I was recently speaking with a wonderful couple following one of our educational events in Murfreesboro, Tennessee. This couple had been considering estate planning for a long time and had a lot of questions and concerns about Medicaid and protecting their assets from nursing home expenses. However, this couple had also been reading a lot of information online and asking their friends and family a lot of questions about Medicaid and whether anything could be done to protect their assets. This couple had read that they should transfer their assets out of their name, but if they go into the nursing home soon, they will be subject to a Medicaid Penalty Period. This couple was uncertain what this meant and wondered if there was anyway to avoid the penalty period.
I explained to this couple that anytime someone goes into a nursing home, Medicaid will review all the assets that you own to determine your eligibility. Medicaid lets you own a home, a vehicle, and prepaid funeral regardless of value. However, if you own any other assets on top of that, Medicaid will force you to spend down all of your other assets until you have no more than $2,000 worth of extra assets in your name.
I also discussed with this couple that on the Medicaid application Medicaid will ask if you have made any transfers out of your name in the last five years. If you have, then you will be required to disclose the transfer and the value of the transfer. Medicaid will then take the value of the asset that you transferred out of your name and perform a calculation taking into account when the asset was transferred, the value of the asset, and the average monthly nursing home cost. After conducting this calculation, Medicaid will then make a determination as to the length of the penalty period and how much you will be required to pay toward your nursing home care.
For example, let’s say Jane went into the nursing home and she had transferred $40,000 out of her name 4 years ago. In addition, let’s further say that Medicaid says the average cost per month of a nursing home stay is $4,500 per month. Medicaid would take $40,000 divided by $4,500 to calculate the penalty period. In this example, Medicaid would say that Jane can pay approximately 9 months of her nursing home care before Medicaid kicks in and starts paying. This would be Jane’s penalty period.
I explained to this couple that for this reason it is important to plan far enough in advance so that the penalty period is never an issue. I explained that you can create an Irrevocable Medicaid Trust and transfer all of your assets into the name of this special trust at least five years before nursing home expenses begin. I discussed with this family that so long as a trust has been set up this way, there would be no penalty period and you would be able to preserve your assets from future nursing home expenses.
If you have questions about estate planning in Tennessee, establishing a revocable living trust or an irrevocable Medicaid trust, avoiding nursing home poverty and Medicaid planning, or any other estate planning topics, then I encourage you to attend one of our free live educational events scheduled this month. At these events, you will hear a lot of real life stories about families that paid thousands of dollars in unnecessary expenses, families that were able to avoid unnecessary expenses, and families that were able to protect their assets from unnecessary nursing home costs and expenses.
I look forward to speaking with you at one of our live upcoming events.