Florida medicaid asset protection is the process where someone uses legal tools to maximize their Medicaid benefits while still protecting their income and assets. Long term care insurance premiums have increased substantially, and in many markets commercial long term care insurance is unavailable from any insurance company. At the same the cost of care is also increasing. Qualified and affordable caregivers are in demand. As a result of these market trends many more people will have to rely on federally funding Medicaid long term care to provide care during later life in the event of physical or mental disability.
Qualifying for Medicaid is more complicated the qualification for tradition government programs like social security and Medicare. There are numerous qualification standards and complicated Medicaid regulations.
Applicants for Medicaid first must be either U.S. citizens or lawfully admitted non-citizens (such as “green card” holders). The applicant must be a resident in the state from which he is seeking Medicaid coverage. Medicaid is a federal program but it is administered by states. Each state has their own specific Medicaid regulations and coverage guidelines. To receive Medicaid assistance the applicant must be “elderly”, “blind”, or “disabled.” People 65 years of age or older are considered elderly. Blindness and disability are defined by federal Social Security Income regulations. To apply in Florida, an applicant must evidence the “intent” to reside in the state
After an applicant meets residency, medical, and age criteria, the applicant then has to qualify for Medicaid under income limits and asset qualifications. Income eligibility refers to the applicant’s periodic income from all sources. Income limits are set by the state where the applicant resides and is submitting his application. Some states require only that the applicant’s income be below the prevailing cost of private care. Other states set numerical income caps.
An applicant that qualifies for Medicaid and enters a nursing home care facility must share his income with the facility providing care. First, the applicant may retain money for personal needs in an amount not less than $45 per month. The applicant may also keep income to pay health insurance premiums and including prescription drug and supplemental medical coverage. Also, as described below, the applicant can pay money to support a spouse who remains living independently in the community, often in the couple’s homestead property. In Medicaid terminology, the spouse receiving care is referred to as the “Institutionalized Spouse” or “IS” and the spouse still living at home is referred to as the “Community Spouse” or “CS”.
Each Medicaid applicant may be allowed to keep some of his income to continue to support his spouse depending upon state regulations. Each state has Minimum Monthly Maintenance Needs Allowance (“MMMNA”) for the Community Spouse. The state MMMNA must be at least 150% of the federal poverty allowance but it may be higher. The MMMNA determines whether the CS is able to receive some or all of the IS’s periodic income.
An IS must pay to the facility providing care, as his “patient liability” or “cost share” all his periodic income less allowable personal expenses and the income allocation to a spouse under the state’s MMMNA.
Next, after determining a Medicaid applicant’s income eligibility the Medicaid program also evaluates the applicant’s resource, or asset, eligibility. An applicant may retain certain assets, but all other assets must be liquidated and applied to pay the cost of care.
Some assets are Medicaid exempt, meaning that they are not counted in computing asset eligibility. An applicant may keep exempt assets even though he received Medicaid assistance to pay for long term care.
The most important exempt asset is the applicant’s homestead. Homestead property is exempt from Medicaid in Florida regardless of house value. A property is considered exempt homestead in Florida even after the applicant moves to a long-term care facility if either his CS lives in the home or if the applicant expresses an intent to return to his home at some point in time. Income producing property is also exempt if the applicant shows that the net income is necessary for the applicant’s support.
An applicant’s primary vehicle is exempt regardless of value. Household furniture and personal effects are exempt Burial assets such as prepaid burial contracts are exempt if set up under applicable Medicaid requirements. Burial plots and money held in a burial trust may be exempt.
If the applicant owns a business, business property and the shares in the business are exempt if the business proceeds are necessary to support the applicant.
Assets in the sole name of a CS are not counted toward asset eligibility and need not be liquidated to pay for care.
There is a separate class of assets that are referred to as the applicant’s “unavailable assets.” Unavailable assets are counted in evaluating whether the applicant is above asset thresholds and therefore must apply assets to pay for care, but these assets are not available for liquidation. Certain annuities in Florida are unavailable asset where the annuity meets certain Medicaid guidelines. For example, the applicant may not retain the right to surrender the annuity for case and the annuity must name the spouse or the applicant’s estate as the death beneficiary. Money transferred to an irrevocable trust is unavailable if the trust is not payable to the applicant or spouse.
Many people want to arrange their assets in advance to increase prospect of qualifying for Medicaid. This process is referred to as “Medicaid planning.” The goal is to protect assets for the family and use Medicaid benefits to the maximum amount possible to pay for long term care, if needed.
The first planning option is “spending down” assets. A person may spend whatever money he wants on consumable activities and items such as travel and entertainment. Money can also be spent down to acquire or improve an exempt asset. An applicant can spend down his assets to improve his homestead. An applicant can spend money to buy a new and expensive vehicle before applying for Medicaid. The problem with spending down assets is that once spent the assets are lost for the applicant and his family as well as being unavailable to pay the applicant’s care liability portion.
Most people’s first choice is, rather than spend away assets, transfer or gift assets to or for the benefit of other family members. In this way, the family can protect the assets from Medicaid but also preserve the assets for the family.
Changes in Medicaid law have made it difficult to transfer or gift away non-exempt assets in anticipation of a Medicaid application. Generally, all transfers of assets within five years of applying for Medicaid are considered “Divestments” and are penalized. Transfers made in exchange for receipt of fair market value are not divestments. As an example, the sale of the applicant’s car or marketable securities to third parties at market price is not considered a divestment of assets in anticipation of Medicaid eligibility.
