Florida medicaid planning is the process where people arrange their assets and reduce income in advance to increase the prospect of qualifying for Medicaid and increase their Medicaid benefits. The goal of Florida medicaid planning is to protect assets for the family and use Medicaid benefits to the maximum amount possible to pay for long-term care, if needed. People in need of Medicaid planning—and their families—often work with a Medicaid planning lawyer to help develop and implement a Medicaid plan.
Long-term care insurance premiums have increased substantially, and in many markets commercial long-term care policies are unavailable. At the same time, the cost of care is rapidly increasing. In Florida, government agency statistics state that long-term care costs an average of approximately $8,600 each month. Qualified and affordable caregivers are hard to find. As a result, many people have to rely on federally funded Medicaid long-term care assistance to provide care during later life in the event of physical or mental disability. Medicaid has become the fundamental and most common nursing home insurance program for the country’s middle class.
Medicaid vs. Medicare
Do not confuse Medicaid long-term care coverage with the more inclusive health insurance program known as Medicare. Although their names are similar, Medicaid and Medicare are very different. Medicare is a health insurance “entitlement” program established in 1966. Medicare health insurance is available for all individuals 65 years and older who have paid into the system as well as certain younger people with disabilities. Medicaid, on the other hand, is a need-based program designed to help disabled individuals who lack the financial resources to pay for their own care. Medicaid provides both medical care and long term skilled nursing care in in an assisted living facility, also known as a SNF, for individuals who show financial need and medical necessity.
There is another important difference between Medicare and Medicaid. Medicare is totally federally funded and federally administered. Medicaid is a joint program between the federal government and separate state programs. Federal funding typically covers about half of state funding requirements. Florida, and every other state, administers Medicaid in their respective states. The Florida Medicaid program must still conform to many federal requirements for the state to receive federal Medicaid funds. Medicaid eligibility rules and benefits differ from state to state, and the rules in each state, including Florida, frequently change.
Adding to the confusion between the two programs is the fact that Medicare covers some care at a skilled nursing facility, but not long-term nursing care. Medicare covers up to 100 days of residency at an SNF after a three-day hospital stay when a doctor orders that skilled nursing care or physical therapy is required. Medicare also covers some home care if ordered by a physician. Specifically, Medicare covers the full cost of the first 20 days of nursing care, and it also covers days 21-100 less a daily co-pay amount. Privately sold and administered Medicare supplement insurance may cover the nursing home deductible or co-pay requirements.
When a patient requires longer term nursing care (beyond Medicare’s 100-day limit), Medicaid is the insurance and payment source of last resort for many in this country. Qualifying for Medicaid in Florida is more complicated than qualification for traditional government programs like Social Security and Medicare. There are numerous qualification standards and complicated Medicaid regulations. There are federal regulations applicable to all Medicaid recipients, and then there are Florida state regulations. The first, and most obvious federal Medicaid requirement is that the Medicaid applicant is “disabled.” A disabled person, according to the Social Security Administration is a person who is over the age of 65, blind, or unable to do any substantial gainful activity due to severe physical or mental impairments that will result in death or which have lasted for more than one year will continue for not less than one year. People under the age of 65 may receive Medicaid long-term care benefits if they require a SNF and they also meet the definition of “disability” established by the Social Security Administration. The government pays income to disabled people in the form of Supplemental Security Income (“SSI”). Any receiving SSI because of a disability meets the requirement for Medicaid. People over the age of 65 are eligible for Medicaid if they need long-term nursing care and an appropriate placement as determined by the Florida Department of Elder Affairs. People over 65 do not have to be physically or mentally disabled as long as they require SNF care.
All Medicaid applicants must prove that that they are U.S. citizens or a lawfully admitted alien. They must also show that they reside in Florida and intend to remain in Florida as their domicile. After an applicant meets residency, medical, and age criteria, the applicant then must 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 where the applicant resides and is submitting his application. There are also limits on how much assets a person and his spouse may have in order for an applicant to receive Medicaid assistance.
Florida Medicaid Planning Options
Medicaid planning involves strategically arranging assets and income to meet Florida state requirements on medicaid eligibility.
The general Florida medicaid planning strategies are:
- Spending down assets by purchasing replacement assets that are not counted toward Medicaid asset limits. Examples are homestead improvements, cars, and burial contracts.
- Transferring assets to a spouse who is unlikely to need long term care.
- Transferring assets to children more than five years prior to Medicaid application.
- Establishing a Medicaid qualifying income trust (also called a “Miller Trust”) and holding income that exceeds Medicaid income limits in the trust.
