How & Why to Protect Resources When Applying for Medicaid Long Term Care

Summary
Seniors don’t have to sell all their assets or give up their money to qualify for Medicaid Long Term Care. There are ways Medicaid applicants and beneficiaries can protect their financial resources, including the home, for themselves and their family without jeopardizing their eligibility. Plus, Medicaid also offers specific allowances for spouses who don’t need coverage.

When & Why Medicaid Long Term Care Applicants Should Protect Financial Resource Resources

It’s important for seniors to start protecting their resources before they apply for Medicaid Long Term Care. That’s because some strategies have to be implemented before they apply or they will be ineligible. One method even needs to take place five years before the application date.

Protecting your financial resources while applying for Medicaid Long Term Care serves two purposes – it can help seniors qualify for Medicaid, and it can save their resources for their family, both while the applicant is alive and after they have passed.

To keep assets safe as a family inheritance, applicants need to protect them from their state’s Medicaid Estate Recovery Program (MERP). States are required by law to try and collect reimbursement for Medicaid Long Term Care Coverage after the recipient has passed, and they do that using their MERP. The MERPs attempt recovery by collecting from the deceased Medicaid recipient’s estate while it is in probate (the process of distributing resources via a last will and testament) or in some cases outside of probate. States have very different rules regarding estate recovery, which you can learn about by clicking here.

Applicants also need to protect their assets because Medicaid Long Term Care has financial eligibility requirements – an asset limit and income limit. These can vary depending on the state and the three types of Medicaid Long Term Care (more on them in the next section), but in general the financial limits are low. So, if you suddenly need long-term care but find yourself over Medicaid’s asset limit, you might need to sell off some of your assets (like your house) to pay for long-term care until your assets are below the limit and you can qualify for Medicaid. But there are ways applicants can protect their assets and income from the limits to gain eligibility. “Protect” in this sense means keeping assets or income from counting toward the financial limits, otherwise known as being exempt. This might also allow you or your family to use those assets (including a house) or income, but not always. In some cases it might include paying excess income to the state, so that income won’t be protected for your use or for a family inheritance, but the income won’t make you ineligible for Medicaid.

It’s important to note that just because your assets or income are protected from Medicaid’s financial limits doesn’t mean they’re protected from Medicaid Estate Recovery Programs. Some strategies will protect them from both, but not all, as you will read about below.

Protecting Resources with the 3 Types of Medicaid Long Term Care

There are three types of Medicaid Long Term Care relevant to seniors – Nursing Home Medicaid, Home and Community Based Services (HCBS) Waivers and Aged, Blind and Disabled (ABD) Medicaid. Applicants for all three of these programs should know about protecting resources because all three programs are subject to financial limits and Medicaid Estate Recovery Programs.

Nursing Home Medicaid covers all costs associated with a nursing home, including room and board, for people who need that level of care, known as a Nursing Facility Level of Care (NFLOC). HCBS Waivers will provide long-term care services and supports to seniors who require a NFLOC but want to live in their home or somewhere else in the community (like the home of a loved one). ABD Medicaid also provides long-term care benefits in the community to program recipients who show a need for those benefits.

In most states in 2024, the asset limits for ABD Medicaid are $2,000 for an individual and $3,000 combined for a married couple. This means an individual must have $2,000 or less in countable assets to qualify, and a married couple must have less than $3,000 combined. Medicaid considers the assets of a married couple to be jointly owned, but there are some exceptions. Most assets are countable, but some can be exempt, which means they won’t be counted toward the limit. The 2024 ABD Medicaid income limits in most states are between $943/month and $1,751/month for an individual, and between $1,415/month and $2,593/month combined for a married couple. Almost all income is counted toward the limit, but there are ways to become eligible if you have too much income.

The financial limits for Nursing Home Medicaid and HCBS Waivers are less strict. In most states in 2024, the asset limits for Nursing Home Medicaid and HCBS Waivers are $2,000 for an individual and either $3,000 or $4,000 combined for a married couple with both spouses applying, and the income limits are $2,829/month for an individual and $5,658/month combined for a married couple with both spouses applying. For a married couple with just one spouse applying, the 2024 asset limits in most states is $2,000 for the applicant spouse and $154,140 for the non-applicant spouse, and the income limit is $2,829/month for the applicant spouse, while the income of the non-applicant spouse is not counted.

ABD Medicaid and Nursing Home Medicaid are entitlements, which means all qualified applicants are guaranteed by law to receive benefits without any wait. HCBS Waivers are not an entitlement. Instead, they have a limited number of enrollment spots, and once those spots are occupied, additional applicants are placed on a waitlist.

