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Medicaid is a federal program administered by the states. Not to be confused with Medicare, which covers primarily medical benefits and is not needs based, Medicaid covers medical care and nursing home care for those with limited financial means. Medicare covers only a limited amount of nursing home care, while Medicaid covers long-term nursing home care to those who qualify.
What is Medicaid planning?
Medicaid planning is the arranging of your financial affairs to qualify yourself for Medicaid benefits. This allows your resources to be preserved in order to supplement Medicaid benefits, which often fall far short of a person’s needs. Additionally, as a secondary Medicaid planning may allow you to leave an inheritance to your children or other intended beneficiaries of your estate. This planning may involve transferring your assets to your children, directly or in trust, in order to reduce your assets to the point where you qualify for Medicaid. If you are successful in this planning, the state will pay for your nursing home care, and, hopefully, your children will supplement your care when needed. Medicaid planning is not hiding assets or lying on Medicaid applications. Such acts are crimes properly punishable by fines and prison terms. Ethical Medicaid planning means complying with the law. Nothing less is acceptable.
Is it illegal, immoral, or unethical?
Some people, including some attorneys, argue that it is morally wrong to intentionally impoverish yourself so that Medicaid will pay for your nursing home stay. They find it offensive to arrange to “go on the public dole.” Others believe there is nothing immoral or unethical in Medicaid planning. Medicaid planning for a family of modest means is equivalent to estate planning for a wealthy family. Transferring assets to qualify for Medicaid is similar to taking advantage of any income tax benefits, such as deduction for interest paid on your home mortgage. It is not immoral to take advantage of this deduction. Congress is well aware of legitimate Medicaid planning—it made the rules.
What is required to qualify for Medicaid?
Medicaid is a needs-based program. You are allowed only $2,000 of assets or “resources.” In addition, your spouse is entitled to “countable” resources (in 2022) of $137,400.00. These additional assets must be in your spouse’s name, and you will be allowed a reasonable period of time (typically one year after initial eligibility) to transfer this amount of assets from your name to your spouse’s.
Medicaid will pay the entire portion of your bill that your income doesn’t cover, up to the Medicaid rate for the particular nursing home. For example, if the nursing home Medicaid rate is $5,000 per month, and your income is $4,000 per month, Medicaid will pay the shortfall of $1,000, plus allow you to keep $38 as a personal care allowance, meaning Medicaid will pay $1,038 of your monthly bill. Community property laws are disregarded.
In other words, for Medicaid purposes, income received by your spouse is not yours, even if one-half of that income would be considered yours under Louisiana’s community property laws. If you qualify for Medicaid while staying in a nursing home, you must turn your income over to the nursing home, except for (i) a personal allowance of $38 per month, (ii) premiums for Medicare and health insurance, (iii) an allowance for your spouse of $3,435.00 per month (less your spouse’s own income) and (iv) an allowance for dependents, less the dependent’s own income. If your spouse’s income falls below $3,435.00 per month, Medicaid automatically allows you to transfer to your spouse enough to bring him or her up to $3,435.00 per month without jeopardizing your benefits. However, if your spouse also enters a nursing home, this transfer stops. It is interesting to note that there is no limit on the income your spouse can make if you are the person applying for Medicaid long-term care benefits— only your income counts for this purpose.
What assets were not counted or exempt from the computation of resources?
The following assets are not counted as to eligibility for long term care for Medicaid.
- Cash value of life insurance having a face value of up to $10,000.00.
- Cemetery plot.
- Prepaid funeral costs. Any portion of this contract that represents burial funds reduces the $10,000 maximum burial funds exclusion.
- $10,000 for a burial fund, separate from and in addition to the cemetery plot exclusion.
- The family home up to $636,000.00 (2022) of equity, if you intend to return home or if your spouse or minor, blind, or disabled child lives in the home.
- Up to $6,000 of equity in property not excluded as trade or business property if it yields at least a 6% rate of return and is essential to your support. In other words, if the property produces less than a 6% rate of return, then even this small exemption is not available. Obviously, this $6,000 limitation would only involve a small fractional interest in passive rental property.
- Business Assets (Property Essential for Self-Support). All property used in a trade or business and all property used by an employee in connection with employment as property essential to self-support. Naturally, this must be a valid business. Of course, this exception applies only to the spouse because the nursing home resident will not be working.
- Most household furnishings and appliances.
- Wedding and engagement rings.
- Personal effects such as clothing and hobby items.
- One vehicle per household of any value.
It doesn’t matter that your spouse may have inherited assets, those count, unless you get divorced. According to the federal rules, only “available” resources are to be counted. If you are the owner of an undivided interest in real estate, your share of the total value of the asset is considered available.
What is the 5 year look back period for gifts?
Making gifts within 5 years before applying for Medicaid can be catastrophic. Gifts will cause a period of ineligibility or a penalty period equal to the value of the gifts divided by $4,000 (the average monthly private pay rate in Louisiana for nursing homes, which is supposed to be adjusted annually but which has not for many years). Thus, if you give away $20,000, the penalty period is five (5) months, meaning that after you apply for Medicaid, the state won’t pay your nursing home bill for five (5) months.
When Does the Penalty Period Start?
The penalty starts not when you make the donation but when (i) you are in the nursing home, and (ii) your countable resources are down to $2,000 or less and your spouse’s are down to $137,400.00 (2022) or less. For example, if you make gifts to grandchildren of $48,000, this results in a penalty period of 12 months ($48,000 ÷ $4,000 = 12). Two years later you enter the nursing home, at which time you still have $50,000 of cash and a few exempt assets. You must pay your own way until your cash is down to $2,000. Then the penalty period starts.
What is the Look-back period?
The “look-back” period is the number of months that the state looks back from the date of a Medicaid application for gifts the applicant made. The look-back period for direct gifts is a maximum of 60 months. It is a statute of limitations beyond which Medicaid cannot penalize gifts. Warning! If benefits are applied for too early, the penalty period has no maximum and can extend well beyond the five-year look-back period. “Too early” means during the look-back period if you made a large gift. For example, presume you give $400,000 to your children and apply for Medicaid within the look-back period—in the 59th month. Looking back 60 months, the gift is found, and its value is divided by $4,000 to determine a penalty period of 100 months. You won’t qualify for Medicaid for 100 months from the date you are in the nursing home and broke. However, if you wait until the 61st month to apply for Medicaid, the gift is not found in the five-year look-back period, no penalty is assessed, and you qualify for Medicaid.
Our firm can assist you for determining eligibility and/or planning for long term care for Medicaid. There are many strategies to assist in navigating eligibility to qualify for long term care for Medicaid and protect your assets upon qualification. J Douglas Sunseri (firstname.lastname@example.org), and Michelle Demarest Sunseri (email@example.com) of Nicaud & Sunseri Law Firm have provided legal services for Medicaid Planning and Asset Protection. Please contact us at 504-837-1304 or 985-624-9697 to discuss Medicaid Planning in the context of estate planning.
Going through a very NASTY divorce Michelle Sunseri and her staff were super caring, helpful, sincere, trustworthy,and honest. They really went the extra mile. I highly recommend.
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