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Five Strategies for Protecting Money from Medicaid

Oftentimes, people want to protect their money with the (good) intention of passing it on to family after they pass away. However, due to the eligibility requirements put in place by Medicaid, this is generally impossible to do. This is because Medicaid wants you to spend your money before they will spend their own to help you cover costs of long-term care. If someone tries to gift money or any other assets in an effort to qualify for eligibility, Medicaid will find out during the “look-back” period and then serve the applicant a penalty period—a time in which he or she will be unable to retain eligibility. To try and avoid this, let us now look at some strategies to help families and individuals meet their needs while also protecting their money from Medicaid.

  1. Asset Protection Trusts

This kind of trust does exactly what you think it would, at least on the surface. If created correctly, it can do a variety of other things too. Normally, an asset protection trust is made when someone is initially applying to receive Medicaid benefits, and an applicant can only have a certain amount of money and property in their name in order to qualify.

Applicants can transfer money and property to family and friends, but doing so comes with disadvantages and risks—for example, the possibility that the recipients may incur debts or liabilities that can expose any assets that have been transferred to potentially be collected by a creditor. Also, any low-basis assets, such as a house purchased long ago for much less than the current fair-market value will have the same low basis for those to whom they were left in the trust.

Assets can be given to the same people at your death, but are given a “step up,” as it were, in regard to the fair market value if a trust is used. In doing so, beneficiaries will be able to avoid any capital gains tax on the increased value that trusts assets will accrue while you are alive.

When it is properly designed to account for the protection of assets, a trust, and the assets you put into it, are no longer your own. Because of this, Medicaid cannot touch them and neither can any other creditors. This is also known as a “Medicaid Trust” for this very reason. However, you should know that any transfers you make into a trust—just like those to individual people—are also subjected to the “look-back” period.

If you transfer your home into the trust, you are able to keep the right to live in it for as long as you are alive. If you have any assets that produce income transferred into the trust, you are still able to receive any of that income, but you will have no rights to either withdraw or demand access to the principal after putting it into the trust.

  1. Income Trusts

There is a very strictly enforced limit on income when one applies to receive Medicaid benefits. If a person receives income that exceeds this amount, it is considered to be excess and has to be handled correctly in order to get and keep eligibility for Medicaid. To help with this, you can make use of Qualified Income Trusts (or QITs) and Pooled Income Trusts (PITs). Let’s now quickly look at each of them in more detail.

Qualified Income Trusts

These types of trusts are irrevocable, and are made to hold any excess income an applicant might have when applying for Medicaid benefits. They can also be known by their other name, Miller Trusts, and there are some states that let applicants to spend down on that excess income by using it on their own care so they can meet Medicaid limits. However, there are other states, known as “income cap” states, that do not allow applicants to spend down. These are the states in which a QIT is often useful, and a trustee can be named in order to manage disbursement of any funds for any acceptable expenses.

Pooled Income Trusts

A Pooled Income Trust is also irrevocable, but unlike QITs, these are especially for disabled people. Any extra income they may have is polled altogether and then managed by a non-profit organization that acts as trustee, and disburses any funds on behalf of those for whom the trust was created. It should be known that Pooled Income Trusts are neither an investment or for estate planning purposes. Any unused funds will stay in the trust for charitable purposes.

  1. Private Annuities and Promissory Notes

Many times, older adults can suddenly find themselves in a bit of a pickle, where they might require long-term care, but they’ve just transferred assets or may still be holding a substantial amount of assets. Getting rid of assets during Medicaid’s look-back period will then flag the person for a penalty. The penalty period is calculated by dividing the value of or the amount transferred by the regional monthly rate that Medicaid uses to provide for nursing home care. The end result is a specific period of time (in months) that the person will be ineligible for benefits.

In order to keep as many of the assets as possible while also still qualifying for Medicaid, applicants can make use of a private annuity or promissory note that will allow for a consistent cash flow from the assets that can then be used to pay for care, and shorten the penalty period.


  1. Caregiver Agreement

Creating a caregiver agreement is a good way for a number of elderly people to obtain extra services that they either want or need, but that are not covered by Medicaid and are also outside the realm of possibility for what a nursing home or other long-term care facility or home care company may be able to do.

If there is a family member or other friend who isn’t working or who is taking time away, they are able to provide these services while also receiving an income for doing so. This also allows for the elder to be taken care of by someone he or she knows, which is often preferable. Services are able to be paid for in advance and will legally reduce the number of countable resources the applicant may have.

If the caregiver is paid in advance, there are certain things the agreement must have in order to be accepted by Medicaid. They are:

  • It must define the exact services to be provided by the caregiver and the number of hours worked.
  • The lump-sum payment has to be calculated using a reasonable life expectancy and the legitimate market rates for the services provided.
  • A daily log of services rendered and hours worked must be kept at all times, along with written invoices.
  • When the patient dies, any unearned amounts have to be paid to Medicaid, but no more than the amount Medicaid paid for the patient’s care.
  1. Spousal Transfers and Spousal Refusal

One of the most important facts about Medicaid laws is the fact that transfers between spouses are okay and are not subjected the look-back period. Because of this, they do not incur any type of penalty. One of the more basic strategies among married couples is to simply transfer assets that are already in the name of the spouse that requires care to the one that is well. If the ill spouse is in an institutional setting, like a nursing home, for example, the well spouse may be referred to as the “community spouse,” since he or she still lives in the home.

New York and some other states allow for something known as spousal refusal, in which the community spouse can refuse to provide care for the spouse that needs support. Because of this, the spouse in need of care will automatically be eligible for Medicaid and begin receiving services.

New Jersey, however, is known as a “spousal share” state—in which spousal refusal is not allowed and the resources of both spouses are counted toward eligibility amounts for Medicaid.

If you or someone you love needs assistance with Elder Care law issues, call 856-281-3131. Let us help ease your stress and give you a plan.

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