How Medicaid long term care rules affect family assets

By Richard C. Wilson

Begin with the requested care, the applicant's eligibility group and the ownership records. Then examine trust terms, past transfers, spouse allowances, home equity and recovery separately. Bring unresolved questions to the state Medicaid agency and an elder law attorney before changing ownership or signing an agreement.

Research notice: Based on primary sources linked below. Core authorities include the federal Medicaid trust, transfer, spouse and recovery statutes, financial eligibility regulations, and Medicare skilled nursing facility requirements. Ask the state Medicaid agency to identify the applicable eligibility pathway and current amounts. Have an elder law attorney review a proposed transfer, trust, annuity or admission agreement before acting.

Asset rules and application records

Ask your state agency which eligibility group applies to the requested services.

Modified adjusted gross income, often called MAGI, does not supply the financial methods for the specific determinations identified in 42 CFR §435.603(j). Those include age 65 or older when age is an eligibility condition. They also include blindness or disability when eligibility is being determined on that basis, including being treated as blind or disabled.

The specified determinations also include requests for long term services and supports through a group covering services unavailable through MAGI eligibility. They include groups requiring institutionalization, an institutional level of care, or needs based home and community services criteria. For these determinations, the agency uses the financial methods in §§435.601 and 435.602.

For individuals in medical institutions or intermediate care facilities covered by §435.725(b), the agency reduces its institutional payment by total income remaining after the deductions in §435.725(c) and (d). The deductions follow the required order.

Covered groups include SSI or AFDC cash assistance recipients eligible under §§435.110 or 435.120. They include individuals eligible under §435.211 who would qualify for AFDC, SSI or an optional state supplement except for institutional status. They also include aged, blind or disabled individuals eligible under §435.231's higher income standard. Income disregarded in determining eligibility must be considered in this calculation. Review the spousal income allowance discussion when it applies.

Organize the review around these questions:

• Which eligibility group and requested services are being evaluated?
• Who owns each account, property interest and trust contribution?
• Which income records, account statements and governing documents should accompany the application?
• Which deductions and spouse allowances require supporting records?

Trust rules and exceptions

The federal self funded trust rules apply when the individual's assets form all or part of a trust established other than by will. Establishment must be by the individual, spouse, legally authorized actor, or someone acting at their direction or request. With mixed funding, the rules apply only to the portion attributable to the individual.

Subject to statutory exceptions, revocable trust principal is an available resource. For an irrevocable trust, any portion from which payment could be made to or for the individual under any circumstances is available. Payments for other purposes can be transfers under the transfer rules. A portion from which neither principal nor income could ever be paid to the individual is treated as transferred when established or, if later, when payment becomes foreclosed.

Exceptions include qualifying special needs, income and pooled trusts, with an undue hardship waiver process. Have counsel examine the actual terms and funding before relying on the trust's name.

Qualifying income trusts

A qualifying income trust falls within an exception to these trust rules only when all statutory conditions are met. The trust must be established in a state for the individual and contain only that individual's pension, Social Security and other income, plus accumulated income. At death, remaining funds must go to the state up to total Medicaid assistance paid for the individual.

The state must cover individuals under §1396a(a)(10)(A)(ii)(V) but not nursing facility services under §1396a(a)(10)(C). Meeting this trust exception does not independently establish eligibility.

Bring the signed trust, amendments, funding records and distribution provisions to the meeting.

Asset transfers and control

Before making a gift, ask an elder law attorney to identify the applicable transfer period, services affected, penalty starting point and exceptions. Request a review of the complete transfer history. Ask the state agency which records it needs for that review.

Home transfer exceptions

Federal home transfer exceptions permit transfer of title to a spouse or a qualifying child.

A qualifying child is the individual's child who is under 21 or meets the applicable blindness or disability test. In states eligible for the federal SSI program, that test is blindness or permanent and total disability. In states not eligible for that program, the test is blindness or disability under §1382c.

A sibling receiving the home must have an equity interest and have lived there for at least one year immediately before institutionalization.

A caregiving son or daughter outside the qualifying child category must have lived there for at least two years immediately before institutionalization. The state must determine that the child's care allowed the parent to remain home rather than enter an institution or facility.

