Medicaid Questions and Answers

Is the concept of planning to become eligible for Medicaid Coverage of my Long Term Nursing Home Care Expenses, unethical, illegal, or immoral?

Answer:  Only if you view Tax Reduction Planning as unethical, immoral or illegal.  The biggest difference is those doing Tax Planning tend to be more wealthy to start with than those focused on Medicaid Eligibility Planning.  The government set up rules for the use of Medicaid.  Why would it be wrong to follow those rules?

Can a person just give away assets right before applying for Medicaid Coverage in order to qualify?

Answer:  Uncompensated or undercompensated transfers (Gifts) of most assets will create a Penalty Period for purposes of Medicaid Eligibility.  In other words, you can do it but Medicaid won’t pay for your care if it creates a penalty period.

Well 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:  It will be more difficult and there are some options you will not be able to use, but there are many choices and techniques still available even if you waited until your loved one is already in the nursing home to plan.

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 there were properly drafted durable powers of attorney, and/or trusts set up, more may be able to be done.  If not, then somebody may have to go to court to be appointed as 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 would still qualify for Medicaid.  Is that true?

Answer:  A gift of a remainder interest in your home would cause a penalty period based on the value of the remainder interest that you gave away.  Medicaid Rules are changing all the time.  Techniques that you may have heard about 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.  Even the employees at the hospital assisting with the discharge and transfer of patients from the Hospital to a Nursing Home may have incorrect information.

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:  The Medicaid rules have certain assets they call “Exempt”.  One of the exempt assets allowed is ownership of one licensed motor vehicle.  There is no dollar limit on this item.  In part it makes sense, because for a single individual, Medicaid requires virtually all of the Nursing Home Patient’s income to go towards the cost of his nursing home stay.  There is no deduction allowed for maintenance expenses, so an old clunker that needed a jump or a tow every time it was needed to run the patient to a doctor’s appointment would not be of much use.  There is some rhyme or reason to some of the Medicaid rules.

What other assets are “Exempt”?

Answer:  Well the home we were talking about earlier is usually an exempt asset.  As long as the patient has an intent to return home if possible one day, Medicaid considers the home an exempt asset, up to certain limits in value.  However, watch out because this is only a lifetime exemption.

Then why would a person need to give away the remainder interest in the house?

Answer:  That is actually a very important question.  The answer is that Medicaid has another big mousetrap to be aware of.  The mouse trap is called Estate Recovery.  What that means is, even if a person qualifies for Medicaid during their lifetime, after their death Medicaid will try to recover the payments it made to the nursing home from the Medicaid recipient’s estate after he or she dies.  There are techniques that can be legally used to avoid the State’s efforts, so that the family is not completely disinherited.  This is again where competent legal advice 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 the purchase of a life estate from a child or use of revocable living trusts that can be used to avoid estate recovery.  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 3 years ago, and now they qualify for Medicaid.  Another person made the same size gift over three years ago and yet if they apply for Medicaid now, they will incur a penalty period that runs for many more years.  The difference is in the details.  The cost of an error could be $100,000 (a hundred thousand) dollars or more.  In addition the old three year look back rule is about to become a five year look back rule.  The best advice I can give is to consult an elder law attorney who concentrates their practice in this area of law.  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.

What are the disadvantages to being eligible for Medicaid to cover Nursing Home Expenses?

Answer:  There are several disadvantages.  First, there are fewer choices when you are on Medicaid.  Some facilities do not accept Medicaid patients, and others have only a limited number of Medicaid beds.  If you need to go to the facility when there are no Medicaid beds available, the facility will decline to accept you.  Also if you are on Medicaid in a nursing home and want to go home with family for a week, you can lose your space in the Nursing Home.  If you were a private pay patient, you could keep your space.  Also if you plan ahead and can qualify, you should consider looking into a Long Term Care Insurance Contract.   Why?  Because most people would like to stay home as long as possible instead of entering a nursing home.  Long Term Care Insurance can cover in home care.  Usually Medicaid does not.  Also Medicaid rules and availability might change in the future.  Why rely on Medicaid and politicians if you can provide for yourself through a private contract?  This option requires planning ahead.  You have to get it when you are healthy enough to qualify, and the younger you purchase it the lower the cost.  However if you can get coverage you can prevent the need to impoverish yourself and your spouse in order to qualify for Medicaid coverage.  We would love to help all of our clients avoid Medicaid eligibility, but the fact is many people will be on Medicaid eventually whether they want to or not.  We can help them save more assets to support the at home spouse, and leave a legacy to family or favorite charities instead of spending everything on Nursing Home expenses.

Is Medicaid Planning Expensive?

Answer:  It is not as expensive as NOT planning.  The legal fees associated with Medicaid Planning are usually less than the cost of 2 months of Nursing Home care.  The cost of getting legal representation to apply for Medicaid after the planning has been completed is normally less than 1 month’s cost of the average nursing home.  Yet we can help clients save literally several hundred thousand dollars in many cases.  Without our help, a modest estate of $300,000.00 could be wiped out by less than six years of nursing home costs.  For many couples this represents their entire life’s savings down the drain.  It is not that unusual to see since if both Husband and Wife spend just 2 ½ to 3 years in a nursing home, they would exceed that amount.

By Larry Hartley, CELA | Strauss & Associates, P.A. | Asheville, NC|

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This article is for informational purposes only and is not intended to be advertising, solicitation, or legal advice.  This article may not reflect the most recent legal changes.  Individual circumstances vary, and laws differ from state to state.  If you have a question about your specific situation, we recommend that you find a certified elder law attorney in your area.