The five-year period is commonly referred to as the “look back” period. Divestments are penalized through a reduction in the award of Medicaid benefit that the applicant would otherwise be entitled to receive under the applicable financial regulation. The amount of the penalty is calculated by a formula that considers the fair market value of the divested asset, the time the divestment occurred, and the average daily cost of private care in the area where the applicant resides. The penalty assessment increases the applicant’s cost sharing liability.
The assessment of a divestment penalty stars when the applicant applies for Medicaid benefits and when he meets financial eligibility but for the divestment. If the government assesses a divestment penalty the Applicant has rights to appeal on any of several grounds. For example, the applicant may contest the value of the divested asset and amount of divestment or the applicant may challenge the penalty calculation under the applicable formula.
Attorneys may assist clients’ Medicaid planning and eligibility by helping the client form trust agreements that protect assets from the government and preserve assets to improve the applicant’s standard of living during his period of care. There are two general types of trusts that provide Medicaid asset protection: (1 )third party trusts with special needs provisions and (2)self-settled trust commonly referred to as “Medicaid trusts.”
A “third party trust” refers to an estate planning trust set up by someone other than the Medicaid applicant for the benefit of the Medicaid applicant whom is usually a person who anticipates reliance on Medicaid. Often, the trust beneficiary is already receiving some government disability benefits at the time the trust agreement is drafted. . Typically, this type of trust is established as part of a parent or grandparent’s revocable living estate planning trust that retains in trust the applicant’s share of an inheritance. The trustmaker and grantor of the trust includes what is referred to as a “special needs provision.” This provision states generally that the trust will not distribute any income or principal in an manner or amount that would diminish or delay the beneficiary’s eligibility for government disability benefits such as Medicaid.
A “first party trust” is a trust established by the applicant for his own benefit and funded primarily with his own assets before applying for Medicaid. These first party trusts, or “Medicaid Trusts” are designed to protect income and assets from the government and the providing special needs facility during the time the trustmaker is receiving Medicaid benefits. The trust assets and income can be used to improve the lifestyle of the disabled person while he is in the facility and receiving Medicaid payments. For instance, the trust money can be used to pay for a private room or for personal care and entertainment. If the assets and income were not held in trust they would be subject to the disabled person’s patient liability. Any assets in the trust when the dies or is otherwise no long receiving benefits must be paid back to the governments of any and all states up to the total amounts the states paid on behalf of the individual. All money in trust must be paid back other than tax liability and administration expenses of dissolving the trust.
There are several specific requirements of a valid Medicaid Trust. For example, the trustmaker must be under age 65 when he establishes the trust. The trust must be irrevocable and not subject to amendment; it cannot be terminated during the beneficiary’s lifetime. The trust beneficiary must be “disabled” as defined by Social Security Administration for eligibility for Supplemental Security Income (“SSI”) programs for the aged and the disabled. Most important, the Medicaid Trust must be created and administered for the “sole benefit” of the disabled recipient. The trust cannot provide under any circumstances for benefits to any other person or entity during the disabled person’s lifetime. (except the state upon death).
A person’s transfers of assets to an irrevocable Medicaid trusts is a transfer or gift subject to the look back provision. Transfers within the five-year look-back period are divestments that will incur penalty of benefit reduction. It is sometimes better to absorb penalty benefit reduction if the result is protecting assets during a potentially longer-term disability.
Medicaid planning is most effective if done early and specifically at least five years before a person needs to submit a Medicaid application. However, many people neglect to plan or they simply cannot anticipate an event that results in their disability and Medicaid need. Many other people reasonably believe they have sufficient assets or insurance to pay for long term care but when they suffer disability their assets have decreased or they find that their insurance benefits are inadequate. These people find themselves in a disability and Medicaid crises situation. They look for legal help to minimize the amount of assets and income they will need to give up receiving ongoing Medicaid benefits.
There are steps people can take to protect assets in a disability crisis when outright asset divestment will result in substantial benefit penalties. One practical strategy is to improve the applicant’s principal residence when the applicant will seek homestead protection. The applicant can spend money to complete necessary repairs and maintenance on their existing home. They can add value to the home with substantial remodeling of their primary rooms including the kitchen, master bath, and master bedroom. Trading in their existing vehicle for an upgraded new car is also a viable way to protect assets as the applicant’s vehicle is not a countable asset. The applicant is not required to drive the car if someone uses the car to provide the applicant transportation. Since furniture and other personal property in the home is not considered a Medicaid asset the applicant can buy new furniture for the home, or he could buy himself comfortable furniture to move with him in to the care facility.
Paying expenses that are due is not considered a divestment within the five years look back period. An applicant may pay of his mortgages, pay off credit cards, and pay any other loans or notes due to individual or banks. Make sure that you are paying current debt obligations. Money used to prepay a debt that has not accrued could be considered an available resource subject to state recoupment.
Burial plans and money to pay for burial related expenses are not Medicaid assets. An applicant may buy a prepaid burial plan for himself, his spouse, and his children in order to spend down assets. He can also set up an irrevocable trust to hold assets available in the future to pay for burial and funeral expenses.
Creating and funding a special needs Medicaid trust shortly before making an application for Medicaid will result in benefit penalties. However, a Medicaid trust can still protect assets after the penalty period expires, and therefore, the last-minute Medicaid trust may still be part of planning for unexpected nursing home liability.