Changes to the Treatment of Married Couples' Assets When One Spouse is Institutionalized

Prepared by Todd Lutsky, Esq., LL.M
Cushing & Dolan, P.C.

Community Spousal Resource Allowance (CSRA) Prior Law:

If a spouse is institutionalized, all of the couple's assets initially are considered countable but, from the couple's combined countable assets, the Department of Medical Assistance (DMA) must attribute to the community spouse an asset allowance. As of January 1, 2003 the asset allowance was $90,660. In determining the community spouse's asset allowance, the total assets were first divided in half and then allocated one half to the community spouse but in an amount not to exceed the (CSRA) $90,660 (in regulation 130 CMR 520.016(B)(2). It is important to note that this community spousal resource allowance is generally increased each November and, as of January 1, 2005, the community spousal resource allowance was set at $95,100. The community spousal asset allowance as of January 2007 is $101,640.

Current Law as Effective July 2006 for Determination of Community Spousal Resource Allowance:

Total countable assets available to both spouses:
Allocate the first 101,640 of assets to healthy spouse:
Assets allocated to Institutionalized spouse:
Note: Institutionalized spouse permitted to keep

$200,000
(-$101,640)
$98,360
$2,000

Planning note: This approach enables the healthy spouse to have the first assets allocated to the spousal resource allowance thus ensuring the healthy spouse either gets all the assets available or the maximum CSRA whichever is less. This new law represents a benefit to the elderly as the old law required that the total assets first be divided in half and then allocated to each spouse. This approach could result in the healthy spouse receiving less than the federal minimum CSRA even though the total assets exceeded this maximum allowance.

Increasing the Community Spouse's Resource Allowance (CSRA):

The amount of the community spouse's asset allowance can be increased if the income of the community spouse is less than the minimum monthly maintenance needs allowance, currently $1,711.25 per month as of July, 2007 or in some cases, to the maximum monthly maintenance needs allowance $2,377.50 per month.

To obtain an increase in the community spouse's asset allowance, after the institutionalized spouse has applied for Mass Health and has received as notice of denial, either spouse may appeal for "an adjustment" to the asset allowance. 130 CMR 520.017(A). The purpose of the adjustment was to hypothetically determine how much in assets are needed to generate sufficient income as determined by the DMA so the community spouse can remain in the community, or at the very least to get the community spouse's income up to the minimum maintenance needs allowance, $1,711.25 as shown above and discussed below.

Minimum Monthly Maintenance Needs Allowance:

The minimum maintenance needs allowance is the amount of income needed by the community spouse to remain in the community. This amount is based on a calculation that includes the community spouse's shelter and utility costs in addition to the federal standards. The procedure is set forth in regulation 130 CMR 520.017. If the community spouse's income is below the minimum monthly maintenance needs allowance then a fair hearing officer must determine how to increase the income to reach the required minimum i.e., $1,711.25/month.

In this regard, under the new Regulations, the institutionalized spouse's income must first be attributed to the community spouse's income prior to any authorization to increase the community spouse's asset allowance in order to determine the amount of the adjustment. The hearing officer must include the amount of the income that will be generated by the spouse's asset allowance if the asset allowance were invested in an account and generated income equal to the highest rate quoted in the bank rate monitor index as of the hearing date. (This amount is the 2 ½ year CD rate). See generally, 130 CMR 520.017 et seq. This rule is known as the income first rule.

Increase the Community Spouse's Gross Income:

If the community spouse's gross income is less than the minimum monthly maintenance needs allowance, then the fair hearing officer must allow an amount of income from the institutionalized spouse (after the personal needs deduction of $60) that would increase the community spouse's total income to equal, but not exceed, the minimum monthly maintenance needs allowance. If, but only if, after the fair hearing officer has increased the community spouse's gross income as hereinbefore provided, and the community spouse's gross income is still less than the minimum monthly maintenance needs allowance, (i.e. $1,711.25/mt.), then the fair hearing officer will increase the community spouse's asset allowance by the amount of additional assets that, if invested in a 2 ½ CD, at the average rate quoted in the bank rate monitor index as of the hearing date, would generate sufficient income to raise the income total to the minimum monthly maintenance needs allowance.

Example 4: How the income first rule is used to increase the community spouse's income with devastating results to the community spouse.

Husband and wife own a home worth $300,000 and have countable assets of $300,000 for a total of $600,000. Husband is age 80 and wife is age 76. Husband has $1,200 in combined social security income and pension while the wife has social security income of only $500 and no pension. Husband is about to be admitted to a nursing home. Assume the Bank Monitor Rate for a 2 ½ year CD is 3.00%.

Planning Opportunities:

  1. Transfer the home to the community spouse and simultaneously have the community spouse sign a new Will disinheriting the husband.

Planning Note: The transfer of the home to the community spouse is a permitted transfer under Regulation 130 CMR 520.019(D)(6).

  • Have the community spouse purchase an annuity with so-called "excess" resources or apply for Mass Health and appeal for an increase in the community spouse's asset allowance.

Since the combined total of countable assets of the institutionalized spouse, and the community spouse exceeds the CSRA of $101,640, then there will be what is known as excess resources that will be allocated to the institutionalized spouse. The institutionalized spouse is permitted to retain $2,000 so that a total of $103,640 is protected. In this case, there would be $196,360 of excess resources, which generally must be spent on nursing home care in the absence of further planning. In the first option, the $96,360 can be transferred to the community spouse whereupon the community spouse could purchase an immediate annuity. Provided the annuity payments do not last longer than the life expectancy of the community spouse and the state is named as a designation beneficiary, the purchase of the annuity would not be considered a disqualifying transfer and the husband would be eligible for Medicaid immediately. In this case, a shorter annuity period may be desirable so that the funds can be re-conveyed to the community spouse quickly. Remember, the only limitation is the length of time. A private annuity can be used as well as a commercially sold annuity.

