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Five Myths And Half Truths About Medicaid Planning

You hear many stories about other families’ experiences dealing with long-term care for their loved ones. Just thinking about paying for nursing home care or other long-term care is scary. Actually dealing with these issues for a family member is confusing because the entire system is very complicated. It is very difficult for anyone to get a clear picture of the system when they are immersed in it. As a result, much of what you hear second hand is a combination of truth and opinion that can be hard to sort out. Here are some major misunderstandings that we see frequently:


Changing Ownership On Accounts Helps Qualify For Government Benefits. The application for government benefits completely ignores the ownership of assets within the family. If the either the family member receiving long-term care or their spouse own an asset in any way the entire asset will be included for purposes of determining eligibility. Thus, at the time of the application it does not matter whether assets are jointly owned by husband and wife or titled only in the name of either spouse. It is also irrelevant if a child’s name is included on an asset.

However, after a husband or wife is qualified for government benefits the name on accounts does become important. The State reviews cases every year. At the time of the annual review the State will expect all assets to be transferred out of the name of the spouse living in the assisted living facility or nursing home. Thus, changing the name on accounts helps maintain benefits you already have, but it does not help qualify for the benefits in the first place. If someone has limited time and energy caring for a family member and dealing with long-term care issues, they can generally save the time and energy that would be required to change ownership on accounts.


Dealing In Cash Helps. People frequently feel that cash held in a safe or safe deposit box offers flexibility and security. Often people believe that paying for things in cash or making cash gifts is better than writing checks because it does not leave a paper trail when they apply for government benefits. However, dealing in cash actually complicates things more than it helps. Initially, there are proven and accepted non-cash ways to accomplish almost any purpose while planning for Medicaid benefits. Thus, doing things in cash does not create an advantage.

More importantly, the Medicaid application includes questions that are specifically designed to force disclosure of cash and cash transactions. The lack of a paper trail with cash dealings only creates more pressure when it comes time to complete the application. It there is any temptation to gloss over details because things were done in cash, you need to keep in mind that failure to answer the cash questions accurately is fraud that is subject to criminal prosecution. There is no point in jumping out of the frying pan and into the fire by translating a purely financial issue into a criminal problem.


The Government Will Take Your Home. It is one of the great fears in long-term care planning that the government will take your home before you can qualify for Medicaid benefits. Another version of this statement is that the nursing home will take someone’s home if they receive long-term care. No matter how you state it, the bottom line is that nobody will take your home.

A nursing home or assisted living facility will send a monthly bill for the care that they provide. Nothing tells you how to pay that bill. In some cases where a family’s money has run down the family may have decided to sell the house so that they could continue to pay the bills. However, that is the family’s decision and the nursing home or assisted living facility does not get involved.

The government’s only involvement is to give people money to pays nursing home or assisted living bills. They essentially pay bills for people. In some cases the eligibility rules say that the payments do not start if there is a house in the picture. The family may choose to sell the house in order to qualify for benefits. However, the government does not do anything to someone’s house. The family is always in charge of what happens to the house and when.


Giving Away Assets Makes You Eligible For Government Benefits. Most people do not meet the asset limits for Medicaid benefits. The common story is that families give their assets to their children so that the assets they own fit under the government rules. However, gifts to children actually disqualify a family form government benefits.

Any transfer that is not a purchase for full value or payment or a legitimate pre-existing debt will make the transferring person ineligible for Medicaid. This rule is so absolute that it includes contributions to church and gifts to help pay education costs for children and grandchildren. In days gone by the penalties on many of these gifts was relatively small, so people ignored the cost. Thus, while people like to talk about giving assets to their children as an effective strategy, the real story is that these families were lucky to pay a penalty that they did not find too expensive.

Under current rules the penalties for gifts are higher and it is much, much more difficult to avoid them. As the cost of gifts has risen, it has become impossible to follow the same advice as family and friends received just 3 or 5 years ago. If a family makes gifts today they have to step very carefully and expect a different result than other families in the past.


A Person Cannot Qualify For Medicaid If They Have More Than $2,000. The Medicaid program has asset limits. A person must get under those limits in order to receive benefits. The rules explaining those limits and describing what fits under the limits are intricate and complicated. Naturally, everyone wants to simplify things and come up with a handy rule of thumb.

The “$2,000” figure is a half-truth. It is essentially most restrictive number that could apply to someone who wants to become eligible for Medicaid. People use it when the talk about Medicaid for a number of reasons. It is easy to remember and, because it is the lowest possible number, you would be guaranteed to qualify if you hit that target. Also, people are generally very negative about the government, so it is easy to believe something so depressing.

The whole truth is that the $2,000 figure really only applies to single people who apply for Medicaid. Married couples have an entirely different set of rules that are much, much more friendly. In addition, the $2,000 rule is not the only rule that applies. There are many other exemptions for other assets. More importantly, there are other rules that allow families to protect and preserve assets. The $2,000 figure probably holds true if a family does absolutely no planning and does absolutely nothing try to protect assets. Seeking help from a qualified attorney and advisor almost always gets a better result.

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