What Is Medicaid Planning?

A very common question that we will hear from clients is in regarding to one of many government benefits programs such as Medicaid and Medicare. For many reasons, our clients may hear certain reports in the news or do some research on their own about these government benefit programs. However, many of our clients have received incomplete or simply wrong information about these government programs. 

Well, first and foremost, Medicaid is not Medicare. These two terms are not one in the same, but are instead unique and distinct government programs. Medicare is simply an entitlement program of federal health insurance for those 65 years of age and older. Meaning, that if you are over the age of 65, then you get Medicare. Now, Medicaid on the other hand, is something completely different. Medicaid is both a federal and state healthcare program that provides financial assistance of healthcare costs for those with limited or no financial resources. 

In Tennessee, this is a partially state controlled program and is referred to as TennCare Bureau. In order to qualify for Medicaid you can have no more than $2,000 worth of assets in your name if you are a single person. However, you can also have a home, car, and prepaid funeral regardless of their value. 

The term Medicaid planning primarily consists of planning and structuring your assets in such a way so that if you do go into a nursing home in the future, you will not have to spend all of your assets on your long term care costs, but may rely on Medicaid to pay these costs. Now, why this is so important is because if you do go into a nursing home, spend some of your assets on your care, and then spend the next one or two years receiving Medicaid benefits, then after you die, the State of Tennessee can actually force the sale of your home so that Medicaid can be reimbursed for all the costs that were paid out during your lifetime. 

A very popular way to protect your assets is to establish an irrevocable Medicaid trust. However, in order to protect your assets from having spend them on nursing home costs through this trust, you will need to establish this trust and fund this trust at least five years before you begin nursing home care. This is because that Medicaid has a five year look back rule which allows them to look at any transfers that you made out of your name over the course of the last five years, and if you did make those transfers, than that would affect your countable assets for purposes of Medicaid eligibility. In addition, an irrevocable Medicaid trust irrevocable. This means that you will not be able to remove any of the assets out of the trust and put them back in your own name and still qualify for Medicaid. 

However, an Irrevocable Medicaid Trust does allow for you to make distributions from the trust directly to one of your adult children, and that adult child can then give those assets back to you the very same day with absolutely no Medicaid eligibility ramifications.