This is Part Two of an extensive article on Medicaid family planning. In trying to address the problems of families losing everything they worked their whole lives for just to qualify for Medicaid, Mr. Marsocci is conducting workshops to show people that they don’t have to go broke to qualify for Medicaid.

Bill Doe and his wife had come into the office with a few dollar figures in his mind so he could qualify his wife Marge for Medicaid. Bill had gone through all of the financial statements, tax records, and pay stubs, wrote down a few totals, and then he arrived promptly for his appointment. We had asked Bill to bring the statements and records for him and his wife, but Bill didn’t want to “show his cards” to anyone. When I asked for the records he told me their combined net worth was $752,000 and their combined income was $4,520 per month. “You don’t need to know anything else” he told me, sitting back in his chair, crossing his arms, and looking at me as if I were his opponent in a poker game.

“Actually, Bill, I do need to know because Medicaid will be asking,” I said. “It matters just as much what you have as it does for the amounts you have.”

Bill didn’t stick around, and instead left rather than tell me what assets comprised his and his wife’s net worth. About a year and a half later, a colleague asked for my help in reviewing a Medicaid case, and, as it happened, it was Bill Doe. The situation was much more pressing since Marge was now in a nursing home. As I started to review the numbers given to me by my colleague, I noticed the net worth was now down to just over $580,000. Fortunately, there were solutions to help now that we had the correct financial information. Unfortunately, about $170,000 had already been spent down, largely for services Medicaid would have covered.

While it makes it simple to think that the government only cares about how much you own and how much income you have when thinking about Medicaid planning, it is far from the truth. Medicaid qualification is not only based on how much income or assets you have but what kind of assets you have. It is certainly understandable to think only in terms of net worth and income since so many other areas of government will only care about those items, such as taxing a person’s total estate regardless of what the assets are or in most people’s situation taxing all of a person’s income regardless of the source. But there are big differences to Medicaid.

First and foremost there are countable assets and non-countable assets. In other words, some assets are off the table when it comes to whether or not a person or their spouse qualifies for Medicaid. For instance, a primary residence is provisionally off the table. I say “provisionally” since as of the date this article is written North Carolina Medicaid does not care if a primary residence has equity of $100,000 or $1,000,000, but some states do put caps on the amount of equity a home may have in order to qualify for Medicaid. But other land and homes are considered countable assets regardless of their worth or equity. So, yes, this could lead to the illogical result that a person with two house worth $100,000 each would be declined Medicaid since there is a second home but the person with one house worth $1,000,000 would qualify.

In addition, while the person may qualify for Medicaid even though they have a primary residence, Medicaid also has the ability to place a lien on the house up to the value of the money they paid out for care and if the house is sold they are paid back first. While this “payback” rule has been allowed for years, North Carolina had not been placing the liens. Recently (and probably because of the budget crisis) North Carolina has been placing these liens on houses and enforcing them when the patient passes away.

A primary residence is just one non-countable asset. There are also other non-countable assets such as clothing, personal jewelry, and an automobile that a person can have and still qualify for Medicaid. But before rushing out to buy designer clothes, diamond rings, and the most expensive car you can find, the Medicaid rules are not so easy to interpret. If a husband is trying to qualify for Medicaid and gives his wife a $20,000 diamond ring since she does not have one, then Medicaid would *probably* be OK with that. On the other hand, if the husband gave his wife a $250,000 diamond ring and it was one among many, then they would probably not be OK with it. There is also the case where a son was trying to qualify his completely paralyzed father for Medicaid and brought him a Ferrari… yeah, the Medicaid office did not like that one.

Before anyone reading this attempts to do Medicaid planning on their own, I have to point out that there are more than 200,000 rules regarding what assets are countable or not (and then whether they are countable and still acceptable). Unless Medicaid qualification is your career, it is impossible to understand all of the rules and regulations to qualify for Medicaid, and there is a high risk of making a mistake. When it comes to estate planning, there may be small items left out of an estate plan and the consequence is those small items do not go where they are supposed to. If something small is left out of a Medicaid plan, then the entire plan would collapse. As I hear all of the time on one of my favorite shows “Mythbusters,” please do not try this at home. We’re what you would call experts.

