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It is possible to protect assets and still qualify for Medicaid in case you need institutionalized long term care. This kind of planning must be done with care. A mistake can be very costly.

Techniques which have been used to qualify for Medicaid and Long Term care (and are discussed in other sections of this document) are:

  • Transfer assets for a reason other than to be eligible for Medicaid
  • Transfer assets
  • Invest in your home up to the legal limit
  • Transfer your home and keep a life estate.
  • Make a loan
  • Make a payment to a Continuing Care Retirement Community
  • Purchase items that Medicaid doesn't count.
  • Make an exempt transfer.
  • Set Up An Supplemental Needs or Other Trust
  • Purchase an annuity (sometimes referred to as a "Medicaid Annuity")
  • Reduce equity in your home
  • Enter into a Caregiving Agreement
  • Get a divorce
  • Ask a significant other to move out
  • Move out yourself
  • Prepay funeral expenses

No one can predict what will happen if you take advantage of a planning alternative, spend the money you have left on care, and have no money left to pay bills during a penalty period during which you can't obtain Medicaid. States can set their own criteria that can help in this situation ("waiver"), but there is no certainty.

An elder care attorney who has had practical experience in your state is likely to be the best advisor to help you. Even with the information about Medicaid on this site, we discourage you from taking any planning action on your own, other than purchasing Long Term Care Insurance. (You can likely save money if you prepare a plan that works for you then show it to an elder care attorney, or other experienced professional to review the plan with you to help hone it as necessary.) The expense should be minimal if that person only has to review your plan.

To locate an elder care attorney, contact the National Academy of Elder Law Attorneys (NAELA) at offsite link or call Tel.: 520.881.4005 (in Tucson, AZ). Also read: How To Choose An Attorney.

NOTE: If you are reading this material in preparation for something that may happen in the future, consider exploring Long Term Care Insurance which can relieve you of the need to shuffle your assets and income to get Medicaid.

(If you have additional techniques to share, please send them to Survivorship A to Z).

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Transfer Assets For A Reason Other Than To Be Eligible For Medicaid

Transfers of assets are not penalized if it can be shown they were transferred for a reason other than to qualify for Medicaid. For example:

  • Pay for a child's wedding.
  • Pay off debts.
  • Pre-pay a child's education costs.
  • Enter into a contract with a person who is close to you to provide care giving services (see Caregiver Contract below).
  • Fix or upgrade your car, or pay off the debt on an existing vehicle. (One vehicle is not counted as a resource.)
  • Pre-pay rent, say for one year.
  • Prepay medical expenses

Jacques M. Chambers, a benefits counselor in Los Angeles, suggests that while some of these ideas might provide a haven from the penalty, don't go overboard or stretch it too far. It could be considered fraud.

Transfer Assets

Medicaid for Community Based Care (not in an assisted living facility or nursing home etc)

If you are planning with the thought that you may want to use Medicaid for community based care (basically, care other than Long Term Care), you may be able to transfer your assets for less than fair value, or even for no value at all, and immediately apply for Medicaid. Transfers also do not affect short-term rehabilitation services.

You can also make a transfer for full and adequate consideration such as sale of an asset for full market value without any penalty.

Medicaid for Care in An Instiution

If your plan is to transfer assets to qualify for Medicaid for institutionalized care, such as in a nursing home, you must take into account what Medicaid refers to as "The Look-Back Period." To learn more, see: Medicaid: Eligibility: Transfer Of Assets.

Set Up A Supplemental Needs Or Other Trust

Under federal law and under many state laws, it is possible for someone else to establish a Supplemental Needs Trust (also known as a Special Needs Trust) for a disabled person under age 65 to provide for needs which aren't paid for by Medicaid or SSI -- such as a vacation. In some states, these trusts can even be established with a disabled person's own funds.

It is also possible to set up an irrevocable "Medicaid Trust." Such a trust reduces wealth. The trust administers the assets in the trust as you direct. It can pay you a set amount of income for life.

This is much too complicated an area for the average lay person to attempt without legal counsel. Look for an attorney who specializes in elder law. Elder law attorneys have the most thorough knowledge and experience with trusts and Medicaid. To find an elder law attorney, see offsite link, and read our article: How To Choose An Attorney.

Invest In Your Home Up To The Legal Limit

Equity in a home only prevents you from receiving Medicaid if you have over $500,000 of equity (or up to $750,000 if permitted in the state in which you live. A home for these purposes includes a house, a condominium, a coop and a mobile home.

