The asset and income restrictions on Medicaid benefits are what bring a great many people to an elder law attorney. The applicant meets the age, citizenship and other basic requirements for Medicaid benefits, but they nevertheless can’t be immediately qualified because of the limitations on what an applicant can own or earn while receiving Medicaid benefits. So, what are these limitations?
Generally, Medicaid applicants are limited to $2,000 in countable assets. Moreover, if the applicant is married, the applicant’s spouse (who may not be going to live in a long-term care facility) is limited to $119,220 in countable assets for the year 2015. If both spouses need Medicaid, their asset limit is $3,000 total or $1,500 each.
And there’s another problem. With certain exceptions, if the applicant has transferred property or funds in the past five years, that property or those funds are counted in the Medicaid application. The idea of the look-back period is to prevent people from hiding assets or income in order to qualify for Medicaid (in other words, to ensure that Medicaid is only paying for people to have nursing home care if they truly need it). However, for those who did not foresee a need for long-term care, this provision can be a major hurdle when seeking long-term care.
An applicant must disclose transfers of assets or income made during the look-back period if the transfer was for less than fair market value or was a gift. Any transfer for less than fair market value or an uncompensated transfer is presumed to be for the purpose of becoming eligible for Medicaid, and can be counted against the applicant as a penalty. Transfers that occurred more than five years before the application is completed will not be counted against the applicant.
Penalties for transfers are calculated as a function of the average cost of a nursing home in the State of Florida. For example, assume the applicant gifted $15,990 in funds or property to a grandchild within five years before the application was submitted. The average cost of a nursing home in the State of Florida is $7,995 per month. Therefore, $15,990 divided by $7,995 equals 2. In this example, the applicant will be penalized two months, and will not qualify for Medicaid benefits until the penalty period is complete.
An average person or couple has a home, cars and various other property that they accumulate in everyday life. The average value of such assets will easily exceed $2,000 in value, and typically will range between $300,000 and $700,000 for middle income couples and retirees. Do the Medicaid limits mean that mom or dad will lose everything to get the care they need in a nursing home or assisted living facility? Fortunately, various asset exemptions exist to allow applicants to keep some or all of their assets.
- Homestead: The homestead, with contiguous acreage, is exempt up to $552,00 in value (for 2015) as long as the applicant intends to return home or the applicant’s spouse continues to reside in the home. Verification of intent to return home may or may not be required.
- Personal Property: Applicants may keep one wedding band and an engagement ring. Generally, all personal property is exempt as long as it does not include valuable assets such as art, jewelry, or collectibles.
- Motor Vehicles: One car of any age, and any motor vehicle that is seven years old or older is exempt. Cars modified for use by a handicapped individual are exempt as well.
- Life Insurance: All life insurance policies with a combined face value of $2,500 or less MAY be exempt if a separate burial fund has not been established. Life insurance policies are also exempt if they are term policies or they have no face value. If a policy exceeds the asset limit, the applicant may cash it in or borrow against it.
- Burial Fund: The applicant (and spouse if there is one) may have a burial fund in the amount of $2,500 if a life insurance policy has not been designated as the burial fund.
- Burial Plan: Burial plans are exempt in any amount.
- Income Producing Property: Income producing property is exempt as an asset if it meets certain criteria. This exemption is significant in a state like Florida, with a great many vacation condos and beach homes. However, income received from the property counts as income (discussed below).
- Unavailable Real Property: Real property can be unavailable for many reasons. For example, if it is jointly owned with a third party and the third party refuses to sell the property, it is considered unavailable.
- Annuities: Although income received from the annuity would count as an asset, the principal or annuitized amount is exempt.
- IRAs and 401ks: May be exempt if the applicant is receiving their required minimum distributions. The principal of the accounts is exempt as an asset but the minimum distributions will count toward the applicant’s income.
If a person has property or funds that do not fall within these exemptions, various tactics may be utilized to preserve the property or funds. A personal services contract may be created to ensure care by a relative and thereby isolate funds, an irrevocable non-assignable annuity can be purchased, or funds may be used to improve the homestead and thereby funds can be merged with the homestead exemption discussed above. Each case is different but you and your attorney can decide the best course given your individual circumstances. The key is to plan early to avoid disqualification under the five year look-back period.
To Qualify for Medicaid benefits an applicant’s gross income must be less than the income cap. The income cap is three times the Federal Benefit Rate, which for 2015 is $733. Therefore, the total income cap for 2015 is $2,199. However, even if the applicant earns more than the cap, an elder law attorney can establish a Qualified Income Trust (QIT) to defeat this limitation. A QIT is a trust that holds the applicant’s income. At the applicant’s death, the State of Florida will be paid the balance of the funds remaining in the QIT up to the amount of the Medicaid lien (the amount owed for long-term care services). Any remaining amount can then be disbursed to the beneficiaries of the QIT. QITs must be approved by an attorney from the Department of Children and Families (DCF), which oversees the Medicaid program.
Estate Recovery Rules
Under Florida law, the State of Florida may recover from the estate of the deceased applicant the amount the State paid for medical services on behalf of the applicant. A Statement of Claim is filed in the applicant’s probate estate and the State becomes an interested party in the probate proceedings. The debt is discharged after two years if no claim is filed.
If you are considering your options in filing for Medicaid benefits, or are concerned about financing long-term care for a loved one, consult with an elder law attorney about your options. Even if you are not actively seeking Medicaid qualification, early planning for that contingency is crucial.
Next, we will discuss Medicaid planning through trusts to secure and protect assets.