Medicaid planning is done when elderly people arrange or transfer their assets to prevent or minimize their use of Medicaid for paying for their long term care. Many Americans think that they have a good chance of ending up in a nursing home. The cost for long term care such as nursing homes differs across the U.S., with $70,000 per year as an average estimate. Paying for this can easily deplete the savings or assets of a middle income American retiree in just a few years.
Medicaid can pay for nursing home costs, but only for those who are underprivileged. Since Medicaid is a collective state and federal program, every state defines how much a person’s assets must be before Medicaid will cover the nursing home expenses. Usual asset limits are about $2,000 to $3,000.
When applying for Medicaid, they determine if a person’s assets qualify them for free assistance. If the assets are above the set limit, they may charge annual rates appropriate to the individual’s level, which they have to pay from their assets until they’ve spent their money down to the threshold asset level set by the state.
An individual can’t just transfer their assets to someone else in order to meet the state limit and qualify themselves when applying for Medicaid. Medicaid will take into consideration the amount that was transferred as a countable asset, unless it was done 5 years before applying for Medicaid help. This is called the look back period.
For married couples, when a spouse requests for Medicaid help for his or her long term care, the state can use the couple’s assets for first paying for Medicaid’s assistance. The healthy spouse is allowed a certain percentage of their assets to use for living expenses. Medicaid will then utilize any excess amount for payment of the other spouse’s costs for long term care.
Medicaid cannot claim assets that are obtained by the healthy spouse through annuities or pensions. These allowances are called income streams, which makes them non-countable assets. Not all allowances are spared from Medicaid claim though, and in order for them to be exempt they must be irrevocable, they must not cover a term longer than the purchaser’s life expectancy and the payments must at least be equal to the cost of the annuity, and payments must be made immediately, so a deferred annuity is excluded. Unless there is a spouse, a minor, or a disabled child, the state must be named as a beneficiary equal to the amount of Medicaid given. The healthy spouse should also name the state as the remainder beneficiary for costs incurred by the Medicaid recipient, and themselves if ever they receive Medicaid. But this would only apply if that spouse would die before the guaranteed payment under the annuity has ended.
For those who are thinking of Medicaid planning, they should have expert legal guidance to keep their planning even with current laws. They must also make sure to acquire annuities that will be exempt from Medicaid claim, if they plan to go through this route.