Is the concept of planning to become eligible for Medicaid Coverage of my Long Term Nursing Home Care Expenses, unethical, illegal, or immoral?
Answer: No, Utilizing Medicaid planning strategies is no different than using tax planning strategies. The government created the rules for Medicaid planning strategies, it’s not wrong to follow the rules that are in place.
Can a person just give away assets right before applying for Medicaid Coverage in order to qualify?
Answer: No, Uncompensated or under-compensated transfers (Gifts) of most assets will create a Penalty Period for purposes of Medicaid Eligibility. In other words, if you do, it will create a time period in which Medicaid will not pay for your care.
Does that mean it is too late to do anything but spend your funds on the Nursing Home if you are already in a Nursing Home?
Answer: No, while your choices of planning strategies may be less, you still do have choices and you can preserve your assets and use them in the best interest of your family even if you or a loved one is in a nursing home. We specialize in Medicaid planning for those either in or about to enter a nursing home.
If the person who is or will be going in to the nursing home is already incompetent to manage their affairs, can planning still be accomplished?
Answer: Some of the planning options will depend on whether basic documents were in place before the person became incompetent. If you have properly drafted durable powers of attorney, and/or trusts set up, you’ll have access to all of the planning strategies available. If not, then you’ll most likely have to go to court to appoint a legal guardian for the person, and it will be more expensive, more time consuming, and the court may not allow all available options to be used.
I have heard that I can give away the remainder interest in my home and retain a life estate, and that I can still qualify for Medicaid. Is that true?
Answer: It depends on when the transfer occurs. A gift of a remainder interest in your home may trigger a penalty period based on the value of the remainder interest that you gave away if it has been done within the past 60 months [there are some exceptions to this though]. Medicaid Rules are changing all the time. Techniques that you may have heard used by a neighbor, friend or relative in the past may no longer be viable techniques. In addition, sometimes the Medicaid rumor mill cranks out misinformation, myths and half truths. It is not even safe to rely on information given by some people that you think should be better informed such as hospital discharge employees, social workers or employees at the Nursing Home.
I know of a person on Medicaid who owns a very expensive, brand new luxury automobile, and they don’t even have a driver’s license anymore. How is that possible?
Answer: Medicaid rules have certain assets that are considered “Exempt”. One of the exempt assets allowed is ownership of one vehicle, there is no dollar limit. There is no deduction allowed from your income for vehicle maintenance expenses, so an old vehicle in constant need of repairs would not be of much use.
What other assets are “Exempt”?
Answer: Generally, the items listed below are exempt, however, we recommend that you seek professional advice in your specific state to be certain.
- Main Residence: The applicant’s house and all adjoining land and all buildings on the property are excluded from resources if the equity is below your states limit.
- Household Goods: Household items including furniture, decorations, art, and appliances are excluded.
- Burial Exclusion: The applicant and his/her spouse can each designated a certain amount [each state has their own limits] for burial expenses. This can consist of a prepaid funeral contract with a funeral home, funds designated for burial in a bank account or a Irrevocable Funeral Expense Trust.
- Automobiles: One automobile is excluded regardless of value and whether or not it is in use. Note that junked or recreational vehicles may be counted as resources.
- Personal Items: Personal items such as clothing and jewelry are excluded.
- Retirement Funds: Retirement funds such as IRAs, 401(k)s, and pensions may be excludable resources if they are being distributed in periodic payments that include a portion of principal. These payments are counted as income in the month received.
- Non‐marketable Assets: Assets are excluded while the applicant is making a bona-fide effort to sell the asset. A bona-fide effort may be evidenced by an advertisement in the newspaper or a listing with a real estate agent. The property must be listed for no more than its current value, and the applicant must accept an offer if it is at least 2/3 of the current value.
If a home is exempt why would a person need to give away the remainder interest in the house to their community spouse?
Answer: That is a very important question. The answer is that Medicaid has another big mousetrap to be aware of, called Estate Recovery. What is estate recovery? After a person qualifies for Medicaid, the state will try to recover the payments it made to the nursing home from the Medicaid recipient’s estate when they pass on. There are techniques that can be legally used to avoid the state’s efforts so as to not leave the family completely disinherited. This is where competent advice from a professional is worth many times the cost of the advice.
What techniques can be used? How about a little free advice?
Answer: There are indeed techniques such as a Medicaid annuity, Irrevocable Funeral Expense Trusts or an revocable living trust. The problem with general information is that it is not tied to a person’s specific individual circumstances. A technique that works for some people, does not work for all people. For example one person may have made a gift over 5 years ago, and now they qualify for Medicaid. Another person made the same size gift three years ago and yet if they apply for Medicaid now, they will incur a penalty period. The difference is in the details. The cost of an error could be tens or even hundreds of thousands of dollars. The best advice is to consult an elder law attorney or Professional company who concentrates their practice specifically in Medicaid Planning. In addition you should use other advisors who are open to a team approach. If your advisor does not want your other team members to know what he or she is doing for you before it is done, beware. There are some advisors out there who will try to put every client into the same product or service. One size fits all definitely does not apply in the area of Medicaid Eligibility Planning. Be willing to bring your CPA, your attorney, your financial planner and your insurance advisors together on your plans. The sum is greater than the parts.
Is Medicaid Planning Expensive?
Answer: Not nearly as expensive as NOT planning. Our fees associated with Medicaid Planning and representation when applying for Medicaid benefits are less than half of the cost of 1 month of nursing home care. Yet we help clients save several hundred thousand dollars in many cases. Without our help, a modest estate of $300,000.00 may be wiped out by less than 3 years of nursing home costs. For many couples this represents their entire life’s savings down the drain. If a husband and wife needed just 2 years of nursing home care each, even as much as $300,000 would not cover their costs.
If you or a loved one is in or about to enter a nursing home, contact us today for information on how you can qualify for Medicaid benefits and avoid losing your savings to nursing home costs.
Note: the above article is meant for information only and is not legal or financial advice, each individual will have specific circumstances that the above information may or may not be suitable for. If you live in Pennsylvania, New Jersey, Delaware or Maryland, Contact us today... if not, contact an elder law attorney in your state for more information.