Medicaid eligibility is subject to federal and Florida state regulated income and asset limits. A person whose income or assets exceed the limits are ineligible for Medicaid’s long-term care insurance. A person currently receiving SSI is automatically qualified for Medicaid assistance in an SNF, but other elderly people often seek planning strategies to try to adjust their finances within Medicaid eligibility criteria. A Florida Medicaid trust or a qualified income can allow an applicant to shield some assets and income while still receiving long-term care.
When people see that they have too much wealth to qualify for Medicaid’s long-term care, their initial impulse is often to transfer their assets to family members, typically a spouse or child. Some transfers are permissible and do not affect Medicaid eligibility or the amount of Medicaid benefits. For instance, asset transfers to the applicant’s spouse are permissible notwithstanding that assets of both spouses are included in a Medicaid application. Transfers of assets to a minor child who is blind or disabled and transfers to a special needs trust for the benefit of a disabled adult under the age of 65 are also permissible. An applicant may, without penalty or other consequence, transfer his homestead to his sibling who has an equity interest in the home or to a caregiver who has lived with the applicant in the home for the past two years if the caregiver’s services has delayed the applicant’s institutionalization.
Almost all other transfers within five years of a Medicaid application are presumed to have been divestitures of assets made with the intent to qualify the transferor for Medicaid. The five-year period is commonly referred to as the Medicaid “look-back period.” The period is calculated starting back from the date of the Medicaid application. Divestiture of assets within the look-back period made with the intent to achieve Medicaid eligibility will result in a penalty reduction in Medicaid benefits.
The legal presumption that penalizes asset transfers within the look-back period may be rebutted if facts show that there was a benign intent behind the transfer. Evidence of the applicant’s benign intent include the applicant’s medical and cognitive condition at the time of the transfer, the clear and definitive purpose of the gift other than divestiture of assets, and a pattern of past gifts and transfers. For example, an applicant may be able to avoid penalty if he gave a child the down payment on the child’s house when the applicant was healthy or if the applicant gave money to a charity after having established a pattern of annual charitable giving.
The legal concept of “transfer” in Medicaid law is more complicated than it may appear. For one, the definition and scope of transfers are very broad. Transfers include direct transfers such as transfers to third parties by property deed or conveyance of money by writing a check. The transfer concept also includes indirect conveyances such as a parent adding a child’s name to a parent’s bank account to avoid probate of the account at death or for the parent’s convenience of care during the parent’s lifetime. Giving a child a future interest in any asset is also an asset transfer. Any change to one’s assets within the look-back period could be deemed a transfer that can reduce Medicaid benefits.
On the other hand, asset transfers are a Medicaid issue only when they are gratuitous, meaning the transfers are intended to be a gift. A person often transfers assets during a sale to an unrelated party where the buyer exchanges money equal to the asset’s fair market value. Even a transfer to an applicant’s family member is not a divestiture if the applicant can demonstrate his receipt of money or assets of equivalent value for the transferred asset.
The amount of the penalty is based upon the value of assets transferred. The Medicaid penalty is generally calculated by dividing the value of the transferred asset by the average monthly cost of full nursing home care in the applicant’s jurisdiction. In Florida, the average monthly cost of care is approximately $8,350 (2016). The mathematical result is the number of months of imposed Medicaid ineligibility. For example, an applicant’s divestiture of an asset worth $16,700 might result in a two-month penalty of benefits. ($16,700 / $8,350 = 2). The penalty is calculated in days, so there may be partial months in a penalty period.
Any non-exempt divestiture of assets within the five-year look back period will result in a Medicaid penalty regardless of when the transfer occurred. Older transfers, relatively closer to the five-year look back limit, are not treated more leniently than transfers made just prior to Medicaid application. It is important to understand that the application of the Medicaid penalty begins at the time of “eligibility” rather than the time of benefit “application.” This means that if an unpermitted divestiture is discovered upon filing an application, the penalty period will not begin until the applicant spends down his assets to the point he becomes otherwise eligible to receive Medicaid long-term care assistance.
If the government assesses a divestment penalty, an 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.
Sometimes transfers make sense even within the five-year look back period despite penalization. For example, a divestiture within five years is advisable if the applicant is likely to need long-term care more than the five-year period and the applicant has sufficient exempt assets to privately pay for care during the anticipated benefit penalty assessment.