Other transfer exceptions

Other exceptions cover transfers to the individual's spouse or to another solely for that spouse's benefit. Transfers from the individual's spouse to another solely for that spouse's benefit also qualify. Another exception covers transfers to the individual's child who meets the blindness or disability test in the definition above, not the under 21 test. Transfers to a trust solely for that child also qualify. A further exception covers a trust solely for a person under 65 who is disabled under §1382c(a)(3).

Other exceptions require a satisfactory showing that the individual intended fair market value or other valuable consideration, transferred assets exclusively for a purpose other than qualifying for Medicaid, or received back all assets transferred below fair market value. A separate exception requires a state determination of undue hardship under the required federal criteria. A transfer exception and resource exclusion remain separate tests.

For a proposed home transfer, gather the deed, ownership history, residence records and care records. Ask counsel which exception, if any, fits the complete facts and what evidence the state will require.

Spouse and home protections

For a married applicant, request a separate review of the resource assessment, the protected resource amount and the treatment of home and community based services.

Spousal income and hearings

During a month when the institutionalized spouse is in the institution, the community spouse's income generally is not deemed available to the institutionalized spouse. Statutory income attribution rules apply. After eligibility, the care cost calculation includes a community spouse income allowance. The allowance generally equals the minimum monthly maintenance needs amount minus other monthly income available to that spouse. It is deducted only to the extent the institutionalized spouse's income is made available to or for the community spouse.

Court ordered support and fair hearing adjustments apply. A court support order establishes a floor equal to the ordered monthly support. Before increasing resources to address an income shortfall, the state must consider all institutionalized spouse income that could be made available to the community spouse. After an application has been made, dissatisfaction with the specified allowance, ownership or resource determinations supports a fair hearing. Ask for the applicable amounts and hearing instructions.

Home equity

The home equity restriction can prevent nursing facility or other long term care assistance when equity exceeds the applicable state selected and annually indexed amount. Determine the limit for the applicable state and eligibility period.

The restriction does not apply while the spouse or the qualifying child defined above lawfully resides in the home.

A hardship waiver process applies. The provision permits use of a reverse mortgage or home equity loan to reduce equity. Review the separate lien and recovery discussion before drawing a conclusion about the home.

Joint accounts and life estates

Joint account records

Under the SSI financial account rule, all joint account funds are presumed to belong to the sole SSI claimant or recipient account holder. If several account holders are SSI claimants or recipients, the presumption allocates equal shares among them.

Rebuttal requires the individual's statement and corroborating statements from other account holders about ownership, the account's purpose, deposits, withdrawals and spending. Provide account records showing deposits, withdrawals and any interest for the disputed months.

If the individual owns none, remove the individual as co owner. If the individual owns only part, separate the others' funds and retitle the individual's funds as solely owned. Successful rebuttal can apply retrospectively and prospectively. Use this rule only for the SSI account issue, rather than treating it as the test for every Medicaid pathway or jointly owned asset.

Purchased life estates

The special transfer provision includes buying a life estate in another person's home unless the purchaser resides there for at least one year after purchase. Review the separate question about retained life estates and sale proceeds before applying this provision to a different transaction.

Annuities and family loans

Annuity review

An annuity purchase is treated as a transfer below fair market value unless the state has the required remainder priority. The state must be first remainder beneficiary for at least total assistance paid for the institutionalized individual. Alternatively, it may be second after a community spouse or minor or disabled child. It must become first if that spouse or the child's representative disposes of the remainder below fair market value.

For an annuitant applying for nursing facility or other long term care assistance, a separate provision requires a §408(b) or (q) annuity, qualifying retirement proceeds, or the specified payment terms. Qualifying proceeds come from §408(a), (c) or (p) accounts or trusts, a §408(k) simplified employee pension, or a §408A Roth IRA.

Under the payment terms alternative, the annuity must be irrevocable, nonassignable, actuarially sound under SSA Chief Actuary publications, and pay equal amounts without deferral or balloon payments. Applications and recertifications must disclose applicant and community spouse annuity interests regardless of irrevocability or asset treatment. Annuity income or resources can still support denial.

