It has come to light over the last several years that people forget the Medicaid rules as explained during their initial consultation. In order to remedy this situation, I am highlighting the rules that most frequently come into play when processing a new Medicaid application. Remember that the Medicaid rules comprise 57 pages in total so if you have a question that is not covered in this handout, then please give me a call to discuss your particular question with me.
All bank accounts should be held in the name of one individual, although, they may be held as payable on death accounts or in one name with an additional signor. Commingling of funds is prohibited as all of the funds in the account will be attributed to the Medicaid applicant. While it is possible to prove contribution, it is a headache that is best to avoid.
WHOLE LIFE INSURANCE POLICIES
Are excluded as assets so long as the cash value of the contract or contracts do not exceed $2,500.
TERM LIFE INSURANCE POLICIES
Are excluded in total because term insurance does not have any cash value. In practice, both the Medicaid applicant and the Medicaid applicant’s spouse could have unlimited amounts of term insurance and none of the term insurance would be considered an asset of the Medicaid applicant or the Medicaid applicant’s spouse.
FUNERAL EXPENSE ACCOUNTS
All funds for a funeral expense account should be held in a non-interest bearing account. Medicaid rules limit the size of the account to just $2,500.00, so no interest can be earned otherwise you will cause a potential loss of Medicaid benefits.
JOINTS TRUSTS BETWEEN HUSBAND AND WIFE
There should be no joint trusts at all. If the joint trust includes assets of both the Medicaid applicant and a non-Medicaid applying spouse, then all assets shall be considered to belong to the Medicaid applicant. It is best to eliminate the joint trust by eliminating the Medicaid applicant’s trust and placing all of the assets into the non-Medicaid applicant spouse’s trust subject to applicable asset limits established by current Medicaid requirements. If assets that would be held in the non-Medicaid applicant’s trust exceed the maximum asset limit for the year of application, then those excess assets will need to be converted into an exempt asset or into an annuity, which converts a countable asset into an income stream.
TRANSFERS BETWEEN HUSBAND AND WIFE
All transfers between husband and wife are considered valid transfers and they will not create any period of ineligibility for Medicaid benefits. Of course, transfers that exceed the asset limit for the non-Medicaid applying spouse will either have to be converted into exempt assets or into an annuity.
TRANSFERS BETWEEN MEDICAID APPLICANT AND THIRD PARTY
All transfers between a Medicaid applicant and a third party, such as a child or some other third party, prior to applying for Medicaid will most likely create a period of ineligibility for Medicaid benefits, unless that transfer occurred further back then the look-back period currently used by Medicaid. In 2014, the look-back period was five (5) years prior to the date of Medicaid application.
GIFTING RULES UNDER FEDERAL ESTATE AND GIFT TAX
Many people misunderstand that the gifting rules under the Federal Estate and Gift Tax do not apply when talking about gifts under the Medicaid rules. All gifts made during the look-back period for Medicaid applications are prohibited gifts and they are subject to a period of disqualification for Medicaid benefits unless a specific exemption to the transfer applies. The only Federal Estate and Gift Tax rule that applies in the Medicaid situation is that gifts between husband and wife are valid gifts for Medicaid purposes and they will not cause a period of ineligibility for Medicaid benefits unless the gift to the spouse exceeds the spouse’s asset limit that changes from year to year.
RETIREMENT FUNDS (IRAS, KEOGH & EMPLOYER OR UNION CONTROL)
Are considered to be assets available to either a Medicaid applicant or the spouse of a Medicaid applicant. If regular payments are being made to the Medicaid applicant or the spouse of a Medicaid applicant, then it is no longer an asset but an income stream.
PREPAID FUNERAL CONTRACTS OR IRREVOCABLE BURIAL TRUSTS
Must be irrevocable to not be considered as an asset.
