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Medicaid: Qualifying Without Going Broke!

It seems like a simple answer. And some have the opinion that the answer is unfair; that it is unfair to plan for Medicaid. It is an interesting statement. You do not hear such a statement concerning rich people taking advantage of every tax break that the Internal Revenue Code offers them. Yet, when people take advantage of the opportunities that Medicaid planning can afford them, some people sneer and feel it is unfair.

The Medicaid laws are designed so as to afford those in need coverage of Medicaid. The laws and regulations also have been modified to allow the spouse not in the nursing home (the community spouse) some planning so as not to be impoverished just so that his/her spouse is in the nursing home.

Treatment of Assets

To understand how to qualify for Medicaid, you first need to know how Medicaid treats your assets. Basically, Medicaid breaks your assets down into two separate categories. The first category includes assets which are exempt. The second category includes assets which are non-exempt or countable.

Exempt assets are those which Medicaid will not take into account (at least for the time being). Generally the following assets are exempt in Kansas:

  • The home, no matter its value (this is scheduled to be changed to $500,000). The home must be the principal place of residence. The nursing home resident may be required to show some “intent to return home,” even if this never actually takes place.

  • Household and personal belongings, such as furniture, appliances, jewelry and clothing.

  • One vehicle.

  • Prepaid funeral plans and burial plots.

  • Cash value of life insurance policies, as long as the cash value of all policies added together does not exceed $1,500. If the total value does exceed $1,500 in total cash value, then the cash value in these policies is countable. Also, term life insurance is exempt.

  • Cash (e.g. a small checking or savings account) not to exceed $2,000.

  • IRA and pension plan of the community spouse.

These are basically the assets which Medicaid will ignore, at least for now. Keep in mind, however, that the estate recovery unit may come back to recoup payments made to a Medicaid recipient after the death of the recipient and the recipient’s spouse.

All other assets which are not exempt (i.e. the ones not listed earlier) are countable. This includes checking accounts, savings accounts, certificates of deposit, money market accounts, stocks, mutual funds, bonds, IRA’s, pensions, second cars and so on. While there are some minor exceptions to these rules (e.g. in Kansas the IRA or other retirement plan of the community spouse may be exempt), for the most part, all money and property, as well as any item that can be valued and turned into cash is a countable asset, unless it is one of those listed earlier as exempt.

While the Medicaid rules themselves are complicated and somewhat tricky, for a single person it’s safe to say that you will qualify for Medicaid so long as you have only exempt assets plus a small amount of cash, (i.e. $2,000 in Kansas).

For a married couple the community spouse (i.e. the one not needing nursing home care) can generally keep one-half of the assets up to a maximum of approximately $99,540.

The Planning Process

The planning process may take many forms.

GIfting

One common planning approach used in the past was gifting. The federal gift tax laws allow you to give away up to $12,000 per year without gift tax consequences. Medicaid rules are different. Medicaid laws governing gifting are being changed. The rules regarding gifting will greatly restrict its use as a planning tool. Any transfer in the five years prior to applying for Medicaid must be examined to see if it is a gift, and if so, whether it may disqualify the Medicaid applicant for a period of time. When that disqualification begins to run will vary with each circumstance.

Division of Assets

Division of assets applies only to married couples. The intent of the law is to attend to the needs of the spouse that remains in the community while qualifying the other spouse for nursing home

care paid for by Medicaid. The right to division of assets recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.

Basically up to one-half of the assets are assigned to the community spouse, not to exceed $115,920. After the assets are divided, the spouse in the nursing home must spend down his/her assets to $2000, in order to be eligible for Medicaid.

Appropriate spending allows for the purchases of such things as prepaid funeral plans, improvement to the family home, purchasing or upgrading a family car, prepaying taxes, pay off family debt and the like. By proper utilization of the division of assets, the community spouse can be made relatively debt free.

Conversion of Assets into Income

It is possible to convert assets into income. A good example is a farm. While it is certainly an asset, it produces income. By investing in or retaining a farm, an asset has been converted to income. By converting it to income, that avoids the requirement of that asset being spent down.

Conversion of Assets into Exempt Assets

As listed above, there are numerous exempt or non-countable assets. It is possible to convert assets into exempt property. A good example is purchasing a different home. Perhaps the family needs a home that is accessible.

Another would be to purchase household and personal belongings, furniture, appliances, jewelry and clothing. Again those assets would be considered non-countable.

If you have excess of cash value of a life insurance policy, many times those life insurance policies may be surrendered to help purchase a prepaid funeral plan.

Summary

Though some families do spend virtually all of their savings on nursing home care, Medicaid often does not require it. There are a number of strategies which can be used to protect family financial security.

Medicaid law is complex and there is a great deal of confusion over the “division of assets” and the “Medicaid spend-down.” Everyone’s situation is different.

Aging persons and their family members face many unique legal issues. As you can tell from our discussion of the Medicaid program, the legal, financial, and care planning issues facing the prospective nursing home resident and family can be particularly complex. If you or a family member needs nursing home care, it is clear that you need expert legal help. Where can you turn for that help? It is difficult for the consumer to be able to identify lawyers who have the training and experience required to provide expert guidance during this most difficult time.

Generally, nursing home planning and Medicaid planning is an aspect of the services provided by Elder Law attorneys.

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