Ten Common Misconceptions in Medicaid Planning

TEN COMMON MISCONCEPTIONS IN MEDICAID PLANNING

By Bradley J. Frigon

1.  If I Don't Transfer Assets FIVE Years Before Entering a Nursing Home, I Can't Do it at All.

The five-year rule is a look-back rule. It has nothing to do with when a person enters a nursing home. It has to do with when a person applies for Medicaid. There is a question on the Medicaid application that reads, "Have you transferred any assets to an individual in the last five years?" If a transfer has taken place during that period of time, the five year lookback will apply.  There are legal ways to reduce down the five year lookback period.  Before making any gifts, the family must consult with a Certified Elder Law attorney. 

2.  I Can't Transfer Assets after I Am Already in a Nursing Home.

Again, the same rule applies. Neither the look-back nor the penalty period has anything to do with when a person enters a nursing home. Under the look back rule, all transfers and financial information must be disclosed to the Medicaid agency five years prior to the date of the Medicaid application.  The penalty period is a completely different rule.  The penalty period is calculated by dividing the amount of the transfer by the State Divisor Rate.  For 2023, the State Divisor Rate in Colorado is $9.186.  There are complicated rules on when the penalty period begins.  

3.  To Protect My House I Should Give it to My Children Right Away.

It is a common misconception that Mediaid will take my home.  Medicaid cannot take your home.  Medicaid can only file an estate recovery claim against the home after a person who received Mediciad had died.  For a married couple, it is not necessary to transfer the home.  If the home is transferred to the well spuse, Medicaid cannot file a claim against the home when the person receiving Mediaid dies. There is no lookback or penalty period when assets are transferred between spouses.   For most people, the home is their most valuable asset. Before you give your house to your children, you should consider the tax and other ramifications of such a gift. A common mistake is for a person to give a house to a child after the house is significantly appreciated in value.  When the child sells the house, the child must pay the capital gains tax on the gain since the home is not the child's personal residence. If the house is sold by the parent, capital gains tax is usually avoided. Additionally, the adult child may have creditor problems, owes back taxes, or is going through a divorce.   Any one of these problems will attach to the home and may force the home to be sold and now the parent is homeless. For a single person transferring the home may be necessary to avoid an estate recovery claim.  There are many ways for a single person to protect their home if a transfer is necessary.  Each case must be analyzed individually.

4.  I Was Told My Only Choice Was to Spend Down. 

In the case of a married couple, they are not required to spend down.  If spending down your assets is the only advice you are receiving, then you are talking to the wrong person.  

5.  You May Not Apply for Medicaid Within Five Years of Making a Gift

 A gift or transfer of an assets will create a five year lookback penalty.  In other words, five years must expire from the date of the gift before the person who made the gift is eligible of Medicaid.  There are many exceptions to the five year lookback rule. The primary exception is A transfer between spouses does not create a five year penalty period. There are ways to reduce down the five year lookback by using a penaly period calcuation. A penalty is calculated by dividing the value of the assets gifted by the state medicaid divisor.  For 2023 the penalty divisor is $9,186.  It is critical that a family consult with a certified elder law attorney before making any gifts if a famaily member may need care in a faclity.

6.  There Is No Hurry to Begin Medicaid Transfers.

One thing that is extremely time sensitive in Medicaid planning is making a transfer early.  The transfer penalty does not begin until the transfer is complete. The transfer rules are more complex after February 8, 2006.  You should consult a qualified elder law attorney before making any transfers.

7.  I Don't Need to Disclose Assets to Medicaid If I Am Not Reporting Income from Those Assets on My Income Tax Return.

A Medicaid application must be signed under penalties of perjury. Failure to disclose assets to Medicaidis a crime.  

8.  If One Spouse Goes to a Nursing Home All of His or Her Income Goes to the Nursing Home.

The spouse in a nursing home is allowed to keep $90 per month in Colorado as a personal needs allowance. In addition, the person may keep an amount necessary to pay for their private medical insurance. The law also guarantees that the well spouse receives a minimum amount of income.  For 2023, the well spouse is guaranteed at least $1,992.00 of income per month

9.  All Nursing Homes and Assisted Living Facilities Accept Medicaid.

In Coloraod 70% of nursing homes and 50% of assisted living facilities in Colorado accept Medicaid.  A person intending to apply for Medicaid must determine at the time of admission if the facility accepts Medicaid.  A common misconception is that a nursing home or assisted living facility that accept Medicaid provides substandard care.  There are substandard Medicaid facilitis, but there also substandard private pay facilities.  Every family should do their due diligence by persoanlly inspecting the facility, talking to other families that have a family member residing in the faclity, and checking the nursing home's rating at Medicare.gov website and Colorado.gov compare and find facilities. 

10. If a Facility Takes Medicaid, I Will Not Have to Private Pay If I Am Eligible for Medicaid.