Reading Room

Medicaid Laws

The information offered in these articles should not be considered legal advice. While we strive to provide as detailed, reliable and understandable legal information as possible, they cannot substitute for an attorney applying the law and years of experience to a particular client situation. We urge readers to use the Guides as background material and to consult with one of our attorneys before taking action.

Safe Harbor Trusts

Medicaid rules provide for three ‘safe harbor’ trusts that are notable exceptions to the general trust rules.

Testamentary Trusts

Testamentary trusts are trusts created under a will. The Medicaid rules provide a special ‘safe harbor’ for testamentary trusts created by a deceased spouse for the benefit of a surviving spouse.

Unlike a trust created during life for a spouse, the assets of these trusts are treated as available to the Medicaid applicant only to the extent that the trustee has an obligation to pay for the applicant’s support.

The Value of Trusts

The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust.

Whether trust assets are counted against Medicaid’s resource limits depends on the terms of the trust and who created it.

Is Transferring Assets Against the Law?

You may have heard that transferring assets to achieve Medicaid eligibility is a crime. Is this true?

No. But what about a professional advising someone to engage in asset transfers for Medicaid planning? That is a crime, at least in the statute books. However, it has been ruled to be an unconstitutional violation of the First Amendment. Nevertheless, it remains on the books.

Medicaid Permitted Transfers

While most transfers are penalized with a period of Medicaid ineligibility, certain transfers are exempt from this sanction. Even after entering a nursing home, you may transfer any asset to the following without having to wait out a period of Medicaid ineligibility:

Medicaid’s Asset Transfer Rules

Why not qualify for Medicaid coverage of nursing home care by simply transferring assets out of your name?

Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed restrictions on the ability of people to transfer assets before applying for Medicaid coverage without receiving fair value in return. These restrictions, already severe, were made even harsher by enactment of the DRA.

Qualifying for Medicaid

The definition of ‘poor’ has become quite complex in the area of nursing home coverage. In order to be eligible for Medicaid benefits, a nursing home resident may have no more than $2,000 (in most states) in ‘countable’ assets. The spouse of the nursing home resident – called the ‘community spouse’ – is limited to one half of the couple’s joint assets up to $128,640 (in 2020) in countable assets.

The Basic Rules of Medicaid Eligibility

Lacking access to alternatives like long-term care insurance or Medicare, most people pay out of their own pockets for long-term care until they become eligible for Medicaid. Since few people have long-term care insurance or can afford to pay the high cost of nursing home care out-of-pocket, most people eventually qualify for Medicaid. By default, it has become the primary source of funding for nursing home care and the long-term care insurance of the middle class.