Promissory notes, loans and mortgages

Funds used to buy a promissory note, loan or mortgage enter transfer analysis unless all three statutory conditions are met. The repayment term must be actuarially sound under SSA Chief Actuary publications. Payments must be equal without deferral or balloon payments. Cancellation of the balance at the lender's death must be prohibited.

If any condition fails, the statutory value is the outstanding balance on the application date for services covered by §1396p(c)(1)(C). Request review of the complete agreement and repayment schedule before signing.

Care access and admission protections

Medicare skilled nursing care

Original Medicare posthospital skilled nursing facility coverage generally requires Part A coverage with benefit days remaining. It also requires at least three consecutive inpatient hospital days excluding discharge day, and entry into a Medicare certified skilled nursing facility within 30 days. Observation and emergency room time before inpatient admission do not count.

The beneficiary must need daily skilled services for an ongoing condition treated during the qualifying stay or a new condition arising during skilled nursing treatment of that condition. Services must be physician ordered, require qualified professional or technical personnel, and be furnished directly by or under their supervision. As a practical matter, the daily skilled services must require inpatient skilled nursing facility care.

Later admission may qualify when treatment was not medically appropriate within 30 days. An approved Accountable Care Organization waiver or a Medicare Advantage plan may waive the three day stay requirement. Coverage can support improvement, maintenance, or preventing or delaying deterioration. Review the hospital admission record and care orders with the coverage team.

Facility admission protections

Facilities subject to §483.15 cannot request or require oral or written assurance that residents or potential residents are ineligible for or will not apply for Medicare or Medicaid.

The facility must maintain identical transfer, discharge and service policies regardless of payment source, consistent with §483.10(a)(2). These protections do not promise admission to any chosen facility.

Request admission terms and payment policies in writing. Review the payment guarantee protections below before signing an admission agreement.

Liens and estate recovery

Lifetime liens

Federal law generally prohibits Medicaid liens before death, except for a court judgment concerning incorrectly paid benefits and qualifying institutional real property liens. The institutional exception requires inpatient status in a nursing facility, intermediate care facility for individuals with intellectual disabilities, or other medical institution.

The individual must be required to contribute all income except a minimal personal needs amount toward medical care costs. The state must determine that discharge and return home cannot reasonably be expected. Notice and an opportunity for a hearing must precede that determination.

No such home lien may be imposed while a spouse or the qualifying child defined above lawfully resides there. The same protection applies to a sibling who lawfully resides there and meets the equity and residence conditions above, measured immediately before admission to the medical institution. The institutional lien dissolves upon discharge and return home.

Recovery and protected survivors

Federal recovery requirements cover the qualifying institutionalized individuals described above, through their estates or sale of liened property. They also cover assistance received at age 55 or older for nursing facility, home and community based services, and related hospital and prescription drug services. States may elect broader service recovery, excluding Medicare cost sharing and benefits under §1396a(a)(10)(E).

Recovery may occur only after the surviving spouse's death and when there is no surviving qualifying child defined above. These are timing restrictions rather than permanent immunity.

Recovery estate and home occupants

The recovery estate includes assets in the state probate estate. At state option it may also include other assets in which the individual held legal title or an interest at death, to that extent. These can include interests passing through joint tenancy, tenancy in common, survivorship, a life estate or living trust. Eligibility exclusion of a home therefore does not settle recovery.

For a home subject to an institutional lien, recovery also waits while a sibling meeting the prior residence condition above lawfully and continuously occupies it after admission. This recovery protection does not require the sibling to have an equity interest.

The same recovery delay applies to a son or daughter who lived in the home for at least two years immediately before admission to the medical institution. The son or daughter must establish to the state's satisfaction that their care allowed the parent to remain home rather than enter an institution. The son or daughter must also lawfully and continuously occupy the home after admission.

Hardship waiver procedures apply except to the statutory §1396p(b)(1)(C) category. Specified Indian and Alaska Native exemptions remain protected.

Common questions

Resources to check out

• Find your state Medicaid agency: Find official state contacts for application and eligibility questions.
• Medicare skilled nursing facility coverage: Review the coverage requirements and exceptions discussed above.
• Medicaid estate recovery: Explore the recovery topics and protected survivor questions.
• Nursing facility admission and resident protections: Read the payment guarantee and facility policy provisions.