Ins and outs of Medicaid planning

As baby boomers age and prepare for retirement, many are undertaking a different type of financial planning.

It’s known as “Medicaid planning” and involves putting you in the best possible position to qualify for Medicaid, while at the same time preserving your assets for your loved ones.

Don’t try this on your own. Medicaid planning is complicated stuff because you’re dealing with fine points of the law. Consider hiring a professional, such as an elder law attorney, to help you.

Here is some of what you need to know about Medicaid planning:

Spousal safeguard: Because the expense of nursing home care can rapidly deplete a couple’s savings, Congress built in a safeguard to ensure that an elderly couple doesn’t completely impoverish themselves if one has to move to a home.

Under the Medicaid “spousal impoverishment provisions,” a certain amount of a couple’s combined resources is protected for the spouse still living at home. Depending on how much income the at-home spouse actually has, a certain amount of income belonging to the spouse in the nursing home can be set aside for the at-home spouse’s use.

Miller Trust: Also known as a qualified income trust, a Miller Trust can help people applying for Medicaid nursing home benefits whose income exceeds the monthly cap.

With a Miller trust, you can legally reduce the amount of your income that’s counted for eligibility purposes by directing your monthly pension or Social Security payments into the trust. Note that you can include only income and not other assets, such as property or IRAs.

Common mistakes: There are some common mistakes that people make in Medicaid planning that you should avoid. Perhaps foremost among those is selling your home. That can hurt your abilty to qualify for Medicaid.

Another common mistake people make is thinking that just giving away their money or assets will enable them to qualify for Medicaid. It’s not that simple.

“Medicaid has what is commonly referred to as a ‘look-back’ period of five years for almost all transfers,” said Brian Fant, a Dallas elder law attorney. “This means that, with very few exceptions, transfers within 60 months of filing an application are counted and will disqualify the applicant from Medicaid eligibility for a length of time based on the amount of the transfers.”

So if you gave your child $100,000 and then applied for Medicaid right after the gift, you would have to disclose it.

If you waited 61 months, you would not have to disclose the gift.