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How to Save OVER $100,000 Through Medicaid Planning

Posted by Noah Sarkauskas | Oct 06, 2021 | 0 Comments

Nursing home costs are expensive and add up quickly. Within a short period of time, an entire life's savings can be depleted by paying for the cost of a stay in a nursing home. With proper planning, however, substantial value may be able to be preserved and passed along. Here is an example of how to save over $100,000 through active Medicaid Planning.

Mary has a Savings Account worth $75,000 and an Investment Account worth $150,000. Mary will be requiring nursing home care starting next month. Nursing home expenses are $10,000 per month. Since Mary did not previously buy Long-Term Care Insurance, Mary will have to cover the costs out-of-pocket. Mary will have to pay out of the savings account and liquidate the investment account to pay for nursing care. In less than 2 years, Mary will be completely out of money.

Medicaid Planning

Medicaid is administered by states, according to federal requirements. State rules may vary. For example, in Wisconsin, the Medicaid rules are structured so that once you have less than $2,000 in assets, Medicaid will pay for a required nursing home stay. Now that Mary is out of money, public benefits will pay for Mary's nursing home care.

Most people struggle with the concept of seeing their entire life's savings depleted very quickly. They would prefer to transfer those assets to their children, family members, friends, or donate that money to charity, rather than seeing the money depleted.

Medicaid Divestment Penalty

The easy solution seems to be to give away all your assets to drop below the $2,000 asset limit and qualify for Medicaid. It is not that easy.

Medicaid will not allow you to gift away all your assets and immediately qualify for Medicaid benefits. When gifting assets, Medicaid imposes a divestment penalty, causing an ineligibility period for Medicaid -- time that must pass before public benefits will pay for nursing home expenses. The larger the value of the gift made, the longer the ineligibility period.

The ineligibility period only starts counting down when you apply for Medicaid, and you would be otherwise eligible if the ineligibility period did not exist. If you give away assets, Medicaid will pay for your nursing home expenses once your assets are below the asset limit and the ineligibility period has passed.

At the time of this article, in Wisconsin, for every $303.38 given away, one day of Medicaid ineligibility is assessed. If Mary were to give away all her money, then apply for Medicaid, she would be ineligible for 2 years after applying and must find funds to pay for nursing home expenses.

Medicaid Planning Solution

Here's one possible way to solve this issue. Again, there are different rules in different states, so be sure you talk to a professional.

Mary has a total of $225,000. Mary splits the money into 2 different pieces: one that Mary keeps and turns into a stream of income and one that Mary gives away to her family, friends, or charity.

In this example, Mary converts $118,000 to a stream of monthly income. Income is treated differently than assets and do not count towards the Medicaid asset limit in Wisconsin. Mary receives the money back in equal payments over 12 months as income. We will discuss what Mary does with this cash flow in just a bit.
Mary also gives away the remaining $107,000, either to individuals or to a special type of trust -- an irrevocable trust. We believe an irrevocable trust is generally a better option for numerous reasons, which we will discuss in a separate article.

So, at this point, Mary has no money remaining. She has gifted $107,000 to family, friends, or a trust and has spent $118,000 to acquire a monthly income stream.

Giving away money is considered a gift, causing a divestment period where Mary is ineligible for Medicaid benefits for a period of time. In Mary's scenario, a gift of $107,000 will cause an ineligibility period of 352 days.

Applying for Medicaid

Now that Mary has less than $2,000, Mary can apply for Medicaid. Mary will be assessed an ineligibility period due to the $107,000 gift. However, the ineligibility period will now start counting down and Mary will be eligible for coverage at the end of the 352-day ineligibility period.

During the ineligibility period Mary will use the monthly income stream to pay the nursing home expenses. That stream of income will expire the same time as Mary's ineligibility period, leaving Mary with less than $2,000 during the ineligibility period and when the ineligibility period ends. At the end of the ineligibility period, the income stream will stop, and Medicaid will cover Mary's nursing home expenses.

Saving $107,000 with Medicaid Planning

Meanwhile, the assets that are set aside in the trust or gifted to individuals are saved. They are not subject to being spent on nursing home expenses. Rather than spending $225,000 on nursing home expenses and having the entire value of the assets depleted, $107,000 were able to be passed on.

Medicaid planning and Medicaid applications are complicated, precise, and vary state to state. One mistake can be very costly.

Contact one of our attorneys at our Wisconsin (414-253-8500), Minnesota (612-204-2300), or California (310-438-4020) locations to make sure your assets are properly protected or for more information on a Trust, Will, Life Estate, Medicaid Planning, or Estate Planning.

About the Author

Noah Sarkauskas

Bringing technology, automation, machine learning, and a systematic approach to the legal world, Noah Sarkauskas is making the legal field significantly more efficient. Noah leverages technology to complete your legal work in a significantly quicker and more time-efficient matter while simultaneo...

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