Medicaid planning strategies

Medicaid is an insurance program funded jointly by the state and federal government. It provides health insurance coverage for individuals and families with low income. While Medicare only covers medical services for seniors, Medicaid offers broader services such as health care, nursing home care, and long-term care. That makes it a vital resource for seniors and individuals with disabilities. To get the care they require, seniors have to qualify for Medicaid.

How to qualify for Medicaid

Medicaid eligibility depends on the applicant’s resources, which must not exceed the asset limit set by the program. Medicaid income limits also vary by state, so it can be worth consulting your state’s Medicaid agency to determine the specific criteria that would apply in your situation.

Bear in mind that other countable assets, such as stocks, bonds, cash, bank accounts, investments, IRAs, and 401(k)s, have to be considered by applicants, as they can exceed the asset limit for qualifying for Medicaid. Through Medicaid planning strategies, applicants may lower their countable assets and thus qualify for Medicaid.

Medicaid planning is basically intended to protect assets while ensuring qualification for Medicaid. Using legal and financial strategies may prevent applicants from depleting their life savings to meet Medicaid’s eligibility criteria. That’s why it’s important to carefully plan for Medicaid so that you don’t compromise your financial security and limit your options for care.

Even if you exceed the Medicaid asset limit, there are many income and asset planning techniques available to qualify for long-term care or for Medicaid in general. Not all of them are complex, so some of them can be undertaken with little to no financial or legal assistance. If you’re not sure which strategy might be best for you, you may consider involving a legal professional or retirement financial advisor. Here are the most relevant Medicaid asset and income protection strategies:

Irrevocable trusts

With irrevocable trusts, such as Medicaid Asset Protection Trusts (MAPTs) and Special Needs Trusts (SNTs), applicants for Medicaid can shield their assets from Medicaid eligibility calculations and also plan for long-term care expenses.

MAPTs not only protect assets regarding Medicaid’s asset limit but also preserve assets for loved ones as inheritance. Assets put into a trust are no longer considered owned by the person who created it. This means that applicants can remove their assets from Medicaid’s asset limit calculation after a designated period. That gives individuals control over their assets and ensures compliance with Medicaid guidelines while protecting assets from depletion by long-term care costs. What’s important is that these trusts should only be used in advance of the need for long-term care due to Medicaid’s look-back period. So, if you’ll need Medicaid in the near future, this Medicaid asset protection strategy may not be the right fit for you.

SNTs are designed for individuals with disabilities, as they allow them to receive income or assets without jeopardizing their Medicaid eligibility. They also help ensure that trust funds can be used to maintain a certain quality of life for the beneficiary.

Gifting strategies

With strategic gifting, you’re able to transfer assets out of your estate to qualify for Medicaid while navigating the five-year look-back period, since any gifts or transfers made within five years of applying for Medicaid are taken into account and may affect Medicaid eligibility. Strategic gifting guided by a legal professional might still be a good option when planning for Medicaid.

One of the strategies includes transferring half of the assets to family or loved ones and purchasing a Medicaid compliant annuity with the remaining assets. With the annuity, you have an income stream that you can use for paying for long-term care during the Medicaid ineligibility period.

Another strategy might be to transfer assets to family or loved ones as annual exclusion gifts. Those are exempt from gift tax reporting requirements. So, with strategic gifting, you can reduce your countable assets while meeting Medicaid’s asset limits. As these Medicaid planning techniques are complicated, professional assistance is highly recommended.

Spousal protections

When one spouse of a married couple applies for Medicaid benefits, certain spousal protections apply to make sure that the non-applicant spouse does not become impoverished. They are allowed to have a certain amount of countable assets, which differs by state. In addition to preventing the non-applicant spouse or community spouse from impoverishment, the so-called Community Spouse Resource Allowance (CSRA) can also effectively lower the applicant’s resources to qualify for Medicaid benefits. As this planning technique is simple, it requires little to no outside assistance.

Additionally, with the Minimum Monthly Maintenance Needs Allowance (MMMNA), the non-applicant spouse receives a minimum level of income that covers living expenses. These Medicaid planning strategies are crucial considerations for safeguarding the financial well-being of both spouses for long-term care and asset protection.

