Protection from Medicaid - The Transfer Penalty and the Look-Back

If you give away your assets it will make you and your spouse ineligible for Medicaid benefits for up to five years. When you apply for benefits, Medicaid reviews five years of bank statements in order to identify any disqualifying transfers. This is known as the “look-back period.” Any transfers that happened before the five year period are protected and do not have to be reported to Medicaid. However, if you apply for benefits during the look-back period, Medicaid imposes one month of ineligibility for approximately every $8,000 you give away. In addition, the clock does not start “ticking” on the ineligibility period until you are in a nursing facility and have spent down your assets. It is impoerative that you involve an attorney familiar wtih Medicaid planning to protect your assets.

The easiest way to explain the transfer rules is by way of an example. Let’s assume Mrs. Smith transfers $24,000 to her grandson on March 15, 2008. On April 15, 2009, Mrs. Smith suffers a stroke and is admitted to a nursing home. Assume she spends down her assets below $2,000 as of August 2009. Because she would be applying during the look-back period, Medicaid would impose three months of ineligibility ($24,000 ÷ $8,000 = 3 months). The transfer penalty would not start until August 1, 2009 and would end in November 2009.

Medicaid Protecting Your Home

Many fear the Medicaid Lien as they get older and face mounting medical bills.

Homes with equity of less than $750,000 are not considered a noncountable asset. However this does not mean that the house is protected. Without proper planning and legal advice for Medicaide Patients, at death the State will have a lien against your house and at death Medicaid will seek reimbursement for benefits provided. With proper legal planning you can avoid a Medicaid lien and protect your home saving hundreds of thousands of dollars.

Many people think the best way to protect their home is to give it outright to their children.

Although this may sound like the simplest solution -- it may be the worst choice. Transferring a home outright to children can result in large capital gains taxes. Secondly, things can happen to children that can place the house at risk. What happens if a child gets divorced, is sued or has creditor problems? Seniors have been literally forced out of their own home as a result of ‘gifting’ their house to their children.

One strategy our office uses to protect homes from the Medicaid lien is an irrevocable trust. An irrevocable trust can protect your home from a Medicaid lien and avoid the risks of outright gifts.

The Asset Rules - Medicaid Eligibility

The first basic rule of nursing home Medicaid eligibility is that an applicant, whether single or married, may have no more than $2,000 in "countable" assets in his or her name. "Countable" assets generally include everything you own, except for the applicant's home (if it is located in Massachusetts and it has equity less than $750,000). Everything else,(second homes, retirement savings, life insurance) is counted and may have to be spent down before you can obtain eligibility.

PROTECTING YOUR ASSETS FROM THE COST OF NURSING HOME CARE

Nobody wants to think of the possibility of entering a nursing home. But the truth is, if you ignore this issue you are putting your spouse’s financial security, your life savings, your home and your children’s inheritance at risk. Nursing homes in Massachusetts cost approximately $10,000 a month. Most people don’t realize that traditional health insurance policies and Medicare provide little or no long term care coverage, but Medicaid coverage is very different. With proper planning and the right attorneys specializing in Elder Law, most married middle-class seniors, who have accumulated savings and a house, could be eligible for Medicaid to help pay some or all of their long term care costs. Unfortunately many seniors, who pay privately for nursing home care, spend their life savings until they have nothing left – and only then do they believe they are eligible for Medicaid (the program is called MassHealth in Massachusetts).

The Medicaid rules are complicated and include many traps for the unwary. An experienced elder law attorney can help you navigate through the Medicaid maze protecting your family’s savings and home.


More on this topic soon.......