Medicaid Planning Part III

Introduction

In Medicaid Planning Part II we covered:

• Intent to Return Home
• Medicaid Treatment of a Home
• Special Home Exemption Rule
• Joint Tenancy

Transfer Title of the Property to the Community Spouse

Transfers to a spouse of any assets are exempt from Medicaid eligibility rules. An institutional spouse, anticipating Medicaid, can transfer title in the home to the community spouse and it has no effect on Medicaid eligibility. This can be done either with a quit claim deed or through a trust. With the asset no longer in the name of the care recipient, Medicaid recovery cannot use the house as a basis for recovering its costs. And the community spouse can transfer the house to a member of the family and as long as this is done beyond the five-year look back period, then Medicaid can’t assess a penalty period for a transfer of assets for less than value. It’s important to use a legal adviser to make sure you do this properly.

Trust to Avoid Probate

Common trusts to avoid probate are called “living” or “inter vivos” trusts. A trust never dies, thus it is not subject to probate. Most arrangements make the trust the owner of the property with the original owner(s) as trustee(s) (caretaker as it were) and beneficiaries(s). Thus, the property reverts to the estate at death. Most people initiate these trusts to avoid probate. Assets in these trusts, other than a primary residence, are transparent to Medicaid. These trust assets are subject to Medicaid spend down rules.

The trust can be used in states where Medicaid recovery only uses primary residences passing through probate as being subject to recovery. However, a growing number of states do not recognize these arrangements to avoid probate estate recovery and go after primary residences in revocable trusts regardless of ownership.  Idaho does not ignore the trust, however, Health and Welfare will require that the trustees of the revocable or living trust transfer the primary residence back out of the trust to the beneficiaries.  This, then, allows Health and Welfare to recover the value of benefits paid from the house now destined to go through probate.

To do it right for these states requires an irrevocable trust with no life interest, set up 5 years or more before a Medicaid claim. Very few people are willing to do these kinds of trusts.

Some people also include a so-called “life interest” in property in arrangements where property is gifted or in irrevocable trusts. The life interest gives them use of the property until their death even though they don’t own it. Medicaid in many states does not recognize life interest and the property is considered to be in the ownership of the person who gifted it and subject to look back rules and recovery.

Move Loved One Needing Care to Another State

A person needing Medicaid covered care in one state may not qualify under that state’s rules but might qualify under the rules of a neighboring state. Of particular concern are candidates suffering from dementia or Alzheimer’s. It’s difficult to quantify their need for care and in some states, those people who are cognitively impaired might not get help with Medicaid even though their needs might be greater than the needs of those who are physically disabled.

Families should consider moving loved ones who have been declined in one state, to live with a member of the family in another state and possibly qualifying in that state. In addition the new state may be more lenient with Medicaid recovery procedures.

A second reason may be that the current state of residence has a very tight supply of Medicaid beds and there is a waiting list. Moving the loved one to a state where there are more available Medicaid beds may avoid the family having to temporarily cover the cost of a non-Medicaid nursing home bed while waiting for one to become available.

Give Away Assets

We have already discussed the moral implications of using Medicaid planning strategies for unfairly qualifying for Medicaid and shifting the burden of cost to the taxpayers. New look back rules under the Deficit Reduction Act have effectively done away with gifting strategies used in the past to accelerate eligibility for Medicaid. This does not mean that gifts cannot be used, but planning must be done many years in advance. Under these new circumstances the whole concept of gifting in order to qualify for Medicaid is much more complicated and consulting with a professional familiar with the Medicaid requirements is essential..

Good planning is no accident. All of the issues discussed above are best handled in advance. To secure your future care, get started now.

Idaho Estate Planning

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