Medicaid pays for almost half of the US’s total nursing home costs. But for a senior to be eligible, they must meet the low-income requirements, which include having few assets.
Additionally, Medicaid includes a look-back period to ensure the person’s financial transactions made in that time frame comply with the rules. The look-back period is typically five years. So any transactions made in that five-year period before applying that do not comply with Medicaid’s rules may be subject to a penalty or disqualify the person from benefits.
However, with planning, you can protect some of your assets and your estate for your family or partner while still qualifying for Medicaid benefits.
Here are some strategies and key information to help plan for Medicaid-eligible long-term care.
Spousal protection rules
When making plans, knowing your state’s spousal protection rules is important. For instance, spouses whose partner is a long-term care resident receiving Medicaid can keep all their income and some of their spouse’s if they need the financial support. The amount a spouse may keep is part of the minimum monthly maintenance needs, and the specific amount varies by state.
A certain amount of the marital couple’s assets are also protected. But the specific amount also varies by state.
Spend down your assets safely
Since Medicaid is a needs-based program, many people who apply initially have too many assets. Those individuals must first reduce the value of their assets, called spending down, before qualifying.
But you often don’t have to spend them on the Medicaid applicant’s medical care. That said, while spending down is acceptable, each state differs on what it allows. So you want to consult your state’s law or an estate planning lawyer before spending down to make sure you’re following your state’s guidelines.
Here are some ways many states allow people to spend down.
- Pay a legitimate debt like mortgage payments, taxes, rent, credit cards, medical bills, or home or car maintenance.
- Make full or partial payments to pay bank, mortgage, or car loans.
- Pre-pay for certain burial and funeral expenses, although what can be purchased and how much varies per state.
- Buying an annuity for your spouse can help married couples spend down assets, but it must meet specific requirements. So check your state’s particular rules before making a purchase.
- Pay to improve or maintain a non-countable asset, like certain improvements or repairs for an exempt home or automobile.
- Make payments for caregiving services.
Additionally, when determining what you need to spend down, be aware that some assets are exempt from counting toward Medicaid eligibility. But what qualifies as non-countable assets varies based on the situation and state. Also, make sure all strategies used meet your state’s qualifications and rules, including for the look-back period.
Transfer or gift assets
Asset transfers or gifts are another way to reduce countable assets so the individual meets Medicaid’s requirements. You can transfer assets in many ways, but you’ll want to consult with a knowledgeable professional first to ensure the specific strategies you use meet your state’s Medicaid rules.
Some ways many states allow for asset transfers include:
- Gifting assets to family
- Creating a joint ownership arrangement
- Purchasing exempt assets like a car or exempt home
Set up a trust
Another strategy is to create a trust. This legal arrangement allows a person to transfer specific assets to a trustee who manages the assets on behalf of the beneficiary.
There are different types of trusts, so you’ll want to consult a professional to ensure the trust complies with your state’s Medicaid requirements.
Some types of trusts that you may be able to use include:
- Irrevocable trusts — these remove assets from a person’s countable assets
- Revocable trusts — these help manage assets in the event of incapacity or death
- Income-only trusts — these can help shelter excess income (not assets), so individuals with high monthly incomes may qualify for Medicaid