There is a misunderstanding in the industry as to whether millionaires should protect their assets to qualify for Medicaid so they can pay for their long-term care should the need arise. While it makes good headlines, the question is not the determining factor of Medicaid eligibility. Obviously, those who have the means are able to provide for themselves to a much greater extent than those who are required to rely on Medicaid. An annual premium for LTC insurance is far less than one month’s nursing home care and would pay for care in the home to ensure the client never needs to reside in a health care facility apart from the family. There are however, other issues to consider.
The type of assets one owns and where they come from can have a tremendous impact on the decision to qualify for Medicaid. I recently had a client who inherited a $1 million piece of land that has been in the family for four generations. The land was non‑income producing but something the family treasures. Had my client’s parents planned properly, they could have ensured the property was not at risk to a lawsuit, nursing home or other creditors of my client. Now my client wanted to ensure that the property stayed in the family and continued to derive benefit for the family and the other members of the community who used it. Other than this piece of property, the client would have been a typical American with assets less than $300,000 and insufficient means to pay for long-term care should the need arise.
So the question becomes whether a client with non-liquid assets that do not produce income should plan to qualify for Medicaid or should they be forced to liquidate their assets to pay for their long-term care? Irrespective of your answer, the law provides for the latter and it highlights that Medicaid planning is not just about qualifying for Medicaid, but is a series of counseling issues to address each client’s situation and needs. One tradeoff: Millionaires who want to qualify for Medicaid must give up access to their assets for the rest of their lives as if they had given them away. So is it worth that loss? A good estate planning attorney can find alternative planning strategies for millionaires that get a better result than giving away their assets to qualify for Medicaid. Ultimately, however, our job as counselors is to advise the clients of their options and let them choose the path that best meets their goals and objectives.
THE THREE MOST CONFUSED MEDICAID TERMS
The three most confused terms in Medicaid planning are the look back date, the look back period and the penalty period. If you go to any beauty shop or coffee shop and ask the people what would happen if they transfer assets, the common answer will be that they are ineligible for Medicaid for sixty months. Medicaid practitioners know sixty months is merely the period of time Medicaid can look back at the financial records of a Medicaid applicant, a.k.a. the “look back period.” The period of the look back (sixty months) has no impact on qualifications. The look back period begins on the look back date. The look back date is the date a Medicaid applicant resides in a care facility and applies for benefits. It is critical that a practitioner understands this distinction. If a client resides in a nursing home and you apply for medical before continuing the client’s eligibility, you can disqualify a client from medical and create a penalty period that is far greater than sixty months. This occurs when there is a large uncompensated transfer within the look back period.
Once Medicaid looks back at the financial records from the look back period it examines whether any uncompensated transfers occurred. An uncompensated transfer is the transfer of assets made by an applicant to someone else with no compensation in return. Gifts are typically the most common uncompensated transfer. If there is an uncompensated transfer, Medicaid will deem the applicant ineligible for a certain number of months based upon two factors: the amount of money transferred and the monthly divisor in the region where the applicant lives. Each state must publish, at least annually, the average cost of one month’s private pay nursing home cost for the region. If the average monthly private cost of a nursing home was $5,000 and the uncompensated transfer was $100,000, the applicable penalty for the transfer is 20 months. So the 60‑month look back period has nothing to do with how long an applicant may be ineligible, it’s merely a period of time Medicaid can look back at financial records to determine if an uncompensated transfer occurred, and if so, then calculate the penalty period based on the amount of the uncompensated transfer and the regional divisor.
It’s that simple.
If you are at all interested in joining Lawyers With Purpose and would like to know what we have to offer your estate planning or elder law practice, join us in Phoenix, AZ, September 12-13th for our Asset Protection, Medicaid and VA Summit September 12-13 in Phoenix, AZ. We are filling up seats quickly and only have limited space. Register today!
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