As baby boomers age and prepare for retirement, many are undertaking a different type of financial planning.
It’s known as “Medicaid planning” and involves putting you in the best possible position to qualify for Medicaid, while at the same time preserving your assets for your loved ones.
Don’t try this on your own. Medicaid planning is complicated stuff because you’re dealing with fine points of the law. Consider hiring a professional, such as an elder law attorney, to help you.
“Be very, very careful about whom you deal with as a professional,” said John McNair, elder law attorney at Barnett McNair Hall LLP in Dallas.
There are many financial advisers “who are advertising themselves as Medicaid planning experts and they’re basically doing all of this a lot of times for the purpose of selling a product,” he said.
Medicaid is a federal-state program that helps pay for health care for the poor.
Individual states determine Medicaid eligibility and which health services are covered. The federal government reimburses a percentage of the state’s expenditures.
Medicaid differs from Medicare, which is the federal health insurance program for people age 65 and over and for the disabled. Medicare eligibility is based mainly on eligibility for Social Security.
Medicaid, however, is means-tested, meaning that you have to meet eligibility requirements based on your income and resources.
“You have to not have assets by the time you apply,” McNair said. “On paper, you are poor. How we get you there is what we do in the planning process.”
One common technique used in Medicaid planning is “spending down” your assets. That involves simply taking money that Medicaid would count in determining financial eligibility and spending it on things that Medicaid doesn’t count, such as a burial plot.
Here is what you need to know about Medicaid planning:
SPOUSAL SAFEGUARD: Because the expense of nursing home care can rapidly deplete a couple’s savings, Congress built in a safeguard to ensure that an elderly couple doesn’t completely impoverish themselves if one has to move to a home.
Under the Medicaid “spousal impoverishment provisions,” a certain amount of a couple’s combined resources is protected for the spouse still living at home. Depending on how much income the at-home spouse actually has, a certain amount of income belonging to the spouse in the nursing home can be set aside for the at-home spouse’s use.
“If one spouse has to go into a nursing home, and all of that spouse’s income went to pay nursing home bills, the spouse at home would have substantially less income to live on,” said Brian Fant, a Dallas elder law attorney. “If the couple can only have $3,000 in assets between them, the spouse at home would be impoverished. In 1989 the law was changed to prevent spousal impoverishment.”
So, while the same Medicaid income limits apply, the couple’s assets are combined and a “protected resource amount,” or PRA, is determined for the at-home spouse. This amount will vary, depending on how much money the couple has, Fant said.
MILLER TRUST: Also known as a qualified income trust, a Miller Trust can help people applying for Medicaid nursing home benefits whose income exceeds the monthly cap.
With a Miller trust, you can legally reduce the amount of your income that’s counted for eligibility purposes by directing your monthly pension or Social Security payments into the trust. Note that you can include only income and not other assets, such as property or IRAs.
“Properly transferring income into this type of trust can bring an individual within the income requirements for eligibility purposes,” Fant said.
COMMON MISTAKES: There are some common mistakes that people make in Medicaid planning that you should avoid. Perhaps foremost among those is selling your home.
“Selling a home to qualify for Medicaid is a bad idea as the proceeds from the sale will likely turn an excluded resource into a countable resource,” Fant said. “Putting money into the home (such as through remodeling) can be an effective means of spending down your resources to qualify for Medicaid.”
Another common mistake people make is thinking that just giving away their money or assets will enable them to qualify for Medicaid. It’s not that simple.
“Medicaid has what is commonly referred to as a ‘look-back’ period of five years for almost all transfers,” Fant said. “This means that, with very few exceptions, transfers within 60 months of filing an application are counted and will disqualify the applicant from Medicaid eligibility for a length of time based on the amount of the transfers.”
So if you gave your child $100,000 and then applied for Medicaid right after the gift, you would have to disclose it.
“If I waited 61 months, I would not have to disclose that gift,” McNair said.
So, if you know you won’t need nursing home care for more than five years, “gift away,” Fant said. “If you are uncertain, gifting assets to meet Medicaid eligibility is risky business.”
ABOUT THE WRITER
Pamela Yip is a personal finance columnist for the Dallas Morning News. Readers may send her email at pyipdallasnews.com; she cannot make individual replies.
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