What Property Can I Keep When Applying for Medicaid?

Medicaid is the federal program that helps seniors pay the costs of nursing home care or in-home care. States run their local Medicaid programs to cover health care for low-income people, including many older people and people with disabilities.

Eligibility for Medicaid is based, in part, on an individual’s income and assets. There are some exempt assets an individual can keep and still qualify for Medicaid. However, eligibility depends on state laws and state Medicaid agencies. To understand what property you can keep when applying for Medicaid, talk to a local elder law attorney for legal advice.

State Medicaid Programs

In California, the state Medicaid program is Medi-Cal. MassHealth administers the Medicaid benefits program in Massachusetts. In Indiana, the Family and Social Services Administration oversees Medicaid coverage. Each state program is unique, with different qualifications, exemptions, and benefits.

Generally, state Medicaid programs for seniors fund much of the costs of nursing home, long-term care, assisted living, and in-home caregiver costs.

In many states, the maximum asset limit to qualify is $2,000 or less ($3,000 for married couples). In other states, the asset limits are higher. Non-exempt assets will generally include all available cash assets like checking, savings, and investment accounts. Even Social Security benefits generally count towards income.

Some assets are exempt and not counted toward the total. Medicaid planning is complex, but identifying exempt assets is typically one of the first places to start when planning for Medicaid long-term care.

The House Is Exempt

In many states, a primary residence is exempt from the Medicaid asset limits. This exemption typically applies only to the home where the applicant lives, rather than all real estate.  

The primary residence is the most significant exempt asset for real property. If a recipient owns a smaller home, Medicaid rules provide ways for the recipient to purchase a larger home that is allowable under the Medicaid eligibility rules.

Funeral and Burial Planning

Seniors who are estate planning often want to save their loved ones from the expense of a funeral. They will set aside money for their funeral expenses or request that those expenses come out of their estate. With this exemption, applicants can cover some of the funeral costs and reduce their countable assets.

Medicaid rules allow recipients to designate up to $1,500 in revocable funds for burial expenses or purchase an irrevocable prepaid funeral contract of reasonable value.

Other Exempt Assets

There are many other exempt assets — some are subject to specific Medicaid rules, particularly as to maximum-allowable value. Some of these other exempt assets include:

• One motor vehicle
• Personal property
• Household goods and furnishings
• Life insurance policies with a total face value of $1,500 or less
• Medicaid-compliant annuities
• Other exemptions apply to business property if the applicant can prove the necessary need or use.

In some cases, income received through an IRA, KEOGH, or other work-related pension will be exempt if the account is in payout status. However, these funds count as income for Medicaid.

Community Spouse Resource Allowance

In states like California, there is a “Community Spouse Resource Allowance.” If the Medicaid recipient is married, and the applicant’s spouse will not apply for the Medicaid program, the spouse can own assets above and beyond the $2,000 limit.

What Is a Pooled Trust?

Carol Cioe Klyman is an elder law attorney in Springfield. She often advises clients on pooled trusts, exempt assets, and estate recovery. “The nonprofit takes each individual’s trust funds, a lump sum, and invests those funds the exact same way, so I have my separate account, but the nonprofit invests everybody’s money the exact same way,” she says. “That is why they call it a pooled trust: It’s invested as a pool.”

The recipient can use the trust funds to supplement Medicaid coverage and pay for items or services not covered by Medicaid, including:

• Specialized medical equipment
• Enhanced care or services
• Companion services
• Clothes
• Transportation
• Even take a vacation

Klyman believes the pooled trust, an irrevocable trust, really makes a difference in people’s lifestyles. Otherwise, applicants “could spend all their money on nursing home care and still get Medicaid, but their quality of life is so much less.”

A pooled trust is “a way to maintain some semblance of a quality of life — a way to improve the life of someone in a nursing home who may not have anything else or anybody else to care for them or look in on them,” she adds.

States Can Recover Their Costs From Pooled Trusts

The transfer of funds into the trust is not subject to the Medicaid rule requiring a period of ineligibility, or look-back period for transfers within 5 years of application, because there is a “payback” provision in the health care laws. This means Medicaid programs can recover some or all of their covered costs when the recipient passes away.

Klyman cautions that pooled trusts won’t protect inheritance for family members. “In the vast majority of these trusts, nothing is going to the family. There’s nothing left over,” she says. “I think I’ve had one case in 20 years where there was something left in a trust for the family, and it was because the recipient died very soon after funding the trust.”

Turn Non-Exempt Assets Into Exempt

Once a Medicaid applicant understands the difference between exempt assets and non-exempt assets, they can begin to develop planning methods to turn their non-exempt assets into qualifying assets exempt from Medicaid asset limits. Some ways to do this include:

• Pay off medical bills
• Pay off debts
• Pay off mortgage or liens
• Pay for home repairs
• Pay for home improvements, including senior-accessibility improvements like ramps and grab bars
• Buy home furnishings
• Buy clothes
• Pay for vehicle repairs
• Purchase funeral and burial plans

If individuals have income or assets over the limit, they can reduce the excess by paying for health care until their assets fall below the qualifying limits. This process is a Medicaid spend down.

Be Careful Transferring Assets

Applicants often get themselves in trouble by making decisions without consulting someone knowledgeable in Medicaid rules. One area for problems is the transfer of assets — especially if it appears the transfer was to gain eligibility.

Applicants are subject to a five-year look-back period for the transfer of any asset for less than fair market value. If the transfer does not comply with Medicaid rules, it could disqualify the applicant for a period of time.

However, in some cases, an applicant can gift or sell an asset within the look-back period and not suffer a period of ineligibility under Medicaid transfer rules. Talk to a Medicaid or elder law attorney to find out about possible waivers for asset transfers.

Find Legal Help

These are just some of the common methods for reducing non-exempt assets, which is only one method of many in an overall estate plan. Although it appears simple, applicants should be cautious when making these decisions on their own. Consult with a law firm about whether to turn assets into exempt assets.

The attorney can offer legal advice to evaluate the planning methods available, help you with the application process, and make the best decisions for your Medicaid planning. Contact an experienced elder law attorney about Medicaid eligibility requirements.