Medicaid 'crisis planning': Here's what you need to know about your options

Trying to qualify for Medicaid within the five-year lookback period? Here is how an attorney can help.

If you need Medicaid for long-term care and do not have the luxury of waiting five years after transferring assets to qualify, it is referred to as “crisis planning” for Medicaid. This may sound daunting, but with the correct attorney, it does not have to be.

Before an individual begins the Medicaid application, it is important to be aware of the five-year lookback period. This lookback period prevents applicants from gifting all their assets to individuals, with a few exceptions. If a violation is found within a lookback period, an individual is put into a penalty period and will have to pay out of pocket until eligible.

What are your options moving forward?

Spousal Refusal: Transfers made between spouses, even if they are made within five years of the submission of a Medicaid application, are exempt from the five-year lookback period.

To start the spousal refusal process, a couple must transfer all non-exempt assets into the community spouse’s name. The community spouse is the spouse that is not applying for Medicaid.

After this transfer occurs, and before the Medicaid application is filed, the community spouse must sign a document titled “Notice of Spousal Refusal” which legally shows that the community spouse refuses to be obligated to pay for the care of the Medicaid applicant.

Finally, the Medicaid applicant must sign an assignment of rights to the government

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Spend Down: For those who have too many assets (or too much money) to qualify for Medicaid, they can use the "spend down" strategy to decrease their countable assets. A person can spend down by paying off all outstanding medical bills, making needed home repairs, prepaying funeral expenses, or purchasing a new car to name a few examples. Spending down does not mean someone should gift money to others, as this would incur a penalty under the five-year lookback period.

Attorneys do advise that an individual should do this strategically, with the guidance of an attorney, and not spend all their money to try to qualify for Medicaid.

Personal Services Contract: Another strategy that can be considered a way to "spend down" money without a penalty from Medicaid is creating a personal services contract. Anyone who is acting as a caretaker for the person trying to qualify for Medicaid can be paid to do so with a personal services contract. This allows for the Medicaid applicant to pay a loved one for their care and not be penalized for gifting that person money. Of course, the amount paid to a personal caretaker must be a fair amount and is generally calculated with the following equation: hourly rate x estimated hours per week x 52 weeks per year x life expectancy, or amount of anticipated remaining years of life.

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This is not as simple as just creating a contract with the specified amount. Caretakers must keep time sheets to prove that the money received is being used for the intended purposes. When an application is submitted, DCF will ask for the timesheets and are able to audit those timesheets any time after they receive them.

Additionally, the caretaker will be required to report this transfer on their own taxes as this is considered taxable income by the IRS.

Qualified Income Trust (QIT): This type of trust allows those who are over the income limit to become eligible for Medicaid by placing all their income into the QIT account every month that you need Medicaid. QITs are irrevocable. Only income should be deposited into your QIT account because the state is entitled to the remaining funds after the death of the Medicaid recipient. This document may only be signed by the person having legal authority to do so under a valid durable power of attorney. The QIT follows the rules of trusts meaning it must have two uninterested witnesses and a separate notary signature to be valid.

This trust works by placing income into the QIT account each month. It will ensure that you continue to be eligible for Medicaid each month. So, if you make sure money is deposited within the month you receive it, you will qualify for Medicaid.

In Florida, the maximum allowed income each month is $2,742. The money in this trust will eventually be paid to the state for any money that a person may owe to Medicaid after using Medicaid to pay for long-term care on their behalf. Any remaining funds, after the state receives their portion, will be distributed to the named beneficiaries in the QIT document.

By contacting a trusted Medicaid attorney, an individual can relieve themselves of the stress of “crisis planning” for Medicaid for long-term care. This type of attorney will be able to look at an individual’s unique situation and create a strategic plan to ensure the Medicaid applicant qualifies within a short period.

Stephen J. Lacey, JD, LLM, is a member of the law firm Lacey Lyons Rezanka. His practice areas focus on estate planning and probate.

This article originally appeared on Florida Today: Crisis planning and Medicaid: You have options — learn more about them