You or a loved one is in the nursing home. You have been told that you have to spend down all of your assets to $2,000 before you can apply for Medicaid to pay for the nursing home care. The nursing home costs $7,000 per month. It is not going to take long to use up the family assets. You contemplate giving some cash gifts to family members, but you are not sure what to do.
Unfortunately, you may decide to take matters in your own hands with incomplete information and inaccurate advice. When that happens, there is a high likelihood that you will make one of the top eight Medicaid eligibility mistakes that I see on an all too frequent basis.
1. Thinking it’s too late to plan. It’s almost never too late to take planning steps, even after you have moved into a nursing home. It does not matter whether you are single or married, have $40,000 in assets or $200,000 or more, there are many options available to you and your loved ones other than spending those assets down on nursing home care. With some planning, you can still qualify for Medicaid to pay for long-term care costs. These options are usually still available even if you have been in a nursing home for years.
One example is the case of a wife who had spent hundreds of thousands of dollars to pay for her husband’s nursing home costs for years. In such instance, enough of the family assets could still be protected to allow the wife to stay in the family home, while also qualifying the husband for Medicaid to pay the nursing home.
2. Giving away assets too early. It’s your money or your house, or both. Make sure you take care of yourself and your spouse first. Do not put your security at risk by putting it in the hands of your children or others. Most people want to be in control of their property while they are alive and well. Premature transfers can cause difficult tax and Medicaid problems as well.
You may be in the nursing home, but four years ago you gave the kids substantial cash gifts which they promptly spent. Even if you have used all of your other assets on nursing home care, you still would not qualify for Medicaid to pay for the nursing home until after a penalty period has run.
3. Ignoring important safe harbors created by Congress. Certain transfers are allowable without jeopardizing Medicaid eligibility. These include transfers to disabled children, to caretaker children, into a trust for certain disabled individuals, or into a “pay-back” trust. Certain expenditures do not create a penalty situation such as home improvements, certain pre-paid funeral expenses, one vehicle, $1,500 or less in life insurance cash value and payments for services rendered, such as legal fees.
4. Failing to take advantage of protections for the spouse of a nursing home resident. There are a number of protections for the benefit of the spouse of a nursing home resident on Medicaid. These protections include the purchase of a spousal “pension” in the form of an immediate Medicaid compliant annuity or promissory note, the transfer of assets to a “solely for the benefit of” spouse trust, or the petitioning the court for increased community spouse resource and/or income allowances.
5. Applying for Medicaid too early. Applying for Medicaid while you are in a penalty situation may result in longer ineligibility periods, especially before complete asset spend down, or while you are in other circumstances. For example, if you gave away $200,000 four and a half years ago and apply for Medicaid to pay for the nursing home today, you would have a penalty period of more than 28 months in which Medicaid would not pay. If you waited 6 months to apply for Medicaid, there would be no penalty period.
6. Applying for Medicaid too late. By private paying nursing home expenses when you do not have to can mean the loss of many months of Medicaid eligibility. This would also leave less financial resources for your spouse or your family. In most instances, planning and applying for Medicaid upon nursing home admission is the most advantageous for the family.
7. Not getting expert help. This is a complicated field that most people deal with only once in their lifetimes. Tens of thousands of dollars, or more, are at stake. It is penny wise and pound foolish not to hire a legal expert who makes his or her living guiding clients through the process. Often times it actually costs the family nothing, since the amount paid to the attorney would have otherwise been spent on nursing home expenses. In addition, there are tools that can be put in place while you are alive and well, that can be used after your incapacity and nursing home admission to qualify you for Medicaid.
8. Confusion about property subject to Medicaid estate recovery and property that is exempt. The current Medicaid recovery law in Michigan applies to only certain assets. As it is currently written, only probate assets are subject to Medicaid payment estate recovery after the nursing home patient’s death. In many instances, properly re-titling assets during your lifetime or designating a beneficiary on the account may avoid probate and also exempt the property from estate recovery.
In most instances, it is the most financially beneficial for the family to plan and apply for Medicaid upon nursing home admission or when the nursing home admission is imminent. Consult with a qualified legal expert with Medicaid qualification experience. It may be worth your while to consult with the expert long before you need to apply for Medicaid. There are tools that can be put in place now to make asset protection planning and Medicaid qualification easier for you and your family when the time comes.
By Matthew M. Wallace, CPA, JD
Published edited March 18, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Medicaid mistakes to avoid
Working through eligibility maze takes patience, expertise