“How can you do Medicaid Planning?” That was the question my lunch guest fired at me not long ago. “It’s gotta be illegal to hide assets or at least immoral to pretend to be broke just to get Medicaid benefits!” she finished. Whoa, that was loaded question, but shows an incomplete understanding of the benefit itself and the planning process. Let me share with you the thoughts I conveyed to her.
The first thing to know is that it is not illegal to do Medicaid Planning. It is illegal to “hide” assets and hiding assets will land you in prison. So first things first. What is Medicaid Planning and isn’t it really just hiding assets? Medicaid Planning involves any effort a person makes to take advantage of the Medicaid long term care benefit. The Medicaid rules allow us to do a number of things that fall into this term – Medicaid Planning.
A person facing the need to skilled nursing (which can cost as much as $10,000 or more a month) can do the following: prepay a funeral plan that will cover the costs (an incidental costs) of a funeral; purchase a new car; make improvements to the residence; and/or purchase a Medicaid qualifying annuity. These are not all of the possibilities, but are some of the more common. Notice that none of these involves “hiding” assets.
You probably know someone that gave away all of their assets and then qualified for Medicaid. Isn’t this “hiding” assets? Well, if done correctly, no it’s not hiding assets. Let me explain. On the Medicaid claim form, there’s a question asking about any assets you gave away in the last five years. If you have made gifts to your children or others, I suppose you could lie on this form and answer, “No.” This is absolutely illegal and most assuredly immoral. Lying on this form can get you sentenced to time in prison. Don’t do it! Ever!
So, then how did your friend give away part of his or her estate and still qualify for Medicaid. It is possible to do it. It just needs to be done in the right process. One thing to keep in mind is that the form only wants to know if you gave away assets within the last five years. If you gave away assets more than five years ago, Medicaid doesn’t care. It doesn’t matter. If they don’t ask, you don’t need to tell them.
Well, is that “hiding” assets? I suppose you could look at it that way. But, since Medicaid doesn’t care about gifts made more than five years ago, it’s at the very least “legal asset hiding” and is of no consequence. You have permission to do it.
What if I made substantial gifts within the previous five years? It is critical then to answer the question on the claim form about gifts by saying, “Yes”, meaning you did make some gifts within the last five years. If you otherwise qualify for Medicaid (except for the gift) Medicaid will let you know this by impose a “penalty” which is really a period of time that Medicaid won’t pay for your care. This penalty period is determined by how much you’ve give away divided by the average cost of one month’s skilled nursing care in Idaho. Right now that is $7396. So if your gifts total $73,000 in value, Medicaid would divide that amount $74,000 by the $7396 and come up with 9.9 months of penalty, rounded up to 10. So after 10 months, Medicaid would make monthly payments to help cover your care.
So in answer to my lunch companion, hiding assets from the governments is never a good idea and could get you prosecuted for fraud. However, there are planning techniques that are not hiding assets and are allowed by Medicaid. Next blog, I’ll discuss whether or not Medicaid Planning is ethical or moral.
At Idaho Estate Planning, we understand the challenges faced by elder Americans and their families. We have resources throughout the Treasure Valley, experts in the field of Elder Care & Planning. We have the experience and expertise to help you maintain your options and protect yourself as well as your loved ones now and into the future. Remember, good planning is no accident.