A recent report by the US Department of Health and Human Services revealed that around 70% of people in the age group of 65 or above seek long-term care in some form. However, availing of long-term care is relatively expensive for many families. Hence, they prefer to apply for Medicaid to pay for the costs.
Medicaid has a set of strict rules, and if you fail to abide by them, it can put your life savings and assets at risk. Therefore, most people look for ways to protect their money and properties from Medicaid.
This article has enlisted 5 proven and legal methods to ensure that you qualify for Medicaid for long-term care while protecting your assets.
What Amount Should I Have in Bank to Qualify for Medicaid?
To answer this question, first, you need to know if Medicaid checks your bank account. The answer is NO, your case worker won’t check the balance in your bank account but any undisclosed asset may come to their notice in the long run.
Medicaid has a stringent audit system where supervisors meticulously check your application and other essential documents. In case there is any red flag, the supervisor will launch a comprehensive audit to make sure that you are not defrauding the government.
Moreover, all financial institutions send account information and reports to the IRS and the state revenue department. The government may face some challenges in case of inter-agency cooperation but will eventually identify your undisclosed property. So, check your Medicaid eligibility carefully and be transparent while mentioning your assets.
Asset Requirements for Medicaid
Before you seek Medicaid benefits, the agency will assess your liquid assets. Asset requirements for Medicaid include:
- Investments- bonds, stocks, brokerage accounts, and mutual funds.
- Bank accounts- savings, checking, CDs, and money market.
- Retirement accounts – IRA, Roth IRA, 401k.
- Real estate except for your primary home- condos, vacation homes, land.
There are also a few exempt assets for Medicaid, which include:
- Primary home
- Primary vehicle
- Permanent life insurance policies along with a cash value of $1500 or less.
- Term life insurance policies
- Home furnishings and appliances
- Pre-need funeral contracts
- Personal belongings, such as clothing and jewelry
Sources to Pay for Long-term Care
Long-term care insurance, your hard-earned money, and Medicaid are your reliable sources for long-term care. To avail of Medicaid benefits, you need to meet incomerequirements for Medicaid or have limited property, or both.
If anyone tries to give away their assets or income to qualify for Medicaid, the agency may disqualify the applicant for a penalty period. So, you need to plan well in advance and consider all the legal options to protect your assets.
1. Income Trusts
Medicaid application includes an income limit, and if it exceeds a certain range, it is handled in such a way that you can keep your eligibility and seek Medicaid benefits. The issue is fixed by setting up a pooled income trust, an irrevocable account to hold excess income. Moreover, in some states, people can spend excessive income amounts to meet Medicaid eligibility criteria.The others don’t allow you to spend excess income for eligibility.
A pooled income trust is designed for disabled people, and any surplus amounts are pooled together and disbursed by a nonprofit organization that manages the funds. Unused funds will be utilized by the trust for charitable purposes.
2. Spousal Transfers
The law lets spouses transfer assets, which are not subjected to the look-back period. Also, in some states, a healthy spouse may refuse financial aid for their significant other. Hence, making the ill partner eligible for Medicaid. As Medicaid starts offering care services, it can ask for contributions from the healthy partner. The agency may not do this in all cases and at times, may settle for a lesser amount. In states that don’t allow spousal refusal, the resources of both spouses are evaluated to assess Medicaid eligibility, which makes this strategy inefficient.
3. Promissory Notes and Private Annuities
Seniors often find themselves in need of long-term care, whether they are holding substantial assets or have recently transferred their property. If they try to get rid of the assets within Medicaid look-back period, they might face a penalty. The period for the penalty is determined by dividing the total amount transferred by the regional monthly rate of Medicaid care. The calculation yields a penalty period in months for which the person will be ineligible for Medicaid coverage.
One of the biggest challenges is to preserve an applicant’s assets while helping them to qualify for Medicaid benefits. Fortunately, a 2006 federal law provided a solution called a properly worded and structured annuity or promissory note. It enables to create a cash flow using the applicant’s assets to pay for nursing home care during the penalty period.
4. Asset Protection Trust
Asset protection trust is meant to protect your wealth. You can transfer your assets to a family member but it comes with its disadvantages too. The trust distributes the assets to the same people after your demise so they don’t have to pay capital gain tax on the increased amount in the value of the property. Also, you are no longer the owner of assets transferred to an asset protection trust. However, any asset transfer within five years of when you require Medicaid will be subject to the look-back period. So, it’s crucial that you carefully plan when you might need care. If designed correctly, it can also work as a legal tool for other purposes.
5. Caregiver Agreement
It is a useful strategy when seniors require additional services that are neither covered by Medicaid nor provided by a skilled nursing facility or home care agency. A family member can offer their services in exchange for income. This will be beneficial for seniors who want someone familiar to take care of them. The family member can get paid in advance, and the payment will cut down a Medicaid applicant’s countable assets.
If the caregiver is paid in advance, the legal agreement must adhere to certain regulations to be accepted by Medicaid.
- The contract must mention the services offered and the total hours committed by the caregiver.
- The payment must be determined based on reasonable life expectancy and legitimate market rates.
- There must be proper records of hours and services rendered combined with written invoices.
- Upon the patient’s demise, any unearned funds will be paid to Medicaid up to the amount the agency paid for the patient’s care.
You must understand that every case is different and has unique facts, so all the strategies discussed above may not align with your needs. Hence, it’s best to hire an experienced attorney proficient in Medicaid programs to get favorable outcomes.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning. Over the last 10 years, he has turned his focus to self-directed accounts and alternative investments.