What IS Medicaid Planning? Part II

As of October 2018, the income cap to receive Medicaid was $2250. For a single person, the asset ceiling is $2000. In my mother's scenario she automatically qualified because her circumstances neatly fit the criteria, but what about people whose income is too high, or have assets valued at more? And what about married couples?.

In Part I of this series I explained my mother's situation and how she (more or less accidentally) received Medicaid coverage that paid for her long term care. I think some of what she did, like not owning real property, was by design, but by the time she really needed Medicaid she would never have been able to think through strategies to put herself in the exact right position to receive it.

In Part II, I'm adding to Mom's situations some hypothetical examples to show how people can successfully plan ahead. First, we'll address assets. The asset ceiling for Medicaid eligibility is $2000. for a single individual. But, you must be aware of how assets are actually counted. There are countable assets and non-countable assets for Medicaid purposes.

Mom met the criteria for assets (less than $2,000), income (less than $2250. per month), and medical need (glaucoma even though it was controlled and she could see). But suppose she owned a house or maybe even two houses; or had money in the bank.

If she owned the house she lived in and it was homesteaded, then that house would not be considered a countable asset. The value of the house would be completely exempt. As of 2018, a homestead property valued up to $572,000. would be exempt. Value ceilings change, so use this as a guide, but do your research.

And, if she owned a second home its value can be exempt as well. There are two ways this can happen. If its only in Mom's name, she'd either need to rent it out at fair market value or add the names of others onto the property deed.

If its rented at fair market value, then reasonably it would generate income, which then could affect her income enough to be above the $2250. allowed per month. The asset would not be counted as an asset, but the income could be problematic, so take care. As it happens, expenses related to a rental property can be deducted from the rental income and reduce the net income. Which will in turn reduce the impact on the Medicaid recipients overall income Expenses like property management costs, taxes, insurance, necessary repairs, and advertising costs can be deducted from the rental income, before rental income is considered as overall income and puts the Medicaid recipient's income above the ceiling, making her ineligible. Remember, the property must be rented at fair market value for the asset to be considered non-countable for Medicaid eligibility.

The second way a second property can be considered non-countable for Medicaid purposes, is if the Medicaid recipient is not the sole owner. Suppose Mom owns a cabin on the lake which the family used for years as a vacation property. If there are other owners, then the cabin on the lake is not considered a countable asset. Its value is exempt. Medicaid considers a jointly owned property as non-countable because it is not in the sole control of the Medicaid recipient. If Mom plans well ahead she can add her adult children onto the deed. Remember, in our scenario, Mom is single, so at this point we're not addressing any hypothetical example in which Mom owns property with a spouse. Adding adult children onto the deed of a property is a reasonable thing to do, assuming that the children will eventually inherit it anyway. But, keep in mind, Medicaid eligibility is very strict when it comes to giving away assets to qualify. There is a five year look back rule, which is why Mom needs to plan well in advance. If she were to give away ownership interest within the five year look back period, she would be penalized, but may still eventually qualify for Medicaid. Better to think ahead and plan ahead.

In another possible hypothetical example, suppose Mom has a substantial amount of money in the bank, say $100,000. She can spend down her liquid assets. This strategy is based on the idea, that people are allowed to spend their own money. She might want to remodel her house to make it more accessible for her as she ages, like the new walk-in shower, or a more efficient kitchen. Either or both of these home improvements can put a substantial dent in $100,000. She can also buy a new car. Medicaid recipients can have one vehicle of any age or value, and it would be considered a non-countable asset. There goes another substantial dent in the $100,000.

What Mom can't do is give away her assets, unless she does so at least five years before applying for Medicaid.