Medicaid is a federal and state program that can provide financial aid that helps with healthcare costs. Often, Medicaid can cover expenses that a Medicare plan may not. Medicaid is a widely recognized and commonly used way of paying for LTC or Long-Term care (nursing homes, personal home care) for older adults.
However, while Medicaid provides financial support, it is also a means-tested program where applicants must have a low income and limited assets if they want to qualify. The way the qualification process is setup makes it difficult for older adults to save up and distribute their savings as inheritance, as this can result in a penalty from Medicaid or maybe even prevent seniors from qualifying in the first place.
To protect your savings, it is vital to keep specific legal and financial strategies in mind. This article will go over some of these strategies and help you protect your money and assets from Medicaid.
Ways to Protect Your Money From Medicaid
LTC (Long-Term Care) is an essential service to take advantage of when you are older than 65. Many older adults may not be aware of their options for LTC or may believe that it is not necessary in their case. Long-term care involves services that meet many medical and non-medical needs of people with chronic illnesses or disabilities who cannot care for themselves for long periods of time. Long-term care usually entails nursing homes and other long-term investments for an older adult’s health and well-being.
The cost of LTC, especially nursing home costs, can be very high, motivating many to look for financial aid. However, as Medicaid requires you to have a limited number of assets and a low income (this varies by state), many people may feel like, to qualify, they must not have any assets at all.
However, it is often a better option to use your accumulated assets and invest in a plan that protects these assets. In the case that you leave the nursing home and need private care, or if you would like to keep an inheritance for your loved ones, it would be better that you still had some of your assets and savings. You may even want to have some money saved up for personal purchases; knowing you have money saved up in the case of dire need creates financial security.
Medicaid follows the ‘60 month rule’ where they look at five years worth of your financial history to determine your eligibility (some states like California have a 30-month look back instead). This rule is the main reason why many people start giving up assets years in advance to prepare for applying to Medicaid. Suppose Medicaid sees a transfer in the last five years before your application that is not exempt from their bylaws. In that case, you would be ineligible for Medicaid for a certain penalty period. However, this does not have to be your last resort.
Here are a few ways you can protect your money and assets from Medicaid:
1. Gift Assets Away
Giving away some assets may not always result in a penalty. Some assets are exempt, but this also varies by state. You can transfer these assets to others, like close family members who you trust. These assets could be personal effects, retirement accounts, etc. This way, you still have your investments and savings, but they are in the care of someone you trust. It is important to note that there can be gift tax when gifting away assets.
2. Irrevocable trusts
Asset Protection Trusts
If your income exceeds the specified amount to qualify for Medicaid, you may look at irrevocable trusts as a potential solution. Once placed in an irrevocable trust, assets are no longer legally yours, so you must name an independent trustee.
If an asset within the trust is sold while the Medicaid recipient is alive, the money earned will not affect Medicaid eligibility. Both you and the trustee can still use the funds. Selling an asset from a protection trust can be a way to protect and utilize your assets while still being eligible for Medicaid.
These trusts, however, are also part of the ‘60 month lookback’ period, so there may be different rules surrounding irrevocable trusts based on where you live. Many people wish to place their homes in a trust, which can help with asset protection.
In most states, placing assets in an irrevocable trust still counts as a gift and may require you to wait for 30 months in California or 60 months in other states to be eligible again. This lookback period is why many people may place their assets in the trust early on in preparation for when they will be applying to Medicaid in a few years.
Qualified Income Trusts or QITs are accounts that can hold an applicant’s excess income. In some states, a person can spend this extra income and still qualify for Medicaid. However, some states have ‘income caps’ that mean you cannot spend the additional funds if you hope to qualify. In states with these income caps, it can help have a QIT, so you still have the excess income without being excluded from Medicaid.
Another kind of trust you can look to is PITs, which also hold excess income, except these trusts are specifically for disabled people, and a non-profit organization manages the funds with the trust.
As different states have their own laws and policies surrounding Medicaid, we recommend reading about what may qualify or disqualify you for Medicaid in your state while keeping these suggestions in mind. Certain transfers may not be exempt and can lead to a penalty, causing you to be ineligible for Medicaid for a certain period of time. We must also note that irrevocable trusts mean that you are no longer the legal owner of your assets.
3. Caregiver Agreement
Sometimes a nursing home may not provide the care that you hoped for initially. You may require services beyond what Medicaid covers. In this case, a caregiver agreement may work well for you.
Under this agreement, a trusted family member or close friend may decide to care for the older person and leave their current employment. You can pay for their services in advance, which may reduce the countable income that Medicaid checks. However, the caregiver agreement must include the following features:
- The services that are provided, along with work hours, must be defined in the contract.
- There has to be a daily log of the hours worked and services rendered.
- If the person who is being cared for passes away, the caregiver must return unearned amounts of income to Medicaid.
- You must calculate the lump-sum payment using market rates for the services and a reasonable life expectancy.
These conditions can be subject to change, so we recommend researching the laws in the state you live in before going down this route.
4. Spousal Transfers
If you transfer assets to your spouse, they will not be subject to Medicaid’s look-back period. Assets that have the name of the person who needs care can be changed to be in the spouse’s name that does not need care.
Spousal refusals are also allowed by some states. The spouse that does not require care can refuse to provide financial support for their spouse who needs care, in which case they can qualify for Medicaid. However, in some states, financial eligibility is evaluated based on the assets and income of both the person who needs care and their spouse, which makes this option ineffective.
Professional Legal Help
While the strategies detailed above are helpful on their own, we always recommend seeking professional legal help when it comes to finances. Some attorneys specialize in Medicaid and will be able to provide different methods of asset protection. Consulting an attorney will also be helpful because of how much the rules vary across the states. The many variations in the laws and conditions can be hard to keep track of without a well-versed professional in state-specific laws. Attorneys can also be able to prevent you from making transfers that could disqualify you from Medicaid eligibility.
Medicaid can be an excellent program for older adults who require long-term care. Nursing homes can be costly, making programs like Medicaid essential.
However, these programs can also make it challenging to protect your personal assets and money due to their means-based selection process. This exclusivity goes against personal interests, as it can reduce your sense of financial security and inhibit you from transferring or saving up money in case you need it for private care or any other purchase.
Thankfully, there are many options like irrevocable trusts, spousal transfers, and caregiver agreements that can allow you to protect your assets and savings, thus ensuring that you can spend your savings and pass on your savings to your descendants precisely as you wish.
Pro-actively looking for ways to protect your money while still being eligible for Medicaid can save you a lot of stress. Using financial aid that you require should not force anyone to give up their assets or income.
- Medicaid, Medicaid.gov, https://www.medicaid.gov/
- Elder Care Direction, 5 Ways to Protect Your Money from Medicaid, https://www.eldercaredirection.com/5-ways-to-protect-your-money-from-medicaid/