5 Ways to Protect Your Assets from Medicaid
When it comes to long-term care, it’s not a question of “if” but “when” you or a loved one may need this type of ongoing care. According to the US Department of Health and Human Services, “Approximately 70% of people turning age 65 can expect to use some form of long-term care during their lives.”
Medicaid is a federal and state program established for individuals with low income and limited assets to help with healthcare costs. This is a “means-tested” program subject to strict rules regarding eligibility. The eligibility guidelines are set by the state where you live and while these vary greatly from state to state, in most places, income is capped at $2,000. Additionally, there is typically a 5 year “look back” period on transfers of assets that can trigger financial penalties.
So, what can you do to protect your assets from Medicaid requirements and still get help for long-term care for yourself or a loved one? We’ve outlined 5 commonly used strategies to protect your income from Medicaid.
- Medicaid Asset Protection Trust
You can set up an asset protection trust to transfer legal ownership of your non-retirement assets to a trust. Because your assets no longer legally belong to you (they belong to the trust), after 5 years they are beyond the reach of Medicaid and do not count against your asset limit. However, it’s important to note that once assets are in the trust, you can no longer withdraw or demand access to the principal.
- Qualified Income Trust
If a Medicaid applicant exceeds the income limit requirements, they can use a Qualified Income Trust (QIT) also called a Miller Trust to reduce their allowable income to qualify. These are irrevocable trusts designed to help people who have more income than the allowable Medicaid limit but not enough to pay for long-term care out of pocket. The QITs hold a person’s “excess income” to be used for specified medical expenses like medical bills and Medicare premiums. By using this trust, the applicant’s income is not counted toward the Medicaid limit.
- Medicaid Compliant Annuity or Promissory Note
This is a good last-minute strategy or emergency strategy if you or a loved one needs Medicaid help now and has not already set up a trust. If the Medicaid applicant is still holding significant assets at the time they need Medicaid assistance, disposing of these assets will trigger the look-back penalty.
To preserve some of the applicant’s assets and still qualify for Medicaid, they can use a properly worded and structured annuity or promissory note. The annuity creates a cash flow for the assets that can be used to pay for nursing home care during a shortened penalty period.
For example, if an applicant transfers half their assets to a loved one, they can use the rest of their assets to purchase a qualified annuity or promissory note that provides income for the duration of the penalty period. The loved one keeps the assets transferred to them and the applicant uses the annuity or promissory note to pay for nursing care while they are in the penalty period.
While funds are still penalized, there is an opportunity to reduce the penalty.
- Care-giver agreement
A care-giver agreement is a good option for someone who would like to be taken care of by someone they know, like a family member, in their own home. These loved ones can provide care and receive an income. The person who needs care can choose the person to be their caregiver and pay for services in advance. The payments will legally reduce a Medicaid applicant’s countable resources by the amount paid.
- Spousal Transfer
One important transfer of assets is excluded from the Medicaid look-back period: transfers between spouses. These transfers do not result in a penalty. After Medicaid has begun to pay services, they have the right to ask the well spouse for contributions, but they do not always pursue this. Even if they do, Medicaid sometimes settles at a discount or if a spouse must reimburse Medicaid, it will be at their discounted rate instead of private pay rates that providers charge.
Medicaid is a complicated program, and these strategies require careful planning. Our team at C-J Advisory can provide resources such as attorneys that specialize in elder care to help you understand your options. Contact our team for more information.
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