Asset Preservation & Estate Recovery

Asset preservation and Medicaid planning are important considerations for individuals who anticipate the need for long-term care and wish to qualify for Medicaid while protecting their assets. However, it’s essential to understand the rules and considerations, including Medicaid estate recovery, when it comes to asset preservation. Here’s an overview:

1. Asset Preservation Strategies:

a. Medicaid-Compliant Trusts: Irrevocable trusts, such as the Medicaid Asset Protection Trust (MAPT), can be used to transfer assets out of your name, making them exempt from Medicaid’s asset calculations after a specific waiting period. These assets are protected from Medicaid estate recovery. This strategy requires some advanced notice to work effectively.

b. Spousal Protections: Federal and state laws provide protections for the spouse of a Medicaid applicant, allowing the well spouse to retain a portion of the couple’s assets and income. This prevents the impoverishment of the well spouse while the other spouse receives Medicaid benefits. There is no penalty for moving assets into the spouse’s name only.

c. Exempt Assets: Certain assets are considered exempt, including a primary residence, personal belongings, a single vehicle, prepaid burial plans, and other items. These exempt assets are not counted toward Medicaid eligibility.

d. Conversion of Countable Assets: Individuals may convert countable assets into non-countable assets. For example, using excess assets to make home modifications, pay off debt, or purchase allowable items can reduce countable assets.

e. Gift and Transfer Planning: While transferring assets can lead to a penalty period during the Medicaid look-back period, some gifting and transfer strategies can be used strategically to preserve assets. For example, gifts to a spouse, disabled child, or establishing a Medicaid-compliant annuity may be options in certain cases.

2. Medicaid Estate Recovery:

a. Definition: Medicaid estate recovery is a process through which Medicaid attempts to recoup some or all of the costs of care provided to a Medicaid recipient. After the Medicaid recipient passes away, the state may place a lien on the individual’s estate, which may include the primary residence and other assets. We often say that Medicaid does not give you money, they lend it to you and want to be paid back after the applicant dies.

b. Exempt Assets: Some assets are exempt from Medicaid estate recovery, such as the primary residence if a spouse or other qualified individuals live there, personal belongings, and assets held in an irrevocable trust. Generally, in Florida, the home of the Medicaid recipient is exempt from Medicaid if it is distributed to the spouse or a family member.

c. Deferral and Exemptions: In some cases, states offer deferral or exemptions from estate recovery for certain individuals, particularly if there is a surviving spouse, a dependent child, or a disabled family member living in the Medicaid recipient’s home.

d. Planning for Estate Recovery: Proper planning can minimize the impact of Medicaid estate recovery. Strategies include using life estates or qualified personal residence trusts (QPRTs) to protect the home, ensuring the proper titling of assets, and establishing trusts that prevent the assets from becoming part of the probate estate.

Asset preservation while using Medicaid to pay for long-term care requires careful planning and adherence to legal guidelines. It’s crucial to seek professional advice to ensure your strategy aligns with your goals and complies with Medicaid regulations in your state.

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