Annuities

Annuities can be used to convert countable assets into non-countable income. These Medicaid-compliant annuities are designed for specific legal requirements without jeopardizing Medicaid eligibility. They provide a predictable income stream while reducing the countable assets that may otherwise exceed the Medicaid asset limit.

Well-structured annuities may help individuals qualify for Medicaid and cover long-term care costs. However, each approach should be carefully adjusted to individual circumstances and may not always be the best option or a feasible one for single applicants. For married couples, a Medicaid compliant annuity might still be a good option. What’s also important is that annuities must be irrevocable and immediate and the monthly income must not exceed the life expectancy of the recipient. Spousal annuities are not available in all states.

Medicaid spend down

To qualify for Medicaid, you have the possibility of spending down the amount and value of your resources by

• making home modifications and improvements, such as adding a chair lift or remodeling the bathroom
• purchasing medical items like wheelchairs or dentures
• paying off debt, including mortgages, credit cards, and vehicles
• paying in advance for funeral and burial expenses

If you opt for Medicaid spend down, keep the look-back period in mind that prevents applicants from gifting, selling, or transferring assets under fair market value. The Medicaid agency reviews all asset transfers during that period and establishes a penalty period of Medicaid eligibility if this rule has been violated.

Caregiver agreement

Many seniors want in-home care, but especially the care from family or a loved one. To provide adequate care, caretakers may need to quit their jobs. Caregiver agreements help seniors to pay for their help at home. Paying for caregiver services out of pocket reduces the senior’s countable assets and helps to qualify for Medicaid benefits. So, exploring payment options for caregivers might be one of the most popular Medicaid planning strategies.

Spousal transfer

Another approach to qualify for Medicaid is spousal transfer. That is when one spouse applies for a nursing home or other Medicaid benefits; they can transfer their assets to the community spouse. That reduces the applicant’s countable assets and makes a qualification for Medicaid more likely.

Spousal refusal

Although non-applicant spouses are legally obligated to help cover the care expenses for their applicant spouses, they can still refuse the availability of their assets. Medicaid can’t deny care for an applying individual. Despite being uncommon, a state’s Medicaid agency may pursue a lawsuit against community spouses and collect reimbursement of the expenses. This Medicaid planning strategy is only allowed in Florida, Ohio, Rhode Island, and New York.

Medicaid divorce

A Medicaid divorce is a legal termination of a marriage when one spouse applies for Medicaid. This strategy not only protects the community spouse’s assets but also reduces the countable assets of the applicant spouse. Since there are spousal protections, Medicaid divorces aren’t that common. It might only be a good option when a couple has significant assets of over half a million dollars. A divorce may reserve a significant amount of assets for the community spouse instead of using them for long-term care. This strategy isn’t available in all states, is complex, and depends on the divorce laws in the particular state.

Not all of the Medicaid planning strategies mentioned above protect one’s home from estate recovery. The following techniques are specifically designed to protect one’s home:

• Lady bird deeds: With lady bird deeds, applicants can protect their home by bequeathing it to their adult children or other loved ones. The applicant still has ownership over their home during their lifetime. After their death, the home is automatically transferred to the named beneficiary. As the home no longer belongs to the deceased recipient, it isn’t part of their estate. That prevents it from being collected as reimbursement of funds paid for long-term care. But keep in mind that this strategy is not available in all states.
• Child caregiver exception: This rule allows applicants of all states to transfer their home to their adult child, who must have lived with their parent for a minimum of two years immediately prior to the parent’s receiving Medicaid benefits. Additionally, the child must have provided sufficient care that the parent didn’t require nursing home care during this time. Specific rules vary from state to state. If that strategy isn’t applied correctly, it can violate Medicaid’s look-back period, resulting in a penalty period.
• Sibling exception: The sibling exception works a bit like the child caregiver exception. The difference here is that the Medicaid applicant shares ownership of their home with their sibling and transfers their share to the non-applicant sibling. They must have lived in the home for a minimum of one year immediately prior to the applicant’s receiving of long-term care in a nursing home or any other Medicaid benefit. Transferring the home to a sibling protects it from Medicaid’s estate recovery program. Depending on the state, it is crucial to meet all criteria prior to transferring one’s home to a sibling. Again, if not all criteria are fulfilled, the transfer will be seen as a violation of the look-back rule and will lead to a disqualification for Medicaid.

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