Thursday, 06 August 2020 14:27

Common Myths and Mistakes in Medicaid Planning: Pitfalls to avoid in developing your plan

By Matthew Dorsey | Business

For over twenty years, I have worked with clients and their families to help their loved ones obtain Medicaid coverage for nursing home care.  In the course of my practice, there have consistently been a number of myths and mistakes in Medicaid Planning.  By “myths and mistakes,” I mean misunderstanding about the Medicaid rules and mistakes people make based on them.

The following questions and answers are designed to address some of the more common misunderstandings and give the reader more accurate information on Medicaid Planning.

Isn’t it true that my IRA will be considered a countable asset?

No.  Retirement accounts, like IRAs, are generally not considered assets by the Department of Social Services (DSS), as soon as the accounts are in payout status.  Instead, they are considered as a source of income.  For example, if you have a $100,000 IRA, DSS will make a calculation based on your age that will convert that asset into a source of income considered when you apply for Medicaid.  Since you can only have $15,750 in assets and qualify for Medicaid, this will allow you to potentially qualify – despite the fact that you have a $100,000 IRA.

What happens to my retirement income when I apply for Medicaid?

That depends on whether you are married or single.  If you are married, some of it may be made available to your spouse to pay their expenses if they are below the allowable income level for a community spouse.  That level is currently $3,216 per month.  If you are single, most or all of your income will likely be used to help pay for the cost of your nursing home care.

Is the Medicaid look back period seven years?

No.  The Medicaid look back period is five years.  At the time of your Medicaid application, DSS will require you to provide the last five years of your financial records for their review in determining your eligibility.

Isn’t it true there is no look back period for Community Medicaid?

Yes – but that will end soon.  Community Medicaid is available to pay for aides in your home, if you qualify.  Currently, there is no look back period for Community Medicaid, but that will end on January 1st of next year.  As of that date, a 2 ½ year lookback period will be phased in for all transfers after October 1st of this year.

Isn’t it true that I can put my assets in a Trust and DSS can’t touch them?

As a general rule, that is not correct.  However, if you create an Irrevocable Trust and the assets are transferred to that Trust more than five years before you apply for Medicaid, then yes – those assets will be protected for Medicaid Planning purposes.

Isn’t true that I can take money out of my Irrevocable Trust to help pay my expenses?

No.  In a properly drafted Irrevocable Trust used for Medicaid Planning, the assets you put in the Trust cannot come back out to you.  If the Trust provisions allow that to happen (or you take the assets out regardless of the Trust provisions), then the assets will be considered yours and counted against you when determining your Medicaid eligibility.

Isn’t it true that I can get a home equity loan after I put my house in a Trust?

If you put your house in an Irrevocable Trust for Medicaid Planning purposes, you generally cannot thereafter get a home equity loan with your residence pledged as collateral.  From the bank’s perspective, you no longer own the home (the Trust does instead), so you cannot pledge it as collateral.  In addition, if you have a home equity loan before you put your house in an Irrevocable Trust, the bank may not continue to permit you to take draws on that loan.

Isn’t it true that I can give away $15,000 a year without a Medicaid penalty?

No.  The $15,000 limit is known as the federal annual exclusion amount for gift tax purposes.  This is the amount of money you can give to someone without the need of filing a gift tax return.  This is a useful number to keep in mind if you have a large estate (i.e. in excess of $5 million) and you want to make lifetime gifts and reduce your potential estate tax burden upon your death.  Otherwise, the amount is likely not very important to your planning.

Is there an amount of money I can give away without fear of a Medicaid penalty?

Yes.  You can generally give up to $2,000 per person per year without fear of Medicaid penalty.  This is not a level established by statute or regulation, but rather a rule of thumb used by the local Medicaid authorities.  For more information on allowable gifting and how penalty periods work, please take a look at my March 9, 2020 article in Saratoga Today entitled “Medicaid Lookback Periods and Penalty Periods.”

People receive their information on Medicaid Planning from a variety of sources, including friends, family, websites, and elsewhere.  Amongst the information available, is unfortunately an abundance of misinformation that can lead to mistakes.  When it comes to Medicaid Planning, you should seek out the services of an experienced elder law attorney to make sure your planning is based on the most current, and correct, information.

Matthew J. Dorsey, Esq. is a Partner with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, NY.  Over his twenty-three 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

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