Exempt from the limitation are:

  • Individuals who have a spouse.
  • Children under age 21.
  • Adult children with disabilities living in the home.

Subject to the maximum equity provisions in your state:

  • If you don't own a home, you can buy one
  • If you own one, you can put money into needed improvements or remodeling.
  • If you have a mortgage, you can pay it down or pay it off entirely.

Transfer Your Home And Keep A Life Estate

Equity in a home only prevents you from receiving Medicaid if you have over $500,000 of equity (or up to $750,000 if permitted in the state in which you live. A home for these purposes includes a house, a condominium, a coop and a mobile home.

Exempt from the limitation are:

  • Individuals who have a spouse.
  • Children under age 21.
  • Adult children with disabilities living in the home.

Subject to the maximum equity provisions in your state:

  • If you don't own a home, you can buy one
  • If you own one, you can put money into needed improvements or remodeling.
  • If you have a mortgage, you can pay it down or pay it off entirely.

Make A Payment To A Continuing Care Retirement Community

In some circumstances, you can make an admission payment to a Continuing Care Retirement Community.

Make A Loan

To be excluded from resources, promissory notes, loans and mortgages must meet all of the following criteria:

  • They must have repayment terms that are actuarially sound.
  • The payments must be of equal amounts (no balloon payments).
  • The loans must not self-cancel upon the death of the lender.

Purchase Items That Medicaid Doesn't Count

Items which are exempt from the wealth test include:

  • Clothing
  • Jewelry
  • Books
  • An automobile needed to travel to obtain medical care

Create A Medicaid Trust

Many people are concerned that nursing home costs could impoverish them before qualifying for Medicaid, leaving them with nothing to pass on to the next generation.

There is an instrument called a "Medicaid Trust" or sometimes called a "Special Needs Trust" that people use with the goal of protecting assets for heirs while still qualifying for Medicaid to pay nursing home bills.

If your estate is of such a size that this is a real concern for you, consult a reputable attorney about these trusts. Investigate your options thoroughly. There have been some bad apples who have created trusts for people that don't work as Medicaid Trusts.

Consider the following points when exploring these trusts:

  • Medicaid trusts have been ruled ineffective at protecting assets from Medicaid by the courts in some jurisdictions.
  • To be effective, the principal (the assets you put into the trust) must be permanently separated from the grantor (you, the person putting the money into the trust.) There is no real transfer for Medicaid purposes if ownership can be reestablished.
  • While the person who sets up the trust has use of the income from the trust, Medicaid has the right to require that the income be used to satisfy medical bills before Medicaid pays for remaining bills, which effectively erases all income from all but the largest trusts.
  • The look-back period for the transfer of assets into a trust is five years (60 months). See Medicaid and Long Term Care.

Certain trusts are not counted as being available to the individual. They are:

  • Trusts established by a parent, grandparent, guardian, or court for the benefit of an individual who is disabled and under the age of 65, using the individual's own funds.
  • Trusts established by a disabled individual, parent, grandparent, guardian, or court for the disabled individual, using the individual's own funds, where the trust is made up of pooled funds and managed by a non-profit organization for the sole benefit of each individual included in the trust.
  • Trusts composed only of pension, Social Security, and other income of the individual, in States which make individuals eligible for institutional care under a special income level, but do not cover institutional care for the medically needy.
  • In all of the above instances, the trust must provide that the State receives any funds, up to the amount of Medicaid benefits paid on behalf of the individual, remaining in the trust when the individual dies.
  • A trust will not be counted as available to the individual where the State determines that counting the trust would work an undue hardship.

Purchase An Annuity ("Medicaid Annuity")

A purchase of an annuity is considered to be a transfer for full and adequate consideration, The amount paid for the annuity does not count toward total countable assets for Medicaid purposes. (While that is the case, the income from the annuity is considered to be countable income). 

Medicaid Annuities have strict requirements. For instance, an annuity can only be used for these purposes if each of the following is present:

  • The annuity names the state as the first remainder beneficiary or the second remainder beneficiary up to the amount the state has paid in benefits - after a community spouse or minor or disabled child.
  • The annuity is irrevocable and not assignable.
  • The annuity is actuarially sound. Actuarially sound is determined in accordance with actuarial publications of the Office of the Chief Actuary of the Social Security Administration.
  • The annuity provides for equal payments during the term with no deferral or balloon payment.

