Jan Neal Law Firm, LLC

Alabama Estate, Elder and Special Needs Law


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Avoid The Ultimate Co-mingling of Assets

It is standard advice to avoid co-mingle property of an older relative with your own money because it may be necessary to prove what belongs to each.  For instance, if your relative needs to apply for Medicaid it may be difficult to provide a clean trail of his or her assets and expenditures for five years prior to application as is required by Medicaid.

But the ultimate co-mingling is when families live on property owned by the older relative who never partitioned the property to deed individual parcels to the children or grandchildren. It is not unusual to see families who live and operate businesses off the property of an aging mother, father, or grandparent.  This can provide a great family support system and work for all parties involved.  Until it doesn’t. 

If the aging parent becomes sick enough to need nursing home placement and there are not enough liquid resources to pay for that, then the property will need to be liquidated to provide income to pay for nursing home care or to spend down assets before qualifying for Medicaid.  This leaves the relatives living on the property in a very precarious position.

If you are in this position, get legal advice now about what you can do to protect yourself and your aging relative before it becomes an emergency.     


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How Gift Giving Can Affect Medicaid

If you will need Medicaid to pay for long-term care for you or your spouse in the next five years, you need to be careful with gift giving because giving away money or property can interfere with your eligibility. 

Under federal Medicaid law, if you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on how much money you transferred. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $16,000 a year (in 2022) without having to pay a gift tax, Medicaid law still treats that gift as a transfer.  In fact, for every $6600 you give away you will incur a one month period of ineligibility for Medicaid. A month of penalty means Medicaid will not pay for your care, no matter how destitute you are.    

Medicaid reviews all bank records for five years prior to application. Any transfer that you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road. Similarly, gifts for Christmas, weddings, birthdays, and graduations can all cause a transfer penalty, however reasonable gifts are usually allowed. If you buy something for a friend or relative, this could also result in a transfer penalty.  Also selling property for less than the tax assessor’s appraised value is considered an uncompensated transfer of the amount for which you sold the property for less than the tax value.  You will need documentation showing that you received fair market value in return for a transferred asset to avoid incurring a penalty. Repaying a debt not supported by a promissory note will also be considered a transfer subject to a penalty.

While most transfers are penalized, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

  • your spouse
  • a trust for the sole benefit of your child who is blind or permanently disabled
  • a special needs trust for the benefit of the Medicaid applicant

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant’s home may be transferred to the following individuals without incurring a transfer penalty:

  • A spouse
  • A child who is under age 21
  • A child who is blind or disabled (the house does not have to be in a trust)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
  • A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.


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Medicaid Spousal Income Allowance Increase

Medicaid’s maximum monthly maintenance needs allowance (MMMNA) changes every July.  This is the most in monthly income that a spouse living at home (known as the community spouse) is allowed to have when his or her own income is not enough on which to live, allowing him or her to take some or all of the institutionalized spouse’s income. The minimum monthly maintenance needs allowance as of July 2022 for Alabama is $2289 (up from $2178)  As an example, a community spouse who has income of $1500 whose spouse entering the nursing home has $2200 in income, would be allowed to keep $789 of the institutionalized spouse’s income each month – enough to bring his or her income up to $2289.

As for resource limits established every January, in 2022 the community spouse may keep as much as $137,400 without jeopardizing the Medicaid eligibility of the spouse who is receiving long-term care. Known as the community spouse resource allowance or CSRA, this is the most that a state may allow a community spouse to retain. While some states set a lower maximum, the least that a state may allow a community spouse to retain in 2022 is $27,480.  As of January 2022 Alabama allows the community spouse to keep one-half of the couple’s resources, not to exceed the maximum of $137,400.

If nursing home care is anticipated in the future it is important to calculate the income and resources of a couple to determine the financial impact long term care will have and to plan to retain as much as possible and still qualify for Medicaid coverage.     


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Supreme Court Rules Medicaid Can Recoup a Larger Share of Injury Settlements

If you are injured due to another person’s negligence and receive Medicaid benefits to pay for care, the state has a legal right to recover the funds it spends on your care from a personal injury settlement or award. Yet in a legal case involving a Floridian teen who was catastrophically injured more than a decade ago, the U.S. Supreme Court this week ruled that states have the right to recover funds that they may spend on future medical expenses, too. 

The decision affects anyone who receives medical care through Medicaid after suffering a disabling injury that results in a lawsuit.  

