Estate Planning

Medicaid Planning

Planning strategies that are favorable from an estate planning perspective are not always most advantageous when applying for Medicaid.  The goal of Medicaid planning is generally to protect an individual’s resources from short-run depletion by nursing home expenses.  This is accomplished by shifting the assets (subject to the 60 month look back rule described in "Income Tests and Strategies") either to family members by gift or through a trust, or to a fund for the individual’s needs other than for food, clothing and shelter.  If this is done, the person may be eligible for Medicaid.

Medicaid is a joint federal and state program that provides medical assistance for certain individuals with low incomes and limited assets.  Coverage and eligibility vary from state to state.  To be eligible, you basically have to spend-down your assets to meet the state’s eligibility criteria.  If you are in a nursing home, virtually all income has to be used for paying medical and long-term care costs.  Once you are accepted into the program, Medicaid will pay for most custodial and medical care.

Exempt Assets

An individual will not qualify for Medicaid in most states unless he or she has less than $2,000 in countable assets.  Certain assets are considered to be exempt.  Medicaid will allow you to keep:

• A home if the applicant or the spouse is living in it
• A car
• Some jewelry
• Some money for a burial plot and a funeral
• Clothing and some furnishings
• A small allowance each month for personal items such as toiletries and magazines

If there is a spouse that will not be in a nursing home, he or she can keep extra income each month to about $28,000 annually and some assets (up to about $99,000) depending on the applicant’s state of residence.

Exempt assets lose that status upon the death of the Medicaid recipient, and the state may claim reimbursement from the recipient’s estate.  Medicaid authorities are sometimes granted a lien against the home, collectible after the death of the recipient (or after the death of certain relatives living in the home) to compensate for Medicaid benefits paid to the homeowner.

The home is treated as a resource after the individual has been institutionalized for six months, unless the individual’s spouse continues to live in the home, or if it can be shown that the individual may be able to leave the institution and return home.

Income Tests and Strategies

Medicaid applicants must also meet income tests that vary by state, whereby if your income exceeds certain limits, you will not qualify for Medicaid.  Thirty-one states base their income limit on the cost of private nursing home care.  If a person has income below the private cost of nursing home care in one of these states, he or she meets Medicaid’s income test.  He or she will be required to pay all of his or her income, other than a small personal needs allowance, to the nursing home and Medicaid pays the balance.  The remaining nineteen states have income caps not tied to the cost of nursing home care, which are set by Federal law and in determining eligibility for nursing home coverage.  The income cap can be no greater than $1,536 per month in 1999, but the state is not required to set their cap at the maximum amount.  This means that each state could have an income cap below this amount.

The rules and regulations governing Medicaid programs are determined by each state.   Strategies for maximizing asset retention are best conceived with a knowledge of state laws.  Social service personnel who evaluate applicants for Medicaid programs look at all transactions over an extended period of time to determine if the applicant has done anything to defeat the intent of the regulations.  For example, suppose that you need to dispose of assets in order to qualify for Medicaid.  If you give away or transfer assets within 60 months of applying for Medicaid assistance, you will be ineligible for Medicaid for the period of time the gift or transfer would have paid for the average cost of nursing home care in your state or community.  In addition to the period of ineligibility, disposing of assets in order to qualify for Medicaid assistance could result in criminal penalties.  However, if you give away or transfer assets and wait 60 months before applying for Medicare, the period of ineligibility, and penalties, does not apply.  Note that there are certain transfers that can be made within 60 months of the application which do not result in a loss of Medicaid assistance.  As you can see, competent legal advice is a prerequisite for protecting wealth and still qualifying for Medicaid.