Methods of Protecting Resources When Applying for Medicaid Long Term Care

There are many ways Medicaid Long Term Care applicants can protect their resources from either Medicaid’s financial limits or its estate recovery. And there are some ways that will protect resources from both. Before attempting these strategies on your own, we recommend you consult with a professional, like a Certified Medicaid Planner or an Elder Law Attorney. That’s because many of these methods can be complicated, and Medicaid’s financial rules are also complex and constantly changing.

Look-Back Period
It’s also important to know that Medicaid applicants can’t simply give away their assets to protect them from the asset limit. To make sure they don’t, Medicaid uses the Look-Back Period, which is 60 months (five years) in most states. This means the state will look back into the last five years of your financial history to make sure you haven’t given away any resources, or sold them at less than fair market value. This includes things like paying for a grandchild’s education, or giving your home to a family member. To learn more about the Look-Back Period, click here.

Spousal Protections

Spousal protections are relevant to married couples with just one spouse applying for either Nursing Home Medicaid or HCBS Waivers (they do not apply to ABD Medicaid). In these cases, the non-applicant spouse is allowed to keep assets well above the normal asset limit, up to $154,140 in most states in 2024, thanks to the Community Spouse Resource Allowance.

If non-applicant spouses do not meet their state’s Monthly Maintenance Needs Allowance (MMNA) limit, the applicant/beneficiary spouse is allowed to transfer some or all of their income to the non-applicant spouse. As of July 1, 2024, the MMNA limit ranges between $2,555 and $3,853.50/month depending on the state and the couple’s financial situation. Plus, the transferred assets don’t count toward the applicant/beneficiary spouse’s income limit.

In most cases, the assets of a married couple are combined when it comes to counting toward the Medicaid asset limit, but the Community Spouse Resource Allowance protects the extra assets from the limit, just like the Monthly Maintenance Resource Allowance protects extra income from the income limit. And both allowances protect the resources for your family (in this case your spouse) to use while you are still living. These spousal protections may also protect the resources from Medicaid Estate Recovery Programs, but it depends on the state’s policy regarding spousal recovery. You can find your state’s rules on spousal recovery by using our 50-State Estate Recovery Table.

Protecting the Home

Most homes would put their owners over Medicaid’s asset limit, but homes are protected from the asset limit in most cases. It depends on the state, who is living in the home, the Medicaid applicant/recipient’s intent to return home and the percentage of the home they actually own, known as home equity interest. You can find out more about how home ownership impacts Medicaid Long Term Care eligibility by clicking here.

Just because a home is protected from the asset limit doesn’t mean it’s protected from the state’s Medicaid Estate Recovery Program. But there are two methods that will keep a home protected from both the asset limit and estate recovery:

1. Child Caregiver Exemptions allow Medicaid applicants to transfer ownership of their home to a qualified adult child without violating the Look-Back Period. Adult children (adopted or biological) are qualified if they have lived in the home for at least two years prior to the Medicaid application date and during that time they have provided care to the Medicaid applicant that prevented the need for a nursing home.
2. Sibling Exemptions allow Medicaid applicants to transfer ownership of their home to a qualified sibling without violating the Look-Back Period. Siblings (adopted or biological) are qualified if they have equity interest (part ownership) in the home and they have lived there for at least one year prior to the application date.

Lady Bird Deeds protect the home from estate recovery, but not from the asset limit. As of 2024, they are only allowed in five states – Texas, Florida, Michigan, West Virginia and Vermont. Lady Bird Deeds might be useful to Medicaid applicants in those states only if there are other reasons their homes are exempt from the asset limit.

Medicaid Asset Protection Trusts

Any assets placed in a Medicaid Asset Protection Trust (MAPT) will be protected from Medicaid’s asset limit and estate recovery. A significant drawback to MAPTs is that they violate the Look-Back Period. This can be avoided by creating the MAPT well in advance, five years in most states, which is the length of the Look-Back Period (except in California and New York, where it can vary by Medicaid program).

MAPTs must adhere to certain rules to be Medicaid-compliant, such as being irrevocable, which means they can’t be changed or canceled once they’re created. MAPTs can also be expensive to create, so using them is often recommended only if you have $100,000 or more in assets.

Medicaid Compliant Annuities

Medicaid Compliant Annuities can protect your assets from the asset limit and allow you to continue using them for yourself. Essentially, you purchase the annuity (usually from an insurance company) with a lump sum of money and the company you bought it from returns that lump sum in monthly payments. The value of the Medicaid Compliant Annuity will not count toward your asset limit, but the monthly payments will count toward your income limit. Medicaid Compliant Annuities must follow certain guidelines, including naming the state as beneficiary. This means the state will get any money left over the annuity after your death to help cover the cost of your long-term care, so Medicaid Compliant Annuities do not protect your assets from estate recovery.

