Medicaid penalty period

The Medicaid Five Year Rule Regarding the Transfer of Resources for Less than Fair Market Value

Many people understand the general rule that if you own more than $2,000 of assets (there are definitions of "assets") when you enter a nursing home, then you will not be eligible for Medicaid, and you must privately pay the entire nursing home expense, which in every state is many thousands of dollars monthly.

However, most people, if they must enter a nursing home for long term care services, would prefer to have Medicaid cover this expense, rather than have to pay for it out of their own life savings. But in order to qualify for Medicaid, you have to meet your state's definition of "poor."

For starters, when you enter a nursing home and apply for Medicaid, you can have no more than $2,000 of countable resources. Countable resources include things like money in the bank, investments, savings bonds, retirement accounts, real estate (not your home), and interests in a business or LLC.

Some uneducated folks think they can get around this rule by "quietly" transferring assets out of their name just prior to going into a nursing home. But the Medicaid Manual's rules are quite extensive - making it impossible to get around the rules.

When one enters a nursing home having transferred assets out of their name at least 60 months prior to applying for Medicaid, then it is likely that those assets are, as people say, "protected."

It's much trickier if assets are transferred within the 60 months prior to entering a nursing home.

If you are considering transferring assets to start the five-year clock ticking, you'll likely consider whether you should transfer assets to individuals or trusts. Most people who get educated on the subject tend to transfer assets to particular types of trusts, for two reasons: (1) control reasons; and (2) tax reasons (income tax and capital gains tax).

If you take one item away from this discussion, it's that there are rules which make it very difficult to avoid losing your life savings and home if you enter a nursing home, but by planning ahead (ideally, at least five years before entering a nursing home), you can protect a very large portion of what you own for yourself and your loved ones. But know that the rules are complicated and you need good legal help - ideally, from an attorney who is well-versed on the ins and outs of your state's Medicaid eligibility rules.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

Phone: (225) 329-2450

Brother Watches Sister Lose $500,000 to Nursing Home Expenses

I was working with a gentleman recently who came to my office to see me. He had been taking care of his elderly sister's money for the past several years after his sister became ill and needed skilled care.

Over the past several years, the brother had spent more than $500,000 of his sister's life savings on her nursing home expenses. The sister, who started with a life savings of almost three-quarters of a million dollars, was not down to about $200,000. And, the brother told me that the nursing home cost was increasing by about 10% from the previous year.  Years ago. the sister established an estate planning program for other family members. But now that most of the funds had been depleted, the estate planning program won't have much impact on her surviving family members.

We discussed a few options that exist to try to salvage some of her sister's funds: do nothing and she will spend it all; do some transfers and hope that in five years there are still some assets that have been preserved, and a few other legal strategies. But quite frankly, much more would be protected if the estate protection program would have been enacted years ago.

The silver lining behind all of this is that the brother and his wife now have started to create a program to protect the value of their home and their savings for themselves and their children.