Over half of all seniors who need long-term care end up turning to Medicaid for help covering the cost of that care. Many of them know little, or nothing, about the Medicaid eligibility rules because they never needed Medicaid prior to their retirement years. The result is that there are a number of misconceptions surrounding the Medicaid rules, particularly when it comes to making financial gifts just prior to applying, or after being approved, for Medicaid benefits. Given the important role Medicaid may play in the cost of your nursing home care now, or in the future, it is important to clear up these misconceptions by answering some of the more frequently asked questions.
Does Medicaid have an asset limit?
Yes – and the limit is typically very low. In most states the asset limit is as low as $2,000 for an individual and $3,000 for a couple. There is also an income limit that is tied to the Federal Poverty Level (FPL) for the area in which you live.
Do all my assets count toward the asset limit?
No. Some assets are exempt and are, therefore, not included when calculating your “countable resources” for purposes of determining Medicaid eligibility. Common examples of exempt assets include a primary residence, a vehicle, and/or household furnishings.
If my assets exceed the limit, can’t I just give them all to my children to hold for me and then claim no assets when I apply for Medicaid?
Absolutely not. Medicaid uses a five-year “look-back” period that allows for a review of your finances for the five-year period immediately preceding your application for Medicaid benefits. Any asset transfers made during that time period for less than fair market value will likely be disqualified and the value of the asset imputed back into your estate for purposes of determining the value of your assets. Moreover, if you do not divulge the asset transfer you would be committing fraud.
Since my house is exempt, can I give it to my daughter?
No. Your home may be considered an exempt asset when you own it. However, if you gift it to someone else, the value of the home is a gift which would generate a penalty period if made within 5 years of the Medicaid application.
How is the length of the “penalty period” determined if I make gifts within 5 years?
If you’ve made gifts within the prior five years, it does not necessarily mean Medicaid will not help you with your nursing home expenses. However, it does mean you will have to make it through a “penalty period” before Medicaid will start helping. The length of the penalty period is determined by taking the value of the gifted assets and dividing that figure by the state “divisor.” The “divisor” is the average monthly cost of long-term care (LTC) in the state. For example, let’s say the value of your gifted assets is $126,000 and the average monthly cost of LTC in your state is $7,000. You then divide $126,000 by $7,000, which comes out to 18. The length of your penalty period would be 18 months, during which time you would be not be eligible for Medicaid to cover your LTC expenses.
What about my spouse’s assets? Can he/she keep any of our joint assets?
Fortunately, your spouse may be able to keep some of your assets and possibly even some of your income by using the Medicaid Spousal Impoverishment Rules. These rules are intended to ensure that a community spouse (a spouse that remains in the home) is not left without sufficient resources and income to support himself/herself. How much a community spouse can keep depends on the Community Spousal Resource Allowance (CSRA) and the Minimum Monthly Maintenance Needs Allowance (MMMNA). The CSRA and MMMNA are determined by Medicaid and your state and will change each year.
If I failed to plan ahead, is there anything I can do to try to avoid losing all my hard-earned assets when I apply for Medicaid?
Ideally, Medicaid planning should be included in your overall estate plan long before you anticipate the potential need to qualify for benefits. If you failed to plan ahead though, and are suddenly faced with the need to qualify for benefits, an experienced attorney may still be able to protect some of your assets using last minute Medicaid planning strategies. For example, you may be able to convert a non-exempt asset into an exempt asset which does not violate the Medicaid “look-back” rules.
The key to both protecting your assets and ensuring that you qualify for Medicaid when you need it is to work closely with an experienced estate planning attorney early on to create a Medicaid planning component in your comprehensive estate plan.