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Medicaid Planning

Medicare vs Medicaid

Medicaid and Medicare are two completely different programs. Medicare is a type of health insurance provided by the federal government to retirees who receive Social Security benefits. It does not cover long-term nursing home care, except for a very limited time following hospitalization.

Medicaid, on the other hand, is a joint federal and state health care program for people with little or no income or assets. Medicaid covers a wide range of health care costs, including long-term nursing care.

Becoming Eligible

If you have money, you must pay for your own nursing home care. If you do not, the government will pay for most of it. Most people use their own savings to pay for nursing home care until their funds are exhausted. Only after they have spent down their assets does Medicaid step in to help.

What many people do not realize is that, with careful planning, you can preserve most of your money and property — and still have the government help pay for your nursing home costs.

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ASSET TEST

To qualify for Medicaid, an unmarried person may keep about $9,000, while a married couple may keep up to one-half of their assets subject to certain limits. In addition to these amounts, you are allowed to keep your primary residence (subject to special rules), personal belongings, one motor vehicle, a funeral contract, and a small amount of life insurance.

However, careful planning is essential to maximize the amount you are automatically entitled to keep. This is especially important for married couples, who must plan well in advance to preserve as many assets as possible.

The government will not allow you to move into a nursing home one day, give away your assets the next, and immediately qualify for Medicaid. If you give away assets within five (5) years of applying for Medicaid — known as the “look-back period” — you may be denied benefits.

That said, there are exceptions to these rules. With the right planning, it is often possible to transfer or restructure your assets and still qualify for Medicaid — even if you are already in a nursing home.

MEDICAID QUALIFIED ANNUITIES

One Medicaid planning strategy for unmarried individuals involves gifting a specific amount of money — determined by a complicated formula set by the state and federal government — to family members or others you choose. After making the gift, the remaining balance is used to purchase a Medicaid-qualified immediate annuity.

An immediate annuity is a contract with an insurance company where you pay a lump sum, and in return, the company provides you with a fixed monthly payment for a specified period of time. A Medicaid-qualified immediate annuity can be used to convert countable assets into an income stream. If the annuity meets certain legal requirements, the government will not treat it as a countable asset when determining Medicaid eligibility.

By investing the right amount at the right time into a Medicaid-qualified annuity, you may be able to protect a significant portion of your estate for your family.

MARRIED COUPLES

For married couples, when one spouse enters a nursing home, a Medicaid annuity can offer an effective option to protect marital assets — if it is established in a timely manner. Marital assets may be used to purchase the annuity, which must make distributions to the Community Spouse (the spouse remaining at home) over a fixed period, typically between 12 and 48 months.

The sources and amount of marital income will factor into determining the appropriate payout period, and, as always, there are important income tax implications to consider.

In addition to utilizing a Medicaid annuity, the Community Spouse is entitled to keep all of his or her own income, including wages, Social Security, and pension benefits. The Community Spouse may also be entitled to keep a portion of the nursing home spouse’s income if certain income tests are met.

INCOME TEST

A nursing home resident must pay all of his or her income to the nursing home, with a few exceptions. The resident may keep a small monthly stipend for personal needs, money to pay for uncovered medical costs, and, in the case of a married couple, an allowance for the
Community Spouse. Income may also be protected and used for a dependent child.

For married couples, the Community Spouse is given a monthly “Allowance” out of the nursing home spouse’s income. The standard Allowance may exceed $2,000 per month. But the exact figure is calculated for each Community Spouse according to a formula based on his or her housing costs. Again, the Community Spouse may keep all of his or her own earnings and other income, but the amount of his
or her income may reduce the Allowance amount.

As part of our role as your attorneys, we will help maximize the amount of income that the Community Spouse may retain.

Elder law is a specialized area focused on legal issues affecting the elderly, people with memory loss, and the disabled. This field covers long-term care planning, Social Security, Medicare, Medicaid, and

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