In 2008, a truck struck 13-year-old Gianinna Gallardo, leaving her in a vegetative state. The state’s Medicaid agency provided $862,688.77 in medical payments on Gallardo’s behalf. Her parents sued the parties responsible, and the case eventually settled for $800,000, of which about $35,000 represented payment for past medical expenses. The settlement also included funds for Gallardo’s future medical expenses, lost wages, and other damages. 

The state Medicaid agency claimed it was entitled to more than $300,000 in medical payments from this settlement, including money that had been specifically allocated for Gallardo’s future medical expenses. 

Gallardo’s parents then sued the agency in federal court, arguing that the state of Florida should be able to recover monies only from that portion of the settlement allocated for past medical expenses. 

When a U.S. district court ruled in favor of Gallardo, the Medicaid agency appealed. A court of appeals reversed the lower court’s decision. Ultimately, the U.S. Supreme Court agreed to hear the case to resolve the conflict. 

In a 7-2 decision, the Supreme Court agreed that the state is allowed to recover benefits for past — as well as future — medical care. Justice Clarence Thomas, who wrote the majority opinion, noted that Medicaid law “distinguishes only between medical and nonmedical care, not between past (paid) medical care payments and future (un-paid) medical care payments.”  

Justices Sonia Sotomayor and Stephen Breyer dissented. They argued that accepting Medicaid shouldn’t leave a beneficiary indebted to the state for future care that may or may not be needed. 

To read the full decision, click here.


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Medicaid Personal Liability

When Nursing Home Medicaid eligibility has been established there is an amount of income that the nursing home resident must pay directly to the nursing home.  After that amount is paid Medicaid picks up the difference in that personal liability and the nursing home Medicaid rate for room and board.    

Before paying the personal liability Medicaid will allow the resident to keep:

  • The personal needs allowance of $30 per month;
  • The spousal minimum monthly maintenance needs allowance (enough money to bring the income of the spouse at home up to $2178);
  • Family maintenance needs allowance (a similar allowance for minor or dependent adult child, a dependent parent or a dependent sibling of either spouse);
  • Costs of necessary medical or remedial care not covered by a third party (e.g. Medicare Part B premium).

These allowances are made to the extent the resident’s income can cover them.  It is entirely possible for the patient to exhaust his or her income before paying any personal liability at all to the nursing home.

It is important to remember that during the time a Medicaid application is pending the resident should pay the estimated personal liability or risk receiving a bill for this amount from the nursing home.  After eligibility is established Medicaid will publish the exact personal liability to use.

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Selling Life Estate Property

A life estate deed can be a great tool for passing property after death.  A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies.  The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will.  Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant.  An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property.  That all sounds like a win, win situation, right?

It is, except for one thing.  If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents.  The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.

Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case.  Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.    


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Information About Filing For Medicaid

Medicaid can be very complicated and confusing, but it is a critical benefit for persons in need of long-term care. I prepared this presentation for a recent educational seminar for professionals and caregivers. Feel free to download or read online to learn more about applying for institutional Medicaid.


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Long-term Care Costs Increased in 2020

All long-term care costs rose sharply in 2020, but assisted living facility costs increased the most, according to Genworth’s latest annual Cost of Care Survey. The across-the-board rises were due in part to increased costs brought on by the coronavirus pandemic. 

In the past year, assisted living facility rates grew 6.15 percent for a median cost of $51,600 per year or $4,300 per month. Genworth also reports that the median annual cost of home health aides rose 4.35 percent to $54,912, while the median cost of a private nursing home room rose 3.57 percent to $105,850 and the median cost of a semi-private room in a nursing home is now $93,075, up 3.24 percent from 2019. The national median annual rate for the services of a homemaker also climbed 4.44 percent to $53,768. 

In response to this year’s price increases, Genworth conducted a follow-up study to understand how COVID-19 is impacting the cost of care. Genworth found that labor shortages, personal protective equipment costs, regulatory changes, employee recruitment and retention, wage pressure, and supply and demand were contributing to rate rises.

The only care setting where costs did not increase was adult day care, which provides support services in a protective setting during part of the day. Costs for adult day care actually fell from $75 to $74 a day, a 1.33 percent decrease, perhaps because many adult day care sites have been forced to close due to the pandemic.

