Medicaid Planning: Plan Now or Plan Later
Due to the strict eligibility requirements of the Medicaid program, married couples that have health concerns face a decision when it comes to “protecting” their assets. As discussed in our Memorandum entitled Medicaid: Gifting Penalties, when a married individual transfers assets to a person other than his spouse or to an irrevocable trust, both the husband and the wife are subject to the ensuing five year look-back and resulting penalty – not just the spouse that made the gift or transfer. Therefore, when considering the strategies offered for protecting your assets it is imperative to also consider if one of the spouses may need nursing home care within the next five years. This, of course, is difficult as no one knows if or when an ailment or health condition may strike but it is a consideration that must be seriously undertaken.
Plan Later
If the clients determine that they are not comfortable with the concept of not needing nursing home care for at least five years, then the planning strategies are limited as the couple will want to avoid all Medicaid gifting penalties. This is the “Plan Later” approach. If this is the circumstance, then the couple may want to rely upon “spousal refusal” as a method to timely obtain Medicaid eligibility for the spouse requiring the care. Simply stated, the “Plan Later” strategy involves the couple holding onto all of their assets to avoid penalties but then taking advantage of the spousal refusal mechanism. Spousal refusal allows for all (non-retirement) assets to be transferred from the spouse requiring the nursing care to the “community spouse” without penalty. Then, the community spouse submits a written statement with the application stating that they are unable to financially afford the other spouse’s nursing home costs. Upon this occurrence, the Medicaid agency will make their eligibility determination based solely on the remaining assets of the spouse in the nursing facility. Upon approval of the spouse’s application, the community spouse must seek advice concerning the protection of her assets as there may come a time when she will require Medicaid medical assistance herself.
If the couple is not considering Medicaid nursing home benefits but rather Medicaid community-based assistance, one perceived advantage exists in that there are no gifting penalties associated with home care. Therefore, gifting to children or to an irrevocable trust will not jeopardize the application for home care benefits. However, should either spouse then require nursing care within the original five year look-back, the gifting penalty will be then be assessed. As such, the “Plan Later” concept must be considered even with penalty-free home care benefits.
As with all Medicaid issues, there are substantial risks involved with this “Plan Later” spousal refusal application and the subsequent asset protection steps taken by the community spouse. These risks are discussed in our Memorandum entitled Medicaid: Spousal Refusal Risks.
Plan Now
If both spouses are confident that neither will require nursing home assistance within the five years following their asset protection, then the advice will typically be to “plan now” and thus establish a reasonable and prudent gifting plan and start the five year look-back period. The recipient of the transfers is typically an irrevocable trust as this vehicle will usually offer the most creditor protection, tax savings and flexibility. After the five year window has passed, current law states that transfers made previous to the start of that time-frame will not be penalized by the Medicaid agency and therefore either spouse can apply for Medicaid nursing home benefits without the concern of having to spend the assets previously transferred.
This Memorandum is based on current law and is for informational purposes only. It is important that you discuss all legal options and consequences with a qualified elder law attorney prior to any action. Should you wish to discuss your situation with us, please call (631) 424-2800 for a consultation. For additional Memoranda, please call or visit our website at www.elderlaw.pro.
