In the world of Florida Medicaid, there are a lot of misunderstandings that take the form of five common Florida Medicaid myths. These “myths” can tend to be kind of “ingrained” and thus tough to correct and cause needless stress for families.
For example, an estate planning client commented recently that she would have to spend down all the assets before getting her husband qualified for Medicaid…to which I responded, “not true”.
Clarifying these five Florida Medicaid myths is the Florida elder law topic for this week’s article.
Five Common Medicaid Misconceptions or “Medicaid Myths” are:
They will take away my home.
If I sell my home after my spouse is on Medicaid, they will take ½ the proceeds.
I will have to give the nursing home half our assets.
If I transfer assets to my spouse, it will disqualify me.
I can give my children $14,000 per year and be eligible for Medicaid.
Myth #1 Status of the Home
Your homestead in Florida is exempt from the Medicaid asset calculation if a spouse or child lives there. An equity and home care discussion applies if you’re single, and, depending on your state of residence, a home may be deemed exempt even if you’re single if there is some remote possibility that you could return to it, and this is often a very speculative question.
Myth#2 Selling the Marital Home
If the “well spouse”, who is married to an “ill spouse” qualified for Medicaid, sells the marital home, this will have no negative effect on the ill spouse’s Medicaid. In fact, the “well spouse” can make any financial decision concerning his/her half of the estate, and it will not affect the ill spouse’s Medicaid. However, keep in mind that financial decisions may affect the “well spouse’s” own Medicaid needs due to the “look-back period” for asset transfers to be discussed.
Myth #3 The Spouse’s Assets and Spending Down the Estate
All of one spouse’s assets may be transferred to a “well spouse” in order to allow an “ill spouse” to apply for Medicaid. However, under the traditional Medicaid rules, a well spouse can essentially only keep a portion of all the non-exempt marital assets (currently around $116,000). One strategy to deal with this reality is to apply the well spouse’s overage of assets in ways that can still protect the total value of your estate.
For example, an overage could be used to repair and even remodel exempt assets such as the home. The spouse could also use the overage to pay for a new car, pay down debts or provide for other needs of the Medicaid applicant ill spouse.
Myth#4 Transferring Assets to Spouse and the Spousal Refusal of Support in Florida
Notwithstanding #3 above, in limited jurisdictions (i.e. currently New York and Florida) a spouse may refuse to pay for the other spouse’s medical care. What this means, practically speaking, is that the ill spouse’s assets may be transferred to the well spouse. The ill spouse can then apply for Medicaid and thereafter the well spouse may file a document refusing to pay for the ill spouse’s cost of care. Thereafter the ill spouse files something with the state assigning the right to collect from the well spouse. This strategy involves some very specific filings and timelines and should not be attempted without the assistance of a seasoned expert. There are pitfalls that need to be recognized. For example, spousal transfers cannot be made after the well spouse files the notice of refusal. Spousal refusal of support for Medicaid and using Medicaid wills in Florida are two powerful approaches to consider when doing Medicaid planning in Florida for a spouse.
Myth#5 Gifting to Heirs and Medicaid Penalties
While the $14,000 gift exemption allows you, under the IRS rules, to give away this amount to as many beneficiaries as desired without a “gift tax,” this rule does not apply to Medicaid. So this approach would likely result in a penalty period, which would delay payment of Medicaid benefits due to the “look-back period” for transfers. This will be discussed later in this chapter.
When to Use Outright Gifts…
For all of the reasons discussed above, you know by now that an outright gift to an adult child (or other family member) will trigger a penalty for Medicaid purposes unless the child is under 21 or is blind or disabled and under age 65. Nonetheless, an outright gift may be advisable under certain circumstances where the giver is elderly or has estate tax concerns, and it is likely he/she will not require long-term skilled nursing assistance for at least 5 years. Another reason that gifting to third parties for Medicaid planning may be advisable is that there are significant exempt assets or other resources to provide for long-term skilled nursing care.
There are significant drawbacks to outright gifts to adult children that extend beyond the Medicaid penalty issues. For example, adult children may be irresponsible or predisposed to squandering resources, or other life events such as divorce or bankruptcy.
Gift Transfers, the “Look Back Period” and Penalties
One of the keys to understanding Medicaid planning is to understand how the “look back period” and penalties work. You need to know that, when you’re planning to apply for Medicaid to pay for long-term medical care, you cannot simply transfer assets out of your estate to third parties for less than fair value, and then apply. Many people make this mistake when they transfer assets to adult children without considering the ramifications.
The Deficit Reduction Act of 2005 (DRA) increased the look-back period to 5 years and changed the penalty period, so it now begins from the time of eligibility and not from the time of application. In practical effect, this means if someone makes a prohibited transfer and then applies for Medicaid, the penalty period will not start until the person has spent down the assets to the limit. The penalty is generally calculated by dividing the value of the transferred asset by the average monthly cost of full nursing home care in the area where the applicant resides. So a $10,000.00 transfer might result in a 2-month penalty where the average cost of care is $5,000.00. Before the DRA, the penalty period began in the month that the transfer was made and the look-back period was only 3 years for most transfers.
So the first question when looking at a transfer of assets is whether it is exempt. There are certain situations where the exemption is clear. For example, transfers between spouses are exempt notwithstanding the fact that both spouses’ assets are included on the Medicaid application. So a transfer of any amount to a spouse will not trigger a penalty period. Other exempt transfers include a transfer to a child under age 21 who is blind or disabled and transfers to a special trust for a disabled person under the age of 65. Transfers of a residence to a sibling with an equity interest or to a caregiver who has lived in the home for the past two years and, but for that care, the applicant would have been institutionalized are also exempt.
When an elder law attorney in Florida considers this kind of planning, they may suggest attempting one of the above exempt transfers or they may recommend making a transfer well in advance of the need for Medicaid assistance (for long-term medical care) so that the look-back period is not an issue. The recommendation of a transfer in advance will depend largely on the financial situation of the client and whether there are adequate resources, either exempt or available to spend down (pay for care), in order to bridge the 5-year look-back period gap.
Steve Gibbs, Esq.