Medicaid Myths and Misconceptions
by Eric M. Schorr
With skyrocketing costs of assisted living options, more people are turning to Medicaid to help fund long-term care. But Medicaid rules are complex and confusing. Here are some common misconceptions, and what you need to know:
I WON’T QUALIFY FOR MEDICAID IF I OWN MORE THAN $2,000.
False. In order to be Medicaid eligible, you cannot own more than $2,000 in “countable resources.” You can, however, own much more than that in “non-countable resources”, which include, among other things, up to $550,000 of equity in your home, an automobile of any value, household furniture and furnishings, a pre-paid burial plan, and any assets of any value held in a Special Needs Trust.
TRANSFERRING ASSETS TO MY CHILDREN IS A GOOD WAY TO QUALIFY FOR MEDICAID.
False. This is bad advice for several reasons. First, assets transferred within sixty months of applying for Medicaid are deemed “count resources.” Second, although your children may promise to care for you, as costs mount and your capacity diminishes, their intentions could change. Also, if your children are sued, those assets may be seized. Third, from a tax standpoint, if you give assets to your children during your lifetime, your children acquire your cost basis, but if assets are transferred at your death, they will have a “stepped-up” basis.
IF I APPLY FOR MEDICAID WITHIN 5 YEARS OF MAKING A TRANSFER, THE GOVERNMENT WILL TRY TO GET THE MONEY BACK.
False. If you apply for Medicaid benefits within 60 months of making a transfer, you may be deemed ineligible for benefits, but the government will not seek to revoke the transfer or seize the transferred assets.
I CANNOT APPLY FOR MEDICAID WITHIN FIVE YEARS OF MAKING A GIFT.
False. The five year look-back has nothing to do with the penalty. A penalty is calculated by dividing the value of the assets gifted by the State Medicaid Divisor. This calculation results in a number of months for which you would be ineligible for Medicaid.
I DON’T NEED TO DISCLOSE ASSETS TO MEDICAID IF I AM NOT REPORTING INCOME FROM THOSE ASSETS ON MY INCOME TAX.
False. Unfortunately, we frequently see clients who are advised to withhold information on the Medicaid application in hopes of qualifying for benefits. Regardless of whether the asset generates income or gains reportable to the IRS (tax-deferred annuities or EE bonds, for example), failure to disclose such assets to Medicaid is a crime subject to a term of imprisonment. Don’t risk it – disclose everything!
THERE IS NO HURRY TO BEGIN YOUR MEDICAID PLANNING.
Medicaid planning is time sensitive. Planning early provides more options and flexibility. As the time for applying for benefits draws closer, some windows close and options become limited and more difficult to implement. You should always seek the advice of an experienced elder law attorney before making any transfers.
This article was originally published in Senior Living Magazine.