How to Protect Parents' Assets in New York from Nursing Home

How to protect your parents' assets from a New York nursing home lies in the timing of your planning efforts. The optimal approach will vary based on whether the chosen strategy is implemented within or outside the Medicaid lookback period, which typically spans 60 months prior to the Medicaid application date. When planning well ahead of this 60-month window, you have several effective options at your disposal to protect assets from Medicaid eligibility calculations, such as making direct gifts to children, establishing an irrevocable trust to hold the assets, or acquiring exempt assets. Conversely, if the need for nursing home care is more pressing and arises within the lookback period, alternative strategies must be explored. These may involve leveraging specific annuities, judiciously spending down assets on valid expenses, or potentially crafting a caregiver agreement with a family member. Ultimately, the most suitable course of action will be dictated by your family's distinct financial landscape and personal dynamics.

Medicaid Income and Asset Limits as of 2024

To be eligible for Medicaid, one must have low monthly income and few assets. As of 2024, the Medicaid income and asset limits for nursing home care in New York are as follows:

Income Limits

• Single applicants: The income limit for a single applicant is $1,732 per month.
• Married applicants (both applying): Both spouses are allowed a combined income of up to $2,351 per month.
• Married applicants (one applying): The applicant spouse is allowed an income of up to $1,732 per month, while the non-applicant spouse (community spouse) is allowed a community spouse income allowance (CSIA) of $3,853.50.

Asset Limits

• Single applicants: A single applicant is allowed to retain countable assets up to $31,175.
• Married applicants (both applying): The couple is allowed to retain countable assets up to $42,312 combined.
• Married applicants (one applying): The applicant spouse is allowed to retain countable assets up to $31,175, while the non-applicant spouse (community spouse) is allowed a community spouse resource allowance (CSRA) of up to $154,140.

The following assets are exempt and not counted towards the Medicaid asset limits:

• Primary residence (up to a certain equity value)
• One vehicle
• Personal belongings and household items
• Burial plots and prepaid funeral expenses (within limits)
• Life insurance policies with a total face value of $1,500 or less

If your parent's monthly income or total assets surpass the aforementioned thresholds, they will not qualify for Medicaid unless they employ strategic Medicaid planning techniques. The optimal approach for safeguarding your parents' assets will be contingent upon the timeline for their anticipated Medicaid application.

Medicaid Lookback Period

To address the financial constraints imposed by Medicaid's income and asset limits, some individuals seeking Medicaid coverage may be tempted to divest themselves of their assets before submitting their application. However, Medicaid has established a lookback period to discourage such practices. During this timeframe, any assets transferred without receiving fair market value in return will render the individual ineligible for Medicaid benefits for a specified duration. As of 2024 in New York, the lookback period extends 60 months prior to the application date for nursing home Medicaid and 30 months for home care Medicaid. Gifts or asset transfers made within these respective windows may incur a penalty in the form of a period of Medicaid ineligibility, the length of which is determined by the value of the transferred assets and the state's average monthly cost of nursing home care.

Strategies to Reduce Assets

Planning Outside the Medicaid Lookback Period

If you are proactively strategizing beyond the 60-month or 30-month lookback window, several legitimate approaches exist to protect your parents' asset portfolio, while still establishing their Medicaid eligibility.

Outright Gifts to Children

To safeguard your parents' assets from the financial burden of nursing home expenses, one viable strategy is to give direct gifts upon their children or other trusted family members. By relinquishing ownership of valuable holdings, such as liquid funds, investment portfolios, or real property, these assets will no longer be associated with your parents' financial profile and will be excluded from Medicaid eligibility assessments. However, it is of utmost importance to execute these gifts well in advance of the lookback period's commencement, as any transfers made within this timeframe may incur penalties and result in a span of Medicaid ineligibility. Moreover, it is crucial to recognize that once a gift has been conferred, it cannot be rescinded, and control over the asset is irrevocably relinquished.

Example: If your parents have $200,000 in savings and they gift $50,000 to each of their four children at least 60 months before applying for Medicaid, those funds will not be considered when assessing their eligibility for nursing home Medicaid.

Placing Assets in an Irrevocable Trust

Another popular strategy to protect your parents' assets is to place them in an irrevocable trust. An irrevocable trust is a legal arrangement where your parents transfer ownership of their assets to the trust, managed by a trustee for the benefit of designated beneficiaries, typically their children or grandchildren. Once the assets are in the trust, your parents no longer have direct control or ownership of them, and the assets are not counted for Medicaid eligibility purposes nor subject to Medicaid estate recovery after their death. However, despite the lack of control, parents can retain a life estate over property transferred to the irrevocable trust, also usually called a Medicaid Asset Protection Trust. As with outright gifts, it is essential to establish the irrevocable trust and transfer the assets well before the lookback period starts.

Example: Your parents can create an irrevocable trust and transfer their home and $300,000 in investments into the trust. The trustee can manage these assets for the benefit of their children, and the assets will not be considered when determining Medicaid eligibility, provided the transfer occurs outside the lookback period and parents cannot access the principal trust property. Your parents, however, can retain a life estate over the home, and can be entitled to the income from the principal of $300,000. This income will be counted towards the monthly Medicaid income limit.

Purchasing Exempt Assets

A third strategy to protect your parents' assets is to use their funds to purchase exempt assets, which are not counted towards Medicaid's asset limits. Examples of exempt assets include a primary residence (up to a certain equity value), one vehicle, personal belongings and household items, burial plots and prepaid funeral expenses (within limits), and life insurance policies with a total face value of $1,500 or less. By converting countable assets into exempt assets, your parents can reduce their countable assets and become eligible for Medicaid while still retaining some valuable assets.

