Medicaid is a means-tested government benefit program. For those who qualify, Medicaid will provide payment for long-term care services. A recent article discusses three estate planning maneuvers that may assist a person in qualifying for Medicaid.
Although gifting assets is the most obvious way to reduce the value of a person’s estate, this is the most dangerous way to attempt to apply for Medicaid coverage. This is because Medicaid applies a five-year “look back” period to prevent people from simply giving away all of their assets in order to qualify for benefits. If you have given any assets away in these five years, they will be counted in your estate for the purposes of determining whether you qualify for Medicaid.
There are a few problems with gifting assets away. First, those assets are no longer under your control in any way. If you give the house to your daughter, it’s your daughter’s house. Whatever happens to your daughter, happens to the house – so if she dies, the house could be your son-in-law’s and you could be out of the house.
Second, there are tax reasons for not giving away your assets that might result in lots of capital gains tax being owed on assets sold later.
Medicaid Compliant Annuity
A Medicaid Compliant Annuity (“MCA”) is an annuity purchased via a one-time payment by the spouse of the person applying for Medicaid. Theoretically, this annuity will remove income from the Medicaid qualification calculation, yet still provide income for the spouse not receiving Medicaid benefits.
Certain trust accounts can shelter assets from the Medicaid qualification calculation. These trusts must be irrevocable, and the trust language must be very specific. If drafted correctly, these assets will be unavailable to Medicaid after five years. In addition, there are ways for you to maintain some control over the assets in the trust, as well as avoid any negative capital gains problems.
The only down side to this solution is that you need to work with an elder law attorney to create this kind of trust.