What Is Medicaid? Who Is It Used For?
Medicaid is a program that’s sponsored by the federal government, is run at the state level and, is designed to assist people with long-term care needs. If a person needs nursing care at home or in a nursing home for an extended period of time, then that’s where Medicaid comes in. It is a federal program that depends upon the compassion of our society in that we all, as taxpayers, fund the necessary medical assistance that people need. In New York, Medicaid is designed to be a social service that’s available with the right structure to just about anyone who needs or wants it. There is essentially no stigma attached to it in New York, and anyone who wants it can find a way to qualify if they have the right assistance.
How Can Someone Qualify For Medicaid?
In order to qualify for Medicaid, a person needs to have below a certain maximum amount of resources or assets and a certain maximum amount of income. In New York, assets are things that a person owns, such as a house, car, bank account, investment account, retirement account, building or other real estate. Income, on the other hand, is money that a person receives on a periodic basis, such as monthly, quarterly or yearly. There is a distinction in the way that Medicaid looks at assets versus income, and there is a certain amount of assets that a person can have before they no longer qualify for Medicaid.
If a person has more assets than they’re allowed to have in order to qualify for Medicaid, an attorney can help to lower the amount of assets that are in that person’s name. As of the year 2018 in New York, the threshold for assets per single person is $15,100. So, a single person who is applying for Medicaid is allowed to have approximately $15,100 in total assets. A couple applying for Medicaid is allowed to have $22,200 in total assets. In terms of income, a single person is allowed to have $842 in income and a couple is allowed to have $1,233 in income. Those numbers don’t seem very high. How is a person supposed to live if they only have $15,100 in assets and $842 in income? Practically speaking, most people on Medicaid have more than that, or they at least had more than that before they went to an attorney to plan for Medicaid.
To help individuals and couples with more assets or more income than the thresholds, or both, we do a type of estate planning called Medicaid asset protection planning. We do this by creating different vehicles to hold their assets, which are then no longer in their estate for all intents and purposes. As a result, Medicaid doesn’t consider the value of those assets. Some of those assets are exempt assets as far as Medicaid is concerned, and some of those assets need to be taken out of their estate. Assets that are exempt are generally retirement vehicles and life insurance, which don’t count as assets towards Medicaid.
For instance, if someone has an IRA, 401(k) or an annuity pension from a teacher’s program, then those assets are not going to count towards Medicaid as a starting point. The other thing that’s not going to count towards the Medicaid asset list, at least initially, is a personal residence. If the person owns a house with equity of approximately $850,000 or less, then that house is not going to count towards Medicaid eligibility. There’s a caveat to that, however, in that if the house is still in their name when they die, then Medicaid could potentially go after the equity in that house after they die.
To protect the house and other non-exempt assets, we create a Medicaid Asset Protection Trust to take the assets out of the person’s name and put them into the trust so that they no longer count for Medicaid eligibility. We do that in order to bring their asset level below the $15,100 level for the applying individual and the $22,200 level for the applying couple.
The Medicaid asset protection trust is a sophisticated document that can only be drafted by attorneys. It allows a person to take their assets in excess of the amount that Medicaid allows and put them into the trust, including their primary residence. The trust holds the assets for the benefit of whomever they want, which is usually their children. The Medicaid asset protection trust is the perfect vehicle for that, because it allows them to leave hundreds of thousands of dollars and other assets to whomever they choose. In addition, the trust can be structured in a way that will allow for all of the income to continue to go back to the clients, who are also known as the grantors of the trust. It also allows the client to sell their primary residence in the future and purchase a new one, maintain their capital gains tax exemptions, maintain their homestead exemptions, and guarantee that they can live in the house for the rest of their lives. Additionally, a Medicaid Asset Protection Trust will allow the beneficiaries to receive a step-up in basis upon the death of their parents, so that they can save tens or hundreds of thousands of dollars on capital gains taxes.
The second thing that we have to deal with is the income. The income level that’s allowed by Medicaid is $842 for an individual. Now, if the person has more income than that, Medicaid will want them to spend it on their own medical needs. This is called a “spend down.” The spend down is what Medicaid requires the individual to spend on their own nursing costs before Medicaid will pay.
So, here’s the problem. Let’s say a person has a mortgage of $2,000 and all of the other expenses that most people have, and they have an income of $3,842 per month. And every month, they spend most of their income on these expenses. Medicaid will allow them to keep $842 per, so they have to spend down $3,000 per month on their own nursing care before Medicaid will pick up the bill. How is a person supposed to now live on $842 per month, when it took $3,842 per month to live before? An income of $842 is not going to be enough for them to maintain even a frugal modern day lifestyle, and they won’t have money for their mortgage or food.
To protect against this dilemma, what we do is we will have our clients join something called a Pooled Income Trust. A Pooled Income Trust is a place for the client to put their money which creates an exemption for Medicaid’s spend down. This means that instead of spending the excess money on medical bills before Medicaid pays for the bills, they’re going to put that into a Pooled Income Trust. Then they are going to submit their bills to the Pooled Income Trust and the Pooled Income Trust will pay their bills. So, let’s say a person has $3,000 in spend down. Now they put that $3,000 into the Pooled Income Trust instead of spending it on nursing care. Then they submit to the Pooled Income Trust their $2,000 mortgage bill, and their grocery receipts, car expenses, gasoline, utilities, phone, etc. The Pooled Income Trust pays their bills up to $3,000 per month. So, now, they will have paid all of their bills and will still qualify for Medicaid because their income was reduced to $842 per month (with the remainder going into the Pooled Income Trust). This is an incredible program.
Why would the state of New York allow such a thing? The reason this is allowed is because Pooled Income Trusts are run by charities. Some people have so much income that they can’t spend it all. I have seen clients who have an income of $25,000 a month or more, and so it’s impossible for them to submit that many bills to pay it. When they pass away, the accumulation in the Pooled Income Trust gets donated to the charity. Overall, these charities make millions of dollars a year in donations that are facilitated by the process of the Pooled Income Trust. So, New York allows this because it’s beneficial for the charitable process and the charitable organizations benefit society.
Akiva Shapiro, A Personal Attorney for Your Life, Business & Legacy
I call myself a personal attorney for your life, business and legacy. This is because I look to get a clear understanding of the client’s entire life from a holistic legal perspective. It’s important to understand where the client is coming from, where they’re headed, where they want to go, what they have and what they want to protect.
It’s about protecting your rights, assets, what you own and what you are entitled to. If an attorney doesn’t understand a client’s overall situation, then they won’t be able to protect their assets or properly represent them. It’s very important to look for an attorney who the client can relate to and feel comfortable with. If a person can find the type of attorney who has the skills to do the job, as well as the individual personal skills, then they are going to be happy with that attorney.
For more information on Medicaid in New York, on Long Island or Nassau or Suffolk County, a free phone consultation is your next best step. Get the information and legal answers you are seeking by calling (516) 806-0762 today.
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