How to Stop Losing Money to a Nursing Home: Medicaid Planning Techniques Nursing Homes Don’t Want You to Know About

The decision to move a loved one into an assisted living facility or a nursing home can be emotional and difficult, and the financial aspects only add to the stress. Many families deplete their savings, sell their assets, and exhaust all financial resources to cover the hefty nursing home bills. However, with the right planning, there are ways to protect one’s assets and qualify for Medicaid to cover the costs of a nursing home. Below, we will delve into some Medicaid planning techniques that can help ease the financial burden, techniques that some nursing homes would prefer you didn't know about.

Posted on August 12, 2023

1. Understanding Medicaid Eligibility

Medicaid is a joint federal and state program designed to cover medical costs for those with limited income and resources. To qualify, individuals must meet certain financial and non-financial criteria.

- Income Eligibility: Most states have set income limits for Medicaid qualification. It’s essential to understand the limits in your specific state.

- Asset Eligibility: The applicant's countable assets, including bank accounts, stocks, and bonds, should fall below a specific threshold, usually very low.

Note: Your primary home, one car, and personal belongings usually aren’t counted as assets for Medicaid purposes but may become subject to the Medicaid estate recovery programs – a federally mandated program that allows states to recoup costs they've paid for Medicaid beneficiaries, often after the beneficiary's death. The program seeks to reclaim, from the estates of deceased Medicaid recipients, the costs of certain benefits including nursing home or home and community-based services.

2. Convert Countable Assets to Non-Countable

A basic strategy is converting countable assets (those considered by Medicaid) to non-countable ones (those disregarded by Medicaid).

- Home Upgrades: Investing money in your primary residence (like home improvements) reduces your countable assets while increasing the value of a non-countable one.

- Purchasing a Car: If you don’t own a car, you could use your savings to buy one. This conversion is permissible and can be a beneficial mode of transportation for family members.

3. Asset Transfers

Moving assets out of the applicant's name can be an effective technique, but it’s not without risks. There’s a look-back period (typically five years) during which Medicaid checks for asset transfers. Any non-exempt transfers could lead to a penalty or period of ineligibility.

- Transferring Assets to Trusts: Irrevocable trusts can be an effective tool, as assets in such trusts aren’t counted as the individual’s assets. However, there are specific rules and potential pitfalls associated with trusts, so consulting an attorney is crucial.

- Gifts: You can give away assets, but this may trigger a penalty if done within the look-back period.

4. Half-a-Loaf Planning Strategy

The "Half-a-Loaf" strategy is a tool that may prove useful in some situations. Instead of spending down all assets to qualify for Medicaid, an applicant gives away (e.g., to their children) half of their assets (thus the term “half-a-loaf”) and uses the other half to pay for care during the penalty period caused by the gift.

This strategy can help preserve some assets for heirs, but it's not without risks. It’s essential to calculate the penalty period accurately and ensure there are enough funds to cover nursing home costs during this time.

5. Medicaid-Compliant Annuities

A Medicaid-compliant annuity can convert a lump sum of countable assets into an income stream, potentially helping an individual meet the income and asset requirements. It may be used by a married couple to prevent the non-applicant spouse from becoming impoverished, as well as utilized by a single individual, typically in conjunction with a gift to a family member or a trust. However, it's crucial to ensure the annuity is structured correctly, or it could cause more problems than it solves.

6. Caregiver Agreements

If a family member is providing care, consider setting up a formal caregiver agreement where the elder pays the family member for care services. This agreement can be a legitimate way to spend down assets while compensating a family member for genuine services.

7. Caregiver Child Exemption

An often overlooked but crucial aspect of Medicaid planning is the "caregiver child exemption." This rule acknowledges the substantial contributions of adult children who provide care to their aging parents. Under this exemption, if an adult child lives with their parent in the parent's home and provides care that allows the parent to avoid a nursing home or other long-term care facility for at least two years, the parent can then transfer the title of their home to that child without incurring a Medicaid penalty. This transfer is recognized as a form of compensation for the caregiving services provided by the child. It's a vital provision because, under standard Medicaid rules, transferring the home could result in a period of Medicaid ineligibility. It's worth noting, however, that the caregiver child exemption has specific criteria and documentation requirements, such as proving the child's residency and the level of care they provided. Consulting with an elder law attorney can ensure that families can benefit from this exemption without unforeseen complications.

