Medicaid is a federal program, administered by the states, which was initially designed to pay health care costs for needy individuals. Over the years it has become a more widely used program, covering the high cost of nursing home and home care services so that one does not have to use all of one’s own resources. In order to be eligible, one must meet the income and asset limits. New York is a generous state, and even if you are above the income limits, you may be eligible for some assistance. That is not the case with assets–if you are above the limit, you do not qualify. There are a variety of planning tools available to help one become eligible for medicaid even if one has more assets than are permitted. In short, one needs to “get rid of” one’s assets.
While getting assets out of one’s name seems like a relatively simple task, there are various tax and legal implications of doing so. The tax laws permit one to make gifts of up to $16,000 per person per year, but such gifts have implications for medicaid eligibility. Any transfer of assets for less than fair market value is considered a transfer by Medicaid and is subject to a 5 year penalty month period (30 months for home care services), regardless of the circumstances. One technique, if there is a spouse involved, is for the well spouse to sign a document refusing to financially support the spouse who needs care. While it is a valid technique, it should be used only in emergency situations, as the State retains the right to sue the well spouse for the monies it pays for the care of the other spouse.
The best way to become eligible for Medicaid is to engage in planning far in advance of one needing long-term care, and to do so with the help of a qualified professional, rather than relying on friends, family, and neighbors for advice. Transferring assets outright to one’s children or other family members can be dangerous if the person you have transferred assets to dies, gets divorced, or is the subject of a lawsuit. It also obviously means that you no longer have access to those assets if you should need them. The better alternative is to create a medicaid trust and transfer the assets to the trust, so you can at least receive the income from the assets and avoid the problems associated with outright transfers. One of the best assets to transfer is the family home, since it is not a resource relied on for financial support.
In summary, in order to protect and preserve one’s assets, it is important to plan in advance with the guidance of an experienced attorney.
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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.