Frequently Asked Questions

Medicaid Planning

Q: What is a "Miller Trust" and do I place my assets into such a trust?

A: Long-term Medicaid has income eligibility requirements (in addition to resource limits and other requirements) in certain states such as Texas (an "income cap" state). As of January 1, 2007, the income cap for year 2006 became $1869 per month. If an individual, who is applying for Medicaid, has income over the cap, then a "Miller Trust" can be created to place the income (not resources) to pass such eligibility requirement. "Miller Trusts" are also known as "qualified income trusts" or as "QITs".

Q: Will I, as the spouse that lives at home (the "community spouse"), be allowed to keep any my spouse's income if such spouse lives in a nursing home (the "institutionalized spouse") and is on Medicaid?

A: It depends on the income of the respective spouses and what strategy is employed. If the income of the community spouse is greater than what is called the minimum monthly maintenance needs allowance ($2541 as of January 1, 2007), then there are limited situations when a court order can be obtained to divert income from his or her institutionalized spouse so that his or her income is above the MMMNA. If there is a "spend down" of resources, then the community spouse can be diverted income so that that the community spouse has income up to the MMMNA. However, it is often best to not "spend down", so this situation must be carefully reviewed with your experienced elder law attorney.

Q: If we get my loved one on long-term care Medicaid, are we going to lose the family home?

A: Maybe, if one applies for long-term Medicaid after the rules change which are expected no earlier than March 1, 2005. Although the rules are not final, the proposed rules as of January 1, 2005 indicate that the state will have a right to make a claim against the probate estate on all homes over $100,000 and against those that are under $100,000 if the income of the heirs is greater than 300% of the poverty level. Check th December 2004 newsletter for further details and review future newsetters for the final rules. At the present time under the proposed rules, it appears that estate recovery by the state can be avoided with proper planning. Additionally, there are exceptions to the rule.

Q: Can I transfer or give away my assets to obtain long-term care Medicaid?

A: A transfer of assets can result in a penalty causing ineligibility for long-term care Medicaid. There are some exceptions to the rule (particularly with regard to disabled children). As a result of the Deficit Reduction Act of 2005 signed by President Bush on February 8, 2006 (which was implemented in Texas on October 1, 2006), the rules regarding transfers for less than fair market value have changed for transfers that occur on or after February 8, 2006. There is a question as the constitutionality of DRA and several lawsuits have been filed and thus, if successfully challenged, DRA would not be effective. The Texas Health and Human Services Commission is targeting October 1, 2006 as the date that Texas desires to implement the federal law (see the newsletter section for updated information as it happens). Until then, if one applies for Medicaid and is otherwise eligible before implementation of DRA, the old rules are still applicable. Under the pre-DRA rules (the rules prior to February 8, 2006), there is a 3 year look-back period on uncompensated transfers, such as gifts, and a 5 year look back on transfers to most irrevocable trusts or from revocable trusts to someone other than the grantor. Under those rules, the transfer penalty is determined by dividing the average daily cost of a nursing home in Texas ($117.08) into the amount of the uncompensated transfer from the month of the transfer. Transfers for less than fair market value on or after February 8, 2006 are subject to a 5 year look-back period (which is gradually being implemented - in other words, there will not be a full 5 year look-back period until February 8, 2011 except for transfers into most irrevocable trusts) and thus for such transfers on or after February 8, 2006, the transfer penalty period resulting in ineligibility for long-term care Medicaid starts from the date of application or from when one is otherwise eligible for long-term care Medicaid (unlike the pre-DRA rules where the transfer penalty starts from the 1st day of the month of the transfer for less than fair market value). Under DRA, the presumption is that any uncompensated transfer (even a gift to a charitable organization) within the 5 year look-back period was done for the purpose of obtaining Medicaid benefits. So, under DRA, if you made a gift to a charitable organization and 4 years later you had a stroke and applied for Medicaid, the presumption is that the gift 4 years earlier was for purposes of obtaining Medicaid and the period of ineligibility would start when such person applied (assuming it was within 5 years of the uncompensated transfer) and not from when one made the transfer. Notwithstanding DRA, there are still planning strategies presently available to for asset preservation - even for transfers within the 5 year look-back period.

Q: Can't I always transfer $10,000 to my children?

A: See above. The annual exclusion (which is now $12,000) is still subject to the Medicaid rules. So, the transfer could result in a transfer penalty - depending on when the uncompensated transfer was made and if there was an existing transfer penalty and if the transfer was to a disabled child.

Q: What are countable resources and non-countable resources?

A: Most assets that can be converted to cash are considered countable (such as the cash surrender value of life insurance policies, stocks, IRAs, mutual funds, bank accounts, etc.) and can be used for your support. They are considered in determining Medicaid eligibility. Excluded resources, such as the homestead, a burial space, term life insurance, etc. are considered non-countable for Medicaid eligibility purposes.

Q: Do the accounts that I own jointly with someone else count toward my Medicaid eligibility?

A: It is assumed that the account belongs to the applicant unless it could be proven otherwise.

Q: Do the assets of the community spouse count even if there is a prenuptial or postnuptial agreement?

A: Yes.

Q: Is buying an annuity the best way to protect all of my resources?

A: It depends on the factual situation. With the rule change which became effective as of September 1, 2004, "Medicaid annuities" will be become more popular when there is an institutionalized spouse and a community spouse and their total non-countable resource income exceeds or is close to the minumum monthly maintenance needs allowance ($2541 as of 1/01/07). For those who entered an institution prior to 9/1/04 it was rarely the best way to protect resources. Before one makes a decision one should consider all of the options. Be wary of anyone who advises this is the only option. Under DRA, there have been additional requirements in the use of this type of annuities - but there is a presently a lack of clarity as to how this rule will be interpreted.

Q: Can the community spouse keep several hundred thousand dollars and still get Medicaid eligibility for her husband without having to change the nature of her resources?

A: Depending on the income of the community spouse and other factors, often the answer is "Yes".