Are There Any Penalties For Transferring Assets?
Yes. The penalty is that the person who improperly transfers assets is disqualified from Medicaid assistance. Generally, that disqualification period is longer than the period of care that could have been paid for by the improper transfer. For an example, if I improperly transfer to another person an asset valued at $10,000, I am going to be disqualified for Medicaid assistance for a term of five months. Unfortunately, five months of care in a long term care facility is probably going to cost me $25,000. So although Medicaid doesn’t call it a penalty or punishment as such, an improper transfer can feel very much like punishment because the cost of the care for the disqualification period will typically greatly exceed the value of the asset transferred.
What Are The Income And Resource Levels For Medicaid?
We can readily find in the law that there are what appear to be hard caps on income and assets. For example, the income asset cap is currently $2,199 a month, and the accountable resources limit is $2,000 a month. However, those numbers are not as firm as they first appear. It is not as simple as adding up all of your sources of income and comparing them to the $2,199 a month in order to determine whether you qualify. Unfortunately, it’s not ever quite that easy. There are exclusions; there can be changes to income. Income can be applied to a spouse, and there are many ways that these numbers can be adjusted in certain circumstances.
Then, there is an accountable resource limit of $2,000. This sounds very easy. You look at everything you own, value those items and compare this number to the $2,000 limit. If the number is greater than $2,000, one would think you are, for sure, disqualified. Fortunately, it’s not that harsh, as there are many exceptions. If your spouse remains living in your home, that house does not count against the $2,000 limit. This is just one example. The asset resource limit is $2,000, but someone who has more than $2,000 should not despair; they should still seek guidance because it is rarely as harsh as it appears.
What Are The Differences Between Revocable And Irrevocable Trusts? How Do They Apply To Medicaid Planning?
A revocable trust is known as the open box of estate planning. We can put anything into our trust we want and take anything out of our trust that we want at any time that we want. We can change our beneficiaries, give the money to ourselves and do anything we would like with it; therefore it is precisely the same as if we had it in our name alone. Because of that, Medicaid treats everything in your revocable trust as just your stuff. It has no protection whatsoever when it comes to Medicaid planning. An irrevocable trust can sometimes, when properly drafted, avoid that outcome. An irrevocable trust can be changed only in the ways that are specifically allowed in the terms of the trust. So a properly drafted irrevocable trust that is created with Medicaid qualification in mind, done in the proper time and treated in the proper fashion can be very helpful in Medicaid planning, whereas a revocable trust will not be of any assistance with Medicaid planning at all.
Why Is A Revocable Trust Essentially Useless For The Purpose Of Medicaid Planning?
The revocable trust is basically useless when it comes to Medicaid planning because the trust creator retains so much power, so much flexibility and so much authority over the trust that the courts and Medicaid will treat the assets in the revocable trust as wholly owned by the trust creator. Therefore, the trust will be ignored by Medicaid, or the courts will want some time to consider what can be taken from the trust creator out of his or her revocable trust.
What Are The Advantages Of An Irrevocable Trust For Medicaid Planning?
An irrevocable trust requires that the trust creator, commonly referred to as the trustor or trust grantor, give up some power over his or her assets. It is not necessary that the trust creator give up all power, but he or she must give up some power. When the trust is drafted with Medicaid in mind and under the current state of the law, there will be times when the assets that belong to that trust are completely unavailable to Medicaid and therefore protected for the benefit of the beneficiaries of that trust.
How Far In Advance Should An Irrevocable Trust Be Created And Funded For Long Term Care Planning?
This varies drastically. It depends on the amount of income and the number of assets that belong to the owner or creator of the trust. There is not the hard deadline that applies equally across the board to everyone. We have commonly heard that there is a 60-month window for Medicaid planning; that’s a real guideline, but it’s also not applied equally to everyone and every situation. I have cases where one month advance planning is still allowed for the irrevocable trust to be created, funded and useful, whereas in other cases, it must be the full 60 months. It depends on each person’s financial situation and needs.
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