Special Medicaid Transfers

April 13, 2006

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When developing a comprehensive plan to avoid challenges to asset transfers, don't forget about the federal government and its ability to challenge transfers when administering Medicaid benefits.

Often, transfers of assets also are used to protect assets from the extreme expense of nursing home care. Nursing home care costs $70,000 a year or more in many parts of the country. Therefore, you should be aware of some of the basic issues involved in asset transfers relating to nursing home care.

Just as a creditor can challenge transfers of personal or business assets, the government may challenge transfers of assets if you apply for Medicaid benefits.

Warning

Before transferring any assets, you should always seek professional advice from an attorney or financial advisor. The following information should be used strictly as a guideline. Exemptions can be different depending on the state you're in and are subject to change. The consequences of making transfers that are not eligible for exemption can be severe and include rendering the applicant ineligible for Medicaid.

Medicaid is the federal program that pays for long-term nursing home costs. Don't confuse Medicaid with Medicare. Medicaid is a social welfare program available only to individuals with extremely limited means. Basically, under Medicaid, a single individual can only have $2,000 in assets and $75 per month in income in order to be eligible for benefits.

In contrast, Medicare is the federal program that everyone, regardless of income or assets, qualifies for at age 65 by paying Social Security taxes when they were working. Unfortunately, Medicare only pays for the first 100 days of a stay in a nursing home, and then only when skilled nursing care is medically required.

When this period expires, or if nursing home care is needed to provide help with daily living activities, the individual must begin personally paying the $70,000 (or higher) per year bill or qualify for Medicaid.

This expense would quickly consume most families' personal wealth. Accordingly, Medicaid-qualifying asset transfers are an important asset protection strategy. However, such transfers, with some exceptions, will be effective only if they are executed well in advance of the need for long-term nursing home care. Unfortunately, the first time most individuals consider such transfers is when they realize Medicare will only pay a few months of bills. At this point, planning may be too late.

You'll need to consider the Medicaid rules for: