The cost of care for an elderly or disabled person can run to thousands of dollars per month and, even taking advantage of certain public benefits, can drain a person’s resources, including those he or she hoped to leave to children or other beneficiaries. Although the problems develop primarily in financial terms, accessing assistance from Medicaid often involves significant legal issues. Accordingly, legal assistance in Medicaid planning can accomplish a number of desirable goals that financial planning alone cannot. What follows are common Medicaid planning goals and issues, but many more could be discussed. Moreover, not all of these are relevant for every Medicaid plan.
First, effective Medicaid planning helps avoid the expense of unsuccessful applications for assistance. A substantial body of state and federal law along with several regulatory agencies, each with their own rules and procedures, govern Medicaid eligibility. Although designed to be accessible and understandable to the general public, the fact is that even if an applicant or an applicant’s loved ones have the time, wherewithal, and desire to struggle through the process on their own, the sheer volume of relevant information can multiply missed opportunities and increase the risk of a denial. Medicaid may take months to determine whether an applicant is eligible for nursing care. In the meantime, the applicant or the applicant’s family may incur tens of thousands of dollars in avoidable nursing home expenses. If the applicant ends up ineligible after all, then there will be no reimbursement for those expenses.
Good legal counsel cannot eliminate the risk of ineligibility, but it certainly can improve the applicant’s chances. Medicaid often ends up denying an applicant over an issue or a mistake that an attorney experienced in elder law and Medicaid applications can spot and plan for. A common experience is for an applicant to be denied for one problem, when in fact the applicant might have one or more other problems discovered only after multiple applications, multiple denials, and more months of expensive un-reimbursed care. The Medicaid worker cannot offer advice nor will the worker often point out other issues that would have resulted in denial. Effective legal assistance does not come cheap, but it can be a bargain compared to two or three months or more of nursing care expenses.
Effective Medicaid planning may require multiple legal documents and having that work done by a licensed attorney should be another good planning objective. Legal forms downloaded off the Internet and legal software purchased at the local office supply store can provide inexpensive and legally effective powers of attorney, wills, trusts, and other legal instruments. However, blended families, community property considerations, and a host of other sometimes obscure complications can render such efforts useless or worse, e.g., unexpectedly producing perverse or extremely undesirable results. If producing a successful Medicaid application seems like a daunting task, producing effective legal documents with no legal training should seem at least a little difficult. It probably is redundant to point out that a person’s experience with financial planning or his or her supposed supervision by a distant, uninvolved lawyer does not substitute for effective legal counsel. Nowhere else is the adage more true that “you get what you pay for.” In fact, poorly drawn or inappropriate legal papers actually can cost a great deal more than nursing care.
Another goal of effective Medicaid planning for a person is to incorporate provisions for the eventual probate estate, if any. The probate estate is the property a person owns when he or she dies that does not pass to a new owner under a beneficiary designation or some other non-probate device effective upon the person’s death, for example, the termination provisions of a trust created by the person. The good reason for thinking about probate in Medicaid planning is that long-term care decisions and end-of-life plans logically should include deciding what to do with one’s stuff when he or she dies. Another good reason is that the State of Texas can recover what the State spent on a person’s care from his or her probate estate. Logically, the way to preserve some or all of the person’s estate for his or her descendants or other beneficiaries is to reduce or eliminate the probate estate. In fact, it is precisely this logic that allows many Medicaid recipients in Texas to pass their homesteads on to their children or other beneficiaries without exposing the home to the Medicaid Estate Recovery Program or MERP.
Including probate considerations in Medicaid planning becomes even more crucial when a Medicaid applicant still has a spouse at home or elsewhere in the community. In addition to complicating the legal and financial elements of effective planning, often the institutionalized spouse has transferred assets to the community spouse during the application process. If the community spouse then dies unexpectedly, the institutionalized spouse could receive all or part of the estate disqualifying the survivor from Medicaid and forcing him or her to spend the distribution unnecessarily on long-term care expenses. Moreover, the goals of 1) minimizing the probate estate and 2) providing for the institutionalized survivor may be in conflict with each other requiring more imaginative and flexible legal drafting best done by an attorney familiar with both estate planning and Medicaid planning.
Please note that effective Medicaid planning can occur well before nursing care becomes necessary. As in most planning situations, increasing the planning period often increases the available options. While the person contemplating a Medicaid application in the future still has the capacity to participate in the planning process, he or she can execute legal instruments, begin accumulating verification documents, start restructuring assets, and develop appropriate spending plans all without the pressure of accumulating nursing care expenses. Even if the person cannot fully participate, his or her family can take steps to prepare for an application when, and if, it becomes necessary.
Finally, a common element of effective planning involves gifting, either dealing with gifting done already during the five-year look-back period or developing a gifting plan to qualify for benefits, if necessary or desirable. Medicaid imposes a penalty for most transfers for less than fair market value made within five years of a Medicaid application. The penalty imposed depends directly on the size of the gift or transfer and is implemented by Medicaid not paying nursing home expenses during a penalty period, although Medicaid does provide medical care if the applicant is eligible except for the gift. Some gifts are exempt from penalty, e.g., gifts of any size to a spouse, and sometimes Medicaid will not impose a penalty if the applicant can prove that the gift was not made in order to qualify for benefits, but the standard of proof is set very high. Nevertheless, gifting can be an effective planning technique under certain circumstances.