Correcting the myths about Medicaid

Suppose you are married and inherited a substantial sum from Aunt Jane that you dutifully placed in a separate account in your name only. Your husband (or wife) has become chronically ill and you believe that eventually he/she will need to receive Medicaid benefits either in a nursing home or at home under the Medicaid Waiver program. You might have been assured by someone who knows nursing homes or by a neighbor who reads up on the Internet that inheritances are protected from the Medicaid spenddown. This is not true. The alleged inheritance protection is one of many Medicaid myths commonly believed that can affect families negatively who do not receive specialized advice. There is understandable confusion.

This is not to say that nothing can be done. It is just to say that separating inheritance assets from other assets is not a plan that works in the Medicaid context. Remember, however, that rules from state to state are fluid. If you do not live in Pennsylvania, for all these observations note that you should check the rules of the state where Medicaid services are to be received.

One reason for confusion with inheritances of married individuals is that inheritance assets, if kept separately, can be considered non-marital property protected in a divorce proceeding. If the person who is advising you is more familiar with the divorce rules than the Medicaid rules, which is very possible considering the prevalence of divorce, he might not recognize the difference. The Medicaid spenddown does not follow divorce rules. It has separate rules of its own.

This is not the only misconception.

Some people believe if they move assets from joint bank accounts into their own name individually that is enough to avoid a Medicaid spenddown. If it were that simple, most married individuals would do this. You also cannot gift $14,000 a month to avoid a penalty. These are other myths.

How about pre-nups? Prenuptual agreements are fairly common among people marrying late in life especially if they have accumulated substantial assets. Even many people who advise on Medicaid on a regular basis believe that prenups insulate the assets of the healthier spouse. Prenups are agreements between the parties. In Pennsylvania prenuptual agreements are not enough to insulate property when considering the Medicaid spenddown.

Transferring all your property to your kids and waiting

five years with the idea it would avoid the five year “lookback” and you or your spouse would be immediately eligible for Medicaid has been another “self help” strategy. This is a bad idea for so many reasons. I do ask people if they would feel comfortable asking for money or return of assets from their children. Even if a child is

entirely trustworthy, your child could die and leave his estate to his spouse and children or she could have creditors who claim against property that is now theirs or your property could be lost in a divorce proceeding between your child and her spouse. There are other strategies that can be used to protect you without referencing the lookback.

Proper Medicaid planning has sometimes been considered a way to get around the rules or not

to disclose information to the government. Actually, nothing could be farther from the truth but planning must be done properly. The rules govern what can and cannot be done in the same way the tax rules define what can or cannot be done. Our office follows the “light of day” test. Anything done, if shown to the light of day, will be fine to anyone reviewing it. In fact, in submitting applications most of this background detail is submitted to the

income management caseworker for the government anyway.

Planning does not have to be for Medicaid. Many people today who used to receive care in nursing homes, now go to personal care/assisted living communities. There is no Medicaid in Pennsylvania in personal care/assisted living so an early aggressive Medicaid strategy might not fit those cases but good financial planning might work to stretch the assets. There

are multiple strategies to help.

Medicaid planning can be as simple as telling someone he is free to pay off his debts or to replace an old water heater during the spend-down for his spouse or it could involve a strategy to use current assets to replace monthly income needed to make it through a difficult time. Myths do not work. Specialized knowledge can help.

Listen on Wednesdays at

4 p.m. to WCHE 1520, 50+ Planning Ahead, with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care. Janet Colliton limits her practice to elder law and estates with offices at 790 E. Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674, colliton@ collitonlaw.com. She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long-term care needs.