Even when you or a loved one are faced with nursing home care, there is something you can do to protect your money.
One of the biggest myths of Medicaid planning is that nothing can be done if nursing home care is just around the corner. After all, Medicaid has a five year look-back period, so your accumulated wealth is as good as gone, right? Well, not so fast. There is something you can do.
Medicaid doesn’t want to pay for medical expenses of people who can pay for them on their own. They also don’t want people giving away their wealth in order to qualify. So Medicaid invented the 3 year look-back which quickly became the 5 year look-back. What this means is that Medicaid can go back through 5 years of your records to see where your money went. If any was given away, either to a person, a charity, a trust or a relative, they can choose not to qualify you for Medicaid. You then have to pay out of pocket expenses.
So if you can’t give away your money, you are stuck, right. Not exactly… you can sell your money and get paid back in installments with interest. Medicaid can still adjust the amount they will pay to compensate for this “income”, but the rest will be safely waiting to be paid to whomever you designate after your death. You may have just saved the bulk of your estate for your children and grandchildren!
If this sounds too good to be true, it’s not. The instrument that is used is commonly called a Medicaid annuity. One can purchase a Medicaid annuity which has specific language included in the contract for the monthly payments such as a clause that states that it is non-transferrable and cannot be cancelled. This makes it untouchable by Medicaid and, more importantly, an exempt asset for qualification.
Several states have tried to get around this Medicaid workaround, but have failed, the most recent being North Dakota who tried to deny the Geston’s coverage [Geston v. Olson, 857 F.Supp 2d 863 (2012)]. In North Dakota, Mr. and Mrs. Geston were trying to plan for their future as Mr. Geston had just entered a nursing home. They had not yet applied for Medicaid but had gone to the social service board for an asset assessment. The board determined that they had exceeded the statutory limit (to qualify for Medicaid) by $586,000. The Geston’s must have done some research into what was countable and what were exempt assets because they began to spend on exempt items. Basically, countable assets are everything but the exempt assets. Exempt assets include things like a home, household goods, burial funds, cars, retirement funds and non-marketable assets.
The Geston’s decided that they would take some of their $586,000 and spend it on a bigger home, a new car and prepaid burial services, with still left them over $400,000. Not wanting to spend it all on health care leaving little left for their future heirs, the Geston’s bought a Medicaid annuity which would pay out $2,734.65 a month for 13 years, most likely long past Mr. Geston’s life expectancy leaving the balance for .
North Dakota denied the Geston’s application. The department reasoned that the remaining value of the annuity was a countable resource. The Geston’s took the state to court. The lower court granted the Geston’s summary judgment (without even the need for a trial) because North Dakota’s denial of benefits was stricter than the federal rules and in order to get Medicaid funding, states had to agree not to be more restrictive than the federal rules.
North Dakota then appealed the summary judgment. The state threw everything they had at the Gestons, citing missing language in the code, the definition of annuity, and finally, a Hail Mary saying that this undermines the purposes of the program. The state tried to lump the Medicaid annuity in with retirement annuities even though that was not the language used. The court came back and said that the lawmakers knew what language they were using, there was no missing language, and annuity was clearly defined. They went on to insinuate that if the state thinks a Medicaid annuity undermines the purpose, they can bring it up with the lawmakers, not the court.
The Geston’s won and so did the Medicaid annuity. Estate Street Partners can help to determine whether this tool or a different tool will help protect your assets.