Preserving your assets while qualifying for Medicaid

As I noted in a previous column, approximately 50 percent of seniors have their nursing home care paid for by Medicaid. Unlike Medicare (which only pays for up to 100 days of nursing home care), Medicaid is not an entitlement program, and recipients are disqualified unless they can demonstrate income below a certain level and ownership of assets below a certain amount. However, the rules that apply to Medicaid assistance enable seniors to retain significant assets through careful planning. As an example, let us take the hypothetical case of John Smith.

John is 83 years old, recently diagnosed with Alzheimer's and is in need of a skilled nursing care facility. John owns a house valued at $250,000. The value of the house exceeds the $2,000 asset limit imposed by Medicaid. However, Medicaid does not consider the family home a "countable asset." Therefore, ownership of the house does not disqualify John from receiving Medicaid assistance for nursing home care. This is true even if John is no longer living in the house, as long as he claims to have an intent to return to the house at some time in the future, and even if the intent is unrealistic. But, upon John's death, Medicaid will have the right to recoup, from the equity in the house, the payments that Medicaid has made for John's nursing home care.

Now let us add to this hypothetical the assumption that John Smith is married to Sally Smith. Assume that Sally in 79 years old and in good health. Prior to entering the nursing home, John Smith conveys all title to the house to Sally Smith. What is the effect of this transaction? You may recall from previous columns that asset transfers normally are subject to a five-year "look back" period which triggers a Medicaid disqualification period. However, transfers of property to a spouse are exempt from this penalty provision. Therefore, upon John's death, Medicaid will not be able to recoup any payments from the equity in the house.

Now let's assume that John owns two old trucks valued at $10,000 each. Medicaid allows only one motor vehicle as part of the "non-countable" assets. However, if John sells the two trucks and buys a new truck worth $20,000, he is no longer disqualified. In fact, John could own a $250,000 Lamborghini and would not be disqualified from receiving Medicaid assistance. Ownership of one car is permitted, regardless of value.

The Medicaid rules are not always logical or consistent. However, these are the rules that Elder Law attorneys have to deal with in assisting clients facing expensive nursing home care.

James Bendell practices law at the Grupp Law Firm in Coeur d'Alene and is a member of the National Academy of Elder Law Attorneys.