Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is a cautionary tale, where we talk about a real-life case with real-life clients with real facts. Though, of course, names are altered for confidentiality purposes. So, for today’s episode, we’re going to be talking about some of the myths and misconceptions that I hear ALL the time when talking about Medicaid. Before we dive in, though, I think it’s important we get a nice foundation first of MediCARE and MediCAID. People confuse them all the time – and actually will say Medicare when they’re talking about Medicaid and vice versa.
We’re going to talk about Medicare, Medicaid, and how they work (and what they pay for) as a “cautionary tale” because the amount of times I see/hear people reference these benefits incorrectly … is scary and concerning, especially from my seat. I’ve seen, all too often, people rely on things incorrectly and guess what happens? Their Medicaid application gets denied; or Medicaid estate recovery happens after they pass away; etc. Medicaid is one of those things that I like to describe as – they have rules, they have exceptions to the rules, and they have exceptions to the exceptions of the rules. It’s complicated; it’s a lot; and it’s why a lot of people and families choose to work with elder law attorneys like myself/my firm to navigate through the rules and exceptions.
Let’s start with Medicare. Medicare is a governmental program that is NOT based on your assets. Instead, as you are working/earning income, you are paying “into the system” and paying Medicare taxes. So long as you pay enough into the program, you will be eligible for Medicare coverage when you turn 65. There are different “parts” in Medicare – like, Medicare Part A is for hospital stays, but you do have to pay a deductible still. Or, like Medicare Part B is for things like outpatient visits to hospitals and doctors’ appointments. For this coverage, you actually have to pay a monthly premium – and a lot of people have it deducted from their Social Security benefit. All in all, think of Medicare as sort of like health insurance.
On the flip side, Medicaid is still a governmental program and IS based on assets, and we’re going to get to that in a little bit, but Medicaid is often used to pay for things like nursing homes, assisted living communities, and home health care. Many think that MediCARE will pay for these things – Medicare will not. That is Medicaid. Medicaid has a very specific set of rules to qualify for the benefit. They have rules for assets; they have rules for income; they have rules for single individuals; they have rules for married couples; rules, rules, rules!
Another thing to know about Medicaid is that it is a federal program, yes, but each states interprets the federal program rules differently. So, do know that if you are an out of state listener to Legal Tea, things I say may or may NOT apply in your state. As always, it’s best to consult with an elder law attorney in your state. Though, you’re welcome to keep on listening to maybe gain a better understanding of the rules – it’s just today’s episode will be about how my good ol’ state, Indiana, works/operates.
Because I like to keep these Legal Tea episodes around 15 minutes or so, we’re going to be going over three myths today – while there are many, many more, these are some of the top myths about Medicaid I hear over-and-over-and-over. And these are the “top” ones I see where people make mistakes – hence why we’re talking about these under the “cautionary tales” topic. So, let’s dive in, shall we?
Medicaid Myth 1: “I have to give away everything I own asset-wise to get on Medicaid.”
For starters, one thing that surprises a lot of people is that Medicaid has one set of rules for single individuals and another set of rules of married couples. Where many, many misconceptions happen is confusing these two sets of rules – beyond the different set of rules, each state operates a little differently. So, when I hear from clients, “Well, my Mom’s best friend’s husband, who lives in Texas, did XYZ for Medicaid.” Well, first – sounds like your Mom’s best friend is married (hence, the married couple rules) and sounds like your Mom’s best friend lives in Texas (hence, a different states’ rules.
To get to the topic here – giving away assets. It’s 99.99999% of the time a bad idea. Here’s why – first, if Medicaid uncovers the gifts, they will penalize you for doing so. Sometimes, the penalty ends up being longer in time than had that person just done an appropriate estate plan (to protect assets against Medicaid/long-term-care). Through that penalty, you have to PRIVATE PAY – so what if the person you gifted your assets to spends it, or gets sued and it gets wiped, or goes through a divorce and it gets thrown into the divorce proceeding – then how the heck are you going to pay the nursing home bill?
