Qualify for Medicaid
Many families believe they won’t qualify for Medicaid because they have too many assets. They often believe they need to spend down bank accounts, transfer money or property to loved ones, and voluntarily “go broke” to qualify.
The truth is spending down or giving away assets is rarely necessary, and sometimes is likely to disqualify the Applicant. With guidance from an experienced elder law attorney, most Applicants can qualify for Medicaid and keep all or a majority of their assets.
In Medicaid terminology, assets are called “resources.” Resources are divided into two categories - countable and non-countable. Countable resources are assets that Medicaid will consider when determining the Applicant’s eligibility. As of 2020, The Applicant must have less than $2,000 in countable resources to qualify for Medicaid. Non-countable resources are assets that Medicaid does not consider regardless how much they are worth.
What are Non-Countable Resources
Medicaid’s policies define what constitutes a non-countable resource. There are many different types of non-countable resources, but the most common ones are:
- The Applicant’s homestead. The Applicant’s homestead is a non-countable resource if it is located in Texas and the Applicant intends to return home if they leave the nursing home. An out of state homestead is non-countable if the Applicant’s spouse lives in the home. The homestead exclusion is subject to a maximum value set by Medicaid each year. For 2020, the equity value of the home may not exceed $595,000. “Equity value” means fair market value minus any mortgages or liens on the property.
- Household goods and personal effects. This includes items such as furniture, appliances, clothing, and items of personal or familial significance.
- One automobile. The Applicant’s automobile is a non-countable resource regardless of its value. The Applicant may only claim one automobile under this exclusion.
- College savings accounts. The Applicant may establish a college savings account for the benefit of a child under 21 years old. This includes 529(b) and UTMA accounts. These accounts are non-countable resources regardless of their value. The child does not have to be the Applicant’s child. It can be any person under 21 years old.
- Burial plots. Burial plots for the Applicant, their spouse, and their immediate family are a non-countable resource.
- Irrevocable pre-need funeral contracts. Many families purchase pre-need funeral contracts. These contracts are a non-countable resource if they are irrevocable.
- Certain business property. Property essential to self-support that is used in a person's trade or business is non-countable resource. This includes, but is not limited to, land and buildings, equipment and supplies, inventory, livestock, motor vehicles and all liquid assets needed for the business. It also includes personal property, such as tools, safety equipment, and uniforms.
- Livestock. Livestock owned as part of a trade or business or exclusively for home consumption is a non-countable resource.
The items above are the most common non-countable resources that most families own. Very often the Applicant’s homestead and car are their most valuable assets. The homestead and automobile exclusions can work to shield a large portion of their estate and still qualify for Medicaid.
Medicaid’s rules change frequently, and there are many more exemptions and exclusion than listed here. In many situations an otherwise countable resource may be excluded based on the facts of circumstances of the case.
What are Countable Resources?
Countable resources generally include cash and other liquid assets, real estate, personal property. “Liquid assets” generally means cash, bank accounts, stocks, bonds, mutual funds, and retirement accounts. Non-liquid assets are those that the Applicant or their spouse or parent can convert to cash to be used for his or her support. However, certain exclusions apply to certain types of non-liquid assets. For example, real estate is a non-liquid asset that technically can be sold and converted to cash but Medicaid’s policies specifically state the property is not considered a countable resource while it is listed for sale.
Certain contractual rights are also considered countable resources. For example, an ownership interest in a partnership, limited liability company, or other business is usually a countable resource. Other types of non-liquid assets that are countable include promissory notes, loans, or private investments. Non-tangible property, such as intellectual property rights, are also a considered a countable resource.
Trusts are another common form of countable resource. The entire value of a trust is a countable resource if: a) the trust is revocable, b) the Applicant is named as the trustee and can use the trust funds for their own personal benefit. Furthermore, if the trust is irrevocable, but there are any circumstances under which the trustee can make payments from the trust to or for the Applicant’s benefit, the portion of the trust from which the payment can be made is a countable resource. Additionally, any payments the Applicant receives from a trust – regardless whether it is revocable or irrevocable – are considered income.
Other issues related to countable resources
1. Retirement Accounts
One of the most common questions we get is about retirement accounts. Retirement accounts, such as a 401(k), 403(b), and IRAs are typically countable resources. But in certain situations the Applicant may qualify for an exception. A retirement account is not a countable resource if:
- The account is a qualified IRA or an annuity funded with employment income. A “qualified IRA” means an IRA funded with pre-tax income,
- The Applicant is over 72 years old, and
- The Applicant is taking their minimum required distribution from the account.
The IRA or annuity is not a countable resource if these requirements are met regardless of its value. For example, if John is 75 years old, has a $500,000 qualified IRA, and is taking his required minimum distribution, the entire value of the IRA is a non-countable resource. John can still qualify for Medicaid as long as he has less than $2,000 in countable resources even though he has half a million dollars invested in his IRA.
Importantly, such accounts generate income in the form of the required minimum distribution payments to the Applicant. This income is counted towards the Applicant’s income cap for Medicaid eligibility.
2. Property Listed for Sale
As of 2020 Medicaid’s policies provide that real estate listed for sale is a non-countable resource. The Applicant must take all necessary steps to sell the property, including either a) hiring a realtor, or b) listing the property for sale in the local media, posting a “For Sale” sign, conducting open houses, and showing the property to interested parties.The exclusion lasts for as long as the Applicant continues to make reasonable efforts to sell the property.
- Example. John’s only assets are a homestead worth $350,000 and a rental property worth $150,000. The homestead is a non-countable resource, but the rental property is not. John is ineligible for Medicaid. However, if John takes appropriate steps to list the rental property for sale it converts to a non-countable resource. John is now eligible for Medicaid because he has below $2,000 in countable resources.
3. Life Insurance Policies
Certain types of life insurance policies, such as whole life or universal life policies, have a cash value. The cash value of a life insurance policy is how much the insurance company would pay the policy holder if they cancelled policy. Medicaid treats cash value life insurance policies as a countable resource because the beneficiary can cancel the policy at their discretion and retrieve the funds.
Group and term life insurance policies are generally considered non-countable resources. In some cases, whole life policies are excluded in the face value of the policy is less than $1,500.
Can I keep my assets and qualify for Medicaid?
Most of the time, the answer to this question is “Yes!” Many seniors are often advised they have too much money to qualify for Medicaid. But as you can see Medicaid has numerous exceptions to exclude assets from being countable resources. An elder law attorney at The Michels Law Firm can help devise a strategy to protect most or all of your assets.