Frequently Asked Questions
As complicated as Medicaid is, there are certain questions which come up over and over again. While no book will be a substitute for the advice of an experienced attorney who counsels Hospice patients, let’s at least review some of the questions that seem to frequently come up.
Will I lose my home?
Many people who apply for Medicaid ask this question. For many people, the home constitutes much or most of their life savings. Often, it’s the only asset that a person has to pass on to his or her children.
Under the Medicaid regulations, the home is generally an unavailable asset. That means it is not taken into account when calculating eligibility for Medicaid. (There may be certain issues regarding an “intent to return home” which make the home unavailable for only a certain period of time.)
In 1993, Congress passed a law which requires the states to try to recover the value of Medicaid payments made to recipients. This process is called estate recovery.
Estate recovery does not take place until the recipient of the benefits dies. In the case of a married couple, it occurs after the death of both spouses under the current laws. At that point, the law requires states to attempt to recover the benefits paid from the recipient’s (or spouse’s) estate. In recent years, as state budgets have gotten tighter, many states have become more aggressive about their estate recovery programs. For instance, Alabama Medicaid Agency can place a lien on a Medicaid recipient’s home under certain conditions. There also may be more frequent changes in the coming months. For that reason, you will need assistance from someone knowledgeable about the rules and regulations to determine whether or not there will be estate recovery, and whether it can be avoided in any particular situation.
Is it true that under current Medicaid laws, a parent cannot make gifts to their children once they are contemplating Medicaid or have even entered a nursing home?
Maybe. However, a proper gifting program can be a great Medicaid planning technique for some people, if done timely. At the time an applicant applies for Medicaid, the state will “look back” five years to see if any gifts have been made. Any financial gifts or transfers for less than fair market value during the five-year look back may cause a delay in an applicant’s eligibility. You do need to be aware of a law which became effective February 8th, 2006. Under the terms of that law, gifting rules have become far more complicated.
I’ve heard that $10,000 is the most an individual can give away if applying for Medicaid.
No, the $10,000 figure (which recently went up to $12,000 per year) is a gift tax figure, and not relevant with respect to Medicaid’s specific asset transfer rules. The maximum monetary figure Medicaid applicants need to concern themselves with is the “penalty divisor” for their state. The penalty divisor is the state-assessed average cost for nursing home care by which the state assesses Medicaid penalties. The penalty divisor for Alabama is currently $4,400. Therefore, a gift will cause a penalty of one month for each $4,400 given away.
A Medicaid applicant’s house is considered “exempt” under current Medicaid laws. Can an applicant give away the house without incurring penalties?
No. Any assets which are given away are considered transfers for less than fair market value. If an applicant gives the house away, the state will assess a penalty based on the tax appraised value of the house at the time the property was transferred.
Suffice it to say that the Medicaid laws are complicated. With early planning, there are a number of steps which smart families can take to preserve their assets and to qualify for benefits. These can range from gifting strategies to personal care contracts to increasing the amount of money which the at-home spouse is allowed to protect. It’s important to keep in mind that these laws are constantly changing, and that the advice which was given to a friend or neighbor last year may no longer be relevant, or even appropriate. It’s also important to understand, however, that with expert advice you may be able to protect yourself and your loved ones while qualifying for all the benefits the law allows.