Many of you have seen those seminars or publications on shifting assets to qualify for Medicaid’s nursing home coverage. I know, because you send me questions about them. Here is a guide to those strategies and the angles you need to consider before pursuing them.
Medicare, the program to assist seniors with health care, covers limited, short-term nursing home stays. Medicaid, the program for the poor, covers long-term nursing home stays. But Medicaid has income and net worth limits. Seniors have to be “impoverished” to qualify for Medicaid’s nursing home coverage.
The income limits vary a bit from state to state, but you meet them by giving away to your spouse and children as many of your sources of income as you can.
You meet the net worth or resource limit, by owning only exempt property. Exempt property includes a residence of any value plus household goods, a car, and a few other items up to certain amounts. For example, the car can be worth no more than $4,500 unless it is needed to commute to work or to receive medical care.
For married couples, the resources of both spouses are added, and each spouse is considered to own one-half of the total. But married couples have no limit on the value of their house, car, household furnishings, and personal effects.
The first step in the Medicaid strategies is to put assets in an expensive house. Married couples also can load up on an expensive car, personal effects and household furnishings.
The next step is to transfer to individuals or to a trust any other assets that exceed the Medicaid resource limits. (The limits vary from state to state.) To discourage this strategy, any assets transferred to a trust within the last 60 months or to individuals within the last 36 months generally are considered yours when determining Medicaid eligibility.
That means to qualify for Medicaid, either fund the trust more than 60 months before you’ll need a nursing home or retain enough assets to fund up to 60 months of nursing home care. Then apply for Medicaid more than 60 months after assets were last transferred to a trust.
Remember the specific income and asset limits vary from state to state. You’ll need a local attorney to verify the details for you.
But before implementing these strategies, consider these potential drawbacks.
The biggest drawback is that Medicaid’s reimbursement to nursing homes is less than it costs to adequately care for someone. Nursing homes that take primarily Medicaid residents generally provide care that is inferior to other nursing homes. Compare a Medicaid nursing home with a private pay nursing home to see if you really want a Medicaid facility caring for you when you have the resources for better care.
Also, even if you follow the strategies precisely, the states have the option of arguing that transfers made under a “Medicaid impoverishment” strategy were fraudulent. That has not been seriously tested in the courts, but no one can rule out a state’s winning that argument.
You also might generate extra taxes. The transfers are gifts which either use up your lifetime estate and gift tax credit or incur gift taxes.
Finally, consider the ethics. Medicaid was set up for poor people, not for people who have the resources to pay for nursing home care but don’t want to spend their money that way. Some people think it is unethical to arrange assets so that taxpayers pick up your tab. Others say you should do what the letter of the law allows.
My advice generally is that if you have a net worth of $2 million or more, plan to self-insure nursing home care. Most nursing home stays are less than three years, and you can comfortably cover that expense. Those with net worths of $250,000 to $500,000 or less should assume Medicaid will pay for any nursing home care. People in the middle should consider buying Long Term Care Insurance covering at least one spouse. They should be able to afford the premiums when their annual income exceeds $30,000. Insurance is better than financing nursing home care from personal assets or trying to qualify for Medicaid.