To begin my series on advanced Medicaid planning strategies, I would like to address a question that I am often asked: How can I protect my assets if I’m not likely to enter a nursing home within the next 5 years?
* The following is a discussion on the protection of non-real estate assets. To learn about advanced Medicaid planning strategies to protect your home and other real estate, please view my blog titled, “Medicaid Advanced Planning Series: Protection of the Home and Other Real Estate”.
Why should one consider advanced Medicaid planning? Indiana has a 5‑year look back period on most transfers of assets; the current penalty divisor is $6,682.00 (effective July 1, 2019 — changes annually). In other words, every $6,682.00 that has been given away by the nursing home resident over the past 5 years will result in one month of Medicaid ineligibility, called a penalty period, once he or she is approved for Medicaid to help pay for nursing home care. For instance, if the nursing home resident gifted $150,000.00 to a healthy sibling in 2018 (within the 5‑year look back period), then Medicaid will not pay for 22.4 months of nursing home care once Medicaid has been approved. It’s important to be aware that certain transfers of assets are allowable and will not result in a Medicaid penalty period, regardless of when they occurred. I discussed several of these transfers in my blog titled, “7 Asset Transfers Which Will Not Affect ‘Nursing Home Medicaid’ Eligibility”.
Since transfers that took place beyond the 5‑year look back period are not subject to a penalty period, assets may be transferred to heirs or placed into an irrevocable trust; once the look back period has passed, no penalty will be assessed. While these options do offer asset protection, each carries various risks and tax consequences which should be discussed with your elder law attorney and CPA.