Another option would be to compare the community spouse's income ($500) with the spouse's minimum monthly maintenance needs allowance ($1,711.25 as of July 2007) and try to increase her income up to at least the minimum. This amount may be increased to either the minimum monthly maintenance needs allowance or to the maximum monthly maintenance needs allowance. In this case, under the old law, all of the couple's assets would be protected without the need for an annuity determined as follows:

  1. Initial Computation

    1. MMMNA $1,711.25
    2. Community Spouse Income $ 500.00
    3. Shortfall $1,211.25
  2. Determine Income From Initial Asset Allowance

$101,640 x 3% = $3,049/12 = $254.10 per month

Shortfall $957.15

  • Determine the Hypothetical Income Generated by Excess Resources

    $196,360 x 3% = $5,890/12 = $ 490.90 per month
    Shortfall $ 466.25

The shortfall can be made up by attributing part of the institutionalized spouse's income to the community spouse.

Under the new income first rule, income is attributed first before assets with devastating consequences. In this case, none of the so-called countable or excess assets would be attributed to the stay at home spouse. The troubling result is that the community spouse, following the death of the institutionalized spouse, not only does the community spouse not have the extra assets needed to generate income but may also lose the deceased spouses pension depending on what election was made. The only option under this first income rule would be for the community spouse to purchase a commercial annuity or undertake a private annuity with respect to the excess resources, as described above.

Planning Note: This new "income first" rule will be effective for all fair hearings on or after September 1, 2003 and it became effective in every state under the deficit reduction act of 2005 effective February 8, 2006.

Planning Note: It is extremely important for the community spouse to transfer all of the assets that are allocated to the community spouse as part of the community spouse's asset allowance, no later than 90 days immediately after the date of the notice of approval. During the 90-day period, the DMA will exclude these assets in the determination of continuing eligibility; and will not apply any transfer rules to the assets transferred to the community spouse. 103 CMR 520.016(3)(B)(ii). If the assets are not transferred within the 90-day period, the DMA will count all assets that remain in the institutionalized spouse's name in determining his or her eligibility.

Penalty Period vs. the Look Back Periods after the Deficit Reduction Act of 2005

Look Back Period: The amount of time that the state is entitled to look at the applicant's prior activity (i.e. gifts and other transfers for less than fair market value).

The Maximum Look Back Period for transfers to individuals 60 months

The Maximum Look Back Period for transfers to Trusts 60 months

Penalty Period: The amount of time that the applicant or spouse would be ineligible for benefits following a gift or other transfer of assets for less than fair market value.

Penalty Period Calculation: The amount of the assets transferred, divided by the states average monthly cost of nursing home care in your state (i.e. Massachusetts is $7,680.)

Planning Note: The penalty period, although technically has no limit, can really never exceed the look back period unless you apply for benefits prior to the expiration of the look back period and while there is an existing penalty period still running. However, since the passage of the deficit reduction act of 2005 this penalty does not begin to run on the date of transfer, the penalty period now will not begin to run until the individual has made the gift, has been admitted to a nursing home, applies for benefits and gets denied as a result of the initial gift. In other words, the penalty period may never run but as long as you get past 5 years from the date you transferred assets either to a trust or outright, they will be protected regardless of the amount transferred.

Key Medicaid Information for Massachusetts

    1. Protections for the Community Spouse

    Community Spouse Resource Allowance (CSRA) Min $20,238 Max $101,640

    Increase CSRA No standard policy, but a fair hearing can be obtained. Massachusetts follows the income first rule.

    Annuities: Actuarially sound annuities are permitted, with certain restrictions.

    Monthly Maintenance Needs Allows: Minimum $1,711.25

    Maximum $2,541

    • Transfers

    Average monthly cost of nursing home care according to state: $7,680

    Home care according to state:

    • Look Back Periods Old Rules

    Transfers to individuals 36 Months

    Transfers to Trusts 60 Months

    Look Back Period after February 8, 2006

    Transfers to individuals and Trusts 60 Months

    • Income

    Is the state an income cap state? No

    • Estate Recovery

    A. Has the state expanded the definition of "estate" beyond the probate estate? No

    B. Has the state included a hardship provision in the estate recovery plan? Yes

    Key Medicaid Information for New Hampshire:

      1. Has the state expanded the definition of
      • Protections for the Community Spouse
      • Transfers
      • Look Back Periods Old Rules
      • Income
      • Estate Recovery
      • Has the state included a hardship

    Community Spouse Resource: Minimum $20,038

    Allowance (CSRA): Maximum $101,640

    Increase CSRA: No standard policy, but a fair hearing can be obtained. New Hampshire follows the income first rule.

    Annuities: Actuarially sound annuities are permitted, with certain restrictions.

    Monthly Maintenance Needs Allows: Minimum $1,711.25

    Maximum $2,541

    Average monthly cost of nursing home

    according to state: $6,814.17

    Transfers to individuals 36 Months

    Transfers to Trusts 60 Months

    Look Back Period after February 8, 2006

    Transfers to individuals and Trusts 60 Months

    Is the state an income cap state? No

    "estate" beyond the probate estate? Yes

    provision in the estate recovery plan? Yes

    Planning Note: New Hampshire has expanded the estate recovery rules to include the value of a life estate, any recovery rules to include the value of a life estate, and any other legal interest that an individual had immediately prior to death. This will affect life estates regardless of how long ago they were created.