funds talk to me a little bit about the safety of Transferring money to an insurance company with a promise to pay back that money Yeah, so the primary company I use is employees life company mutual out of Illinois and they’re a mutual company So the company is built for the benefit of the policyholders and they’re very very conservative every dollar that comes into the company
that’s earmarked with an immediate annuity is in a safe account to make those payments.
So if somebody is in a nursing home today and they’re paying $10,000 a month and they still have some money left in the bank, $100,000.
Ted (35:13.529)
The fact that they’re already in the nursing home on private pay, does that prevent them from doing this Medicaid crisis planning with this Medicaid compliant annuity? No, actually that’s the perfect client because they’ve experienced the payments. They now know that they have 10 months left of money to pay and 10 months from now they’re going to be broke and so they cannot believe that I could tell them today
Look, if you do the plan today, you’re going to lose the income that’s in the institutionalized person’s name. And so that’s the amount you’re going to pay versus 10,000 by doing this annuity. Dale, why doesn’t everybody do this? I mean, there are people all over our state here in Ohio who are in nursing homes privately paying. And I’ve had clients come through who’ve spent over a million dollars on their care when they could have
done this type of planning. Why is it that this kind of Medicaid compliant planning, frankly, isn’t being done by the nursing homes or being required to be done? Well, there are some nursing homes that realize that, you know, if they don’t have a good payer source, and you know, I’ve seen cases where the aunts in the nursing home, the nephews are in charge of these things, and the nursing home’s not getting regular payments because they
the niece and nephew just aren’t managing the assets correctly and could create future problems by gifts and all of that. So I think most nursing homes really understand that they need a good payer source and Medicaid is as good as a private pay. Of course, with private pay, they get more opportunities to charge for things that Medicaid won’t pay for. But I think, you know, clients just need to know about this type of planning.
And most of the clients that engage in the planning after paying for a long time will say, why didn’t we do this sooner? Is there a different level of care that somebody gets when they’re on Medicaid versus private pay? No. I used to say that if you’re private pay, you’re going to get the steak. And the other side of the room is going to get a steak soup. they just can’t distinguish people in a nursing home.
Ted (37:36.571)
Because today, if you walk in a typical nursing home, 70 % of the people are going to be on Medicaid, either now or at some point in the future when they run out of assets. And so nursing homes don’t have the time to distinguish between the different levels of clients. You could have Medicare people in the skilled care wing. You could have some private pays. And most of people are going to be Medicaid oriented. I think most facilities have a
just have to keep up with all of the care that’s required. Well, Dale, we’re getting to my time limit, but I want to cover one more topic briefly. So for clients who want to be cared for at home, recognizing that Medicaid, for the most part, in most states, doesn’t really pay a whole lot for home care. And it doesn’t seem to be any trend going in that direction. We have the ability to do long-term care insurance. How does that fit?
Is that available for folks? Is that something people should consider at least for a period of time before they have Medicaid pay in the nursing home? Should they consider insurance even if they’re going to plan on going on Medicaid? Well, I think I have long-term care insurance. I have actually three policies which I bought or purchased over my lifetime. I’ve got a Money Guard, which is a popular program. I’ve got a traditional…
and that I have a life insurance or anyone. And the reason I bought them is because if something happens to me, I don’t want to go to a nursing home. I think most people would prefer not to go. And I think if you can transition into long-term care at home and get the care when you first need it, you may never see a nursing home. And then maybe you have to go to assisted living. But you’ll never end up in a nursing home. Most people end up in the nursing home because they didn’t take enough precautions. They slip and fall at home.
you know, they fracture a hip, they don’t mend very well, and they end up in the nursing home just because they don’t have that level of care they need. So I’m an advocate of long-term care insurance, and I think you’ve got to buy the policies when you’re young and healthy because that’s when you’ll get the best opportunity. All of my long-term care insurance is now paid up. You know, I did like a 10-pay plan. I’m now 68 years of age, so I have those policies, and I know that if I ever need long-term care,
Ted (39:59.321)
I’m going to get the care I need when I need it where I want it. And that’s it. I suppose for our clients who either are not healthy enough to get long term care insurance or two, they simply don’t have the money for it. Yet they have a modest amount of assets rather than waiting on crisis planning where they might lose half of their assets.
Do you see a lot of folks pre-planning by creating a Medicaid protection trust? Well, I think the problem that most of us have is we don’t know how long we’re going to need our money and how long we want to control our money. Like, I’m 68 now and I still have a lot of things I want to do. I’m not ready to turn it over. But I think, you know, if you do have things, you know, in the old days, I remember when I practiced in the 80s and 90s.
People had CDs and they were in the family for life. They just handed them down. And you don’t see that much of that anymore. I think a trust is a good thing to have. And a good, irrevocable trust for Medicaid planning is a good vehicle to have if there’s things you don’t want to lose, like the family cottage or you’ve got land somewhere that’s been in the family. Those types of items make really perfect sense to put away now rather than try to hold on to them.
educational accounts for grandkids, things of that nature. I suppose we talked about earlier, we always got to be mindful of that five-year look-back rule because any transfer to a trust is going to be penalized if it’s within five years of the time we apply for Medicaid. So if we’re going to go the trust route rather than the Medicaid compliant annuity or the long-term care route, you got to do it years and years in advance.
Yes, and let’s say you put it into an irrevocable trust and you make it 40 months. Well, maybe you’re better off to pay privately for the 10, you know, the additional months that you need to get past the five year. Well, very good, Dale. I’m out of time. I really want to thank you for being here. You are a wealth of knowledge and it is just a great privilege to sit here and talk to you. Thank you for sharing all of this value information. I’m sure many of our clients will really appreciate that.
Ted (42:23.522)
clarity in which you speak. Thanks for being with us. Thank you for having me.
