What is Estate Planning & Why it is Critical for Medicaid Planning

Last updated: February 15, 2024


What is Estate Planning for Medicaid?

Medicaid Estate Planning allows long-term care Medicaid applicants to meet Medicaid’s asset limit for eligibility purposes, while also legally protecting assets (also called resources) for family and loved ones for future inheritance. It might be thought that Medicaid applicants have a minimal estate to protect and pass on, but it would be wrong to assume this. Everyone has an estate, even Medicaid beneficiaries.


Difference Between Estate Planning and Medicaid Planning

Estate Planning
With Estate Planning, one sets up their estate in a manner that safeguards and manages their assets for named beneficiaries, while also minimizing the amount of estate taxes that the beneficiaries must pay. Essentially, an estate plan sets forth a plan of what happens to one’s estate after their death.

As part of an estate plan, a will is written. This is a legal document that states how one wishes to have their estate distributed after their death. An “executor” is named to manage one’s remaining estate and ensure the deceased’s wishes are carried out. A financial durable power of attorney is also set up. This is a legal document that names a person to make decisions on their behalf if they become mentally incapacitated. Trusts may be established in the name of the beneficiaries to limit estate taxes, or alternatively, charitable donations may be made to serve the same purpose. Not all Estate Planning strategies are appropriate for Medicaid Planning. However, a part of Estate Planning should be planning for the possibility of a future need for long-term care Medicaid.

Medicaid Planning
With Medicaid Planning, assistance may be provided with the Medicaid application process and the gathering of required documentation. However, the main goal is to speed up the process of meeting Medicaid’s financial eligibility requirements in order to maximize benefits and savings on long-term care.

While Medicaid has both income and asset limits for qualification purposes, being over the limit(s) does not mean that one cannot qualify for Medicaid. A part of Medicaid Planning is implementing planning strategies to get income and assets under the limit(s) without jeopardizing one’s Medicaid eligibility. Furthermore, Medicaid Planning can aid applicants in protecting assets (one’s estate) from Medicaid’s Estate Recovery Program and for family as inheritance.  Estate Planning (in some aspect) should be a part of Medicaid Planning.

 Caution: Not all Estate Planning strategies protect one’s estate, including the home, from Medicaid Estate Recovery. If planning strategies are not implemented with the need for Medicaid in mind, a state’s Medicaid agency might be reimbursed for long-term care costs following a Medicaid beneficiary’s death via their remaining estate. Furthermore, if a Medicaid beneficiary is married and their non-Medicaid spouse dies first, any assets the Medicaid spouse inherits could cause them to lose their Medicaid benefits. This is because any assets passed on to them (via will, beneficiary designation, joint accounts, trusts) may cause them to have assets over Medicaid’s asset limit. For this reason, it is vital that all documents be reviewed to ensure this will not happen. Find a Professional Medicaid Planner and protect your estate from Medicaid.


Why Do Estate Planning in Advance of the Need for Medicaid?

A Medicaid applicant must have income and assets under a specified amount to be eligible for long-term care Medicaid. If Estate Planning activities are conducted well in advance of the need for Medicaid long-term care, a family is able to protect many of their assets. For a deeper understanding of the importance of doing Medicaid Estate Planning prior to the need for care, it is important to understand some Medicaid related terms.

Medicaid Asset Limit
In 2024, a Medicaid applicant is generally limited to $2,000 in assets. There is, however, some variance based on the state in which one resides. See state-specific asset limits. Some higher valued assets, such as one’s primary home, are usually exempt (not counted) from the asset limit.

Asset Spend Down
When an applicant has “excess” assets (assets over Medicaid’s limit), they must “spend down” their assets to meet Medicaid’s asset limit. This can be done by paying for long-term care out of pocket, paying off debt, purchasing an Irrevocable Funeral Trust, making modifications to one’s home, or even going on a vacation. While “spending down” assets allows a way for an applicant with excess assets to meet Medicaid’s asset limit, it does not protect assets for family and loved ones as inheritance. Assets cannot simply be gifted to family or sold under fair market value during Asset Spend Down. This is because Medicaid has a Look-Back Period (discussed in the next section). Participating in Medicaid Estate Planning in advance can allow a future applicant to turn countable assets into exempt assets while preserving them for family.

