How Small Family Business Ownership Impacts Eligibility for Medicaid Long-Term Care

Last updated: July 10, 2024



Can one own a business, such as a small family farm, electrical contracting, or home-based bakery, and still be eligible for long-term care Medicaid? Will the assets required to run the business count towards Medicaid’s asset limit? Can these assets push one over the limit? Will the business need to be sold for one to qualify for Medicaid?

While the simple answer is, “yes”, one can own a business (be self-employed) and still be eligible for Medicaid, the topic is more complicated. Certain factors, some state-specific, come into play when determining if business assets are counted towards Medicaid’s asset limit. These include if the business is currently operating, if the individual or their spouse is actively participating in their business, and if the business is not currently operating, if (and when) they plan to resume business.

The information contained in this article applies to business or trade assets that are necessary to generate income. In Medicaid-speak, these assets may be called “business property essential to self-support” or “property used for business or trade”. These assets consist of real property and personal property. Real property includes land, such as farming land, buildings, and other structures that are attached to the land and cannot be moved. Personal property is anything else and includes tools, equipment, uniforms, inventory, livestock, motor vehicles, office furniture, computer equipment, and liquid assets (i.e., cash, checking accounts) necessary for business / trade operation.

Another important component of how a business or trade impacts Medicaid eligibility is how income produced by the business or trade is treated by Medicaid. While the income is counted towards Medicaid’s income limit, there are certain allowable expenses that can be deducted from the income, lowering the amount of “countable” income.

 Different rules apply for Medicaid applicants who own rental property that produces passive income, or in other words, income that is not generated via a business.


Medicaid’s Asset Limit

In order to be eligible for long-term care Medicaid, one must have limited assets. Generally speaking, the individual asset limit is $2,000. There are, however, some exceptions. For instance, Connecticut has the lowest asset limit at $1,600, Illinois allows $17,500, and California is the most liberal with no asset limit (eff. 1/1/24). See state-specific asset limits.

For married couples, all assets are considered to be jointly owned and are considered in the application process. The asset limit, however, varies based on the specific Medicaid program for which one is applying and if one or both spouses are applicants. For Regular Medicaid, which for seniors is often called Aged, Blind and Disabled Medicaid, the combined asset limit is usually $3,000 or $4,000. Exceptions exist and include Connecticut ($2,400), Illinois ($17,500), and California (no asset limit). For home and community based services (HCBS) Medicaid Waivers and Nursing Home Medicaid (and both spouses are applicants), the asset limit is generally $2,000 per spouse. When only one spouse is an applicant, the applicant spouse can generally have $2,000 in assets and the non-applicant spouse is allocated a larger portion of the couple’s assets. This is called a Community Spouse Resource Allowance, and in 2024, may allow a non-applicant spouse to keep up to $154,140 in assets.

Many assets are not counted towards Medicaid’s asset limit. These usually include one’s home, household appliances, furniture, a vehicle, and personal items, such as clothing and one’s wedding ring. “Business property” and “trade property”, or in other words, assets used for one’s business or trade, may also be exempt, given specific criteria is met.

 Business or trade assets may be exempt from Medicaid’s asset limit, regardless of their value or rate of return (profit or loss), given specific criteria is met. Income produced via the trade or business is counted towards Medicaid’s income limit.


Asset Exemption Rules for Business & Trade Assets

Business and trade assets are not counted towards Medicaid’s asset limit regardless of their worth or rate of return (profit or loss) if the following criteria is met:

– The assets are essential to self-support. This means the assets are necessary to run one’s business or trade (and make money to support oneself).
– The assets are currently in use. Many states require that the Medicaid applicant (or their spouse) be actively involved in business operations.
– It is a valid business or trade.

To prove the validity of a trade or business and that it is currently being operated, the following information may be required:

1) Description of the business or trade
2) Description of the business or trade assets
3) Number of years of operation
4) Identity of co-owners (if applicable)
5) Estimated gross (before taxes and other deductions) and net earnings (after taxes and other deductions) for the current tax year. A copy of the current business tax return should be provided. If not available, one should include a copy of the latest tax return.

1) Margaret has a home-based ceramic pottery business she is currently operating. Her potter’s wheel, kiln, hand tools, clay, and other equipment for her business are valued at $10,000. The entire amount is exempt from Medicaid’s asset limit since she is using them in her business.

2) Janet and her husband, William have a family farm. Janet was admitted to a nursing home and no longer farms, while William continues to farm. Their tractor, combine, cows, and pigs are necessary for William to operate the couple’s farm. Therefore, these assts are exempt from Medicaid’s asset limit.

3) Ralph owns a lot a few blocks from his home. On this lot, is a garage that houses his mechanic business. The lot, garage, and all the tools and equipment within it are used by Ralph to run his business. The assets do not count towards Medicaid’s asset limit.

 While trade or business assets may be exempt from Medicaid’s asset limit, they are not necessarily safe from the Medicaid Estate Recovery Program.


Assets Not Currently in Use

If trade or business assets were previously used to support oneself, but are not in current use, the assets may still be exempt. It must be expected, however, that one will resume use of the assets, generally within 12 months. If assets are not being used, the Medicaid agency will likely require a statement that includes: 1) the date the assets were last used 2) why the assets are not being used 3) when one expects to use the assets again. Some states, such as Indiana, Minnesota, Nebraska and South Dakota, require that the assets are not being used for a reason outside of one’s control (i.e., an illness, disability, or injury).

