Last-Minute Medicaid Planning For Loved Ones In Nursing Homes

By: Shane M. McCrohan

An important estate planning goal for the vast majority of people as they get older is to preserve their hard-earned assets for their loved ones upon their passing. A long-term stay in a nursing home, however, can present a considerable obstacle toward achieving that goal. While advance planning, whether in the form of gifting or purchasing long-term insurance or a combination of both, is the ideal way to protect a loved one’s assets against the threat of substantial nursing home costs, options are still available for those loved ones who did not engage in any advance planning when they enter the nursing home to help them qualify for nursing home (chronic care) Medicaid assistance and preserve a significant portion of their assets from being spent on their nursing home care.

These options include the following:

  1. Using funds to purchase Medicaid-exempt assets such as an automobile, irrevocable pre-need funeral arrangement, home capital improvements, home furniture and appliances.
  2. Transferring Medicaid-exempt assets (other than the home) to family members. These would include: an automobile, home furniture and appliances, and tools/equipment necessary for a trade or business. Medicaid-exempt assets (other than the home) can be transferred without any Medicaid penalties.
  3. Transferring excess assets to a spouse or disabled child. — Outright transfers to a spouse or disabled child are Medicaid-exempt. If a trust is used to make a gift to a spouse or disabled child, however, the spouse or disabled must be the only trust beneficiary during his or her lifetime and any remaining trust assets at the spouse’s or disabled child’s death must be distributed to the spouse’s or disabled child’s estate in order for the trust transfer to be Medicaid-exempt.
  4. Returning previously-gifted assets back to original owner/donor if assets were gifted in last five years. The return of gifted assets negates any Medicaid-transfer penalty (or Medicaid ineligibility period) associated with the prior gift.
  5. Purchasing a Medicaid qualified annuity with excess assets. In order for the purchase to be Medicaid-exempt, the annuity must be:
    1. actuarially sound; annuity term cannot exceed the life expectancy of purchaser/annuitant;
    2. irrevocable;
    3. non-assignable; ownership cannot be transferred to anyone else;
    4. immediately payable with level monthly payments and no balloon payments; and
    5. Medicaid must be named as primary beneficiary if there is no surviving spouse or minor or disabled child, or as secondary beneficiary if there is a surviving spouse or a minor or disabled child, to the extent of funds Medicaid has spent on the Medicaid recipient’s behalf.
  6. Gifting and loaning excess assets to family members.

Using a gift and loan strategy, one can potentially preserve a significant portion of his or her nest egg and expedite his or her eligibility for nursing home (chronic care) Medicaid assistance.

Under the current Medicaid rules, any Medicaid penalty period will not begin to run until (a) the Medicaid applicant’s countable assets are at or below the eligibility threshold, (b) Medicaid applicant is residing in the nursing home and (c) a Medicaid application is filed.

The goal of this strategy is to get the Medicaid penalty period running as quickly as possible. To effectively implement this strategy, all of the excess assets will either be gifted or loaned to family members and then a Medicaid application has to be filed as soon as possible following the gift and loan of the excess assets.

Any delay in filing the Medicaid application after the excess assets have been gifted and/or loaned will diminish the effectiveness of the strategy.

The funds gifted to family members will trigger a Medicaid penalty/ineligibility period while the funds loaned to family members will be used to cover the nursing home expenses during the Medicaid penalty/ineligibility period.

If, for example, a single person went into a nursing home with $160,000 of excess assets and is spending $10,000 per month on his or her nursing home care and the applicable Medicaid regional rate used to compute the Medicaid penalty period is $10,000, he or she could gift $80,000 of excess assets and loan the remaining $80,000 of excess assets to his family members and qualify for nursing home (chronic care) Medicaid assistance in 8 months [or $80,000 (gift amount) divided by $10,000 (Medicaid regional rate)]. To get the 8-month Medicaid penalty/ineligibility period running as quickly as possible and preserve all of the gifted assets, the Medicaid application should be filed in the same month as the gift and loan is made. The reason why this strategy works is because the loan is not considered an asset of the lender, but rather an income stream to the lender.

It is important that the loan comply with the Medicaid rules so that it is not considered a gift. For the loan to be Medicaid-compliant, the loan must be:

    • actuarially sound; loan term cannot exceed the life expectancy of lender;
    • immediately payable with level monthly payments and no balloon payments; and
    • prohibit cancellation of balance remaining at lender’s death.

Medicaid planning is a complicated process, but options are usually available to protect some of a loved one’s assets with the help of an experienced elder law attorney. This article should not be relied upon as legal advice without first discussing your or your loved one’s particular situation with an attorney who practices in the area of elder law.

If you would like to discuss in further detail, please do not hesitate to contact me or the attorney in our office with whom you typically work.

To view this article in PDF format, please click here [Last-Minute Medicaid Planning].