Planning for the possibility of needing long-term care (nursing home, assisted living, in-home care, etc.) almost always includes planning to become eligible for institutional Medicaid.
In simplest terms, Medicaid is a government program for poor people. Poverty in the context of institutional Medicaid, which is the type of Medicaid explained in this column (in contrast to Medicaid that pays for otherwise healthy people’s medicine and doctor’s visits), is defined broadly as having less than $2,000 in total assets and not having given anything away in the immediately preceding five years to become that poor. Medicaid has multiple other requirements, like an income requirement, that can be planned around and seldom cause issues for eligibility if an applicant is working with an attorney experienced in this legal field.
The problem in our region is that most people have assets worth more than $2,000. Technically, all assets a person owns count toward the $2,000 limit, but practically speaking, household goods, food, wedding rings and clothes are considered to have no/minimal value.
You would think that it would not be that difficult to get poor. However, getting poor in the right fashion can avoid tax traps for kids and loved ones and empower those who are getting poor. There are three primary ways to get “poor” for purposes of Medicaid eligibility.
First, a person can give away what the person has. This works well except that once a gift is given away, the giver no longer has that gift. If that gift might be needed for living independent from long-term care (i.e. life outside the nursing home), giving away ownership gives away control/use. And, giving away stocks, bonds and real estate may miss a chance to minimize/eliminate capital gains tax when heirs/other loved ones someday sell those assets.
Of course, this creates a classic Catch-22: keep these assets to avoid/minimize capital gains or give these away assets to be eligible for Medicaid. The two following poverty planning methods attempt to get the best of both worlds.
Second, for real estate, Medicaid laws allow a person to keep a “life estate” interest (like a life lease) in real estate and not have that real estate count as “available” for purposes of Medicaid. There are specific, demanding rules and detailed methods for this strategy to work, and there are downsides, including liens on the real estate after the giver dies.
Third, people can sometimes use a Medicaid Trust (a set of rules), which includes specific rules that straddle the line of making assets “unavailable” for Medicaid but “owned” by the trust creator per the IRS. This win-win tool also requires precise, professional assistance.
LLCs do not provide Medicaid protection but are sometimes used with the poverty-planning strategies above to organize gift getters.
Of course, these tools work five years in advance of needing Medicaid. Future columns will discuss the methods of preserving assets if the planning was not or could not have been done at least five years in advance of needing long-term care.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.
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October 30, 2021 at 08:00PM
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Legal-Ease: Proper ways to get “poor” to save on nursing home care - LimaOhio.com
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