This discussion illustrates the complexity of Florida Medicaid planning and potential pitfalls in transferring wealth to family members when there is a potential need for Medicaid assistance with long-term care. The above discussion does not address all the detailed rules that affect Medicaid eligibility. Many families make expensive mistakes when trying to decipher and implement all applicable regulations. Remember that often the professional fees paid for expert advice are part of money that inevitably must be spent down to qualify for benefits.
There are concerns other than benefit penalties when gifting assets to achieve Medicaid eligibility. Even transfers prior to the look-back period have risks. Some people will make qualifying transfers to their children with the understanding that the children will return or use the gifted assets for the parent’s future care if needed. Bear in mind that once you give money to your children, the money belongs to them—you cannot legally obligate them to hold the money for your benefit. The gifted assets are legally vulnerable if the child gets sued. A judgment creditor can execute upon these assets once they are accepted in the child’s name notwithstanding the source of the assets or the mutual intent of you and your child. For example, a child’s creditor may garnish your account after you added your child as a joint owner.
Transfers can also have tax consequences for your children. If you give your children assets like stocks or real estate that have appreciated in value, the children will not get the stepped-up tax basis they otherwise would get if they were to receive them after your death. The result is that when they sell the property using your transferred gift tax basis they will have to pay a much higher tax than they would have if they had inherited it with a stepped-up basis.
Spousal Transfers and Spousal Refusal
The general rule is that transfers by the Medicaid applicant to their community spouse are exempt transfers regardless of the time of transfer. An applicant may therefore transfer unlimited amounts of his assets to his spouse within five years of his Medicaid eligibility or before. There are consequences for spousal transfers to consider. First, if the community spouse also applies for Medicaid long-term care, the assets previously received from the institutionalized spouse might disqualify the community spouse from Medicaid assistance. Second, federal Medicaid rules limit the amount of community spouse assets, which is known as the Community Spouse Resource Allowance. The allowance varies by state. In Florida, the amount is approximately $120,000. Therefore, an applicant’s transfers of his own assets to a community spouse, although not impermissible asset divestitures, may cause the community spouse’s assets to exceed the resource allowance.
There is a possible work-around for Medicaid planning in Florida. In two states, New York and Florida, a community spouse can keep their assets regardless of their total value by simply refusing to support the institutionalized spouse. This regulation is known as “just say no” or “spousal refusal.” Under this law, if a community spouse refuses to contribute their income or resources toward the cost of care for the Medicaid applicant, the Medicaid agency is required to determine the applicant’s eligibility sole on the applicant’s own income and resources, as if the community spouse did not exist. Florida has issued a specific form to notice a community spouse’s refusal of support, and the form is usually filed with the Medicaid application.
A required condition of the community spouse refusal is the assignment to the state the right to recover from the community spouse the additional amount of state paid benefits. This means that the state of Florida could sue the community spouse to recover the increased Medicaid benefits paid to the institutionalized spouse because of the community spouse’s support refusal. As a practical matter, the State rarely pursues collection from the community spouse. When it does seek collection, the lawsuits are often settled for significantly less than the amount of the State’s additional cost of care. Also, a settlement may defer payment until the community spouse’s death so there is no impact on the community spouse’s lifestyle. Despite the potential risk, the spousal refusal is a viable planning option in many cases. Also understand that further spousal transfers are prohibited after the filing of the “just say no” notice.
Part of Florida Medicaid planning often involves caregiver agreements and contracts. Florida Medicaid regulations permit an applicant to pay someone a reasonable lump sum of money (usually a family member such as an adult child) in exchange for the family member’s obligation to provide necessary services related to the applicant’s daily living in a skilled nursing facility. Caregiving services include such things as driving the patient to appointments, attending care plan meetings at the nursing facility, and handling the patient’s legal and financial affairs. The family caregiver does not have to live close to the facility as many care services can be competently provided from a distance. Payment to the family member may be made in advance of services in a lump sum payment.
The amount of money an applicant can transfer to a prospective family caregiver under a personal care contract is not unlimited. The lump sum payment must be reasonable given the patient’s life expectancy, the services provided, the caregiver’s qualification, and the customary costs of care in the area. Family member caregivers should keep a record of their time and the services provided. Lump sum care payments cannot be made to compensate caregivers for prior services to the patient as those services are usually deemed to have been donated for love and affection.
Personal care contracts work best if they are entered into well before the applicant is facing long-term care costs and needs. Using the personal care contract in advance will lock in higher life expectancy rates which allows the applicant to transfer a greater amount of the Medicaid applicant’s assets without penalty as part of the lump sum care payments. The contract can be drafted so that services will be provided if and when needed. The caregiver contract may provide that payment is due upon the applicant’s demand so that the applicant does not actually have to make the lump sum transfer of assets until just before he applies for Medicaid.
