We often see clients who come into our office to do emergency asset protection planning for loved ones. Our clients are usually pleasantly surprised to learn that there are plans that can be implemented successfully, even at the eleventh hour. Our clients are even more surprised to realize that some of the things they have heard regarding elder law planning are, in fact, entirely false. The purpose of this article is to dispel some of these false notions.
First, asset transfers (gifts) between spouses are exempt from Medicaid transfer penalty rules. There is absolutely no waiting period imposed when one spouse transfers all or a part of his/her assets to the healthy spouse in order to obtain Medicaid coverage. One client recently was told that her husband could transfer his joint assets to her, but she would have to wait three years after such point before he could apply for Medicaid nursing home benefits for her. That information was completely incorrect and could have resulted in a significant monetary loss to the client.
Second, in the context of nursing home coverage, Medicaid currently has a five-year look back period (which is being phased in) for any uncompensated transfers (i.e., gifts) made by an applicant (or the applicant’s spouse). People erroneously think that regardless of the amount of a gift, that the applicant will not be eligible for nursing home Medicaid coverage for five years.
In actuality, the period of ineligibility depends on the amount that is gifted, and further, when the gift was made. For example, if a New York City resident transfers $50,000, the period of ineligibility will only be five months, not five years. The period of ineligibility is determined by dividing the amount gifted by the average monthly cost of a nursing home. According to figures promulgated by Medicaid and updated annually, the current regional nursing home rate for New York City is $9,636, and for Nassau and Suffolk Counties is $10,555. According, Medicaid looks at the amount transferred ($50,000) and that number is divided by the regional rate in order to arrive at the period of ineligibility.
Third, our clients are also delighted to learn that under current Medicaid rules, there is no penalty imposed on gifts if they are seeking Community Medicaid. For example, if an elderly woman requires a home health care attendant, she can transfer her assets in excess of $13,050 (the current Medicaid asset level) out of her name and apply for Community Medicaid in the following month.
She will be required to submit three months of bank statements as part of the application process, but she will not be penalized for any transfers. One should be aware, however, that the income level for a Medicaid applicant is $725, meaning that any monthly income in excess of this amount will have to be applied to the applicant’s care unless a pooled trust arrangement is established to permit the use of so-called “surplus income.”
Fourth, clients often believe that their retirement accounts are treated the same as their other assets. The Medicaid rule provides that retirement accounts owned by the applicant and/or his/her spouse, are exempt as long as they are in payout status. Accordingly, it is not necessary for a Medicaid applicant to liquidate or transfer an IRA or a qualified annuity, and such assets can remain in the applicant’s name, provided that they are in pay out status. Most IRAs automatically go into payout status when the holder turns the age of 70 1/2 years to comply with required minimum distribution rules.
Fifth, many clients are under the notion that the $12,000 annual exclusion for gift tax purposes are exempt gifts for Medicaid purposes. This is simply not true. Although an individual can gift up to $12,000 per person per calendar year without any gift tax ramifications, these gifts will be counted for Medicaid nursing home eligibility purposes.
Hopefully this article is a helpful guide to the misinformed. I cannot emphasize enough the importance of seeking professional assistance and guidance when dealing with long-term care issues. Medicaid’s rules and regulations are complex and there are many idiosyncrasies that must be handled by a knowledgeable professional.
Ronald Fatoullah & Associates is highly recognized throughout the New York area for their expertise and outstanding services in the areas of elder law and estate planning. Ronald Fatoullah is proud to have been selected as one of New York Magazine’s “Best Lawyers” for three consecutive years in the fields of elder law, trusts & estates, and he is the legal advisor to this magazine. This article was written with the assistance of Stacy Meshnick, Esq., senior staff attorney and Medicaid supervisor at the firm. To reach Ronald Fatoullah & Associates please call: 718-261-1700 or 1-877-Elder Law.
