David and Amy have been happily married for over 50 years and are now well into their retirement years. They have two grown children. Their daughter Sarah is an engineer, while their son Allen has special needs and lives in a group home. Amy is very concerned lately because it looks as though both she and her husband will be living in a nursing home in the near future. She is unsure how that will affect Allen and the financial help they have always given him. The good news is that Amy doesn’t need to worry. David and Amy will be able to continue providing for Allen by using an exception to the normal asset transfer rules.
David has been living in a nursing home close to their family home since he suffered a stroke about six months ago. So far, David’s nursing home expenses have not adversely affected the couple’s finances thanks to the Medicaid “Spousal Impoverishment” rules which allow Amy to keep some of the couple’s assets and a portion of David’s monthly income while still finding David eligible for benefits. Amy, however, suffers from Parkinson’s disease which has progressed and she will be joining David at the nursing home in the near future. This has Amy worried about what will happen to their son Allen.
He cannot work and has depended on Supplemental Security Income (SSI) and his parent’s financial support for his entire life. Amy is aware that Medicaid rules generally prohibit asset transfers prior to applying for benefits. How can Amy ensure the assets she and David have will continue to be used for Allen’s care and maintenance after Amy enters the nursing home?
The Five-Year “Look-Back” Rule
Because Medicaid is a “needs based” healthcare program, both income and asset limits apply to eligibility. The income limit is directly tied to the Federal Poverty Level. The asset limit prohibits an applicant from owning “countable resources” valued at more than $2,000 if applying as an individual or $3,000 if applying as a couple. Furthermore, the five-year “look-back” rule allows Medicaid to review an applicant’s finances for the five-year period prior to applying for benefits. Any asset transfers made during that time period for less than fair market value will usually be disallowed and the value of the asset imputed back into the applicant’s estate for purposes of determining Medicaid eligibility.
If an applicant’s assets exceed the limit, a waiting period will be imposed, which is determined using a formula that divides the overage by the average cost of a month of long-term care in the state. For example, David and Amy have countable assets that exceed the limit by $80,000 and the average cost of nursing home care in their state is $5,200 per month. Therefore, a 15-month waiting period would normally be imposed before Medicaid would start covering long-term care costs. David and Amy would be forced to rely on their assets to cover their nursing home expenses during the waiting period. Amy is worried that there will be nothing left to continue supplementing Allen’s care and maintenance.
The Goods News – Exceptions to Medicaid’s Asset Transfer Rules
Although Medicaid generally prohibits asset transfers within the five-year period preceding an application for benefits, there are a few exceptions to that general rule. One of those exceptions is when the beneficiary of the transfer is a blind or disabled child or a Trust is set up for the benefit of a blind or disabled child. This means Amy can transfer the couple’s $80,000 in “countable resources” into a Special Needs Trust that is set up to provide supplemental income to Allen above and beyond what he receives from SSI. Knowing that she can transfer the $80,000 into a Trust for Allen’s benefit and still qualify for Medicaid benefits alleviates Amy’s concerns and allows her to focus on caring for David and her own health.