Protecting Assets After Illness

5 Year Lookback Period

The Medicaid Agency is allowed to look at everything you have done for a period of 5 years prior to the date of your Medicaid application. This is commonly known as the 5 year lookback period.

If the Medicaid Agency discovers that you have given away any of your life savings during this 5 year lookback period, then unless you fall under a special exception, a transfer penalty period of ineligibility will be imposed based on the amount you have given away.

Even when you are already in a Nursing Home and caught in this 5 year lookback window, there are many options that may still be available to protect some or all of your life savings.

Transferring Assets to A Special Exempt Person

There are numerous special exceptions where there is no transfer penalty if certain conditions are met. Some examples include:

1. Healthy Spouse
2. You Have a Child with Disabilities (Supplemental Needs Trust)
3. Child Living With Parent
4. Co-Owner of Property is Living in the Property
5. Sibling is Living with You

Special Rules for Special People

1. Blind
2. Legally Disabled and Under Age 65 (Supplemental Needs Trust)
3. You are Receiving a Personal Injury Settlement (Supplemental Needs Trust)

Special Rules for the Healthy Spouse

1. Is Your Income Below $3,853.50 Per Month?
2. Go to Family Court to Obtain an Order of Support
3. Go to Fair Hearing to Keep additional Life Savings

You Can Purchase An Annuity

Under the Medicaid Laws in New York State, the community spouse (healthy spouse) is entitled to retain a minimum of $74,820 and a maximum of $154,140 of the couple’s life savings. The community spouse is also entitled to retain $3,853.50 of the couple’s combined income. A single individual in a nursing home is entitled to retain $31,175 of his/her life savings and $50 per month of income. (These are 2024 figures). If the couple’s or single person’s resources exceed $74,820 or $31,175, then the excess normally must be spent on the cost of care before Medicaid eligibility can be established.

The excess resources can be protected by purchasing an annuity. By purchasing an annuity, you are converting your life savings into an income stream. Any monthly payments you receive from the annuity are considered income and will be subject to the income contribution rules, but will not be subject to the resource depletion rules. Medicaid must be designated as the primary beneficiary of the annuity to be reimbursed for its expenditures. Any funds remaining after the Medicaid Agency has been reimbursed may be distributed to your designated beneficiaries.

The annuity contract must fully comply with Federal and State Medicaid laws and regulations.

There are both advantages and disadvantages to this asset preservation option as compared to the other alternatives discussed in the Medicaid section of this Web Site.

Promissory Note

As discussed above, the purchase of an annuity would convert excess resources into an income stream. Another method to accomplish this is by lending your excess resources to someone else in exchange for a promissory note. The monthly payment due on the promissory note would be treated as income.

Often the promissory note asset preservation method is combined with gifting assets to someone else and incurring a transfer penalty period of ineligibility based on the value of the transferred assets.

Determining the amount to be gifted and the amount to fund the promissory note is not a simple calculation and is based on the total monthly income, the anticipated transfer penalty and the cost of Nursing home care.

Medicaid planning using promissory notes in strict compliance with the Medicaid laws could protect a portion of the assets that would otherwise be spent on the cost of nursing home care.

Spousal Refusal

If the community spouse has resources in his/her name above the spousal resource allowance of $74,820 (2024 figures), he/she has the right to refuse to contribute these excess funds towards the ill spouse’s cost of care.

One advantage of obtaining immediate Medicaid eligibility with a “spousal refusal” is that the ill spouse will receive Nursing Home care at the lower “Medicaid Rate” rather than the “Private Pay” rate.

Upon receiving a “spousal refusal,” the Medicaid agency typically will respond in one of the following ways:

1. Approve eligibility for the ill spouse and take no further action.
2. Approve eligibility for the ill spouse, but then file a Court action against the community spouse to force contribution towards the ill spouse’s cost of care. Typically, before filing such a Court action, the Medicaid Agency will send the community spouse a “demand letter” itemizing the expenses paid by the County Medicaid Agency and demanding that the community spouse reimburse the County. Upon receiving such a “demand letter”, the community spouse will need to respond to this letter by either agreeing to reimburse the County, by negotiating a settlement, or by litigating (defending a recovery action by the County).
3. Approve eligibility for the ill spouse. However, after the death of the community spouse, Medicaid may then file a recovery action against the estate of the community spouse. Any future estate planning by the community spouse such as gifts to children or to a Trust could become subjected to a recovery action by Medicaid.

Special Assets with Special Rules

1. Family Business
2. Individual Retirement Accounts (IRA, 401(k), 403(b), etc.)
3. Life Estates
4. Joint Assets

At the Koldin Law Center, P.C. located in East Syracuse, New York, we have over 50 years of experience helping elderly individuals plan for immediate crisis and long term care. Our firm represents clients in Onondaga county and throughout all of Upstate New York.

Contact our experienced Upstate New York elder law attorneys to schedule a free initial consultation. We are available for home and hospital visits and our flat fees are very reasonable.