Countable assets are, unfortunately, the most flexible assets that people want to keep a hold of. Cash, stocks, bonds, mutual funds, retirement accounts, and other “liquid assets” are all considered countable assets that must be spent down to certain levels before a person or their spouse qualifies for Medicaid assistance. All of the countable assets are considered by Medicaid, and it is largely these assets that can complicate Medicaid applications if not handled appropriately.

In addition to whether or not assets are countable or not, there is a level of assets that are countable which would still be considered acceptable to qualify for Medicaid. I hesitate to put any numbers in print because they can change very quickly. But as of the time this article is written a single person can have up to $2,000 in countable assets and meet the asset test for Medicaid. If there is a spouse out of the nursing home, then they may keep up to one half of the countable assets but not less than $21,912 nor more than $109,560. This leads people to try to plan themselves and spend down everything but $109,560 and then transfer that amount to the spouse not in the nursing home. Unfortunately, this is backwards. Once the assets are spent down to $111,560 (the $109,560 plus $2,000) and are THEN divided in half, the spouse out of the nursing home would only get to keep $53,780 and the spouse in the nursing home would get their $2,000. However, the couple could get their countable assets down to $221,120, moved $2,000 to the spouse going into the nursing home, move $109,560 to the spouse outside the nursing home, and then spent the other $109,560. By splitting the assets before spending the remaining $109,560 down, they were able to keep $55,780 more. So it not only matters how much is spent down, what is countable or not, but also the sequence of events in dividing assets and spending them.

Finally, it also matters whether assets are accessible or not. This is probably the most confusing factor because people generally think of assets that they either own or don’t own. But there is a middle ground, and this middle ground, if utilized properly, can be the greatest preserver of assets from Medicaid Spend Down. Assets are inaccessible if they are held in trust even though the person going into the nursing home is the beneficiary of the trust. As long as the trust has an independent trustee (not the spouse) in charge of the trust and as long as the beneficiary has absolutely no ability to make the trustee give them trust assets, then the assets are not “accessible.”

A number of years ago I was working with a client who wanted the impossible. They wanted to set up an irrevocable trust in which they were the trustee, they were the beneficiary, they could put all of their assets into the trust and the trust assets would be immune from Medicaid Spend Down. I told her no such trust existed. The assets were completely exposed to Medicaid Spend Down because they were accessible to her. If she wanted the five year clock to start ticking on her assets being immune from Spend Down, then she had to decide to make the trust inaccessible to her for five years or more before qualifying for Medicaid. Well, she decided to find another attorney who told her they could create such a trust, and when I spoke to them it was clear they didn’t know what they were talking about. “The trust was irrevocable” he kept saying, and no matter how much I told him he was making a mistake he disagreed. No matter how much I told her she was making a mistake, she wanted to go with the attorney who told her what she wanted to hear instead of what was actually true.

Yes, all of it is confusing. Medicaid is MEANT to be confusing. By keeping the rules complicated, the government can say that it is providing complete medical care for seniors in nursing homes without bankrupting their spouse, but if they don’t understand the rules then the spouse can end up with much less than they are entitled to and so the government pays out less. This leads to many people who didn’t get a professional to help complaining that the people who did get help are “cheating the system.” (And, consequently, there are a lot of people who paid their whole lives for Medicaid insurance who will refuse to legally and properly preserve their assets because they don’t want to be seen as cheating the system.) The opposite is actually true—people who pay too much did so because they didn’t get help in understanding the system and how to properly make an insurance claim on the Medicaid policy they spent their whole life paying premiums to.

But assets are only one of the two major factors examined by the Medicaid office. The other is income which we will address in the next installment. There are ways to avoid a complete Medicaid Spend Down of your assets, but only if you have the right professionals helping you work within the Medicaid system. If you need more information, then please attend one of our workshops or call us to set up a time to review your family’s situation. You can reach us at 919-374-0694. Workshops are scheduled for June 2 at 4 pm and 7 pm at The Team Nimbus Center, 3201 Computer Drive, Raleigh, NC 27609, but seating is limited so RSVP to 919-374-0694. The next installment will be focused on how income is treated in the Medicaid qualification process.

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