These Texas Estate Planning Strategies Will No Longer Help Avoid Medicaid Penalties

When putting together a thorough Houston estate plan, one important consideration is how care expenses will be paid later in life. This includes long-term care planning, which can be one of the most significant expenses for older Americans. For those with limited assets, Medicaid will typically pay for nursing home expenses.

Many people anticipating the need for long-term care have used several methods for gifting assets to others in order to qualify for this benefit. The goal of Medicaid planning is to qualify for Medicaid benefits that cover long-term care, while minimizing the penalty that would result from the transfer. Recent changes to Medicaid laws have rendered several of these methods that were formerly used to achieve these objectives obsolete. Below are a couple of strategies that will no longer be effective, moving forward.

The “Half a Loaf” Strategy

One of the most popular gifting strategies, this method involves a senior gifting half of their assets to their heirs. Meanwhile, the other half would be used to pay for Medicaid during the penalty period. This strategy took advantage of the prior method for calculating transfer penalties, which allowed penalties to begin before a person applied for Medicaid and rounded down calculated penalties. The result was a shorter penalty period.

Individuals utilizing this strategy would often make monthly gifts to family members that were planned in such a way to minimize the penalty. However, now transfer penalties do not kick in until a person has met all of the necessary qualifications to receive Medicaid. As a result, periodic gifting is no longer an effective strategy for avoiding penalties.

Purchasing Annuities

When someone purchases an annuity, they pay a lump sum in exchange for periodic payments over the course of their lifetime. Annuity purchases have been an effective method for married couples seeking to avoid Medicaid penalties, and they still are. This strategy works by converting excess cash into monthly income for the spouse who is not applying for Medicaid. The income of the healthy spouse, to whom the annuity is paid, is not considered by Medicaid and thus does not lead to a penalty.

While this method can still be utilized, changes to Medicaid require that couples employing this method utilize more care in how they execute it. For example, pre-2006 rules did not differentiate between annuities purchased from private or commercial providers. Therefore, couples could purchase an annuity from a family member without incurring a penalty. Meanwhile, if the person receiving the annuity payment passed away before the annuity expired, the family member would benefit. The new rules have removed this win-win option by requiring that an annuity be purchased from a commercial insurance company.

An Experienced Houston Estate Planning Attorney Can Help You Qualify for Medicaid and Avoid Penalties

The methods mentioned above can be ineffective for avoiding penalties, and they may also subject you to Medicaid ineligibility for a period of time. If you or a loved one is ineligible for Medicaid due to your assets, you could benefit from the assistance of a skilled Houston Medicaid planning lawyer. McCulloch & Miller, PLLC is a Houston-based law firm with a team of experienced attorneys ready to assist you. Our attorneys have the knowledge and experience to help you reach your estate planning goals. Schedule a consultation today by calling 713-333-8900, and learn about your options today.

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