A lot of people do not understand why they should be concerned about Medicaid eligibility because they are not aware of the long-term care implications. This program will pay for a stay in a nursing home, and there is a Medicaid waiver that will cover in-home custodial care.
Why should you care about any of this if you are going to qualify for Medicare? Though a lot of people question the fairness of this fact of life, Medicare does not cover long-term care for seniors that need help with their activities of daily living.
Life Insurance and Medicaid Eligibility
Medicaid is a needs-based program and in order to qualify you are limited to $2000 in assets. Everything you own does not count, so many ask if life insurance fits into this non-countable asset category?
The answer is that it depends on the type of coverage. Term life insurance does not have a cash value, so you can have unlimited term life insurance and still qualify for Medicaid.
Medicaid also allows an applicant to have up to $1500 set aside for final expenses. Because of this, the program will exempt a whole life insurance policy as long as the value does not exceed $1500.
Unfortunately, regular life insurance is countable up to the full value of the available cash value.
Non-Countable Assets
One motor vehicle does not count if you apply for Medicaid, and the program is not concerned about your household items and personal belongings. Wedding rings, engagement rings, and heirloom jewelry are exempt as well.
Home Ownership
If you are a homeowner, your home is an exempt asset with an equity limit of $603,000 this year. But in Oklahoma, the home is only exempt for the first 12 months of long-term care. After that, it becomes a countable asset, If your spouse or other qualified parties live in the home, it remains exempt during their occupancy, but the Medicaid rules mandate estate recovery, the state will place a lien on the home if it is owned by you or your spouse at the time of your death.
This is a general rule of thumb, but there are some exceptions, as noted. There will not be any recovery effort while your spouse or a a blind or disabled adult child is living in the home.
Medicaid also grants a caregiver child exemption. The home is protected if it is given to an adult child who has been living with you in the home for at least two years providing care that enabled you to avoid entering a nursing home.
Five-Year Look Back Period
You can give away countable assets to qualify for Medicaid, but you cannot give the gift today, apply tomorrow, and become eligible next week. There is a five-your look back period, so all divestitures must be completed at least five years before you apply.
From a financial perspective, if you give everything you own to your children, you would surrender income-producing assets that could be used to maintain your lifestyle. Fortunately, there is a solution in the form of an irrevocable Medicaid trust.
You could convey your home and income-producing resources into the trust and surrender all rights and access to the principal. You would still be able to receive distributions of the trust’s earnings until and unless you apply for Medicaid.
As long as you adhere to the five-year look back rule, the assets in the irrevocable Medicaid trust would not count against you if you seek Medicaid eligibility.
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Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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