Look Back Rule
The Look-Back Rule is a period in which Medicaid scrutinizes all past asset transfers for gifted assets / assets sold under fair market value immediately preceding the date of one’s long-term care Medicaid application. While the majority of the states have a 60-month Look-Back Period, California is an exception and has no “look back” for asset transfers made on or after 1/1/24. This is because CA eliminated their asset limit on this date. New York is also an exception in that there currently is no “look back” for home and community based services. This, however, is changing; NY plans to implement a 30-month Look-Back Period no earlier than March 31, 2024. Violating the Look-Back Rule results in a Penalty Period of Medicaid disqualification. Unfortunately, many Estate Planning strategies violate Medicaid’s Look-Back Rule, which means it is vital that they be implemented well in advance of the need for long-term care Medicaid.

Medicaid Estate Recovery Program (MERP)
Every state has a Medicaid Estate Recovery Program in which Medicaid attempts reimbursement of long-term care costs it paid for a Medicaid beneficiary following their death. While one’s home is generally exempt from Medicaid’s asset limit, it is not automatically protected from Estate Recovery. Often, the home is the highest valued asset remaining, and it is often through forcing the sale of the home that the state tries to be compensated. Note that if a home is occupied by spouse, the state cannot force a sale.

To protect one’s home from MERP and preserve it as inheritance for family, Medicaid Estate Planning strategies can be implemented. Many planning strategies are available. Unfortunately, they often violate the Look-Back Period, and again, highlight the importance of Medicaid Estate Planning in advance. Learn more about protecting one’s home from Estate Recovery.


Estate Planning Strategies for Medicaid

There are a variety of Estate Planning techniques that can be utilized to protect assets for family as inheritance. Several of these options violate Medicaid’s Look-Back Period and should be implemented well in advance of the need for long-term care Medicaid. Not all of these strategies are permitted in all states.

Medicaid Asset Protection Trusts (MAPTs) 
MAPTs offer a way to turn non-exempt (countable) assets into non-countable assets for Medicaid qualification purposes. They also serve to protect the home from Medicaid’s Estate Recovery Program (MERP). Remember, via MERP, the state attempts to collect reimbursement for long-term care expenses it paid for a former Medicaid beneficiary who has passed away.

With a MAPT, the trustmaker’s assets, including their home, are transferred to the trust and a trustee and beneficiary are named. The trustee manages the trust and the beneficiary inherits the trust after the trustmaker’s death. The trust must be irrevocable, which means a trustmaker cannot make changes to or cancel the trust. Trust funds cannot be used on the trustmaker. While the assets in the trust no longer belong to the trustmaker, they can continue to live in their home until death. This Estate Planning strategy violates Medicaid’s Look-Back Rule.

Modern Half a Loaf Strategy 
With this planning strategy, one calculates the total amount of their “excess” assets (countable assets over Medicaid’s asset limit) and then gives approximately half of the assets to relatives or other loved ones. With the remaining “excess” assets, a short-term annuity is purchased. This is a financial contract between the purchaser and an insurance company in which a lump sum of money, essentially assets, is converted into an income stream. More on Medicaid-Compliant Annuities.

Since the individual no longer has assets over Medicaid’s limit, they should apply for Medicaid, but expect to be penalized with a disqualification period for gifting assets. While the Medicaid Half a Loaf strategy violates the Look-Back Period (specifically, the gifting of assets), the income from the annuity is intended to cover the cost of long-term care during the Penalty Period.

Spousal Refusal
Spousal Refusal, which is only practiced in New York, Ohio, Rhode Island, and Florida, is the refusal of a non-applicant spouse (also called a community spouse) to help cover the cost of long-term care for their applicant spouse. Legally, spouses are required to financially support each other, but even so, Medicaid is unable to refuse long-term care on the basis of one’s spouse refusing to provide financial assistance. Per federal Medicaid law, if the non-applicant spouse refuses to help pay for care, their assets cannot be considered in determining Medicaid eligibility for their spouse.

