How do I Transfer Property to Avoid the Estate Recovery Act?

Congress established strict limits on asset transfers for the purpose of Medicaid eligibility. Use caution.

If you are considering transferring property out of your estate in order to make yourself eligible for Medicaid, use extreme caution. Congress anticipated such emergency transfer techniques and took steps with the Deficit Reduction Act of 2005 to sharply limit the ability of Medicaid applicants to gain eligibility by transferring assets out of their name. This is an area fraught with legal complexity and case law is still evolving. You should be making these decisions with the advice of a lawyer experienced in the Medicaid collection practices in your state.

Instructions

1. Divide your assets into countable and non-countable assets. Medicaid imposes strict limits on the amount of assets that you can hold in your name and still qualify for Medicare. Some assets, however, don't count against you for Medicaid eligibility purposes. These are called "non-countable" assets. State laws vary, but most states offer some protection to such items as home equity and life insurance.

2. Purchase a long-term care insurance policy. If your state offers a long-term care partnership program, you may be able to exempt a portion of your estate from Medicaid recovery actions after you have died. The usual arrangement is if you want to render $500,000 in assets exempt from state recovery of Medicaid payments from your estate, then purchase a qualified long-term care insurance policy with a total potential lifetime benefit of $500,000.

3. Purchase a Medicaid-qualified annuity. This may help get assets out of your name while still providing a limited income that won't render you ineligible for Medicaid benefits. Caution: Some states have disallowed their use. Check with a lawyer in your state who specializes in elder law or Medicaid law before proceeding.

4. Pay off as much debt as you can. Debts aren't subtracted from your assets for the purpose of Medicaid qualification. So if you can lower your bank account below the Medicaid threshold by accelerating debt payments, you may be able to mitigate your estate's liability to the Medicaid system, or avoid Medicaid payments altogether.

Tips & Warnings

• Do not transfer assets directly to family members or business associates without legal counsel. The Deficit Reduction Act of 2005 allows Medicaid authorities a 60-month "lookback" period to disqualify you from benefits if you transfer assets out of your name. This could leave you scrambling to pay nursing home costs, but without having control of the assets.

References

• Center for Medicare and Medicaid Services: Background Paper on Asset Transfer and the Deficit Reduction Act of 2005
• Kiplinger: The Crackdown on Medicaid Planning; Mary Beth Franklin; 2007
• Long Term Care Link: Medicaid Annuities
• Long Term Care Partnership

Resources

• Guide to Long Term Care Planning