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Making Medicaid Planning a Profitable Part of Your Practice. Presented by: Valerie L. Peterson, J.D. & Matthew E. Zagula, A.I.F. Who is Appropriate for this type of Planning?. Clients who are concerned about depleting their savings should a catastrophic illness occur

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Making medicaid planning a profitable part of your practice

Making Medicaid Planning a Profitable Part of Your Practice

Presented by:

Valerie L. Peterson, J.D. &

Matthew E. Zagula, A.I.F.

Who is appropriate for this type of planning
Who is Appropriate for this type of Planning?

  • Clients who are concerned about depleting their savings should a catastrophic illness occur

  • Clients who have recently been diagnosed with an illness that will require significant long-term care

  • Clients who are already receiving long-term care at home or in a facility

Who is appropriate for this type of planning1
Who is Appropriate for this type of Planning?

  • Determining minimum net worth required to fund long-term care

    • Gross monthly income from all sources

    • Less monthly expenses

    • Consider cost of nursing home or ALF

    • Given monthly income available, how much principal is needed to generate enough income to cover the facility expense?

Determining minimum net worth needed to fund long term care
Determining Minimum Net Worth Needed to Fund Long-Term Care

  • Monthly Income $3000

  • Monthly Expenses $2500

  • Cost of nursing home care: $5500

  • Assets needed to generate $5000/month=$1,200,000 (assuming 5% rate of return)

Medicaid where to find the rules
Medicaid – Where to Find the Rules

  • 42 USC 1396p (as amended by DRA 05)

  • 42 CFR 430 and 20 CFR 416

  • Your Local State Medicaid Manual

  • Your State Administrative Regulations

Medicaid the basics
Medicaid – The Basics

  • Income – Determined by each State

  • Assets

    • Between $999 and $4,150 for a Single applicant

    • Married couples with 1 applying - $101,640 (increases January 1)

Medicaid the basics1
Medicaid – the Basics

  • Countable Assets

    • All bank accounts

    • Life Insurance cash value or face value (Federal rules say $1500 or less is ok)

    • All investment accounts

    • IRAs (State specific)

Medicaid the basics2
Medicaid – The Basics

  • Non-Countable

    • Home (limited equity - DRA 2005)

    • Vehicle

    • Prepaid Funeral/Burial (may have to be an irrevocable contract)

    • Life Insurance with face value of $1500 or less (State may allow more)

    • IRA?

    • Income Producing Property

Planning strategies
Planning Strategies

  • Goal: Reduce countable assets to amount allowed as soon as possible with the shortest penalty possible.

  • Penalty period: Period of months an applicant must wait if assets are gifted away or transferred for less than full market value.

Understanding the penalty period
Understanding the Penalty Period

  • When a gift or uncompensated transfer is made, a period of ineligibility occurs.

  • How a penalty is calculated:

    • Amount of the transfer divided by the monthly divisor amount (set by each state) = number of months of ineligibility.

    • Example: Gift of $50,000 is made in a state which uses a divisor of $5,000. Gift results in a 10 month penalty.

Understanding the penalty period1
Understanding the Penalty Period

  • When does the penalty start?

  • Depends on whether State has adopted DRA 2005.

  • Pre-DRA 2005: Penalty starts the month the transfer is made. $50,000 gift made June 25, 2007 – penalty starts the month of June.

Understanding the penalty period2
Understanding the Penalty Period

  • DRA 2005: Penalty starts “the first day of a month during or after which assets have been transferred . . . Or the date on which the individual is eligible for Medicaid assistance under the state plan and would otherwise be receiving institutional level care . . But for the application of the penalty period, whichever is later.”

Understanding the penalty period3
Understanding the Penalty Period

  • $50,000 gift on June 27, 2007: Penalty will not start until the applicant is financially eligible and is in a nursing home or eligible to receive nursing home level care.

  • Look back period under DRA 2005 is 5 years. The gift will be reportable during the 5 year period.

Planning strategies1
Planning Strategies

  • Pre-Crisis v. Crisis (already receiving care)

  • Pre-Crisis cases often times come in as estate planning clients. It is important to have the conversation about how to pay for long-term care with them and analyze the minimum net worth needed for them to finance their own care.

Planning strategies2
Planning Strategies

Case Studies

What you need to consider:

Single or Married Couple

Health Situation & Background

Financial Fact Pattern



Pre crisis planning
Pre-Crisis Planning

Pre-Crisis – Roger and Judy Jones

  • Roger and Judy are age 67. Roger has high cholesterol, but Judy is in good health.

  • Countable assets include an investment portfolio worth $300,000 and a second home in a different state worth $225,000.

  • Their income is meeting their expenses but they are concerned about preserving their assets should one of them become ill.

Planning strategies pre crisis
Planning Strategies – Pre-Crisis

  • One possible solution:

    1) Place $250,000 plus the second home into a Irrevocable Medicaid Trust.

    • Result: $475,000/$5000=95 month penalty.

