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Medicaid Planning: Enlarging the Fine Print

Hospital care

Family Medicaid Planning

I was recently invited to speak about Medicaid planning for married couples.  After the presentation, one audience member expressed, with a sense of relief, “I understand!—it’s as if you took the fine print and enlarged it into simple terms.” 

There is no doubt about it—Medicaid is complex.

Individuals are seldom aware of all the rules—or for that matter, all of the exceptions to the rules.  This can result in costly errors that delay Medicaid eligibility, or preclude it altogether.  It can also result in “spending down” assets that could have otherwise been saved.

So—let’s enlarge the fine print.

There are three main rules for Medicaid eligibility: (1) Income Rules; (2) Asset Rules; and (3) Gifting Rules.  When a Medicaid application is submitted to the Department of Social Services (DSS), DSS is looking to make sure that these three rules are met.

1.  Income Rules:  DSS looks at the income of the ill spouse (the spouse who needs care). If the ill spouse is at home, the gross income limit is $2,250.00 per month.  If the ill spouse’s income is greater than $2,250.00, he/she can still qualify for Medicaid by placing excess income into a pooled trust, which is a particular type of special needs trust.  If the ill spouse is receiving care in a skilled nursing setting, nearly all of the ill spouse’s income is paid to the facility.  The well spouse can keep a portion of the ill spouse’s income to maintain household expenses.

2.  Asset Rules:  DSS looks at the assets of the couple.  In essence, the couple’s assets are placed into one big pot and divided in half.  The ill spouse can keep $1,600.00, and the well spouse can keep a minimum of $24,720.00, up to a maximum of $123,600.00.  However, some assets are “exempt”—meaning they are not counted toward the asset limits.  Subject to some rules and limitations, the couple’s house; one car; a pre-paid funeral contract; some life insurance benefits; and household items are all exempt.

Let’s see how this works.  Wendy and Harold have $200,000.00.  Harold has been diagnosed with dementia and needs care.  To get Medicaid to help pay for his care, Wendy can keep half of the assets ($100,000.00), and Harold can keep $1,600.00.  However, Harold is over the asset limit by $98,400.00.  Harold’s only option is to “spend down” to $1,600.00—Right?  Wrong.  There is a plethora of Medicaid planning strategies that can save assets well beyond these low financial limits.

Spending down is rarely the best or only option.  A legal Medicaid strategy aims to save assets over the low eligibility limits. 

3.  Gifting Rules (aka “Lookback”):  DSS “looks back” at the couple’s past 5 years of financial records to determine whether gifts were made (i.e. $10,000.00 for son’s wedding; $15,000.00 to daughter for estate tax purposes).  These gifts, although lovingly given, create big problems for Medicaid eligibility.  For every $12,851.00 gifted, there is a one month “penalty”—meaning, Medicaid will not cover care for one month.  Many people live in fear of the five-year look back.  But fear no more, because gifting can be managed through a strategic legal plan.

In summary, there are three main rules for Medicaid eligibility:  (1) Income Rules; (2) Asset Rules; and (3) Gifting Rules.  At Disability Planning Partners, we review the unique circumstances of all Medicaid applicants (including a snapshot of assets; family composition; and the couple’s goals) and develop a strategy that maximizes assets above and beyond the low eligibility limits.  So if you’re looking to guard against future long-term care costs, contact us to enlarge the fine print of your personal planning needs.

This blog post has been prepared for informational purposes and does not constitute legal advice.  The figures utilized herein, though current as of today’s date, are subject to change.