Irrevocable Funeral Trusts

The value of Irrevocable Funeral Trusts (IFTs) are protected from the asset limit. Plus, IFTs will pay for your funereal and burial expenses, which would normally fall on your family, so the funds in the trust are also protected for your family to use. Most states require that any funds remaining in IFTs after the funereal expenses are paid must be surrendered to the state to help cover the cost of Medicaid Long Term Care, so in this way these trusts don’t fully protect the funds from estate recovery. Most states put a $15,000 limit on the amount of money that will be protected from the asset limit if it’s in an IFT. To find out what the limit is in your state and to learn more about IFTs, click here.

Spend Down

Medicaid spend down is a common way to protect assets from the asset limit. In short, you spend your excess assets until they are down to the asset limit. However, you can only spend on yourself or your spouse because spending on others is viewed as giving away assets and violates the Look-Back Period, so spend down does not protect assets for your family to use in the present or future.

Long-Term Care Partnership Programs

Long-Term Care Partnership Programs combine Medicaid Long Term Care with private insurance, and they can protect your assets from both estate recovery and the asset limit. Essentially, a healthy senior buys a long-term care insurance policy that complies with the Medicaid rules in their state with a lump sum of money, and the policy will spend that lump sum total on long-term care for the policy holder when they are ready for the care. The funds in the policy will not count toward the asset limit, and if the policy holder dies before all the money in the policy is spent, the remainder is protected from Medicaid Estate Recovery.

Personal Care Agreements

Personal Care Agreements are written contracts between a senior and a caregiver that formally establish what kind of care services will be provided and how much those services cost. If Medicaid applicants use a Personal Care Agreement and pay in advance for that care, the funds they used to pay will be exempt from asset limit. In many cases, the caregiver is a family member, so not only are the funds protected from the asset limit, they can also be used by the family, even if a family member has to earn them by providing care. Without a Personal Care Agreement, pre-paying a family member (or anyone else) for care would violate the Look-Back Period.

Personal Care Agreements do not necessarily protect resources from Medicaid Estate Recovery Programs. If the Medicaid recipients dies before the Personal Care Agreement is completed, the pre-paid funds may be subject to estate recovery, depending on the state.

Retirement Accounts

In many cases, the value of retirement accounts like IRAs and 401(k)s will count toward the asset limit, but not in all cases. Whether or not retirement accounts are protected from the asset limit depends on their payout status, if it’s owned by the applicant or the spouse and if it’s in payout status or not. In California, for example, IRAs and 401(k)s owned by the applicant’s spouse are exempt no matter what, while IRAs and 401(k)s owned by the applicant are exempt if they are in payout status but they are counted toward the asset limit. In the District of Columbia, all IRAs and 401(k)s are exempt from the asset limit. Unfortunately these are the exceptions, and in most states and most cases IRAs and 401(k)s will count toward the asset limit. To see the rules in your state, use our 50-State Table on Retirement Accounts.

It’s important to note that the monthly payouts from retirement accounts will count toward the Medicaid income limit.

And retirement accounts are not necessarily protected from Medicaid Estate Recovery Programs. If the IRA or 401(k) is owned by the Medicaid recipient’s spouse it may not be subject to recovery, but that depends on the spousal recovery policy of the state’s Medicaid Estate Recovery Program (MERP). You can find the policy in your state using our 50-State Estate Recovery Table.

In general, creating retirement accounts is not used as a Medicaid planning strategy because in many cases they do not protect assets, and these accounts generally have significant tax implications as well. But since many seniors do have retirement accounts, and they do protect assets in some circumstances, they are relevant to this article.

Medically Needy Pathway & Qualified  Income Trusts

In some states, seniors over the income limit can spend their excess income on medical bills to meet the income requirement and qualify for Medicaid. They can protect their income like this as applicants to become eligible, and they will continue to do it as Medicaid Long Term Care recipients to maintain their eligibility. This is known as the Medically Needy Pathway.

In states that don’t offer the Medically Needy Pathway, Medicaid applicants with income over the limit can place their excess income in a Qualified Income Trust so they can reach the limit and qualify. This method protects the income from the limit and allows the applicant to receive the kind of long-term care they need, but it doesn’t protect that income from estate recovery. In order to be Medicaid-compliant, Qualified Income Trusts (also known as Miller Trusts) must name the state as beneficiary, meaning after the Medicaid recipient’s death all the money in the trust will go to the state.

Who Implements Resource Protection Strategies

Some resource protections, such as the Community Spouse Resource Allowance and the Monthly Maintenance Needs Allowance, should be implemented by the Medicaid office during the application process for you or your loved one. 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 are made and spouses and dependents receive the assets and income to which they are due.

Most of the protection methods mentioned above must be implemented by the applicant/recipient, their family or their representatives. Because most of these methods are complicated, as are Medicaid’s rules surrounding eligibility and finances, we strongly recommend consulting with a professional before trying to use them yourself. A Certified Medicaid Planner or Elder Law Attorney will know the nuances and options surrounding these methods and the specific state rules that govern them.