The personal services contract must be in writing, and it must meet certain legal requirements in order to be valid and enforceable. The services provided cannot duplicate those services being provided by the nursing facility, and the contract terms must provide that payment to the caregiver is irrevocable (if not, the money will be a resource available to the applicant). Personal service agreements may be challenged by a Medicaid agency in Florida unless they include reasonable terms and are competently expressed in an enforceable legal contract.
Furthermore, personal services contracts for Medicaid planning involved legal issues other than Medicaid eligibility. For example, the applicant’s payment in exchange for future care services will likely be taxable income to the caregiver. Also, payment to one child caregiver may raise estate planning issues because payment of a significant sum to one child would be inconsistent with an estate plan that otherwise intended for several children to inherit equally.
Florida Medicaid Asset Protection
Medicaid asset protection is the process of protecting your assets against what Florida can recover from Medicaid benefits it pays on behalf of the Medicaid applicant. Federal law and Florida law provide that the amount of money that Florida Medicaid pays on behalf of the Medicaid patient is a loan and not a gift or entitlement. The applicable law requires that the State of Florida recover from the recipient’s estate after death all Medicaid paid for the recipient’s long-term care when the patient was over age 55. Medicaid will not enforce the debt recovery when the recipient is survived by a spouse or a blind or disabled child.
In Florida, Medicaid agencies can recover this debt only from assets which are part of the recipient’s “probate estate.” However, Florida law also permits any creditor to access assets titled in a revocable living trust if probate assets are insufficient to pay valid creditor claims, including Medicaid claims. Living trusts, therefore, do not avoid Medicaid recovery.
Not all assets are subject to state recovery. A Medicaid’s recipient’s estate consists of all property titled in the decedent’s name except for certain priority claims and exempt assets. Funeral costs and expenses of estate administration, such as legal and accountant fees, are priority claims which must be paid ahead of Medicaid or any other creditor’s claim. After the priority claims are paid, Medicaid’s debt must be satisfied next before any other creditors or heirs receive non-exempt property. The most important exempt in Florida asset is the decedent’s homestead property. In most cases, the Medicaid recipient’s most valuable asset at death will be his home. The Florida Constitution exempts a resident’s homestead from all creditor claims, and a Florida homestead passes to a decedent’s heirs outside of the probate claims and debt collection process. Medicaid, just like any other creditor, cannot force the sale of the Medicaid recipient’s home to recover Medicaid long-term care payments. For this reason, a family should avoid selling the Medicaid recipient’s homestead unless the recipient has first liquidated non-exempt assets to pay for his cost sharing responsibility. Any non-homestead real property owned by the decedent is a non-exempt probate asset and could be liquidated to pay Medicaid and other junior creditors.
Florida’s probate laws include procedures to make sure Medicaid is aware of the death of a benefit recipient. When a Florida decedent is over 55 years of age at death, his personal representative and the probate estate’s elder law attorney must send a notice of the death to the Florida Agency for Health Care Administration. The Agency will determine whether the State has a claim for Medicaid benefits, and if so, the Agency will file a claim with the probate court.
A personal representative of a deceased Medicaid recipient may request that Florida waive recovery based on hardship for the decedent’s surviving family. A hardship waiver is made by filing a Request for Hardship Waiver form with Florida’s Medicaid Estate Recovery Program office. Hardship waivers will not be granted just to provide heirs an inheritance. To qualify for a hardship waiver, the personal representative must provide the Agency evidence that the State’s pursuit of a recovery would deprive heirs of food, clothing, shelter, or medical care reasonably necessary to maintain their own life or health. The Agency may also consider whether the heirs requesting hardship waiver themselves provided full-time care of the decedent which delayed their entry into a nursing facility and which reduced the amount of Medicaid benefits paid.
Learn More About:
Florida Medicaid Trust: A Florida Medicaid trust is a Medicaid planning technique to reduce a future applicant’s assets so that the individual can qualify for Medicaid and still enjoy the use and ultimate distribution of those assets.
Medicaid Eligibility: Medicaid eligibility in Florida depends on asset limits and income limits. An individual can receive Medicaid assistance if the applicant does not exceed the applicable Medicaid income and asset limits.
Florida Medicaid Law: What do you do if you or a family member needs medical care now but has too much income or too many non-exempt assets? There are still some last-minute Medicaid planning techniques you may be able to do.
Frequently Asked Medicaid Questions: Answers to some common questions asked by our Medicaid clients in Florida.