Martha focused on saving because she felt that David would probably be unable to support himself throughout adulthood, and she wanted to be able to leave a nice nest egg for his future. Then Martha had a stroke and needed a daily home health aide. Not only was it hard to adjust to needing assistance, but she was afraid that her plans to provide for David’s future were in jeopardy. However, after visiting an elder law attorney, Martha learned that she could ensure that funds were seta aside for David, while not jeopardizing her own care needs,
Medicaid planning is a crucial process for older adults who want to ensure they can access long-term care while preserving as much of their estate as possible. Unfortunately, many Medicaid strategies require seniors to plan five years ahead of applying for Medicaid. However, transferring assets to disabled family members can be done at any point. This can be an effective way to protect assets from Medicaid spend-down requirements, while ensuring that loved ones are cared for. However, this strategy requires careful planning and adherence to legal guidelines to avoid potential pitfalls.
Understanding Medicaid Eligibility
Medicaid is a joint federal and state program designed to assist individuals with limited income and resources to cover the cost of medical care, including long-term care. Eligibility for Medicaid varies by state, but generally, individuals must meet specific income and asset limits. For seniors needing long-term care, Medicaid can cover costs that Medicare does not, such as nursing home care as well as, home and community-based services. To qualify for Medicaid, applicants must often "spend down" their assets to meet eligibility requirements. This is where Medicaid planning comes into play.
Asset Transfer Strategy
One common strategy in Medicaid planning is to transfer assets to family members. Medicaid generally imposes penalties for asset transfers made for less than fair market value within five years of applying for Medicaid, but there is a policy exception for transfers to children of the Medicaid applicant who are disabled or disabled individuals under the age of 65.1 Assets can be transferred to family members who are disabled and qualify as “disabled” under Medicaid rules. This includes individuals who receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), or who are otherwise determined to be disabled according to medical and legal standards.
Outright or in Trust
Transfers can be made to the disabled individual directly, but this may be inadvisable for several reasons. If the disabled family member is receiving means-tested benefits, then the gift must be in trust to avoid impacting the recipient’s benefits. Sometimes a trust is necessary to manage the funds. If the individual has a pre-existing first party special needs trust, then the gift can be made to that trust. Otherwise, the donor like Martha would establish a special kind of trust called a sole benefit trust.
Sole Benefit Trust
A sole benefit trust is one that is solely for the benefit of the disabled individual. Medicaid rules provide that the sole benefit test can be met either by 1) providing for actuarily sound disbursements, i.e. requiring that the trust assets are disbursed over the life expectancy of the beneficiary, or 2) including a payback provision to ensure that the Medicaid agency can be reimbursed for any services provided from the trust assets remaining at the disabled individual’s death. For Martha, a sole benefit trust meets all her needs. She can make sure that David is provided for, using her savings as she always wanted. She intends that the trust would be depleted for whatever David needs, and if there happens to be something left at the end of his life, she does not mind that it will go the state.
Other Options
Some older adults may not have the same view. They may, for instance, be concerned about their home staying in the family. In that case, an outright transfer may make more sense, since there is no payback requirement.2 In other cases, we find adult children who do not have a formal disability finding, but live with their parents. In that case, it may be worth considering if the child might qualify under a different exception, the caretaker child, in order to allow transfer of the home to the child. This policy exception applies to transfer of the home without penalty to a child who has resided there and provided care to the parent for a period of two years.3
Conclusion
In coordinating Medicaid planning with disability planning, there are many factors to consider including how much to set aside, and when and how to make transfers. It can be reassuring that providing for disabled loved ones is a viable strategy for older adults facing long term care needs. Seniors like Martha do not have to choose between their health care needs and supporting their family members with a disability.
References
- It is not uncommon for Medicaid caseworkers to believe that the exception only applies to children of the applicant but 42 U.S.C. § 1396p(c)(2)(B) clearly states that any disabled individual under age 65 is included, so Martha can create trust for her grandson.
- Of course, if the home is ever sold it could impact certain public benefits for the disabled family member.
- There are a number of detailed requirements for this exception so an elder law attorney should be consulted.
ABOUT THE AUTHOR:
Shana Siegel concentrates her practice on representing seniors, individuals with disabilities, and their families with life care planning, public benefits, trust and estate planning and administration, resident rights, health care decisionmaking, guardianships and long-term care advocacy. Shana has been certified by the National Elder Law Foundation (NELF) and is recognized as a member of the Counsel of Advanced Practitioners. Prior to joining Norris McLaughlin, P.A., Shana was with WanderPolo & Siegel for over 10 years. She is a past president of the New Jersey Chapter of the National Academy of Elder Law Attorneys (NAELA). Additionally, she has been an officer for the New Jersey State Bar Elder & Disability Law Section.
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