By: Heidi R. Kemp
From a high level, Medicaid is intended to pay for the care of those who do not have the resources to pay for the care themselves. That is why Medicaid reviews what assets you have and whether those assets qualify as a “countable resource” – i.e. assets that can be used to pay for your healthcare, including the use of a nursing home facility. The Medicaid review process will audit the last five years and analyze any transfers that you made during that time without adequate consideration – meaning any gifts you made. Those gifts may be considered improper transfers and may result in a penalty period in which Medicaid will not pay for your healthcare expenses.
Medicaid rules are very complex and ever-changing. For this reason, it is advisable to consult with an attorney who practices regularly in this area to assist you in determining whether Medicaid planning is appropriate for your individual situation. If you do seek the advice of counsel, it is our recommendation to get a second opinion. Many Medicaid planning techniques are very hard or impossible to undo so you want to be sure before engaging in this type of planning.
From a general standpoint, an asset will be considered a countable resource if the asset is in your name or you retain control or benefit from that asset. Medicaid may make an argument that the asset is available to be used for your healthcare. Usually, if there is a spouse living in your primary residence or the person in a nursing home is able to return to the home (i.e. the stay in the nursing home is temporary), then the primary residence will not be considered as a countable resource.
One option to avoid having assets qualify as a countable resource is to transfer some or all of your assets to your children. This is usually done with the desire to leave a legacy for your children. If you deed your primary residence to your children, without retaining a life estate, then you need to be aware that they will have full legal rights to it and you have none. As owners, the children can do anything with the house that you could do with the house. They may use the house as collateral for a loan, sell the house, or even require you to pay rent to live in it. Please note that it is possible that a life estate (the right to live in the house for your lifetime) may be considered a countable resource by Medicaid.
If assets are transferred directly to the children without the use of a trust, then the assets may be subject to a child’s divorce, creditors, bankruptcy, liabilities, etc. You must consider that once the assets are no longer in your name, you have no rights to those assets and cannot assume they will be available to you for your care.
One way to diminish this risk is to establish an irrevocable trust (meaning it cannot be changed or revoked by you) for the benefit of your children. While this mechanism is helpful, it does come with its own set of risks. You generally cannot benefit from the assets of the trust or have any control over them after they are transferred without risking your Medicaid eligibility.
One of the other important considerations is whether you want Medicaid to pay for your nursing care or whether you want to be self-pay. If you are on Medicaid, you may not have as much of a choice in which facility you are placed, and you may even encounter sub-standard care. You should spend some time researching the difference between Medicaid facilities/beds and those that are self-pay.
When it comes to Medicaid, usually, there is no perfect solution. Each option comes with its own risks and consequences. Unfortunately, there is no magic crystal ball to know how your future will play out. You should always be cautious when considering Medicaid planning and make sure you are fully aware of the consequences before you sign anything.