This column has previously explored the big picture of asset protection from long term care expenses (commonly referred-to as the “nursing home”). Medicaid is usually a key component and foundation of long term care planning. Medicaid eligibility involves a labyrinth of rules, regulations and requirements. However, in simplest terms, Medicaid eligibility involves two big requirements and many other considerations. Planning to become Medicaid eligible usually involves the use of at least one of three tools.
There are dozens of requirements for a person to be eligible for Medicaid. Nonetheless, there two initial, primary requirements. First, a person’s financial net worth must be less than $2,000. Typically, just about every individual thing that a person owns will be considered. Notably, many household items can sometimes be valued at “garage sale price.”
Second, a person must not have given anything away in the last five years to become poor enough to satisfy the first requirement. The gifts considered include Christmas and birthday gifts, and the gifts will often create Medicaid ineligibility if the gifts in whole exceed about $1,000 over the last five years.
There are many tools to use to position a person to be Medicaid eligible. However, there are three primary tools, which can be undertaken at least five years before nursing home admission or any time thereafter, but with less effectiveness the later the tools are used.
The first tool is to simply give away assets. Obviously, once a gift is effectively given, it cannot be legally demanded back. Gifting can seem simple and easy, but if gifting involves real estate or certain stocks or bonds, the people receiving the gifts may face unnecessary capital gains tax liability in the future.
The second tool is usually only effectively used to protect real estate. This tool involves the owner keeping a life estate ownership interest in the real estate. The real estate itself is deeded/titled so that that other people automatically acquire the real estate upon the person’s death. Effective use of this tool requires inclusion of certain, very detailed limitations in recorded documents, which documents themselves must be recorded in a particular sequence and within particular timeframes.
The third tool involves the use of a very specialized trust. This trust is not the type of trust that is almost always used in our region. Most trusts in our region provide absolutely no ability to preclude trust assets from being considered “available” for Medicaid eligibility. The trust used in this context must be an irrevocable trust with several specific attributes and limitations. This type of trust is sometimes informally called a “Medicaid Trust.”
Despite people’s expectations, basic estate planning (wills, trusts, etc.) seldom includes Medicaid eligibility planning. Medicaid eligibility planning is a very precise area of the law. Because of Medicaid’s incredibly detailed requirements, it is crucial that the attorney hired to do Medicaid eligibility planning has sufficient knowledge and experience and literally understands that Medicaid eligibility is an objective of the estate planning.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.