      2) Purchase a long-term care policy for one or both of them with a 5 year benefit period.

  • Result: All assets protected with no risk.

All parties benefit
All Parties Benefit

  • Assets are managed by the referring advisor in the Irrevocable Medicaid Trust.

  • Sale of Long-Term Care Insurance is made (and maybe life insurance).

  • If all assets were not held by the referring advisor, should be transferred to him/her.

  • CPA is needed for tax return for the Trust, income tax advice, and capital gains advice.

Planning strategies3
Planning Strategies

Crisis Case #1 – Craig & Ruth Smalley

Immediate Nursing Home Need

  • Ruth is 77 years old and has Alzheimers and needs to go into a nursing home. She is now known as the institutionalized spouse.

  • Craig is 78 years old and is now known as the community spouse.

Craig ruth smalley
Craig & Ruth Smalley

  • They have countable assets totaling $300,000

Since they are a married couple, the Medicaid system divides their total assets by two (in most states), so that each of them has a resource of $150,000.

Since Ruth is now an institutionalized spouse, her $150,000 needs to be spent down to $2,000. Which means she has $148,000 at risk.

Craig as the Community spouse is allowed to keep only $101,640*, which means that he has $48,360 at risk.

*$101,460 (increases Jan. 1)

Craig ruth smalley1
Craig & Ruth Smalley

In a crisis planning situation, you must consider the amount of money at risk and systematically go through the exemptions:

  • Do they need home improvements?

  • Does the client need a new car?

  • Should they prepay their funerals?

  • What is the income loss in the event of the death of one spouse?

Any of their at-risk dollars can be used to improve their home, buy a car or to pre-pay funerals. They could actually go out and buy a more expensive home, but the value of the new home would be subject to certain limitations under the DRA.

Craig ruth smalley2
Craig & Ruth Smalley


The goal is to reduce and protect your client’s assets.

If the previous strategies do not work for the client, in whole or in part, then the healthy spouse may be able to buy a Medicaid qualifying annuity in favor of the community spouse. The annuity must be irrevocable, unassignable, and have no tabular cash value. In essence, under the Medicaid rules and regulations, this money disappears as an asset and becomes an income stream payable to the community spouse.

Craig ruth smalley3
Craig & Ruth Smalley


Some states have add-on rules to the DRA that do not allow for Medicaid qualifying annuities. In those states, you may be able to use what’s called a Medicaid qualifying note, which is very similar to a Medicaid qualifying annuity, but instead of shifting the financial responsibility off to a third-party insurance company, the family retains the responsibility through the note structure.

Craig ruth smalley4
Craig & Ruth Smalley


  • Utilize all available spend-downs.

  • Purchase a MQA/MQN for Craig, the community spouse, based on his life expectancy of 7yrs / 9 months.


  • Immediate Medicaid Qualification

Planning strategies4
Planning Strategies

Crisis Case #2 – Sally Book

Immediate Nursing Home Need

  • Sally is a 71 year old widow. Her life expectancy for Medicaid purposes is 14 years / 7 months.

  • She is in a nursing home in West Virginia at the skilled care level with monthly costs of $4,350.

Case study sally book
Case Study – Sally Book

Financial Fact Pattern – Income / Expenses

Monthly - Source of Income

Monthly Expenses excluding nursing home care

*Based on the above scenario her income for Medicaid planning purposes is $959.

Case study sally book1
Case Study – Sally Book

Financial Fact Pattern – Assets

List of Assets

Case study sally book2
Case Study – Sally Book

Sally is permitted to keep $2,000 of her assets and she owes one full month of nursing home care prior to implementing this strategy. Therefore, her remaining assets that are subject to spend-down are $99,189.

Case study sally book3
Case Study – Sally Book


  • Create an otherwise eligible for Medicaid scenario by:

  • Gifting $61,044 to children/family, and

  • Placing $38,145 into a MQN payable over 12 months @ $3,178.75/month


  • Sally’s income including the Note for 12 months is $4,137.75. The cost of care is $4,350.00. The monthly shortfall is $212.25, which should be paid by her children/family.

  • Medicaid qualification in 12 months.

Planning strategies5
Planning Strategies

  • Crisis Case #3 – Ralph & Alice Kramer

    Immediate Nursing Home Need

  • Alice just suffered a stroke and has become totally incapacitated and needs care at the skilled-care level.

  • Ralph is a healthy 74 year old who worked and saved every month so that he could live comfortably during his retirement.

  • The Kramers reside in Illinois

Case study the kramers
Case Study – The Kramers

Financial Fact Pattern – Income / Expenses

Monthly - Source of Income



Monthly Expense

Nursing Home care: $5,000 per month.

Case study the kramers1

Financial Fact Pattern – Assets

Case Study – The Kramers

List of Assets

Case study the kramers2
Case Study – The Kramers


  • File IL Medicaid Application.

  • Identify $100,000 as Ralph’s CSRA


  • Immediate Medicaid Qualification