Married and protecting assets from Medicaid

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Q. Is it possible for a married couple to somehow separate their assets so that if one of them ends up in a nursing home, the other’s assets will not be tapped? Or are there other legal solutions to this horrible scenario?
— Planning

A. We’re so glad you’re asking rather than deal with this challenge should you or your spouse ever need care.

Let’s talk Medicaid.

In the case of a single person who applies for Medicaid, you must have no more than $2,000 in assets to your name in order to meet Medicaid’s asset test, said Yale Hauptman, an estate planning attorney with Hauptman and Hauptman in Livingston.

The rules for married couples work differently.

“Medicaid looks at the married couple as one unit so that it does not matter which spouse owns the assets,” Hauptman said. “If I need Medicaid, I cannot simply transfer my assets to my spouse in order to qualify.”

There are certain assets that are exempt from Medicaid rules.

Exempt or noncountable assets include the primary home provided at least one of the spouses lives in it, one car and term life insurance that doesn’t have cash value. The healthy spouse can keep those, Hauptman said.

Pretty much everything else is countable.

“Medicaid totals the countable assets and divides them in half,” Hauptman said. “The healthy spouse — known as the `community spouse’ — can keep one half of those assets but only up to a maximum of just under $121,000.”

Everything else must be spent down before Medicaid eligibility, Hauptman said.

While those are the basic rules, there are often legal maneuvers you can take to maximize what the community spouse can keep, he said.

“The best move would be to discuss the options with an elder law attorney who is experienced in filing Medicaid applications and knows the ins and outs of the Medicaid laws and regulations,” Hauptman said.

But he did want to address a question he often receives: “Can I divorce my spouse and keep all the assets?”

Hauptman said if you have a valid prenuptial agreement that establishes what you can keep, then getting a divorce can be a solution.

“If, on the other hand, your hope is to shift all the assets to the community spouse by way of divorce, the state is likely to challenge that when it comes time to apply for Medicaid,” he said. “In many cases there are better ways to protect assets for the community spouse than a divorce.”

Let’s go a little deeper into what happens if you do transfer assets that Medicaid questions — the five-year look back rule.

“These transfers do not prevent an individual from applying and ultimately receiving Medicaid benefits, but the transfers penalize the recipient by delaying the amount of time until he can be eligible for benefits,” said Frani Feit, a certified financial planner with Tradition Capital Management in Summit.

Plus, Feit said, there is an important distinction between estate planning and health care planning.

While the annual exclusion gift ($14,000 in 2017 and $15,000 in 2018) is a means of moving money out of one’s estate, that gift will hurt the donor by delaying his Medicaid eligibility, Feit said. A $15,000 gift in New Jersey, for example, could delay Medicaid eligibility for 45 days, she said.

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This post was first published in December 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.