These provisions do not apply to annuitizing a qualified retirement plan, a traditional IRA or a Roth IRA.

If you go into a nursing home and have a spouse, the stay-at-home spouse (known in Medicaid-speak as the "Community Spouse") can buy a special type of irrevocable immediate annuity.According to Kiplinger's Retirement Report, buying the annuity is not considered to be a transfer for purposes of Medicaid eligibility. For example, if a couple has $200,000 and the husband goes into a nursing home. The wife could purchase a $100,000 annuity while her husband becomes eligible for Medicaid. (She can keep the other $100,000).

To find a Medicaid Annuity, speak with a local insurance broker or go on line. One of the online sites to consider is offsite link. (Click on Links.  Then on Insurance Products. Search for Medicaid annuity.)

BEFORE PURCHASING AN ANNUITY FOR THE SUBJECT PURPOSE: check with a lawyer to be sure the policy fits the Medicaid requirements.

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Reduce Equity In Your Home

If the amount of equity in your home exceeds the state's limit, you can reduce your equity by taking a home equity loan or a Reverse Mortgage.

The income will be counted against Medicaid eligibility requirements. However, you can use the money to pay for nursing home care or otherwise spend down the money. For example, you can use the money to add ramps or refit bathrooms to accommodate a wheelchair. Home equity can also pay for in-home assistance.

Before you consider a Reverse Mortgage, consider the expense involved in obtaining one.

Note: married couples are exempt from the ceiling if one spouse remains in the house and Medicaid can recover the cost of any nursing home care from the sale of the house once both spouses die.

Fund A Caregiving Agreement With Family Members or Friends

If you need immediate care, an alternative for reducing the amount of your assets to qualify for Medicaid without penalty is to enter into an agreement with an adult relative or friend  for caregiving services.

The contract must at least include:

  • A description of the services to be provided, such as transportation to medical appointments.
  • The compensation.
  • The length of time of the contract.
  • The contract cannot provide payment for past services.

If the agreement is properly documented, payments under the contract are considered to be wages - not gifts. The person receiving the money must pay taxes on the income. When calculating your taxes, you may be able to deduct the cost as a medical deduction.

If the person is considered to be an employee instead of an independent contractor, you may have taxes to pay, forms to fill out and records to keep.

It is advisable for a lawyer familiar with the Medicaid laws in your state to draft the agreement - or at least to review it before signing.

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Get A Divorce

If you are married, one drastic method to protect assets is to get a divorce. In order for this technique to work, the divorce must be legal. Do not consider this kind of step without consulting with an appropriate professional.

If you have children, think about what the effect of this type of arrangement would have on the children.

Ask A Significant Other To Move Out

This drastic step should not be undertaken lightly. Once the person is no longer living with you, his or her income and assets are no longer counted as your income or resources. People hvae been known to satisfy the requirement by moving out, but living nearby in the neighborhood.

If the relationship continues, there is a fine line between living with a person, and visiting frequently.

Keep in mind that the question will arise: how can you as the remaining person afford to live in the premises on your own. If you can't afford it on your own, the question is raised whether the person really moved out, or only did so to game the system.

Move Out Yourself

If you are not married, one way to avoid having another person's income and/or assets counted with yours is for you to move out and go stay with a friend or relative. Of course this is not a step to be undertaken lightly.

As a general matter, all that is necessary to prove your address is an envelope addressed to you at that address.

If you do move out, a reputable patient navigator in New York suggests that if you stay with someone else, name that person as "Head of Household."  Otherwise, moving out can complicate things.

You can eventually move back if and when the need for Medicaid is resolved.

CAUTION: Saying you moved out when you haven't actually moved out can have serious repurcussions.

Pre-Pay Funeral Costs To The Extent Permitted By State Law

Under Federal rules, you can keep up to $1,500 t pay for funeral expenses and still qualify for Medicaid. Many states allow a recipient to buy a prepaid funeral plan with a limit that is higher than the amount allowed by Federal rules. As an example, a state may allow $7,000 to be prepaid for funeral expenses. Whatever the amount allowed by the state is the amount to use to buy a funeral plan. 

NOTE: Your state may also allow additional costs such as the burial plots, caskets and vaults to be tacked on, thus raising the limit.