Example: If your parents have $50,000 in savings, they can use some of the money to pay off their mortgage, reducing their home equity and countable assets. They can also prepay for burial plots and funeral expenses, purchase a new car, or buy personal belongings, all of which are exempt assets under Medicaid rules.

While a primary residence may be classified as an exempt asset and not factored into the Medicaid asset limit calculation, it is crucial to understand that the home could still be vulnerable to Medicaid estate recovery following the passing of the parents, barring specific circumstances that offer protection from such recourse.

Planning Within the Medicaid Lookback Period

Strategies with No Penalty

If you transferred your assets for full fair market value during the Medicaid lookback period, there is no penalty. Adult individuals (friend or relative) who live with you and take care of you, serving as your primary caregiver for at least two years, can receive your home during the Medicaid lookback period without penalty. Purchasing a Medicaid exempt annuity during the Medicaid lookback period that will convert your asset into an income stream will not result into any penalty. The income stream paid by the Medicaid annuity will be counted towards your asset limit. You can transfer your assets to a non-applicant spouse up to a certain limit. As of 2024, the non-applicant spouse can hold assets up to the limit of $154,140, called the Community Spouse Resource Allowance. If you co-own the home with a sibling, you can transfer the home to your sibling during the Medicaid lookback period without incurring a penalty, for as long as your sibling was living in the home for at least a year. In order to reduce the penalty period, some states allow you to recover assets in a disqualifying asset transfer.

If you transferred your assets during the Medicaid lookback period without adequate consideration but are unable to recover your assets, you can request Medicaid to waive the penalty because you will be without basic needs such as food and shelter. However, before getting exemption under this ground, you need to exhaust all remedies in recovering your assets, which includes filing the appropriate legal action to recuperate the asset. You can transfer assets to disabled children below 21, either directly or indirectly to a trust, during the Medicaid lookback period. This will not incur any penalty. Paying off your mortgage, student loan, or credit card debt during the Medicaid lookback period will not result to any penalty.

Strategy with Minimal Penalty

If your assets still exceed the Medicaid limit after trying the methods mentioned, you can use the gift and loan strategy. This means giving some of your assets as a gift and lending the rest to a relative. The gifted portion will count as breaking the lookback rule and determine the penalty. But if the loan is set up right, it won't break the rule or cause a penalty. The loan payments must be the same each month and cover the nursing home fees during the penalty period incurred due to the gift. Using a gift plus a loan lets you keep some savings while qualifying for Medicaid.

Reducing Monthly Income

To qualify for the Medicaid income limit if you are receiving more than said amount, you should spend down the income to fall below the state income limit. Income includes employment wages, alimony payments, pension payments, social security income, social security disability income, payments from annuities and IRAs.

In New York, the income limit to be Medicaid-eligible as of 2024 is $1,732/month for an individual and $2,351/month for a couple when both spouses are applying. The qualified expenses to spend down your income are classified into medical bills and medical expenses. Examples of medical bills include your own medical bills, your spouse's medical bills, parent's bills for their children's spend down, bills of a child living with you, bills of a child who does not live with you but whose medical bills you pay for, past unpaid medical bills (sometimes up to 6 years old) for yourself or any of the people named above, and the part of any medical bill not covered by Medicare or private insurance. Examples of medical expenses include paid and unpaid medical bills from previous months, transportation expenses to get medical services, medical expenses or payments to therapists, day treatment, drug and alcohol programs, nurses, personal care attendants, and home health aides (as required by a physician), prescription drug bills, payments made towards surgical supplies, medical equipment, prosthetic devices, hearing aids, and eyeglasses (as required by a physician), medical services not covered by Medicaid, medical services from providers who do not participate in the Medicaid program, and some over-the-counter drugs and medical supplies, such as bandages and dressings, if they have been ordered by a doctor or are medically necessary.

If you are the only one applying and your spouse is not applying, you can also transfer some of your monthly income to your non-applicant spouse up to a certain amount, for as long as the income of the non-applicant spouse does not fall over the Community Spouse Monthly Income Allowance (CSMIA). In New York, the CSMIA, as of 2024, is $3,853.50 per month.

So, for example, if you have monthly income of $4000 and your non-applicant spouse has a monthly income of $2000, you have to spend at least $2,268 to fall within the $1,732/month income limit in New York. Since the CSMIA in New York as of 2024 is $3,853.50, you can only transfer $1,853.50 to your non-applicant spouse monthly so your spouse with a $2000/monthly income can reach the CSMIA limit. The remaining balance of $414.50 ($2,268 less $1853.50) must be spent down with qualified medical bills and expenses in order for you to be Medicaid-eligible.

Factors Influencing the Choice of Strategy

The choice of strategy to protect your parents' assets will depend on their specific financial situation. Factors such as the total value of their assets, the composition of their assets (e.g., cash, investments, real estate), and their income sources will all play a role in determining the most appropriate course of action.

For instance, if your parents have a significant portion of their wealth tied up in their primary residence, strategies like establishing a life estate or transferring the home to an irrevocable trust may be more relevant. On the other hand, if they have substantial liquid assets, gifting or purchasing exempt assets might be more suitable options.

Additionally, your parents' age and health status can influence the urgency of planning and the selection of strategies. If they are in good health and not likely to need nursing home care for several years, you may have more time to implement long-term strategies like gifting or creating an irrevocable trust. However, if their need for care is more imminent, you may need to focus on strategies that can be executed within the lookback period, such as purchasing a Medicaid-compliant annuity or spending down assets on care and other allowable expenses.

Medicaid rules can be complex and difficult to understand. The Law Offices of Albert Goodwin assists people to qualify for Medicaid even when they think they don’t have Medicaid eligibility. We can also help you apply for Medicaid. To find out more about Medicaid planning techniques, you can call us at 212-233-1233 or send us an email at [email protected].