Second, as in another reason gifting is usually a bad idea, is for taxes – not only are you going to have file gift tax returns (you’re, at least, supposed to!), but you very well may have screwed things up capital gains-wise. Let’s talk about this through an example with a house. Say, we have Mary – Mary thinks it’s a good idea to transfer her house to her children “so the nursing home can’t get it.” Mary bought the house many moons ago for $50,000. That is what is called Mary’s tax basis. So, Mary transfers the house to her kids – the value at that time is $100,000. Later, Mary passes away and the kids think, “Okay, it’s time to sell this house.” The house is now worth $125,000. Had Mom not transferred it, the kids would have gotten, what is called a, step-up in basis meaning they would NOT have to pay capital gains taxes. Though, because Mom transferred the house, the kids will NOT get a step up in basis and will have to pay capital gains taxes.
The last thing I’ll note on this “gifting assets” away topic is … Medicaid allows you to keep some assets both in single individual world and married couple world. As I said, Medicaid has rules – they have exceptions to those rules – and exceptions to the exceptions to the rules. So, as always, if planning for long-term care costs and Medicaid is something you want to talk about, an elder law attorney is a great resource. (By the way, an elder law attorney and estate planning attorney are very different things – so “this” topic is under the elder law practice area. Many estate planning attorneys choose not to dabble in elder law, so just a heads up!)
On to Medicaid Myth 2: “If I put my property into my spouse’s name, I will be eligible for Medicaid.”
Ironically, as I was writing this episode, I received an email from a Financial Advisor that said, “Jenny, I have a husband/wife client that the wife needs to go into an assisted living facility. Two years ago, the husband added the wife to a brokerage account. As they prepare for her potential Medicaid in the future, they removed her name from that brokerage account. What kind of impact will that have on them if/when Medicaid gets involved later?”
None. None at all. Why, you ask? Well, because Medicaid operates under the idea of “What’s mine is yours, honey, and yours is mine!” For a married couple, Medicaid does not care which name is on which asset. Initially, they count it all. So, like in my reply to the Financial Advisor friend, I said, “There is no impact. Medicaid is going to see and try to count it all.”
The thing to know on this topic is that Medicaid DOES allow for the non-Medicaid spouse to retain some assets. They expressly allow the healthy spouse to keep some assets as there are rules that say, “hey, we can’t destitute the healthy spouse just because the other one needs some facility care!”
Along these same lines, if your kiddo is on an asset as a joint owner, Medicaid counts it. So, just because you throw your kids’ name on an asset, that doesn’t do any good at all in planning for Medicaid. I see people try to do that all the time too. The only way that may work is it can be proven that the majority or all of the funds in the asset were by the child – not the Medicaid applicant. Even then, Medicaid looks for any reason to kick up a fuss – so yeahhhh, good luck with that argument.
On to Medicaid Myth 3: “I have to wait 5 years after giving assets away to qualify for Medicaid.”
Oh, the infamous Medicaid lookback! Well, first, I hear people say that the lookback period is 3 years. I’ve been doing this for over ten years now and it’s never been 3 years in Indiana during my time. Some states still have 3 years – some states even are at 7! Indiana is 5 – as part of a Medicaid application, Medicaid can look back 5 years for any gifts and transfers made by the Medicaid applicant.
There are two ways to deal with this – first, from a pre-planning standpoint and second, from a crisis planning standpoint. To be BEST prepared, there are ways to do an estate plan five (or more) years before any sort of need for long-term care. That is best case scenario because we’ve structured assets beautifully to get ready for any future long-term care. Unfortunately, a lot of people do NOT pre-plan. They wait until the 11th hour. In those situations, there are ways to maneuver assets to NOT have to wait the 5 years. It’s very, very fact-specific, family-specific, etc. so if you have a loved one possibly looking at some need for long-term care, do NOT rule out Medicaid helping foot the bill just because your loved one didn’t plan. There may still be a way to protect assets and qualify for Medicaid. We do that all the time!
Alrighty … let’s wrap up this episode. Next week, we are back to the current events/current trends topic -- something I’ve seen or run across that I think would be interesting on here. During that episode, we’re going to be talking about cryptocurrency and specifically, inheriting bitcoin. Cryptocurrency is a hot topic, right? So let’s talk about it. Actually, I had a listener specifically request this topic, so we’ll be diving into it next time, Legal Tea Listeners. Until then, be well and talk soon!