Retaining Assets While Being Medicaid Eligible

Medicaid is a program with strict income and wealth limits to qualify, explains Kiplinger’s recent article entitled “You Can Keep Some Assets While Qualifying for Medicaid. Here’s How.” This is a different program from Medicare, the national health insurance program for people 65 and over that largely doesn’t cover long-term care. In this system, clients often have a goal of retaining assets while being Medicaid eligible.

If you can afford your own care, you’ll have more options because all facilities (depending on the level of medical care) don’t take Medicaid. Even so, couples with ample savings may deplete all their wealth for the other spouse to pay for a long stay in a nursing home. However, you can save some assets for a spouse and qualify for Medicaid using strategies from an Elder Law or Medicaid Planning Attorney.

You can allocate as much as $3,259.50 of your monthly income to a spouse, whose income isn’t considered, and still satisfy the Medicaid limit. Your countable assets must be $2,000 or less, with a spouse allowed to keep half of what you both own up to $130,380. Countable assets include things like cash, bank accounts, real estate other than a primary residence, and investments.  However, you can keep a personal residence, personal belongings (like clothes and home appliances), one vehicle (2 for married couple), engagement and wedding rings and a prepaid burial plot.  There are more detailed rules for countable and exempt assets, but suffice it to say most things count.

If you have too much income over the $2,382 income per month for the application, you can use a Miller Trust aka Qualified Income Trust for yourself, which is an irrevocable trust that’s used exclusively to satisfy Medicaid’s income threshold. If your income from Social Security, pensions and other sources is higher than Medicaid’s limit but not enough to pay for nursing home care, the excess income can go into a Miller Trust. This allows you to qualify for Medicaid, while keeping some extra money in the trust for your own care. The funds can be used for items that Medicare doesn’t cover.

However, your spouse may not have enough to live on. You could boost a spouse’s income with a Medicaid-compliant annuity. These turn your savings into a stream of future retirement income for you and your spouse and don’t count as an asset. You can purchase an annuity at any time, but to be Medicaid compliant, the annuity payments must begin right away with the state named as the beneficiary after you and your spouse pass away.

These strategies are designed for retaining assets while being Medicaid eligible for married couples; leaving an asset to other heirs is more difficult. Once you and your spouse pass away, the state government must recover Medicaid costs from your estate, when possible. This may be through a a claim on your probate estate (usually means the house) before assets go to heirs, reimbursement from a Miller Trust or other items.  That is a topic unto itself, albeit an important one, so see here for more information on Medicaid recovery.  https://www.galliganmanning.com/protect-assets-from-medicaid-recovery/

Note that any assets given away within five years of a Medicaid application date still count toward eligibility. Property transferred to heirs earlier than that is okay. One strategy is to create an irrevocable trust on behalf of your children and transfer property that way. You will lose control of the trust’s assets, so your heirs should be willing to help you out financially, if you need it.

Reference: Kiplinger (May 24, 2021) “You Can Keep Some Assets While Qualifying for Medicaid. Here’s How”

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Protecting Money from a Child’s Divorce

Families with concerns about a child’s marriage are often interested in protecting money from a child’s divorce.   This often arises in situations where a parent wishes to give away assets to her children and grandchildren.  Giving assets directly to a child with an unstable marriage can put those assets in jeopardy, and this problem can be solved with the use of estate planning strategies, according to the article “Husband should keep inheritance in separate account” from The Reporter.

Everything a spouse earns while married is considered community property or marital property in most states.  However, a gift or inheritance is usually considered separate property or separate from the marriage, which is articulated differently depending on what state you are in.  If the gift or inheritance is not kept totally separate, that protection can be easily lost.

An inheritance or gift should not only be kept in a separate account from the spouse, but it might be a good idea to keep it at an entirely different financial institution. Since accounts within financial institutions are usually accessed online, it would be very easy for a spouse to gain access to an account, since they have likely already arranged for access to all accounts.

No other assets should be placed into this separate account, or the separation of the account will be lost and some or all of the inheritance or gift will be considered belonging to both spouses.  There may be other considerations about the income generated by that money, but check with your local estate planning attorney on that issue.

The problem comes when the money from the gift or inheritance is mixed or commingled with the other assets of the marriage.  Depending on what the assets are, they might be able to be untangled.  More likely, the mixing will “poison the well” and make all of it subject to the divorce.  Here is another issue: if the child does not believe that the spouse is a problem or if the child is being pressured by the spouse to put the money into a joint account, they may need some help from a family member to ensure protecting the money from the child’s divorce.

This “help” comes in the form of the parent putting the gift or inheritance in an irrevocable trust.  Everyone concerned with protecting money from a child’s divorce should consider one.

This trust will keep the money separate and will be administered under its terms.  The trust can benefit the child, but will keep the money owned by the trust from being commingled and therefore, separate property.  That way, if they divorce later, the money in the trust is protected.  Many clients love this option and include it as part of their estate plan, especially as trusts of this type have similar benefits with the child’s creditors.

The best solution is for the parent to meet with an estate planning attorney who can work with her on protecting the money from the child’s divorce.

People often attempt to find simple workarounds to complex estate planning issues, and these DIY solutions usually backfire. It is smarter to speak with an experienced attorney, who can help both parent and child in protecting the money from a child’s divorce.

Reference: The Reporter (Dec. 20, 2020) “Husband should keep inheritance in separate account”

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