Smart Elder Law Strategies to Protect Medicaid Benefits and Family Assets
Key Points
- Planning Early Is Key to Protecting Assets and Medicaid Eligibility. Setting up tools like asset protection trusts and caregiver agreements well before applying for Medicaid helps avoid penalties during the look-back period.
- Strategic Use of Trusts, Annuities, and Agreements Can Preserve Savings. Qualified income trusts, Medicaid-compliant annuities, and properly crafted caregiver contracts can protect income and assets legally without losing benefits.
- Every Situation Is Unique — Professional Guidance Is Crucial. State laws vary, and eldercare attorneys help families pick the best strategies to secure Medicaid eligibility while preserving wealth for loved ones.
Many people are unaware of their rights and options regarding long-term care.
They understand that paying for this care can be costly, but they will worry about that later.
Sadly, that time may arrive sooner than expected, and most people will need long-term care as they age.
The U.S. Department of Health and Human Services reports that adults aged 65 and older today have a 70% chance of requiring long-term care in the years to come.
Paying for This Care
People have limited options when it comes to paying for long-term care.
They must use their money, retirement savings, or long-term care insurance.
Some individuals qualify for Medicaid and may receive assistance paying for their care.
They don’t want to exhaust their savings to receive the help they need.
The cost of long-term care continues to escalate, and people pay thousands of dollars to live in a senior community.
Medicare does not cover any costs, so they must consider other options. |
Medicaid is only available to specific individuals.
These men and women can have few assets and little income.
Each state determines the qualifications for the program, and some states are more generous than others in their requirements.
However, a person also needs to worry about maintaining your Medicaid benefits.
Suppose a person’s circumstances change while residing in a senior living community.
In that case, they may find they are no longer eligible for government assistance and must make the monthly payments independently.
Saving Funds
Seniors prefer saving money to pass it on to their children or family members.
Medicaid eligibility requirements prohibit them from doing so.
Men and women must spend their money to pay for long-term care insurance before the government steps in.
Giving away assets will not protect a person.
Medicaid considers any transfer of assets in the months preceding a person’s application for the program when determining their eligibility for assistance.
This is referred to as the look-back process.
How can a person receive help paying for long-term care while remaining within the law?
Asset Protection Trusts
Asset protection trusts are designed to safeguard a person’s assets.
This trust passes assets to beneficiaries upon the owner’s death.
When they do so, they “step up” to fair market value so the recipients won’t be assessed high capital gains taxes.
However, once assets are placed in the trust, they no longer belong to the person.
Therefore, they are not included in the individual’s assets when determining their eligibility for Medicaid.
People must establish this trust well before Medicaid is needed, as the government looks for asset protection trusts established during the look-back period when determining eligibility for the program.
Income Trusts
Medicaid has strict income limits for recipients.
When income exceeds the allowed amount, the individual must manage it correctly to maintain their eligibility for the program. Qualified income trusts (QIT) are one way they can do so.
The accounts hold the person’s excess income and are often referred to as Miller Trusts.
Once funds are transferred into the trust, they can only be withdrawn with the trustee’s approval and must be used for allowable expenses.
Pooled Income Trusts
Individuals with disabilities often benefit from pooled income trusts.
When they have excess income, it is pooled together for management by a non-profit organization.
This organization serves as the trustee and disburses funds on behalf of the trust creators.
Unused funds remain with the trust and are used for charitable purposes.
Medicaid Compliant Annuities and Promissory Notes
A senior might transfer assets to family members or friends only to find they need long-term care during the look-back period.
They may still have these assets and need a way to avoid the look-back penalty.
One way they can transfer these assets and qualify for Medicaid is with the help of compliant annuities and promissory notes.
When establishing an annuity or promissory note, the individual must ensure that the terms comply with the law.
For example, the terms of the promissory note must remain within the fair market value or it may trigger a Medicaid penalty.
Men and women wishing to protect their assets using this method should talk with an attorney to ensure everything is handled legally.
Caregiver Agreements
Personal care agreements enable family or friends to provide seniors with services not covered by Medicaid or a typical skilled nursing facility and to be compensated for these services.
Seniors often prefer this arrangement because it enables them to remain in their own homes.
The senior pays the caregiver for these services in advance to reduce their assets and qualify for Medicaid.
To use this option, a person must ensure the agreement complies with all Medicaid requirements.
The contract must outline the caregiver’s hours and the services they will provide.
The caregiver must provide written invoices showing that they have abided by the terms.
The lump sum provided to the caregiver is based on the individual’s reasonable life expectancy and the prevailing rate for services in their area.
When the senior dies, unearned funds are returned to Medicaid up to the amount the program paid for the senior’s care.
Spousal Transfers
Medicaid allows spouses to transfer assets to one another, and the look-back period doesn’t apply to these transfers.
The person needing long-term care transfers their assets to the healthy spouse to qualify for Medicaid.
Medicaid has the option of seeking contributions from the healthy spouse but isn’t required by law to pursue those rights.
It may request the full amount, ask for a discounted rate, or allow the spouse to keep all assets.
However, this strategy may not be effective in all states, so the couple should consult with an eldercare attorney to learn about this option and others.
The attorney will help them select the most suitable method for their specific situation.
Elderly individuals and their loved ones should talk with eldercare professionals to learn how to protect their Medicaid benefits.
Each situation is unique, and these professionals help families evaluate all options to determine which strategy is appropriate.
With their help, an individual can safeguard their assets and ensure their loved ones are cared for when they are gone.
