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Medicaid Planning Basics: Part I

As an estate planning attorney, one of the most common questions I am asked is how assets can be protected from the government when a loved one goes to a nursing home and they eventually have to apply for Medicaid. Medicaid Planning is a very complicated topic that involves general estate planning; tax planning; gifting; and familiarity with the Medicaid Rules. In Part I of this three part series I will present a general overview of what is referred to as “Medicaid Planning”:

1. Medicaid Planning is different from General Estate Planning: When someone goes to an attorney for General Estate Planning advice– usually the main goal is to control assets in such a way in order to avoid probate, avoid estate taxes, and make sure their assets are distributed to their heirs correctly. The main goal of Medicaid Planning – on the other hand is to condition your estate to legally maximize assets that can be kept by the Medicaid applicant; their spouse and/or family when applying for Medicaid. One of the techniques used for Medicaid Planning is for the Medicaid Applicant to completely give away or relinquish control and benefit of their assets while living. Therefore one must understand that Medicaid Planning goals and techniques can be in direct conflict with General Estate Planning goals and techniques.

2. Medicaid Definition: People often confuse the terms “Medicaid” with “Medicare.” Medicare is a federal program that provides healthcare to those 65 years or older or to those who have a severe disability. Medicare is not dependent on income. You can have a Million dollars sitting in the bank and still be eligible for Medicare. Medicaid, on the other hand, is a state and federal program that provides health coverage to those with very low income. We will go over the income limits more below.

3. Qualifying for Medicaid for Placement in a Nursing Home: Here are the general requirements for being eligible for Medicaid when going to a nursing home:

  • 65 years of Age or older, blind, or disabled

  • Have less than $2,000 in cash or non-exempt assets (Note: You can still have assets beyond this $2000 amount that are considered “exempt”)

  • Monthly income does not exceed the cost of private pay care at the nursing home

4. Exempt Assets: Exempt assets are assets that are owned by the Medicaid applicant that don’t get counted as an asset by the government as a source to pay for nursing home care expenses. Below is a partial list of the most common exempt assets for Medicaid. Part 2 of this Series will provide more information about how to use these exempt assets as part of Medicaid Planning. Note: All of these exemptions listed below have specific rules that must be followed in order to qualify as an “exempt asset”.

  • Homestead Property

  • Motor Vehicle

  • Personal effects and household goods

  • Life insurance policies

  • Burial funds

  • Life Estates

  • Annuities

  • Trusts

  • Community Spouse Asset Allowance

  • Community Spouse Maintenance Needs Allowance

5. The Community Spouse: A community Spouse is a the spouse of the nursing home resident that is still living in “the community”. Here is some basic information about how a community spouse effects Medicaid Planning.

  • Currently, the Community Spouse can keep $109,560 of assets and have a Maintenance Needs Allowance Standard of $2,739 a month.

  • Note: The Community Spouse must disclose all income and assets when their spouse is applying for Medicaid – failure to disclose all assets of the Community Spouse will result in denial of Medicaid Eligibility.

6. Transferring Assets: When applying for Medicaid – the government has the right to “look back” 60 months to see if any non-exempt assets were transferred from the applicant’s name during this period. If non-exempt assets were transferred during this period – then the government will assess a Penalty Period which will delay the applicant’s eligibility of Medicaid.

For example – let’s say that a father gave $120,000 to his son 3 years ago because the father thought he would be going to a nursing home at some point in the future. When the father applies for Medicaid he has to disclose this transfer of $120,000 to his son because the transfer was within the 60 month “look back” period. Lets say the nursing home he is going to reside in has a private pay rate of $10,000 a month – the governmental can declare that there should be a penalty period of 12 months which is calculated as follows – $120,000 transfer / $10,000 month private pay costs = 12 month penalty. It would be up to the son to use that money to pay for care before the father would be eligible to receive Medicaid benefits.

The lesson here is that if you want to transfer assets out of your estate as a way to Plan for Medicaid – it must be done at least 5 years before you apply for Medicaid or else there will be a penalty.

7. When to Plan for Medicaid: There are three general time periods to plan for Medicaid:

  • More than 60 months out from anticipating to apply for Medicaid: There is a lot more flexibility with transferring assets here. Note: Asset Transfers must be complete gifts – you cannot have any control or benefit from the transferred asset.

  • Anticipating to apply for Medicaid within 60 months: Less flexibility here. Any asset Transfers within this time period will result in a penalty period being assessed by the Government. You can try to turn non-exempt assets into exempt assets through various techniques

  • Emergency: Applicant is in the nursing home or about to go to the nursing home. You can try to use some exemption strategies at this point. As is true with most things in life – the earlier you plan – the more option there are.

8. Conclusion: This article is meant to give you a general idea of what Medicaid Planning is and give a basic overview of Medicaid Planning concepts. This article barely scratches the surface of this topic. Planning for Medicaid is very fact specific. You should go to an estate planning attorney that is experienced in Medicaid planning for more guidance as to your or your family’s particular situation. Part 2 of this Series will give more details about how to use exempt assets in Medicaid Planning.


This article is a service of Attorney Chad A. Ritchie and the Ritchie Law Office, Ltd.

Click Here or call (309) 662-7000 to learn more about Ritchie Law Office, Ltd. and our Estate Planning process, which starts with an initial consultation called our “Ritchie Legacy Planning Session”.

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