Furthermore, states may allow an additional 12-months (so up to 24-months total) of exemption if assets are not being used because of a “disabling condition”. Examples of disabling conditions might include injuries, recovery from a stroke or heart attack, or depression. If one claims assets are not being used for this reason, a statement might be required that includes: 1) description of the “disabling condition” 2) date one stopped using the assets 3) when one expects to resume use of the assets.

While seasonal businesses are not run year-round, these business assets generally will remain exempt if they will be used the following season. For example, Iowa will not count seasonal business assets towards Medicaid’s asset limit if the individual expects to resume the business within a year from the day of last use, and Wisconsin considers a seasonal business to still be operating in the off season.

If there is no expectation that business assets will be used again, they will count towards Medicaid’s asset limit.

1) Bill has a tiny ice cream shop across town that operates from May through August each year. The shop, ice cream machines, and everything else needed to run the business remain exempt as long as Bill continues to open and run his business each year.

2) Joanna owns a small lot with a chicken coop and cows. She sells the eggs produced by the chickens and the milk from the cows. She was recently admitted to a nursing home and does not expect to return to her business. The assets are counted towards Medicaid’s asset limit.


State-Specific Differences

There are state-specific differences as to how business and trade assets are treated when it comes to determining Medicaid eligibility. While some differences are covered below, this is a complicated topic and there could be other differences not included.

– Exemption Amount
While most states will disregard (not count) business assets regardless of their value and rate of return, some states, such as Illinois, are an exception. IL will only exempt up to $6,000 of an asset’s equity value, and for this exemption, the asset must be generating an annual income of at least 6% of the asset’s excluded equity value. For example, Dave has $5,200 worth of tools and equipment for his plumbing business. His business generates approximately $600 / month in income. For his business assets to be exempt, his business must generate a minimum of $312 / month ($5,200 x 0.06% = $312). Since his business makes more than $312 / month, the entire value of his business assets ($5,200) is exempt. Note that if his business assets were valued over $6,000, only $6,000 would be exempt.

– Current Use of Business or Trade Assets
Most states require an applicant (or their spouse) to be currently using their business assets, or in other words, that they be “actively participating” in their business. For instance, Wisconsin explicitly states that the Medicaid applicant must be involved in business operations on a day-to-day basis. Therefore, a single applicant cannot reside in a nursing home and their business assets be exempt. Not all states, however, require that an applicant be an active participant in their business. As an example, Missouri continues to disregard (not count) business assets if they are being used as part of one’s business, even if the owner is in a nursing home resident and not participating in the business.

– Reasonable Expectation to Resume Business
Most states allow business or trade assets not currently in use to remain exempt up to 12 months (24 months if there is a “disabling condition”), given there is a reasonable expectation that one will resume use of the assets. Texas, however, does not set a time limit of reasonable expectation.

 An awareness of state-specific rules is vital when one requires Medicaid and owns a business or trade. Professional Medicaid Planners are extremely knowledgeable in this area and can assist one in determining if their business or trade assets will count towards Medicaid’s asset limit, and if so, help restructure their assets in order to meet the limit. Applying for Medicaid without an awareness of one’s situation and state-specific rules can lead to Medicaid denial. Find a Medicaid Planner.


Medicaid Planning Strategies to Lower Assets

If one’s business or trade assets push them over Medicaid’s asset limit, there are asset planning strategies available to help them become asset-eligible, and hence, qualify for Medicaid.

– Sell the Assets and “Spend Down” the Funds
Business or trade assets can be sold at fair market value and then the proceeds, “spent down”, until one is at or below Medicaid’s asset limit. When doing this, it is vital that the money be spent on non-countable assets, or in other words, ones that do not count towards Medicaid’s asset limit. Examples include prepaying for one’s funeral and burial expenses by purchasing an Irrevocable Funeral Trust, making home repairs (i.e., replacing a damaged roof or faulty wiring), making home modifications for aging in place (i.e., adding a stairlift or wheelchair ramp), or paying for needed long-term care. It is vital that one does not gift assets (or cash from the sale), as it violates Medicaid’s Look-Back Period and can result in a Penalty Period of Medicaid ineligibility. More on spending down assets.

– Put the Assets in a Medicaid Asset Protection Trust
Assets, including business or trade assets, placed in a Medicaid Asset Protection Trust (MAPT) are no longer considered owned by the individual, and therefore, no longer count towards Medicaid’s asset limit. The person creating the trust names a trustee, to manage the trust and adhere to trust rules, such as not using funds for the person who created the trust. They also name a beneficiary, who will eventually inherit the assets. To be Medicaid-compliant, or in other words, allowed by Medicaid, a MAPT must be irrevocable. This means the terms of the trust cannot be changed or revoked. Unfortunately, MAPTs violate Medicaid’s Look-Back Period, and therefore, created within 60-months of long-term care Medicaid application, can result in Medicaid denial for a specified period. Not only do MAPTs protect assets from Medicaid’s asset limit, they also protect them from Medicaid’s Estate Recovery Program (MERP).

– Contact a Professional Medicaid Planner
Given the complexity of owning a business or trade and Medicaid eligibility, as well as state-specific rules, it is highly recommended that one contact a Medicaid Planner if they are a business or trade owner and need Medicaid-funded care. Professional Medicaid Planners are highly skilled in this area and can help one determine if their assets will count towards Medicaid’s asset limit, and if so, help them to implement planning strategies to become Medicaid-eligible. Find a Medicaid Expert.

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