Monthly care costs for Alabama in 2020 were:

Homemaker services, $3432; homemaker health aide, $3432; adult day health care, $655; assisted living private one bedroom, $3150; nursing home semi-private room, $6540; and nursing home private room, $6911.                                                                                                                                                 

Alaska continues to be the costliest state for nursing home care by far, with the median annual cost of a private nursing home room totaling $436,540 per year (yes, that is not a typo – it really is that expensive). Missouri was the most affordable state, with a median annual cost of a private room of $68,985 per year. 

The 2020 survey, conducted by CareScout for the seventeenth straight year, was based on responses from 14,326 nursing homes, assisted living facilities, adult day health facilities and home care providers. Survey respondents were contacted by phone during July and August 2020.

As the survey indicates, long-term care is growing ever more expensive making planning for long-term care essential.


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Alabama Medicaid for Long Term Care

To assist caregivers who are making arrangements for long term care a booklet concerning Alabama Medicaid is being made available to provide clarity for some of the issues that may arise and to provide basic information about the application process. The booklet is made available here and will remain available in the Publications section of our website. It can be read online or downloaded and printed.


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Save Your Money with a Medicaid Spend Down Special Needs Trust

You don’t really have to spend down all your resources to qualify for nursing home Medicaid.  There are multiple ways to preserve funds.  One of those ways is through the use of what I call the Medicaid Spend Down Special Needs Trust.        

Usually persons who need nursing home care end up needing Medicaid to pay for that care.  Why? Because it is so expensive.  Nursing home care can cost between $6000 and $8000 depending on the specific market area in Alabama.  At $7000 per month, the average nursing home resident will spend $84,000 in a year. Under these circumstances, most persons will exhaust their resources at a rapid rate rendering them unable to pay for the care they need without the assistance of Medicaid. 

There are some funds a married couple can preserve for the spouse who remains at home, but there is still an amount that has to be spent down if a couple has countable assets over $25,000.  A single person has to spend all of his or her resources down to $2000 before he or she can qualify for Medicaid.  Using up the assets a person saved over a lifetime is known as the dreaded Medicaid “spend down.” 

But what many people do not know is that there is a way to qualify for Medicaid to pay for nursing home care in Alabama without the resident having to go through a complete “spend down.”  That is through the use of a pooled Special Needs Trust. 

There are many types of Special Needs Trusts (SNTs), including trusts for disabled younger persons, disabled children whose parents and grandparents want to provide for their future needs, persons on public benefits who recover money from personal injury lawsuits or who inherit money when a relative dies.  Each type of SNT has highly specific requirements.  But what they all have in common is the goal of protecting funds for a disabled person without those funds resulting in the loss of public benefits. 

With the Medicaid Spend Down SNT, instead of spending down the money required to be spent by Medicaid on nursing home care before eligibility can be established, the money is paid into a SNT and can then be used to pay for special needs not otherwise paid for by Medicaid for the disabled person once he or she becomes eligible.  Medicaid eligibility can be immediately established while these funds remain available to pay for special needs for the nursing home resident. 

The drawback to this type of trust is the requirement that, on the death of the person for whom the trust was established, Medicaid must be reimbursed from funds remaining in the trust up to the amount Medicaid has paid for the nursing home resident’s care.  Still, creating a pool of money to meet the special needs of the nursing home resident after being awarded Medicaid is far better than simply spending down those funds before qualifying for Medicaid and leaving the resident with no resources to pay for special needs. Since Medicaid allows a nursing home resident to keep only $30 of his or her income each month to pay for personal needs, you can see how that is not enough to have needs met without families pitching in to help pay for necessary items.     

An example of what the SNT funds can pay for is a private room in a nursing home since Medicaid will only cover a semi-private room.  Other special needs might be items and services that can improve the quality of life for the nursing home resident such as hair salon charges, manicures, telephone, newspaper subscriptions,  audiobooks, movies, recreation, medical and dental expenses not otherwise covered, special  equipment like wheelchairs or specially-equipped vans; therapy or rehabilitation services; training and education, travel, electronic equipment including computers and mobile devices.

With a little planning the quality of life for a nursing home resident can be improved, and the burden for a family’s out of pocket expenses decreased.

Do not be confused with an internet search.  The rules are different from state to state.  Most states allow a person 65 and older to create a pooled SNT but still penalize transfers into that trust.  That is not the case in Alabama.

Contact us for more information about establishing a Medicaid Spend Down SNT.