Medicaid planning is an extremely complex area of law, and it’s no surprise there are so many misunderstandings about how rules are applied. The following summary is intended to help you avoid falling into common Medicaid planning traps by correcting some popular misconceptions.
As you read along, bear in mind that because of the high risk associated with asset planning, you should seek the advice of an experienced elder law and Medicaid planning attorney before acting.
Misconception: I should transfer assets before applying for Medicaid.
For many people, their first impulse is to transfer assets before applying for Medicaid based on the incorrect belief that it’s better to have fewer assets when they apply. But, by following this route, they may wind up spending down more than is necessary.
The facts: When a couple applies to a state for Medicaid to support the needs of one spouse, the couple is allowed to protect a portion of their assets—limited by minimum and maximum amounts—for use by the healthy spouse. When one spouse enters a nursing home, Medicaid takes a snapshot of the couple’s assets (i.e., an assessment). This assessment fixes the maximum share of a couple’s assets that can be protected and how much must be spent down before an individual can qualify for Medicaid benefits.
The minimum and maximum amount of assets the healthy spouse may keep is called the Community Spouse Resource Allowance (CSRA). The Centers for Medicare & Medicaid Services (CMS) sets the CSRA annually. In 2023, the minimum amount is $29,724 and the maximum amount is $148,620.
Not knowing how your state’s Medicaid eligibility works can hurt you. If you transfer assets before applying, your snapshot could reflect a reduced level of assets. After you apply, you may learn that you can retain only half of what you have left. This figure can be less than half of the amount you owned before you began any asset transfer.
For example: John and Jane have $215,000 in Medicaid countable assets. Before applying for Medicaid, the couple spends down $55,000 on expenses that are not penalized for Medicaid. Therefore, when John applies for Medicaid, he and Jane have $160,000. To qualify for Medicaid, the couple may be required to spend down 50 percent of what they own (i.e., 50 percent of $160,000), which leaves Jane, the healthy spouse, with $80,000. If John and Jane had applied for Medicaid before spending down their assets, they could have kept half of their original $215,000, leaving Jane with $107,500.
Misconception: Property held jointly or in a spouse’s name is protected from Medicaid.
The facts: When determining the CSRA for a healthy spouse, all of a couple’s assets, individual and joint, are pooled. The spousal deeming rules consider all individually owned assets as belonging to both, even if a prenuptial agreement exists. Also, assets jointly held with a child can be considered available to pay for nursing home care unless the child establishes that the asset is inaccessible or didn’t originally belong to the parent.
Misconception: Assets transferred to a trust are protected from Medicaid.
The facts: Perhaps. The use of trusts requires careful planning and a careful review of your financial needs and goals. You cannot transfer assets into a trust, retain control of those assets, and qualify for Medicaid. If you transfer assets to an irrevocable trust, you must give up complete control of those assets. Assets transferred to a trust within 60 months (5 years) before applying for Medicaid will be penalized and result in a period of ineligibility for Medicaid long-term care benefits.