Medicaid Planning

Medicaid planning is discussed in more detail in subsequent chapters. Planning is the process of restructuring an estate in a legal manner to accelerate Medicaid eligibility. Often, the purpose is to protect the Community Spouse or a disabled child, but it can be done to protect a family inheritance as long as you follow the rules; however, failure to follow the rules can constitute Medicaid fraud unless it is fully disclosed. When planning is done correctly, it has the effect of shifting the cost of nursing home care to someone else (e.g., the Medicaid program or long-term care insurance) before assets are depleted. The net result, if done with the Elder’s best interests in mind, will be a Medicaid-plus package. Medicaid will pay first toward essential care, while family dollars are preserved to pay for additional care and therapy not otherwise provided by Medicaid.

Medicaid Planning is a process. It begins by gathering information about the applicant and the applicant’s income and resources (and, where applicable, those of the Community Spouse). That information is used to analyze options and develop strategies for achieving eligibility within the framework of the program rules. As with a recent tax case, although a federal-State set of rules govrn eligibility, “state law determines the property interests “of applicants. See Drombrowski v. USA (E.D. Mich. 5/18/2022, at PDF p. 6).

One Court, Daley v. Sec. Exec. Office of Health and Human Services, 477 Mass. 188 (2017), decribes Medicaid Planning as follows:

Through “Medicaid planning,” individuals attempt to transfer or otherwise dispose of their assets long before they need long-term care so that, when the need arises, they may satisfy the asset limit and qualify for Medicaid benefits. In essence, the purpose of Medicaid planning is to enable persons whose assets would otherwise render them ineligible for long-term care benefits to become eligible for Medicaid benefits by transferring to their children or other loved ones the assets they would otherwise use to pay for long-term care, shifting to the taxpayers the burden of paying for that care. See generally Cohen, 423 Mass. at 402-403. As a report of the House of Representatives’s committee on energy and commerce declared in 1985, “When affluent individuals use Medicaid qualifying trusts and similar `techniques’ to qualify for the program, they are diverting scarce Federal and State resources from low-income elderly and disabled individuals, and poor women and children.” H.R. Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985), quoted in Cohen, supra at 404.

Congress has imposed two substantial constraints on such Medicaid planning. The first is the so-called “look-back” rule, which imposes a penalty for any asset transfer for less than fair market value made by an individual within five years of the individual’s application for Medicaid benefits. See 42 U.S.C. § 1396p(c)(1)(B)(i). See generally D. Westfall, G.P. Mair, J.R. Buckles, N.M. Oliveira, & W. Murieko, Estate Planning Law & Taxation § 13.05 (2017) (Westfall). In its present form, the “look-back” rule provides that, if such a transfer occurs, the applicant is ineligible for Medicaid benefits for a period of time determined by dividing the value of the transfer by the average monthly cost of the nursing home facility. See 42 U.S.C. § 1396p(c)(1)(E). Thus, if an applicant transfers $100,000 in assets during the look-back period, in a State where the average monthly cost of a nursing home is $10,000, the applicant will be ineligible for Medicaid benefits for ten months. See Westfall, supra.

The second constraint discussed in Daley is the any circumstances test that applies to trusts.

See:

• T. Takacs & D. McGuffey, Medicaid Planning: Can It Be Justified?: Legal and Ethical Implications of Medicaid Planning, 29 William Mitchell Law Review 111 (2002) (pdf file)
• Revisiting the Ethics of Medicaid Planning, with Timothy L. Takacs, CELA, NAELA Quarterly, National Academy of Elder Law Attorneys, Summer 2004. (If you are a NAELA member, you can access the paper on the NAELA Web.) (This paper was awarded the NAELA John Regan Writing Award for best article published in the NAELA Quarterly in 2004.)