No area of our practice causes more confusion and angst for seniors and their families as the question of how to pay for nursing home care. Within that practice area, no topic causes more problems for seniors as asset protection planning. Myths abound about how to protect assets prior to applying for Medicaid. Some of the most common are: 1) that a Medicaid applicant can transfer $14,000 per child per year; 2) that the kids can be added to financial accounts to shield assets; or 3) that investing in annuities will solve all their problems. In fact all of these theories about asset protection are wrong. Worst of all, engaging in these activities can leave the senior in an incredibly precarious position.
The $14,000 per child myth is based on IRS gifting rules which have no relationship to Medicaid eligibility or planning; adding your children to your account will have no effect on how Medicaid counts the assets when determining your eligibility for benefits; and the rules concerning Medicaid and annuities has changed dramatically over the years to that point that only one, very specific type of annuity will help a Medicaid applicant qualify for benefits while preserving assets.
Even playing by all the rules can created problems. For example, current Medicaid rules will not take into account any transaction that occurred more than five years before the application for benefits. This leads many seniors to transfer their assets to children well in advance of applying for Medicaid benefits. Unfortunately this creates a whole new set of problems. Assets transferred to children are now vulnerable to the creditors and spouses of the kids. There can also be serious capital gains and real estate tax implications for transferring property to children that must be taken into account.
To qualify for Medicaid, an individual is allowed to keep just $2,000. The key to Medicaid planning is to safety and effectively reallocate assets in such a way to preserve as much as possible while ensuring enough assets remain to pay for the applicant care through any resulting penalty period. The margins are tight and their is little room for error.
Improper Medicaid planning can be potentially devastating but with the right mix of estate planning and reinvestment of assets, a Medicaid applicant can preserve a substantial amount of their wealth. Proper Medicaid planning is especially important for a married couple.
Nicholas A. Beis is happy to assist families with their Medicaid planning need. Call 708-482-709 to make an appointment.