8. Spousal Refusal and Resource Allowance

For married couples, there are unique provisions:

- Spousal Refusal: In some states, the spouse not in need of care (community spouse) can refuse to use their assets to pay for the institutionalized spouse’s care. Medicaid can then step in, though there's potential for the state to later seek reimbursement.

- Resource Allowance: Medicaid rules allow the community spouse to retain a portion of the couple's assets without them counting towards eligibility.

9. Establishing a Miller Trust or Qualified Income Trust (QIT)

In some states, if an individual’s income is too high to qualify for Medicaid but not sufficient to cover nursing home costs, a Miller Trust can be created. The excess income is deposited into the trust, and then Medicaid considers the person as meeting the income criteria.

10. Pooled Income Trusts

In states that do not allow a Miller Trust or Qualified Income Trust (QIT), a Pooled Income Trust might be an alternative. Managed by non-profit organizations, these trusts allow individuals to become financially eligible for Medicaid assistance while preserving their monthly income.

11. Medicaid Asset Protection Trust (MAPT)

A Medicaid Asset Protection Trust (MAPT) stands as one of the most prevalent legal tools families employ to protect assets when considering future Medicaid eligibility. It is designed to protect an individual's assets from being counted by Medicaid, allowing them to qualify for benefits while preserving wealth for heirs.

MAPT is an irrevocable trust, usually created for the benefit of one’s children, designed to hold and protect an individual's assets so that they are not considered countable assets when determining Medicaid eligibility. Once assets are transferred into the trust, they are no longer legally owned by the individual, which can help them meet Medicaid's asset limits.

It is important to remember about the Medicaid look-back period. Transferring assets into an MAPT doesn't immediately protect them. Medicaid has a five-year look-back period, during which transfers can be penalized. This means planning well in advance is crucial.

A Medicaid Asset Protection Trust can be an invaluable tool for many individuals and families when navigating the complexities of Medicaid planning. However, before establishing an MAPT or making any significant financial decisions related to Medicaid planning, always consult with an elder law attorney. Their expertise can guide you in making informed, beneficial decisions tailored to your unique situation.

12. Transfers to a Disabled Person or Trusts for Disabled Beneficiaries

When considering Medicaid eligibility and the associated penalties for transferring assets, there are some crucial exceptions to bear in mind. One such exception involves transfers made to a disabled person or to a trust established solely for a disabled individual under the age of 65, even if the trust is for the benefit of the Medicaid applicant, as long as the trust is structured appropriately.

Transferring assets directly to a disabled person, or placing them into a special needs trust, can ensure that the disabled individual retains essential resources for care and support without affecting their eligibility for government benefits. Such trusts are carefully designed to supplement, not replace, the public benefits that the individual may receive. When set up correctly, the assets in the trust aren't considered available resources for Medicaid or Supplemental Security Income (SSI) purposes.

However, it's vital to work with an experienced attorney when setting up such trusts. If not structured correctly, these transfers could inadvertently jeopardize the disabled individual's access to crucial public benefits. It's also essential to note that upon the death of the disabled individual, Medicaid may seek reimbursement from the trust assets for the cost of services provided to the beneficiary during their lifetime. This provision ensures that the trust serves the intended beneficiary during their lifetime without detracting from public resources.

Medicaid Rules Are State-Specific

While Medicaid is a joint federal-state program, each state operates its Medicaid program within federally set guidelines. This means:

- Varied Eligibility: Income, asset limits, and criteria can vary widely from one state to another.

- Different Planning Strategies: Some Medicaid planning techniques may be effective in one state but not in another.

- Professional Guidance Is Key: Due to these variations, it's crucial to consult with an elder law attorney familiar with the specific rules and nuances of your state.

Conclusion

It's essential to remember that Medicaid planning is complex and state-specific. Using these techniques without the guidance of an experienced elder law attorney can lead to mistakes, penalties, and periods of ineligibility. If considering Medicaid planning, always seek professional advice to ensure you're compliant with the law and maximizing benefits for you or your loved ones.