Better Than No Loaf: Medicaid Planning Using “Half a Loaf” Strategies

While it is preferable to conduct long-term care planning well in advance of needing care, if you haven’t planned ahead, there are some strategies available to avoid spending all your assets. Three so-called “half a loaf” approaches allow a Medicaid applicant to give away some assets while still qualifying for Medicaid.

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets (the figure may be somewhat higher in some states) in addition to the home, and the resident cannot have recently transferred assets. (A spouse living at home may keep more.)

Congress has imposed a penalty on people who transfer assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period does not begin until the person making the transfer has (1) moved to a nursing home, (2) spent down to the asset limit for Medicaid eligibility, (3) applied for Medicaid coverage, and (4) been approved for coverage but for the transfer.

If a Medicaid applicant has excess assets, he or she must spend down those assets in order to qualify for Medicaid. However, Medicaid applicants who want to preserve some assets have a few options:

• Gift and cure. The nursing home resident transfers all of his or her funds to the resident’s children (or other family members) and applies for Medicaid, receiving a long ineligibility period. After the Medicaid application has been filed, the children return half the transferred funds, thus “curing” half of the ineligibility period and giving the nursing home resident the funds he or she needs to pay for care until the remaining penalty period expires.
• Promissory note. The nursing home resident gives half of his or her funds to the resident’s children (or other family members) and lends them the other half under a promissory note that meets certain requirements in the Medicaid law. The resident uses monthly repayments of the loan, along with his or her income, to pay nursing home costs during the penalty period.
• Annuity. The nursing home resident gives half of his or her funds to the resident’s children (or other family members) and uses the remaining assets to buy an immediate annuity. In most states the purchase of an annuity is not considered a transfer that would make the purchaser ineligible for Medicaid. Income from the annuity can be used to help pay for long-term care during the Medicaid penalty period that results from the transfer. In such cases, the annuity is usually short-term, just long enough to cover the penalty period.

These strategies may not work in every state and none of them should be attempted without the help of an attorney whose practice includes Medicaid planning.