Medicaid is a government-sponsored federal and state program to help people with meager resources and incomes receive the medical help they need. And for many retirees, it’s one way to help mitigate the high costs of a quality nursing home. But Medicaid eligibility is limited, based on income and countable assets owned. Past a certain level of resources, Medicaid simply isn’t an option for people.
However, many families and elderly struggle with costs that cannot be covered without Medicaid. Medicaid helps account for a portion of the costs of a nursing home, often making unreasonably pricey monthly and annual costs much more realistic.
To help them, tools exist to help reduce the overall countable assets of a person and allow them to avail for Medicaid. But the path towards eligibility isn’t simple, and certain mistakes can greatly prolong the process.
How Assets Affect Medicaid Eligibility
Assets are just one way Medicaid limits who has access to the program. For example, when it comes to income, there are two groups – individuals who must qualify based on their modified adjusted gross income (MAGI), and individuals who must qualify based on their regular gross income. MAGI counts for:
- Pregnant women
- Childless adults aged 19 to 64 (in states with Medicaid expansion)
- Children under 19
- Parents and children living in one household
- Adults aged 19 and 20 living with their parents
- Anyone eligible for the Family Planning Benefit Program
Those who do not qualify through MAGI include:
- Medicare beneficiaries under the poverty line
- Institutionalized adults
- Foster care children and former foster care adults under 26 who were on Medicaid up until their 18th birthday
For individuals who qualify through MAGI, both the size of the household and the total household income are important to test Medicaid eligibility. For those outside of MAGI, eligibility is tested through income limits and asset limits. In all cases, eligibility differs based on a number of different factors, but the gist remains the same:
Past a certain point of monthly income and total countable assets, a person cannot be eligible for Medicaid. Unless, of course, they reduce their assets. But what counts as a countable asset?
What Are Countable and Uncountable Assets?
Countable and uncountable assets set themselves apart mostly on the basis of liquidity – things you can generally sell, or dissolve are countable assets, while assets that cannot be liquidated as easily are uncountable. Of course, it’s not quite that simple – countable assets include:
- Property that you do not live in, that is not for rent
- Bank accounts
- Whole life insurance policies with cash value $2,500 (the first $2,500 of the policy don’t count towards your asset limit. Term life insurance policies don’t count)
- Stocks, bonds, and other financial instruments
Examples of uncountable assets, or assets that don’t factor into Medicaid eligibility, include:
- Retirement accounts that haven’t paid out yet
- Term life insurance policies
- Primary residence and rental properties
- Personal property (non-vehicle, non-real estate property, such as jewelry, art, etc.)
- Assets you have attempted to sell, but could not (‘good faith effort’ sell)
- Home improvements
When going over everything you own and all sources of income you currently possess, it’s important to go over every last detail. It’s the details that make or break a plan, which is why getting things right the first time is important.
Gifting and Medicaid Look Back
Once you have established what you need to do to hit eligibility, it’s time to consider how best to transfer your assets. This is where the Medicaid Look Back Period becomes very important. Whenever a person signs up for Medicaid, the government goes over any transactions under market value, as well any efforts made to gift assets or otherwise give them away to friends and family members or sequester them within trusts.
California looks back 30 months (two and a half years), while other states look back 60 months (five years) – any efforts made to move assets within that time lengthen the waiting period to be cleared for Medicaid. That means that if you wish to reduce your countable assets, it pays to have foresight.
Using an Irrevocable Trust to Make Assets Uncountable
Moving your assets into a revocable living trust may technically mean that they no longer belong to you, but revocable living trusts still give the grantor of the trust a high degree of control over the assets within the trust. The government will count these.
To make assets uncountable, you must move them into an irrevocable living trust. These basically revoke all control over the assets from you but make them available to the beneficiaries of the trust once you pass away. Once the assets are in an irrevocable trust, they are effectively untouchable to you.
However, this counts as gifting the assets, which means that the Medicaid Look Back Period is in effect. As such, consider moving all assets over the limit into an irrevocable living trust at least two and a half years before signing up for Medicaid in California.
Why Professional Legal Help Is Crucial
There are several factors and rules to consider. For one, placing assets in an irrevocable trust may still call into effect Medicaid’s Look Back Period. While an irrevocable trust can help you make certain assets uncountable, trust language is very important.
Improper timing or incomplete information can invalidate your whole plan, and greatly delay when you might be able to take advantage of Medicaid’s programs. And while assets are one aspect to consider, income is yet another.
There is a limit on how much a person can earn in a month and still qualify for Medicaid – if you have any excess income, extra steps must be taken to ensure that that income goes into its own separate trust (such as a Qualified Income Trust).
All of this is neither cheap nor simple – so getting it right the first time is important. While potentially pricey, the help of an estate planning attorney to navigate this issue can be crucial. Professional help can guide you through the process with no clerical errors, and a plan that takes all important factors into consideration.
Like all others, this post offers no concrete legal advice – and it shouldn’t be taken as a strict plan. While placing excess assets and income in properly managed trusts can help you qualify for Medicaid, the process of doing so varies greatly from case to case. Legal help can only be valid when all relevant factors are considered and known.