Most Americans will drain their savings while paying for nursing home care until they qualify for Medicaid, but with proper planning, this unfortunate result can easily be avoided, and people can go to a nursing home and still leave an inheritance for their children.
Medicaid is an entitlement program for people and families with low income and limited resources. In order to qualify, you must be impoverished under the guidelines prescribed by the program. Essentially, there are two types of Medicaid, “plain” and “nursing home,” each with very different requirements.
Plain Medicaid: To be eligible for medical care, the monthly income limit for an applicant aged 65 or older living in a one-person household is $809. The monthly income limit for an applicant aged 65 or older living in a two-person household is $1,192. The resource limits for applicants aged 65 or older are $14,550 (plus a separate burial account of $1,500) and $21,550 (plus a separate burial account of $1,500), respectively, for a one-person and a two-person household.*
Nursing-Home Medicaid: To be eligible for nursing home care, the program states that the applicant’s income must be $50 or less per month, and if there is a community spouse (the spouse remaining in the home), the couple cannot have income exceeding $2,931 per month. If this amount is exceeded, Medicaid may request monthly income contributions from the community spouse.
The community spouse resource allowance is a potential maximum of $117,240 in resources (plus a separate burial account of $1,500). If this amount is exceeded, then Medicaid may seek reimbursement from the community spouse holding the money
* The income and resource levels are based on 2014 guidelines and may increase or decrease in future years.
The New York Department of Social Services requires persons seeking Medicaid to meet these limits in order to qualify. Without proper Medicaid planning, most people will have to spend down most of their assets before being eligible to qualify for Medicaid. Therefore, if a person thinks he or she may apply for Medicaid in the future, certain measures must be taken today in order to avoid being denied.
The Basics of Medicaid Trusts
A Medicaid trust is a way to transfer money to someone you trust with restrictions so that they cannot just keep the money. If you no longer qualify for long-term care insurance, a Medicaid trust is a great way to secure your future eligibility for Medicaid. The key word here is “future” because a Medicaid trust will not qualify you for Medicaid immediately. There will be a penalty period, which can be up to five years (but is often less). If you have an immediate need for Medicaid, there are a number of other techniques that can be used, such as a “gift and loan” or a “spousal refusal.”
As a part of creating a New York Medicaid trust, you will have to transfer your assets to the trust (i.e. transfer your money to a bank account in the name of the trust and re-title your brokerage accounts and real estate to the trust).
Example: David creates a Medicaid trust called the “David Medicaid Trust.” For the trust to work, David has to transfer most of his money and stock to an account belonging to the “David Medicaid Trust” and deed his house to the “David Medicaid Trust.” This is the only way Medicaid will accept the premise that David no longer has the money.
Once assets are put into a Medicaid trust, it is impossible to take them out without losing Medicaid eligibility. It is this inability to revoke or amend the trust that makes the trust untouchable by Medicaid. Now that you no longer own the property, you prevent Medicaid from asserting that you don’t meet the Medicaid resource limit. The trustee of your choosing will manage the trust. This is usually a person who is very close to you, such as a son or daughter, although some trusts are managed by an attorney or a bank. Some people opt to have more than one trustee, for example, two children and an attorney or a banker. You can receive income from the trust, as long as the income is below the Medicaid eligibility limit. Medicaid will count the income but ignore the principal of the trust. Any income over the Medicaid limit will have to be put back into the trust.
Once again, planning in advance is key. A proper Medicaid trust that is more than five years old will qualify you for all types of Medicaid, but a “younger” trust may incur a period of ineligibility (the waiting period).
Qualifying for Medicaid After Transferring Assets
When the Medicaid trust is more than five years old, you will qualify for Medicaid without a waiting period. Otherwise, a period of ineligibility is calculated by taking the dollar value of the transfer divided by average monthly cost for nursing care, which equals the number of months you will be ineligible for Medicaid.
Example: Dad gives his son a gift of $100,000. Medicaid will consider the $100,000 figure and divide it by the average monthly cost of nursing care, let’s say $10,000 which equals 10. Therefore, Dad will be ineligible for Medicaid for 10 months.
Additionally, you may be able to have a Medicaid trust without the imposition of a penalty period if the transfer is made to: (i) a qualifying relative; (ii) your child who is either under 21 years of age, blind or permanently disabled; (iii) your sibling, if he or she has an equity interest in the house and was living there for at least one year before you went into a nursing home; or (iv) your adult child, if that child has lived in the home at least two years before you went into a nursing home and that child was taking care of you.
Speaking with an experienced trusts and estates attorney will be useful to you because the attorney will advise you on the options available to you which will allow you to use Medicaid to cover the cost of medical care without depleting your assets. In addition, planning in advance is a good option because the penalty period will likely expire before you need to be admitted to a nursing home.
Forming a New York Medicaid trust allows you to protect your family’s assets from being used to pay for your medical and nursing home care by justifying the need to receive Medicaid in the future to cover those expenses. Additional benefits in forming a New York Medicaid trust are the usual lifetime trust benefits, which can help save money on estate taxes, keep assets out of the probate court, maintain privacy, avoid the hassle of multi-state probate proceedings, avoid interruption of income and use of assets after your death, and provide planning for mental disability. Let us all begin preparing for our family’s future. May we all merit living long, healthy and happy lives.q
