Medicaid Transfer Penalty Trap–Part 4
This edition of the Koldin Law Center E-Newsletter continues a series about the Medicaid Transfer Penalty rules and the trap set for people who apply for Medicaid for nursing home care.
All prior newsletters are saved on our website. You can read them by clicking here.
In the previous newsletters in this series, we used the following example:
Example: Husband entered a nursing home on August 1, 2021. The cost of nursing home care is $13,000 per month. He and his wife had combined life savings of $140,000 on the date he entered the nursing home. In May 2017, May 2018, and May 2019, they gifted $10,000 each to their son and daughter. The total gifts were $60,000 over this 3 year period.
Under this example, Husband can keep $15,900. Wife can keep $74,820 (2021 figures).
The previous newsletters explained that there would be a transfer penalty of 5.5 months running from the application date of December 2021 to mid May 2022 where Husband and Wife would need to spend approximately $71,000 from their remaining life savings before Medicaid coverage would begin.
The “Medicaid Transfer Penalty Trap” results from a transfer penalty period of ineligibility being imposed after your life savings has already been depleted down to the Medicaid eligibility levels of $15,900 and $74,820.
The previous newsletters discussed two methods to prevent or reduce this “Medicaid Transfer Penalty Trap”: (1) Return of gifts or (2) Prove transfer was not made to deplete life savings to qualify for Medicaid.
This newsletter discusses the use of Promissory Notes to protect transferred funds and avoid or reduce this “Medicaid Transfer Penalty Trap.”
A Promissory Note is a method to convert some of your life savings into an income stream. The income from a Promissory Note does not count as part of your life savings.
Using the above example, $140,000 savings – $15,900 (Husband’s exempt funds) – $74,820 (Wife’s exempt funds) leaves them with $49,280 of excess life savings that must be eliminated before Husband can qualify for Medicaid.
Instead of spending the $49,280 on nursing home bills, Husband loaned $50,000 to his children in July 2021 in exchange for a Promissory Note.
The interest rate and Medicaid requirements for how long a Promissory Note can payout is beyond the scope of this newsletter.
For this newsletter, assume that the children must pay back the Promissory Note for 5 months at payments of $10,000 per month.
Now, instead of spending the $49,280 excess life savings on the nursing home bills and waiting until December 2021 to apply for Medicaid, Husband can apply for Medicaid in August 2021 because the $49,280 no longer counts as part of their life savings. Husband’s and Wife’s life savings as of August 2021 is now down to the Medicaid “Life Savings Limit” eligibility levels.
The Medicaid Agency would then assess the 5.5 month transfer penalty period of ineligibility just as discussed in the prior newsletters, but this time Husband and Wife won’t be forced to spend $71,000 from their remaining life savings to pay for Husband’s nursing home bills during the 5.5 month period of ineligibility.
Husband will receive $10,000 each month from the Promissory Note. Husband and Wife will have to spend $3,000 from their remaining savings or monthly income to cover the balance of the $13,000 nursing home bill each month.
At the end of the 5.5 month transfer penalty, the Promissory Note will have covered $50,000 of the nursing home bills and Husband and Wife will have covered approximately $16,500 of the nursing home bills from their remaining life savings.
The use of the Promissory Note reduced the amount Husband and Wife had to spend towards the nursing home from $71,000 to $16,500.
If Husband and Wife had more than $140,000 of life savings or if the children had been able to return part of the gifted funds, the use of the Promissory Note could have protected even more of their life savings and completely eliminate this “Medicaid Transfer Penalty Trap.”
This newsletter showed how a Promissory Note can be used to reduce this “Medicaid Transfer Penalty Trap” and reduce the amount of life savings that Husband and Wife had to use up towards the cost of nursing home care.
The next newsletter in this series will provide another example using Promissory Notes to not only avoid this “Medicaid Transfer Penalty Trap,” but to protect additional life savings even when you are already in a nursing home.
The Koldin Law Center, P.C. is available to help. We assist families in protecting their life savings even when someone is already in a nursing home.
For more information about Medicaid, please see our website by clicking here.
At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. When the Koldin Law Center, P.C. handles a Medicaid case, we not only handle the entire application process, but we also review asset protection options with our clients. We review with our clients who are already in a Nursing Home options to protect some or all of their assets beyond merely establishing Medicaid eligibility. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.
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