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Avoiding Medicaid asset recovery with estate planning

With Americans living longer than ever before, more and more will eventually need long-term and nursing home care. Although it is easy to assume that Medicaid will be there to help pay for it, in order to qualify for Medicaid, you must meet rather stringent eligibility requirements.

Under Medicaid’s rules, you must qualify as “medically needy” under the definitions of the program. Generally, this means that you must have very few assets in your name. You may have heard that you can qualify for the program by spending down or giving away your assets in order to meet the income requirements. Although this may have been the case in the past, it no longer is true.

The reason for this is that Medicaid now has a five-year look-back rule. Pursuant to this rule, when you apply for Medicaid, your financial transactions for the previous five years will be examined. If it is discovered that you gave away certain assets during this period, you may be penalized by being disqualified from receiving Medicaid benefits for a specified period of time.

Once you qualify for benefits, you may be able to keep certain assets in your name. However, after you die, the government may attempt to recover the cost of the Medicaid benefits paid to you from your estate. This is also known as Medicaid asset recovery. In essence, this involves filing a claim against your estate and possibly putting a lien on any real estate in your name. This can be problematic if you would like to leave your home and other assets to your children.

Medicaid asset recovery is avoidable

It is not a foregone conclusion that you will lose your home and other key assets if you receive Medicaid benefits. In reality, there are several estate planning tactics that you can employ to avoid this process completely. This area of estate planning is commonly known as Medicaid planning.

A heavily used asset protection tactic in Medicaid planning is to transfer your key assets into an irrevocable trust. Once inside the trust, your assets are protected from the Medicaid asset recovery process, allowing you to transfer them to your heirs. In addition to protecting your assets, the use of an irrevocable trust can have favorable tax benefits.

Learn about your options

An irrevocable trust is only one possible solution to Medicaid asset recovery-one that may or may not be a good fit for you. To learn about the viable options for your situation, speak with an experienced estate planning attorney. An attorney can consider your goals and recommend the best tactic for carrying them out.