Every so often the GAO reviews the tools and techniques used by some to achieve long-term care Medicaid eligibility. Their recent report, although skewed to high-asset communities, is rather revealing in the ways that people are and are not achieving Medicaid eligibility.
The GAO report investigation found four principal methods used to reduce countable assets to qualify for Medicaid that are done in full compliance with current Medicaid rules.
The most commonly used method is to spend resources on non-countable goods and services, such as prepaid funeral arrangements. Irrevocable funeral trusts can be a very effective and legal way to reduce countable assets in a way that does not trigger a penalty period.
The second most used method is to transfer countable assets into non-countable income streams by way of an annuity or promissory note. While promissory notes have become cumbersome in many states, the Medicaid compliant annuity is still used universally as a way to convert excess resources into an income stream for the healthy spouse. In some places, it can also be used effectively to create an income stream caused by a transfer penalty from gifting other, non-liquid assets.
The fourth most used method is gifting assets. The GAO report does not differentiate between allowable gifts (gifts to spouses, disabled children, etc.) and penalty-causing transfers. For penalty-causing gifts, a penalty period is instated for transfers made within the last five years once an applicant is “otherwise eligible” for Medicaid. Penalty periods can be used in conjunction with other methods (e.g., re-gifting, partial reconveyance, Medicaid compliant annuities, etc.) to achieve eligibility; however, from the scant use of gifting revealed by the GAO report, it appears that either this strategy is not be heavily used or only applicable in a limited number of cases.
Also, the practice of gifting and waiting out the 5-year lookback would not be recognized in the GAO study report. When a person applies for long-term care Medicaid, there is only a duty to report gifts or transfers that occurred in the last 5 years and none outside of that window need be reported.
A Certified Medicaid Planner™ is skilled in the techniques described in the GAO Report and the pitfalls associated with them. It is highly recommended to seek out the services of a CMP™ to see if these techniques are appropriate for your circumstances. If you are an advisor providing advice in the long-term care arena, you should consider increasing your knowledge and training in the Medicaid Planning field and getting certified as a CMP™ to provide the highest quality advice. For more information, visit the CMP™ program website.
For a copy of the GAO report, click here: GAO Report.