The best way to preserve assets in Medicaid Planning is to plan ahead.
Under current law, any assets transferred to a trust or another party more than five years before a Medicaid application is filed are not counted as resources in the context of Medicaid eligibility.
As a result, if you transfer your home to a Medicaid Irrevocable Trust in 2013 and need nursing home care six years later in 2019, you can apply for Medicaid to pay for your nursing home costs and your home (transferred to your Trust more than five years before) is not counted by the Department of Social Services (DSS) in evaluating whether you qualify financially for Medicaid.
Too often though, advance planning is not done before a loved one is in need of nursing home care. The question then becomes: what do we do now?
At such a time, the note and gift strategy could be employed with the assistance of an experienced elder law attorney. The note and gift strategy is a two step process. First, a gift of approximately half the person’s assets is given to a beneficiary. Second, a loan of the other half of the person’s assets is made to the beneficiary.
The first step results in a penalty period being imposed by DSS. This penalty period is a length of time during which the Medicaid Applicant (MA) cannot receive Medicaid to pay for nursing home care. The larger the amount of the gift, the longer the penalty period becomes. Since the MA cannot receive Medicaid during the penalty period, they must have another source of income to pay privately for their care.
That second step of loaning the balance of the funds to the beneficiary sets up an income stream back to the MA, giving them the funds to private pay for their nursing home care during the DSS imposed penalty period. After the penalty period is over, the MA can then receive Medicaid. As a result, one half of the MA’s assets are preserved (via the gift), rather than having potentially all their assets spent down to pay for nursing home care.
In order to take advantage of this strategy, the MA must be competent or must have signed a Statutory Gift Rider (SGR) as part of their Power of Attorney. The SGR allows the agent to make the gift on behalf of the MA.
The note and gift strategy is challenging to employ correctly. It is challenging, in part, because you need to know exactly how DSS calculates the income of the MA in order to be successful. Deductions are given for expenses such as Medicare premiums, but not for other expenses such as income tax obligations or regular living expenses. Failure to calculate the income and deductions correctly can lead to ineligibility for the Medicaid benefit.
In addition to the note and gift strategy, there may be a variety of other techniques that can be employed to assist a loved one in becoming eligible for Medicaid to pay for their nursing home care. Those techniques include spending resources on acceptable expenses, such as funeral pre-planning. Certain transfers, such as the transfer of an interest in a home to your spouse, may also not result in penalty period.
When you are faced with an imminent nursing home admission for a loved one and long term planning has not occurred in advance, there may still be options to preserve assets. Consulting with an experienced elder law attorney will help you understand your options before it is too late.
Matthew J. Dorsey, Esq. is a Partner with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs. Over his 21 years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at 518-584-5205, This email address is being protected from spambots. You need JavaScript enabled to view it., and www.oalaw.com.
