1. Medicaid: Overview
Medicaid is a joint federal and state program to provide healthcare for indigent people.
It is administered by the states
Which, in turn, delegate administration to local departments of social services
It is funded roughly equally by state and federal governments
Although run by the states, the federal government attaches certain conditions that the states must abide by to get federal funding (all states comply with these).
Federal Medicaid rules apply to all states.
However, federal law gives states a lot of discretion within the federal parameters.
State law also applies within individual states.
Local regulations and procedures may also affect the administration of Medicaid.

2. Medicaid Eligibility Requirements
There are two principal eligibility requirements for most types of Medicaid assistance:
1) Assets
The applicant must have fewer than a few thousand dollars in assets (this differs by state)
There are exemptions, including a personal residence, etc.
The applicant’s spouse’s assets are also limited, though the threshold is higher than that of the applicant
2) Income
Income limits differ by state and by family size
Income limits imposed locally may also take into account things like the expenses of the applicant, etc.
Spousal income allowance are also higher than the applicant’s
Excess income must be “spent down” on healthcare needs before Medicaid will pay healthcare expenses

3. Clients’ Long Term Care Alternatives
For nursing home and other elder care expenses, the clients essentially have three choices:
1) Private pay
Is very expensive; especially since “private pay” rates are usually higher than what Medicaid or insurance companies pay
2) Long term care insurance
3) Planning to become eligible for Medicaid
In most cases, this means reducing a person’s assets and income (if possible) below the thresholds for eligibility

4. Five Year Lookback Rule
Medicaid counts all of a person’s non-exempt assets as “available resources” when determining asset-based eligibility questions.
Therefore, transferring assets to a person or trust is a key mechanism by which to become eligible for Medicaid.
Any gift transfer within five years of the application for Medicaid causes a period of ineligibility for Medicaid.
The length of this period is determined by the amount of the gift and lasts for a number of months equal to the value of the gift divided by the average monthly nursing home charge in the area.
The period of ineligibility starts from the date of the Medicaid application and only runs if the applicant is “otherwise eligible.”

5. “Community Medicaid” This does not apply in most states!
Some states have different programs for:
Long term care Medicaid that provides for nursing home care
This is the only Medicaid type for which the lookback period is mandated by federal law
This type of Medicaid applies the 5 year period of ineligibility
Other forms of Medicaid, such as health insurance for poor people
This form may not apply the 5 year period of ineligibility
Clients who live in these states may transfer assets in order to be eligible for Medicaid right away

6. Medicaid Trusts
Medicaid planning trusts hold assets transferred by the client to the trust for the benefit of family members (such as children, grandchildren, etc.).
The trust must be irrevocable.
Typically, these should not benefit the grantor at all (even potentially) and certainly should not allow the trust assets to be used for the grantor’s healthcare expenses.
The grantor should also release control over the trust assets.
And so should NOT be the trustee

7. Considerations Involving the Family Home
Not generally an available resource if the client is living in the property (but can be if there’s enough equity)
Paying down the mortgage isn’t a transfer, and so can be a viable strategy to reduce assets
Can be placed under a ”lien” by state authorities to recover the value of the Medicaid services after death
Exception if the community spouse or disabled child is living in the house
Transfer to “caregiver child” exception to the transfer rule
Covered more in Chapter 9

8. IRAs and Medicaid Planning
Only individuals can hold an IRA
and 401(k)s and many types of pension accounts
So, transferring a qualified retirement account to a trust often means removing its qualified status
This can have major income tax disadvantages
Retirement accounts also get favorable treatment for Medicaid eligibility rules
Only an amount that should be paid out each year based on the life expectancy of the holder (similar to the minimum required distributions) counts as an available resource to the account holder

9. Irrevocable Burial Trust
Established to fund the eventual burial expenses for the client
Assets in the trust are not available resources during lifetime and are not subject to a lien upon death.
Transfers to an irrevocable burial trust do not cause a five year period of ineligibility

10. Income Only Medicaid Trusts
These trusts allocate their income to the grantor and/or his or her spouse
This may be necessary if the client needs income to live off of
The income is considered an available resource for Medicaid eligibility purposes, but the principal is not
Be sure to put in that capital gains are NOT considered income
Or a trust asset that is sold for a large gain may generate a lot of vulnerable cash!

11. Long Term Care Insurance
This can pay for long term care services
Thus avoiding the necessity for Medicaid planning
Three things to look for
Sufficient maximum daily benefit amounts
Sufficient duration of coverage
Protection against inflation clause
Premiums are generally very high for older clients

12. Protecting the Eligibility of the Beneficiaries
Availability of trust assets can also impact the eligibility of the beneficiaries.
At a minimum, the trustee should not be required to pay beneficiaries’ expenses that would otherwise be paid for by government assistance programs.
Depending on local rules, it may be necessary to also not even give the trustee the discretion to pay these expenses!
Separate subtrusts can also be created for beneficiaries on assistance programs.
E.g., an “education and luxuries” trust