Tuesday, January 10, 2012

Asset Protection and MassHealth Qualification

My older generation of estate planning clients often ask how to protect assets from being spent down on long term care in the event the client becomes ill and needs to enter a nursing home.  Many clients want to protect the assets they have worked so hard to generate over their lifetimes and do not want to end up spending all assets on care for the last chapter of their lives.  This question triggers a discussion of “Medicaid Planning”, which is a way to protect assets so as to qualify the client for governmental benefits in the event he or she must enter a nursing home.  The governmental benefit in question, formerly known as Medicaid, is now called “MassHealth”.

As the population ages and the government’s burden increases, it has become increasingly more difficult to qualify for MassHealth, and the regulations are being modified regularly to limit eligibility. MassHealth qualification mandates that an applicant have not more than $2,000 in “countable assets”, and limits income as well.  Clients who have in excess of $2,000 in assets will often ask about “giving away” their assets (usually by transferring them to their children) in order to qualify.  Unfortunately, the days of simply taking everything out of mom’s name are gone.

When applying for benefits, you must disclose all assets including any transferred away within the preceding five years.  Certain assets are considered “non-countable”, but MassHealth will “look back” at all asset transfers during the five years prior to the date of application, and if the applicant has transferred any countable assets for less than fair market value during this five year period, he or she will become ineligible for MassHealth benefits for a period of time which is related to the value of the assets transferred.  Important to note is that the disqualification period runs not from the date of transfer, but rather from the date when the individual enters a nursing home and is “otherwise eligible” for MassHealth coverage. In other words, the penalty period does not even begin until the individual applies for benefits. 

Some feel that planning for MassHealth best requires planning ahead by transferring assets at least five years in advance of the time when a nursing home is likely to be needed.  Of course, it is impossible to predict the future, so even the best planning may be thwarted by an unexpected illness.  MassHealth planning necessarily requires that the individual give up all elements of ownership and control over otherwise countable assets, which is something that many clients are not comfortable doing, especially while still relatively young and healthy.  The client must weigh the relative benefits of planning for MassHealth qualification against the risks of giving up all control and ownership of assets at a time that may be premature.  Fortunately, there are steps an individual may take even at the last moment to protect at least some assets from being accessed to pay for nursing home care. 

Because of the difficulties described above, LONG TERM CARE INSURANCE has become a very popular and well-advised product.  A long term care policy may provide necessary funds to cover not only nursing home expenses, but many other in-home and community-based medical services as well.  (MassHealth benefits will only pay for residential, institutional care.) The different options for long term care insurance are beyond the scope of this article, but if you are age 50 or older and concerned about paying for medical care as you age, investigating and procuring long term care insurance may be a worthwhile endeavor.