With this Estate Planning strategy, assets over Medicaid’s asset limit are transferred from the Medicaid applicant to the non-applicant spouse. This does not violate Medicaid’s Look-Back Rule, as spouses are able to transfer assets between each other without penalty. There is, however, some risk that the Medicaid agency will sue the non-applicant spouse for refusal to make their assets available to help cover the applicant spouse’s cost of long-term care.

Medicaid Divorce 
Medicaid Divorce is the legal ending of a marriage when one spouse requires Medicaid long-term care. This Estate Planning technique is intended to prevent a couple from spending nearly all their assets on care costs, and instead, protects a higher amount of assets for a non-applicant spouse. Medicaid Divorce is no longer as common due to Spousal Impoverishment Rules. These rules are intended to prevent non-applicant spouses of long-term care Medicaid applicants from becoming poverty stricken in order for their spouses to become Medicaid-eligible. Generally, Medicaid Divorce is not necessary or advisable, but in some cases it may be a preferred strategy.

Gifting Assets Prior to Medicaid’s Look-Back Period
One could outright gift assets to loved ones. If this course of action is taken, it is extremely important that this be done well in advance of the projected need for long-term care Medicaid. This is because gifting countable assets is in violation of Medicaid’s Look-Back Rule.


Who Provides Medicaid Estate Planning Services?

While one might think an Estate Planning Attorney is needed to implement Estate Planning strategies for Medicaid Planning, this is not true. In addition to Estate Planning Attorneys, some Eldercare Financial Advisors and Medicaid Planners provide Medicaid Estate Planning services. There are pros and cons of working with any of these professionals.

Estate Planning Attorneys
The main focus of Estate Planning Attorneys is on managing and preserving one’s estate and implementing planning strategies to minimize the amount of taxes beneficiaries will have to pay. Although they may have some knowledge surrounding Medicaid’s eligibility criteria, Look-Back Rules, and Medicaid-compliant Estate Planning strategies, their knowledge is generally more limited than that of a Professional Medicaid Planner. Stated differently, the main focus of an Estate Planning Attorney is not Medicaid Planning.

Medicaid Planners
Medicaid Planners are extremely knowledgeable when it comes to all things Medicaid related. They help clients restructure their income and assets to meet the financial requirements and gain eligibility. They assist persons in planning techniques that preserve assets for family as inheritance, as well as protect one’s home from Medicaid’s Estate Recovery Program. Unlike Estate Planning Attorneys, Medicaid Planners do not do advanced Estate Planning. However, Professional Medicaid Planners work closely with Estate Planning Attorneys in certain situations.

Eldercare Financial Planners
Eldercare Financial Planners help seniors put together a financial plan to downsize their resources in preparation to potentially pay for long-term care. They can also aid in protecting assets from Medicaid “spend down”. Essentially, they manage a person’s finances and have a vast understanding of financial matters. Their expertise, however, is neither Medicaid Planning nor Estate Planning.

 Self Planners Beware: One should not implement Medicaid Estate Planning strategies without professional assistance. The rules that govern Medicaid eligibility and Medicaid Estate Planning strategies vary based on the state in which one lives, with marital status, and even veteran status in some states. One’s specific circumstances need to be taken into account. Find a Professional Medicaid Planner.


How Much Does Medicaid Estate Planning Cost?

Professional Medicaid Planners generally charge $4,000 – $10,000 for Medicaid Estate Planning, while the cost to hire an Estate Planning Attorney is greater. Financial Advisors generally do not charge a set fee. Instead they base the cost of Estate Planning on a percentage of the total value of one’s financial portfolio. For those who already have a Financial Advisor, it is suggested they inquire with their advisor first about Medicaid Estate Planning. Financial Advisors will not take on a new client for the sole purpose of Medicaid Estate Planning. For all others, it is advised one contact a Professional Medicaid Planner. Begin your search.

While the cost of Medicaid Estate Planning might initially seem high, it is well worth it. Hiring a professional not only helps one in qualifying for long-term care Medicaid, but it also helps to preserve many more thousands of dollars (as well as one’s home) for family as inheritance.

Determine Your Medicaid Eligibility

Get Help Qualifying for Medicaid