Most people will require long term care services as they age. Click here to read more about the statistics behind long term care and the associated costs. In the area of long term care, the greatest financial liability you can face is an extended stay in a nursing home. For many people, Medicaid provides the only viable coverage option for nursing home care, but Medicaid also imposes very restrictive eligibility criteria on income and assets. This forces people to spend the vast majority of their savings on nursing home care until they are financially eligible for Medicaid, at which point they have nothing left to lose. Medicaid planning seeks to avoid this disastrous outcome. Medicaid Planning means taking calculated actions that will give someone a higher chance of being approved for Medicaid, allow Medicaid eligibility to begin as soon as possible, and that will prevent Medicaid applicants from having to lose everything they own. Medicaid planning takes two forms:
- Medicaid crisis planning; and,
- Proactive Medicaid planning
Medicaid Crisis Planning
A medical emergency can often require a loved one to be admitted to a hosipital and, in some cases, discharged to a nursing home for skilled nursing care.Related FAQ:
Does Medicare pay
for nursing homes? In cases like this, you must realize that Medicare coverage for nursing home care is extremely limited. If a nursing home stay exceeds that limited coverage, your loved one may need to obtain Medicaid coverage as soon as possible to reduce their out-of-pocket expense. Medicaid crisis planning involves sheltering as much of your loved ones assets as soon as possible so that Medicaid coverage can begin. In situations like this, the biggest thing working against us is the transfer of assets penalty.
Transfer of Assets Penalty
The transfer of assets penalty is a set of rules that attempts to prevent people from giving away their property in order to qualify for Medicaid. When someone applies for nursing home Medicaid, the State of Georgia will "look back" at the prior 60 months and see if that individual has transferred any property for less than fair market value. These transfers could include making gifts, selling property at a discount, or even refusing to accept property that the individual is entitled to receive. If a Medicaid applicant has given away property during the "look back", then the State of Georgia can deny them Medicaid coverage for a certain period of time as a penalty.
Thankfully, there are many ways to work around the transfer of assets penalty and obtain Medicaid coverage while preserving assets. You can use excess assets to purchase other assets that are considered exempt for Medicaid eligibility purposes (like using cash to purchase a vehicle or burial plot) or use assets to pay off valid debts. You can also transfer assets in a way that does not trigger a penalty by utilizing one of the many exceptions. No two Medicaid crisis planning cases are alike, but they always require both comprehensive knowledge of the law and prompt action to preserve the greatest amount of property possible.
Proactive Medicaid Planning
Ideally, people will start planning for the possibility of long term care well in advance of when they actually need it. Proactive planning is especially important for people who anticipate they could rely upon Medicaid coverage in a nursing home. Proactive Medicaid planning typically involves transferring assets outside of the "look back" period, which is at least 60 months before someone requires Medicaid coverage. Even individuals who could qualify for Medicaid coverage without making transfers of assets should consider proactive planning because of the estate recovery program.
Estate Recovery Program
The federal government requires every state to implement an estate recovery program as a condition of receiving Medicaid reimbursement. This program allows the State of Georgia to recoup some of the costs of paying for nursing home care after a Medicaid recipient passes away. Essentially, if you receive Medicaid coverage for nursing home care, you are running a tab that the State of Georgia intends to collect upon your death.
Planning around the estate recovery program is especially important to protect your home. A home will typically not prevent you from becoming eligible for nursing home Medicaid (depending upon the value).Related FAQ:
Will I Lose My Home
If I Need Medicaid? However, after a nursing home Medicaid recipient passes away, this property can become part of their estate and fair game for the State of Georgia to collect against. The State of Georgia has another powerful tool to collect against your home called a "TEFRA" lien. When someone applies for nursing home Medicaid, the state can attach a lien to their home to secure the debt for Medicaid coverage provided. When the Medicaid recipient passes away or later sells that home, the state can collect on its lien (which could be worth more than the home itself at that point). Proactive Medicaid planning strives to avoid this outcome and preserve this property for future generations.
Outright Property Transfers
Although Proactive Medicaid planning often involves transfers of assets, you should generally avoid making outright transfers of property as part of this process. For instance, some people will simply put their property, including their homes, in their children's names and think they are completely protected. While such an outright transfer may prevent this property from being considered an available asset for Medicaid purposes, it raises a lot of other problems:
- Loss of Control: When you transfer property outright, even to someone you trust, you lose all control over how that property is used. In the worst case scenario, the people you transfer property to can take advantage of your trust for their own benefit. Sadly, many people have deeded their homes to family members in an attempt to protect that property only to be evicted or have it sold out from underneath them.
- Exposure to Creditors: When you transfer property to someone outright, that property gets exposed to the new owner's debts. For example, if you transfer a home to your child, that home could be taken by your child's creditors as part of a lawsuit If your child is married and later got divorced (which, sadly, a large number of married couples do) that property could even be awarded to an ex-spouse .
- Higher Taxes: When you transfer property to someone outright, that person receives a "carryover basis" for the purpose of calculating any taxable gain on a future sale. That means the new owner will likely pay higher income taxes on the sale of that property that could have been avoided if you transferred the property through other means, especially if the property has appreciated a great deal.
Medicaid Asset Protection Trust
A better way to proactively plan for Medicaid is through a type of irrevocable trust that is often referred to as a Medicaid Asset Protection Trust. By transferring your property into an irrevocable trust, you remove it from Medicaid eligibility considerations just like when you transfer that property outright. Just like outright transfers, you can decide who benefits from the property in your trust. However, the trust avoids all the problems that outright transfers create. Your irrevocable trust agreement allows you to control how your beneficiaries use the property, both during your lifetime and after, which prevents waste or financial exploitation. Your irrevocable trust also protects this property from your beneficiaries' creditors. Unlike outright transfers, property contained within your irrevocable trust can receive a "stepped up" basis when you pass away, which means your beneficiaries may not have to pay any income taxes upon the sale of that property whatsoever
An irrevocable trust is more than just a Medicaid planning technique. This trust can serve as the foundation of your estate plan and the primary means for transferring your property. In addition to preserving your property from the costs of nursing home care and estate recovery, the irrevocable trust-based plan also avoids the potential problems associated with the probate process.