Medicaid is not just for poor and low-income seniors. With the proper planning, assets can be protected for the next generation while helping a person become eligible for help with long-term care costs.
Congress created Medicaid in 1965 to help with insurance coverage and protect seniors from the costs of medical care, regardless of their income, health status, or past medical history, reports Kiplinger in a recent article “How to Restructure Your Assets to Qualify for Medicaid.” Medicaid was a state-managed, means-based program with broad federal parameters run by the individual states. Eligibility criteria, coverage groups, services covered, administration, and operating procedures are all managed by each state.
With the increasing cost and need for long-term care, Medicaid has become a life-saver for people who need long-term nursing home care costs and home health care costs not covered by Medicare.
If the household income exceeds your state’s Medicaid eligibility threshold, two commonly used trusts may be used to divert excess income to maintain program eligibility.
QITs, or Qualified Income Trusts. Also known as a “Miller Trust,” income is deposited into this irrevocable trust, which a trustee controls. Restrictions on what the income in the trust may be used for are strict. Both the primary beneficiary is permitted a “needs allowance,”. However, the trust owns the funds, not the individual, so they do not count against Medicaid eligibility. The funds in the trust must go to the state to reimburse any benefits the disabled person received. If there are funds remaining after reimbursement they can go to beneficiaries.
If you qualify as disabled, you may use a Pooled Income Trust. This is another irrevocable trust where your “surplus income” is deposited. Income is pooled together with the income of others. The trust is managed by a non-profit charitable organization, which acts as a trustee and makes monthly disbursements to pay expenses for the individuals participating in the trust. When you die, any remaining funds in the trust help other disabled persons.
Meeting eligibility requirements are complicated and vary from state to state. An Elder Law attorney in your state of residence will help guide you through the process, using their extensive knowledge of your state’s laws. Mistakes can be costly—and permanent.
For instance, your home’s value (up to a maximum amount) is exempt, as long as you still live there or will be able to return. Otherwise, most states require you to spend down other assets to $2,000 per person or $4,000 per married couple to qualify.
Transferring assets to other people, typically family members, is a risky strategy. There is a five-year look-back period, and if you’ve transferred assets, you may not be eligible for five years. If the person you transfer assets to has any personal financial issues, like creditors or divorce, they could lose your property.
Asset Protection Trusts, also known as Medicaid Trusts. You may transfer most or all of your assets into this trust, including your home, and maintain the right to live in your home. According to the trust documents, assets are transferred to beneficiaries upon your death.
Right of Spousal Transfers and Refusals. Assets transferred between spouses are not subject to the five-year look-back period or penalties. New York and Florida allow Spousal Refusal, where one spouse can legally refuse to provide support for a spouse, making them immediately eligible for Medicaid. The only hitch? Medicaid has the right to request the healthy spouse to contribute to a spouse receiving care but does not always take legal action to recover payment.
Talk with your estate planning attorney if you believe you or your spouse may require long-term care. Consider the requirements and rules of your state. Remember that Medicaid gives you little or no choice about where you receive care. Planning is the best means of protecting yourself and your spouse from the high costs of long-term care.
Reference: Kiplinger (Nov. 7, 2021) “How to Restructure Your Assets to Qualify for Medicaid”