How & Why to Protect Resources When Applying for Medicaid Long Term Care
To be eligible for Medicaid Long Term Care, an applicant must meet Medicaid’s financial limits on monthly income and total assets. Before meeting these limits, applicants often find themselves having to spend most of their own money on their care before Medicaid will help. Sometimes this could mean having to sell off assets. In some cases, their home might be in jeopardy. These assets might also belong to the applicant’s spouse or being used by dependents who may be young children or disabled individuals. Methods exist that can protect these individuals from losing valuable assets when the Medicaid recipient needs care. Even those giving care to the Medicaid recipient can be protected from being left out in the cold when the recipient passes away.
Methods of Protecting Resources When Applying for Medicaid Long Term Care
Medicaid law allows for two general categories of protection for the sake of the family members of the recipient. The idea is that the spouse, the caregivers, and young and/or disabled dependents of the recipient should not have to lose everything in order for the care recipient to receive the care they require.
The first category of protection is Medicaid mandated protections; also known as spousal impoverishment laws. The second category of protection comes from the families of Medicaid beneficiaries, this is referred to as Medicaid planning. These family-implemented protections involve a restructuring of finances and assets. It may involve creating trusts, managing asset transfers, and converting countable assets into exempt assets so that the Medicaid applicant can become eligible for Medicaid.
1) Spousal Impoverishment Laws
There are three ways in which Medicaid law directly protects spouses from becoming impoverished; by protecting income, assets and one’s home.
With many elderly married couples, one spouse accounts for the majority of the couple’s income. Were that income-earning spouse to enter a nursing home, Medicaid would require them to give up all their income were it not for the spousal impoverishment law known as Minimum Monthly Maintenance Needs Allowance (MMMNA). The rule allows the Medicaid applicant spouse to transfer some or all of their income to their non-applicant spouse. More on the MMMNA and how it works.
Different from income, all assets of a married couple are considered to joint assets regardless of in who’s name the asset is held. Yet Medicaid limits the assets of the applicant for eligibility purposes. This spousal protection allows the applicant to transfer some or all of their assets to their non-applicant spouses. This transaction is called the Community Spouse Resource Allowance (CSRA) and the amounts and rules change by state and annually. More about CSRA and how it works.
What is likely the most important spousal protection is that which protects the home. There are several components to this protection. If the Medicaid recipient is receiving long-term care but plans to eventually return to the home, it is protected. If a spouse or dependent child lives in the home, it is protected. Another way the home can be protected is if an adult child has lived in the home for at least two years before the parent’s admission to the nursing home and cared for the parent to such an extent that they delayed their nursing home admission. This is known as the Child Caregiver Exemption. One more exception that protects the home is if the Medicaid recipient’s sibling co-owns the home and resides there for one year before the recipient’s admission to a nursing home. The portion of the home owned by the Medicaid recipient can be transferred to the sibling without penalty. More on protecting a home from Medicaid.
2) Family Implemented Protections
Protecting resources through Medicaid planning might be compared to using an accountant to prepare your taxes. You can prepare your taxes yourself but using an accountant in the end may save you money because they understand tax law so much better, they can find exemptions and credits that you, as a non-professional, would not be aware of. In addition, as experts, accountants can prepare your taxes in a much more time efficient manner. Medicaid planners are similar to accoutants. Medicaid law is nuanced and complicated and planners understand all the possible ways a family can preserve assets, income and protect the home while still qualifying for Medicaid.
Medicaid planning is a “family implemented protection” meaning an employee of the state such as a Benefits Counselor or Case Manager is not going to initiate or implement this type of protection for a family. The family or their Medicaid planner must take the initiative.
A great example of Medicaid planning is a Medicaid Asset Protection Trust. When the Medicaid applicant has too much money to qualify for Medicaid, and they place this money into a Medicaid Asset Protection Trust, making someone else the beneficiary, that money no longer counts as one of the Medicaid applicant’s assets. These trusts have to be created at least two and a half years in some states and five years in other states before the applicant applies for Medicaid. This time frame is called Medicaid’s look-back period.
A Medicaid annuity is another example of Medicaid planning. With an annuity, the family puts assets over the Medicaid limit into an annuity and turns those assets into an income stream. Medicaid annuities are complex beasts and it is easy to violate a different Medicaid rule when working with annuities. Hence the need for professional assistance.
The Medicaid Estate Recovery Program is another strong example of the need for Medicaid planning. This is a program in which a state goes after the home of a Medicaid beneficiary after the beneficiary has passed. There are approaches to prevent this but these much be implemented in advance and correctly to be effective. More on protecting a home before, during and after a Medicaid application.
Why Protecting Resources When Applying for Medicaid Long Term Care is Necessary
Why is it necessary to protect resources when applying for Medicaid? There are many reasons to do so but the most common reason is to protect dependents and other family members of the Medicaid recipient who might be placed in financial and personal hardship because of Medicaid’s stringent rules.
Probably the second most common reason to engage in Medicaid planning is to protect the non-applicant spouse against a future in which they also require long term care. Given that 60% of seniors will require long term care at some point, it is a fairly common scenario in which both spouses of a married couple require care. Medicaid planning can preserve adequate resources where a non-applicant spouse who cannot live independently at home but does not require nursing home care, can private-pay for assisted living instead.
Protecting against Medicaid mistakes is another reason families work with Medicaid planner to protect resources. The Medicaid application process is incredibly complicated, and mistakes are quite common both by the applicants and the humans reviewing the applications who work for the state. Some cynics even say that Medicaid approvals are a subjective process.
Who Implements Resource Protection Strategies
Resources protection such as Community Spouse Resource Allowance and the Minimum Monthly Maintenance Needs Allowance should be implemented by the Medicaid office when applying. However, this is not always the case nor are they necessarily implemented correctly. Families should proactively perform their own calculations, or retain a professional to do so, to ensure no mistakes were made and spouses and dependents receive the assets and income to which they are due.
When Medicaid does not mandate protections, they must be implemented by the family. More commonly, by Medicaid planners working on a family’s behalf (or elder law attorneys who also serve as Medicaid planners). These professionals know how to structure a family’s financial resources and prepare documentation to ensure acceptance into the Medicaid program while protecting assets. Medicaid planners are private businesses. Some Medicaid planners are attorneys but hiring a lawyer as a Medicaid planner is not necessary. Many lawyers will outsource Medicaid planning to local experts.