Nursing home and long-term care costs can devastate a family's finances. Medicaid covers these costs for those who qualify, but eligibility requires meeting strict financial limits. Medicaid planning involves legally arranging assets to qualify for benefits while preserving some wealth for a spouse or heirs. Done correctly, Medicaid planning can save families hundreds of thousands of dollars.
This planning is complex and governed by specific rules. Mistakes can result in penalty periods that delay coverage when it's most needed.
Understanding Medicaid Eligibility
Medicaid has both income and asset limits that vary by state. For long-term care, applicants typically cannot have more than ,000 in countable assets. Certain assets are exempt: the primary home (up to equity limits), one vehicle, personal belongings, and prepaid funeral arrangements.
When one spouse needs care and the other remains in the community, the "community spouse" can keep more assets—the Community Spouse Resource Allowance (CSRA)—to avoid impoverishment. These rules protect the healthy spouse while qualifying the ill spouse for benefits.
Income rules also apply. Some states are "income cap" states requiring applicants' income to be below certain thresholds. Qualified Income Trusts can address excess income in these states.
The Look-Back Period
Medicaid examines financial transactions during the look-back period—currently 60 months before application in most states—to identify improper transfers. Giving away assets to qualify for Medicaid creates penalty periods during which benefits are denied.
Penalty periods are calculated by dividing the transferred amount by the average monthly nursing home cost in your state. A 00,000 gift in a state with 0,000 monthly costs creates a 10-month penalty—meaning Medicaid won't pay for 10 months of care.
Planning far enough in advance—more than five years before likely need—allows transfers outside the look-back period. Waiting until care is needed limits options significantly.
Common Planning Strategies
Spend-down involves converting countable assets to exempt assets or paying for things that benefit the applicant. Prepaying funerals, paying off mortgages, making home improvements, and purchasing exempt vehicles all reduce countable assets legitimately.
Certain trusts can protect assets while maintaining Medicaid eligibility. Irrevocable trusts created more than five years before application move assets outside the applicant's estate. Special needs trusts can hold assets for disabled beneficiaries without affecting their benefits.
Half-a-loaf strategies involve gifting some assets, accepting a penalty period, and keeping enough to privately pay during that period. This preserves some wealth while eventually qualifying for Medicaid.
Spousal Protection Rules
When married couples face long-term care, rules protect the community spouse. The CSRA allows the community spouse to keep significant assets—over 50,000 in some states—while the institutionalized spouse qualifies for Medicaid.
The community spouse can also retain income regardless of amount. Medicaid rules prevent the healthy spouse from being impoverished by the ill spouse's care costs.
Spousal refusal is available in some states, where the community spouse refuses to contribute to the institutionalized spouse's care, and Medicaid covers the difference while potentially seeking reimbursement later.
Home Protection
The family home is usually exempt while the Medicaid recipient is alive. However, after death, states may seek estate recovery—reimbursement from the estate for Medicaid benefits paid.
Strategies to protect the home include transferring it to exempt individuals (spouse, disabled child, caregiver child who lived in the home), placing it in certain types of trusts, or converting home equity to other protected forms.
Lady Bird deeds or enhanced life estate deeds in some states allow transfer of the home upon death while retaining full control during life, potentially avoiding estate recovery.
When Planning Is Limited
Crisis planning occurs when someone already needs care and hasn't planned ahead. Options are more limited but still exist. Converting countable assets to exempt assets, spousal protections, and careful spend-down can still help.
Even in crisis situations, working with an experienced elder law attorney typically produces better outcomes than going it alone. Rules are complex, and mistakes can be very costly.
Important Warnings
Medicaid planning must be done legally and ethically. Fraudulent transfers or hiding assets is illegal and can result in criminal penalties. Planning involves using legitimate legal strategies, not deception.
Rules change frequently. What worked five years ago may not work now. Federal and state laws governing Medicaid planning are constantly evolving.
Getting Legal Help
Medicaid planning requires specialized expertise in elder law. An experienced elder law attorney understands current rules, evaluates your specific situation, and develops strategies that protect assets while achieving Medicaid qualification. The cost of professional planning typically saves many times its amount in protected assets. Don't attempt Medicaid planning without knowledgeable guidance—the stakes are too high and the rules too complex.