Avoiding the Medicaid Lien

Avoiding Losses from the Medicaid Lien

No one wants to lose their estate or assets because they have to go into a nursing home or assisted living facility. But it happens all the time in this country because people fail to plan. In this blog we’ll discuss how do you prevent your estate and assets from being taken by Medicaid Estate Recovery, also known as the Medicaid lien. But first, let’s talk about Medicaid qualifications for spouses and all the different “allowances” that you can take.

Community Spouse Resource Allowance

If one spouse needs to go into a nursing home, what is the amount of property or assets that the other spouse is allowed to keep? Some assets are exempt which include a vehicle, $10,000 of life insurance, and your house. In the State of Georgia, your IRA and 401k are considered exempt assets.

Non-exempt assets include CDs, checking accounts, brokerage accounts, stocks, and bonds. Those non-exempt assets cannot exceed $148,620. And unlike the individual resource allowance which remains at $2,000 per month, the Community Spouse Resource Allowance increases each year depending on the rules that DFACS sets.

The Medicaid income cap for someone going into a nursing home is $2,720 per month. If your income exceeds that, you cannot qualify for Medicaid here in Georgia. The general rule is that each spouse has their own income and they are not combined for Medicaid qualification purposes.

So what do you do if your income is above this limit? We can use something called a Qualified Income Trust that allows you to put all your income into the trust. This allows you to qualify for Medicaid even though your income is above the $2,720 limit. But you have to be a little careful with these trusts. You can’t have money directly deposited into the trust. It has to come through your checking account and then into the trust.

Monthly Maintenance Needs Allowance

The Monthly Maintenance Needs Allowance allows you to protect your spouse if you need nursing home care. Currently the Monthly Maintenance Needs Allowance is $3,715. Let use an example to explain how this works.

My income is $2,600 per month and my wife’s income is $1,000 per month. If I need Medicaid to pay for nursing home care, my wife would lose my $2,600 per month of income because that money would now go to the nursing home. But the Monthly Maintenance Needs Allowance allows you to combine both your assets, bringing you to $3,600 per month.

This amount is less than the Monthly Maintenance Needs Allowance of $3,715, so my wife is going to be okay if I need nursing home care. She won’t be left penniless or put into poverty if I unfortunately have to go into nursing home. Do not under any circumstances allow your spouse to become impoverished if you need nursing home care. It doesn’t have to happen.

Nursing homes often forget about the Monthly Maintenance Needs Allowance. As a result they’d want you to spend your $2,600 of income for your care and make your wife live on $1,000 a month. That’s not how the law works here in Georgia and Florida. If you live in a different state, please consult an expert there for options.

Medicaid Eligibility

The assets counted towards Medicaid eligibility requirements vary by state, but we’ll discuss the Georgia rules here. We’ll start with the assets that are excluded, because that’s a shorter list. Those include burial space items, a cemetery lot, a fund set aside for burial, life insurance policies less than $10,000 that are designated for burial, and sometimes life estates. Your home, household goods, promissory notes, and an automobile are also not included.

But everything else is included. Checking accounts, savings accounts, stocks, bonds, gold, silver, coin collections, real estate that’s not your home — all those are considered for Medicaid eligibility. Recall from the example above that income is considered separate between spouses, but assets are not. If you and your wife each own a separate bank account, those bank accounts are counted together for Medicaid eligibility.

You may think you’re exempt from this combining of assets if you have a prenuptial agreement that says everything is separate between you and your spouse. But Medicaid doesn’t care about your prenuptial agreement. If one of you has to go into a nursing home, your assets are going to be counted together.

We had a similar issue recently with a client in a nearby small town. The husband was disabled and had dementia. He entered into a facility and was trying to get qualified for Medicaid. However, the wife’s children had taken custody of her and refused to provide any kind of information regarding assets. We had a really difficult time trying to get him qualified. They eventually gave us all the information we needed, but it was tough.

Asset Ownership

If either spouse has ownership interest in an otherwise non-exempt asset, it’s counted for either of their Medicaid eligibility purposes. Ownership interest can exist in various types and forms. The type and form of the ownership can affect the value of the property and even its status as a resource. This is why you have to be so careful when titling assets.

If you have real estate and it’s fee simple, meaning you own the whole ball of wax, the entire equity of that real estate is counted. If you have a vacation home, the entire value of that property would be counted. Remember that your homestead is not counted, but any additional homes are counted.

If something is held tenancy in common, Medicaid will consider your share of the equity. Let’s say you own a vacation home with your brother 50/50. In this case 50% of that asset would be counted towards your eligibility. If you only owned 20% of the property, that’s the percentage that would be considered by Medicaid.

If something is held joint tenancy or tenancy with rights of survivorship, the ownership interest is divided equally amongst the partners for Medicaid purposes. If it’s a husband and wife, then 100% would be counted towards Medicaid eligibility. But if you had joint ownership of a property with three other siblings, Medicaid would only consider 25% of the equity to be yours.

The Medicaid Lien

So why should you be worried about all this asset stuff when it comes to applying for Medicaid? We’re worried about it because of this pesky little thing called the Medicaid Lien, also known as Medicaid Estate Recovery. This is part of a Federal program and it was started in Georgia in 2006. Beginning in 2006, the State of Georgia can use my estate to recover any money that was paid for a Medicaid applicant.

They usually limit the Medicaid lien process to estates valued at $25,000 or more. When a Medicaid recipient passes, they’ll send a letter to the executor asking what that person owned at the time of their death. The Medicaid lien can be used on anyone who receives Medicaid assistance in a nursing home or care facility, regardless of their age. It can be used to liquidate your real estate and other assets. But there are ways to plan so that the Medicaid lien doesn’t take your entire estate. If you haven’t planned, you need to start planning now.

There are some exceptions to the Medicaid lien for estate recovery. Once the letter is received (usually around 60 days after death), you’ll have the opportunity to notify the State that you fit within these exceptions. If you’re the surviving spouse, you are exempt from the Medicaid lien while you’re alive. They can’t take your house if you’re still living there. If there are children under 21 years of age in the home, that’s an exception to the Medicaid lien. If any children in the home are blind or permanently disabled, this is an exception as well. In these cases the Medicaid lien and recovery are delayed.

Using a Trust to Prevent the Medicaid Lien

But our goal is to make sure your assets are never subject to the Medicaid lien. If you start planning early, you can protect your assets from estate recovery via the Medicaid lien. One way to do that is with a trust. We do have to consider the 5 year look back period in all this planning. This is why we have to start planning early to account for that 5 year period.

An irrevocable trust is a trust that you can’t change and a great tool against the Medicaid lien. Living trusts or revocable trusts are not going to help you avoid the Medicaid lien, but irrevocable trusts can. We just need to make sure that we get your assets into the trust 5 years before you’d need to apply for Medicaid. Trusts can be tricky, but we do them every day for our clients.

Contact Us So We Can Help!

If you need assistance with asset protection, estate planning, or Medicaid qualification, complete this form or give us a call at (229) 226-8183. If you’d like to see this blog in video format, you can watch it below. Please be sure to SUBSCRIBE to our YouTube channel and click the bell notification button so that you’re notified each time we publish a new video.