BURIAL EXPENSE FUNDS
A Medicaid applicant and his/her spouse may each set aside up to $2,500 for burial expenses. These must be separately identified as burial expense funds and they should be held in non-interest bearing accounts. These accounts can be in addition to excluded life insurance policies (see above) or irrevocable burial contracts.
Any transfer without receiving fair compensation in return is considered a gift. The only exceptions are gifts to a spouse or a gift made to anyone prior to the look-back period.
The current look-back period is five (5) years.
PURCHASING AN ANNUITY
When purchasing an annuity for the Medicaid applicant or the Medicaid applicant’s spouse, the contract may not be for a period longer than that individual’s life expectancy as determined by the actuarial tables used by the Social Security Administration.
BENEFICIARIES OF AN ANNUITY WHEN PURCHASED FOR THE MEDICAID APPLICANT
The primary beneficiary of an annuity purchased for the Medicaid applicant must name the state of Florida (AHCA) as the primary beneficiary for the total amount of medical assistance paid on behalf of the Medicaid applicant unless the Medicaid applicant has a spouse or a minor or disabled adult child. In that case, the state of Florida shal l be named as the secondary beneficiary after the spouse and/or minor or disabled child. In addition, the annuity must be irrevocable and nonassignable, all payments of both interest and principal must be equal amounts during the term of the annuity, with no balloon or deferred payments, and, finally, the term of years can be no longer then the life expectancy of the individual to receive payments.
BENEFICIARY OF AN ANNUITY WHEN PURCHASED FOR THE MEDICAID APPLICANT’S SPOUSE
The primary beneficiary of an annuity purchased for the Medicaid applicant’s spouse (called the Community Spouse under Medicaid terminology) must be the state of Florida (AHCA), except for when the spouse has a minor or a disabled adult child and, in that case, AHCA shall be named as secondary beneficiary after the minor or disabled adult child. This contract must be irrevocable and nonassignable.
DEFERRED ANNUITIES VERSUS IMMEDIATE ANNUITIES
A deferred annuity (any annuity, which includes IRAs and Keogh plans)
that is not making current payments to the Medicaid applicant or the Medicaid applicant’s spouse) is an asset in the hands of the Medicaid applicant or the Medicaid applicant’s spouse. An immediate annuity (any annuity, which includes IRAs and Keogh plans) which is currently making monthly payments is considered an annuity stream and it is not treated as an asset in the hands of the Medicaid applicant or the Medicaid applicant’s spouse.
TRANSFER OF HOMESTEAD PROPERTY
Is allowable if the individual transfers his home to his spouse or any of the following relatives:
1. A child under 21 years of age; or
2. A blind or permanently disabled adult child (Receipt of SSI or Title II Social Security disability is acceptable proof of disability. Otherwise a disability decision must be obtained in all situations, including adult children over 65. These policies apply to all blind/disabled adult children.);
3, A sibling of the individual who has an equity interest in the home and was residing in the home for at least one year immediately before the individual became institutionalized (the eligibility specialist must accept the sibling’s statement unless there is reason to question);
4. An adult son or daughter of the individual who was residing in the home for at least two years immediately before the date the individual became institutionalized and who provided care to the individual that delayed the individual’s institutionalization (the eligibility specialist must accept the son/daughter’s statement unless there is reason to question).
If the home is transferred to any individual not listed above, the transfer of assets policy is developed. The individual must be given the opportunity to rebut and gather data on the compensation received from the transfer.
Once an individual is qualified for Medicaid it is entirely possible to receive a
lump sum amount of money from an inheritance or the result of a lawsuit (judge or jury award or a settlement (i.e. the Pradaxa cases). When this happens, it is imperative that immediate (within 10 days and also before the next month arrives) action must be taken or Medicaid benefits can be lost and it will still be necessary to take further Medicaid planning action. It is not the purpose of this FYI Tip to go into the solution at this point in time because the timing will vary for receipt of the funds and the solutions will vary depending upon what Medicaid qualifying actions have already been taken and what can and will be available to be taken at that time.