Medicaid and Long-Term Care Planning
Medicaid is the federal program which, among other things, will pay for nursing care for people who qualify. Under current law, an individual can have no more than $2,000 in countable assets to qualify. A person’s spouse is usually allowed about $123,500 (as of 2020) in countable assets. Medicaid rules for which assets are “countable,” including when a person’s home is “countable”, are incredibly complex. I discuss the rules at length with my clients to determine whether and when they might qualify for Medicaid. In Massachusetts, “Mass Health” is the agency charged with administering the Medicaid program.
When evaluating a Medicaid application, Mass Health looks not only at one’s current assets, but also at assets transferred within the last 5 years. With certain exceptions, most transfers made within the previous 5 years will result in a disqualification period for receiving Medicaid. Thus, any Medicaid planning, whether through outright gifting or use of Irrevocable Trusts, requires careful advance planning.
Many of my clients want to protect assets, including their home, from being considered a “countable asset” which they could be forced to spend or sell for their nursing care. There are multiple techniques to protect assets. However, all these techniques come with some negative consequences which must be balanced with any desired benefit. A common mistake I see people make is haphazardly gifting assets to others, usually children, or simply adding children to assets like a home. While such techniques are sometimes appropriate, many times they have serious capital gains or other consequences which outweigh any planning benefit. These consequences must be discussed in depth before making any transfers.
An alternative to outright gifting is transferring assets into an Irrevocable Trust. Subject to the 5-year lookback period, assets owned in a properly drafted Irrevocable Trust are deemed non-countable by Medicaid. Irrevocable Trusts are non-amendable. Further, when you transfer assets into an Irrevocable Trust, you relinquish access to the asset. While you may retain the right to live in a home, or to receive income from a Trust asset, you are prohibited from accessing the Trust principal, or from having any Trust principal used for your benefit. Thus, transferring assets into an Irrevocable Trust is a serious step which requires careful consideration.