Preparing For Medicaid: How Estate Planning Can Help
POSTED ON: February 22, 2024
Preparing For Medicaid: How Estate Planning Can Help | The Law Offices of Kayce C. Staehle

Understanding whether you qualify and applying for Medicaid can be a complicated process. If you are considering applying for Medicaid, it is a wise decision for you to work with a qualified estate planning attorney who can help you plan in advance. To assist you in the process of understanding Medicaid eligibility, this article will address:

  • The strategies used in estate planning that can increase your chances of being accepted into the Medicaid program.
  • How long the look-back period for Medicaid is, and what exactly the government will be reviewing.
  • How your durable power of attorney can help you during the Medicaid application process.

What are the Key Eligibility Requirements for Medicaid?
Medicaid is for those who are ill or need medical care and are of lower economic means. In order to qualify for Medicaid, you must have a medical condition that would make it necessary for your long-term care needs to be paid by the government.

In addition, you must also have limited resources to be able to pay for those medical needs. With Medicaid, there are limitations on how many assets you can have. While there are certain exemptions, in general, your assets must remain below $2,000, in addition to using your regular income for your care.

How Can Proper Estate Planning Help Individuals Qualify for Medicaid Benefits?
Estate planning is about creating a plan for your assets and distributing your assets to your heirs. If you want to reserve or use some of your assets for your care, or if you need long-term care assistance, then there are strategies that can be employed to help with these concerns. Different types of planning strategies can be used to set up a plan that will make those goals attainable.

Can Gifting Assets Affect Medicaid Eligibility?
Gifting assets can absolutely impact your Medicaid eligibility. Gifting is allowed, but with Medicaid eligibility, it’s important to keep in mind that Medicaid compliance officers are looking back over a period of five years.

During the last five years, they will review the gifts you made. Although they are not necessarily requiring you to reverse those gifts, it could put a penalty period on you, depending on the amount of the gifts you paid. The Medicaid officers will use a formula to calculate the gifted amount in relation to the required monthly amount for Medicaid planning.

For instance, if you gave $100,000 and the required monthly amount is $7,000, then they will use these amounts to determine how many months you would be disqualified. Alternatively, you might have to pay for some of the costs of your care yourself before you would be eligible for the government to start covering these costs.

What are the Rules and Limitations for Asset Transfers in Medicaid Planning?
One main rule about asset transfers is that they must be for value. For example, you can sell property, but it must be sold for roughly the value of that property. Anything else may be viewed as gifting and would be subject to the five-year look-back review.

Are There Strategies that can be Employed in Estate Planning to Protect Assets While Still Qualifying for Medicaid?
Worrying about your health or your finances can be a stressful burden on your shoulders, but if you are considering Medicaid, you probably have both financial and health concerns. Fortunately, there are strategies you can use to protect your assets and continue to qualify for Medicaid, but they depend on your particular situation.

Whether or not you are married, for example, will have a big impact on the strategies that can be used. If you are married, there is a lot that can be transferred between spouses.

There are also other strategies that can be employed based on what assets you have, especially if you are looking to receive care in a long-term facility. Your marital status and marital assets are two factors that will impact what strategies we employ for you.

Are There Trusts that can be Used to Protect Assets in order to Qualify for Medicaid Planning?
Yes, there are different types of trusts that can be used to protect your assets, so you can qualify for Medicaid, including a revocable trust or an irrevocable trust. A revocable trust is not as helpful for Medicaid planning, but it can assist you with addressing exempt or other assets. An irrevocable trust can be useful for Medicaid-related planning.

However, with your irrevocable trust, there may still be a five-year look-back period. These trusts are better for long-term planning considerations rather than short-term planning and qualification status. This is one reason why it is important to begin working with an estate planning attorney earlier, so you can create trusts in advance.

What is the Look-Back Period, and How Might It Affect Estate Planning Decisions?
The look-back period is a specific amount of time that the government has decided will be the period for reviewing your past transactions and financial history that could impact your Medicaid eligibility if you are applying for Medicaid assistance. This look-back period has varied over the years; it was three years, now it is five years, and there has been discussion of changing it to seven years.

During this look-back period, the government will scrutinize your bank, asset, and financial records. They will be checking for any assets you may have given away or sold for less than the item’s value. This is because an asset you sold for less than its worth could have helped pay for your long-term care needs if it had been sold for value.

Although gifting is a good strategy for estate planning in general, it is essential to consult your attorney about gifting when you are looking at estate planning decisions. However, if you have health-related concerns and you may need long-term care assistance paid for by the government, gifting may not be the best strategy for your situation.

What Are The Tax Implications And Considerations Associated With Medicaid Planning And Estate Planning Strategies?
Gifting and setting up a revocable or irrevocable trust are some tax strategies you could employ when creating your estate plan. With gifting, if you are considering your Medicaid eligibility, you should keep in mind that there could be an accumulation of gifts during the five-year look-back period.

Annual amounts are tracked as well, which are currently limited to $17,000. If you give over $17,000 to one of your family members in one year, then your family member would have to file a gift tax return.

If you set up an irrevocable trust, this will also be subject to a five-year look-back period. There are no tax penalties associated with an irrevocable trust; however, your irrevocable trust is a separate entity that must file a tax return for any income received in the trust.

What Role Does My Durable Power of Attorney Play in Medicaid Planning and Estate Planning, Especially in Cases of Incapacity?
A durable power of attorney is very helpful if you are looking to qualify for Medicaid, especially if you have any incapacity issues or difficulty handling the paperwork yourself. The person appointed as your durable power of attorney can assist you with applying and documenting your assets.

They can speak to your banking and financial institutions on your behalf to obtain the five years of records needed for the application process. They can assist in collecting other needed documents and even sign your application for Medicaid assistance. In addition, they can get answers to any questions you may have for the reviewing agent during your Medicaid review process.

Can Life Insurance and Annuities Be Used in Estate Planning for Medicaid Purposes?
Long-term fixed contracts for funeral expenses are one form of life insurance policy that you can use as an exempt asset. Because they can be purchased, they transform your non-exempt assets into exempt assets that would be covered and protected in the Medicaid application process.

In addition, annuities can sometimes be used, especially between spouses where there are excess funds, but it’s essential that you use a Medicaid-compliant product. Annuities can break a sum of money into equal payments that will be paid throughout the course of your lifetime. For example, if you expect to live for five years and you have $100,000, the annuity will break up the total amount into equal monthly payments.

Your Medicaid-compliant annuity will pay back the money to your spouse if you outlive the contract. If you do not outlive the contract, then the proceeds are paid first to the state to cover any costs that the government has paid for your care and then to your family members.

These are very good planning resources if you are looking to apply for Medicaid and you have resources that need to be transformed from non-exempt to exempt. Your estate planning attorney can help guide you on annuities, life insurance policies, and other resources that may be beneficial to you.

For more information on Medicaid Planning in an Estate Plan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (704) 625-6170 today.


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