Medicaid Liens

Medicaid is a state-administered federal program designed to provide assisted living facilities for elderly persons who can no longer live on their own. It is intended to be a safety net for those who run out of assets before they pass away. As such, it is only intended as a resource to be tapped after most of one’s own assets have been exhausted.

Consequently, many states – including Idaho – make it almost impossible to hold onto substantial assets while also receiving Medicaid benefits. This is as it should be. As taxpayers, we all expect our government to be frugal in deciding who is really in such need that the state should step in and protect and care for them.

Our partners Daniel Patchin and Ben Monaghan count it a privilege to assist clients with their Estate Planning needs. After years of working together, Peters Patchin & Monaghan focuses on the preparation of Wills, Trusts, and related documents that are short, simple, and affordable. The unique circumstances of each client are studied and assessed in determining and preparing the best Estate Plan possible.

Applicants for Medicaid benefits are screened by the state of Idaho for certain financial information. First, the state wants to know what assets a person has available to pay for his or her own necessities. Persons who have resources available will be expected to use up most of those assets before beginning to receive Medicaid assistance.

Second, the Idaho asks about any assets that the applicant has given away or sold for less than they were worth during the previous five years. Even if an applicant currently owns no assets, any property given away during that five-year window will be attributed to them for purposes of calculating their entitlement to benefits. For example, if a person has given away $100,000 in cash just before applying for benefits, the Medicaid program will postpone benefits until the applicant has paid for the first $100,000 of assisted living costs. After that the state will begin covering the cost of the assistance from that point forward. The gift isn’t viewed as disqualifying the person for benefits. It just postpones the date when Idaho begins actually paying the benefits.

One related issue is the treatment of the applicant’s home. Although the Medicaid program normally requires the applicant to spend down his or her own assets prior to receiving benefits, that requirement doesn’t apply to the applicant’s home here in Idaho. Instead, the applicant is allowed to retain the home, but a “Medicaid Lien” is recorded against the property.

The Medicaid Lien will enable the state to recover all Medicaid benefits paid for the owner during the last five years before he or she passes away. Any equity in the house beyond the amount of those recovered benefits can then be paid to the heirs of the person who received the benefits.

With all of this in mind, the only way to protect assets from a Medicaid Lien here in Idaho would be to give the asset away (with no strings attached) at least five years before the person making the gift turns out to need Medicaid assistance.

If this is done, then when the need for benefits eventually arises, the state’s screening process will ignore that gift since it occurred more than five years before the application for benefits is submitted.

Having said all of this, it is important to point out that giving your assets to a child is a path that is fraught with risks. Doing so effectively means that the child owns the assets that are given away.

If there is a falling-out between the child and the parent who made the gift, the child has no obligation to share the items gifted with the parents. If the gift included the parents’ home, the child can sell the house and evict the parents of that home while they are still living.

More importantly, the house and any other assets given to the child will be subject to claims held by that child’s creditors. For example, if the child is involved in an automobile accident that results in a judgment by the other party, the person that the child injured can force the sale of the parents’ home to satisfy that judgment. In such a case, the result is that the parents are kicked out of “their own” home.

Likewise if the child loses his or her own home to foreclosure and is left owing the mortgage holder more than the home is worth. That lender may end up getting a judgment against the child and then having the parents’ home sold to satisfy the judgment. So, even though the parents’ home may have been owned free and clear when it was transferred to the child, it may be lost altogether if the child’s finances become precarious.

With all of this in mind, for most people, giving assets away as a means of avoiding Medicaid Liens would be an unfortunate decision. Doing so could result in the parents not qualifying for benefits just when they are needed. It could also result in the loss of the parents’ home to creditors of the child to whom the home was given.

If you would like our help in setting up your estate plan, please give us a call at (208) 939-2600 to schedule your free initial consultation. Or you can schedule your expedited appointment at your convenience by clicking on either of the “Schedule Now” boxes on our Home Page.