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Medicaid Planning: Transferring Assets Versus Irrevocable Trust

Piggy bank and stethoscope
According to the Pennsylvania Heather Care Association, up to eighteen percent of seniors in the United States will require at least one year of nursing home care. Seniors who are anticipating nursing home care wonder whether to gift their assets or to place these assets in a trust in order to qualify for Medicaid.

Read on to learn more about these two options so you can protect your assets and beneficiaries while you receive the care you need.

Medicaid Gifting
One requirement for Medicaid eligibility is that an applicant can only own personal assets worth $2,000 or less, not including one vehicle and the family home.

You could be easily disqualified if you own moderate assets even though these may, in reality, not be enough to cover for your long-term care needs. As part of Medicaid planning, applicants opt to gift their assets to bring down the value of their personal assets to $2,000.

However, gifting or transferring your assets for Medicaid will attract a penalty, which is a period of time during which you will be ineligible for Medicaid, based on the amount of money you transfer.

For example, in Kansas, the average nursing home costs $5,000 a month. If you transfer $100,000 to your non-disabled child, you will wait 20 months before you can be eligible for Medicaid. You would have to pay out of your own pocket in the event you require nursing care during this penalty period.

Medicaid applies a five-year look-back strategy with regard to the penalty period. This means the penalty will come into effect if you apply for Medicaid less than five years after gifting your assets.

Plan for your long-term care needs before a crisis to avoid the penalty period and so that you can access Medicaid as soon as you need it.

Effects of Gifting for Medicaid
Gifting large assets can increase your penalty period i.e. the duration of time you will need to wait before being eligible for Medicaid assistance for nursing care.

The other disadvantage of gifting is that the recipient could use the assets in a way that benefits them but puts you at a disadvantage. This can be disastrous especially if you have to pay for nursing care out of pocket prior to qualifying for Medicaid.

Lastly, gifting could have implications for your grandchildren's ability to qualify for financial aid for college and your own children's ability to qualify for Medicaid.

Irrevocable Trusts for Medicaid
Although Medicaid can act as a much-needed safety net, this program has its drawbacks especially regarding the protection of assets upon your death. Medicaid law allows states to recoup some of the costs such as prescription drugs and nursing care that the state pays for you.

The state recovers these funds by placing a lien on your estate. This means when your estate undergoes probate, the state will be among the listed creditors.

To protect your assets and still qualify for Medicaid, consider placing your assets in an irrevocable trust.

Effects of Irrevocable Trusts for Medicaid
An irrevocable trust is unchangeable and designates a person (trustee) to manage and distribute property for the benefit of the beneficiaries.

As long as the trustee does not pay you the funds in the trust for your own benefit, the funds are not considered for Medicaid eligibility. However, any income earned from the assets in the trust will be payable to the nursing home.

An irrevocable trust significantly safeguards your assets from creditors, can minimize estate tax, and protects the financial wellbeing of your beneficiaries when you are ill or pass away.

Medicaid law is a complex field, often shrouded in myths and misconceptions. The wrong information can cost you and your family years of nursing home care costs. Consult a qualified estate-planning lawyer for accurate information.

To start planning your estate for your long-term care needs, speak to the experienced attorneys at Coffman, DeFries & Nothern, P.A.

Coffman, DeFries & Nothern, P.A.

534 S. Kansas Ave., Suite 925
​Topeka, KS 66603
Phone:  785-234-3461
Fax: 785-234-3363