Long-Term Care – Part XV (Exempt Transfers, continued)

The Greatest Financial Risk for Seniors: Paying for

Long-Term Care – Part XV (Exempt Transfers, continued)

Kemp Scales, CELA*

The past few articles in this series discussed the Medicaid gifting rules – how gifting affects Medicaid eligibility; how certain transfers are not treated as “gifts” for Medicaid purposes (such as payments to a to a child under a written care agreement); and how certain other transfers that are gifts are nevertheless exempt for Medicaid purposes (such as gifts to a blind or disabled child, gifts of the house to a sibling with an equity interest or to a “caregiver child”), or minimal gifts (those not exceeding $500 total in any one calendar month). This article continues the discussion of exempt transfers – that is, those that do not create any delay in your Medicaid eligibility.

  • Gifts to a Special Needs Trust.
    • For the Benefit of a Blind or Disabled Child. As discussed in the previous article in this series, gifts made directly to a blind or disabled child are exempt for Medicaid purposes, regardless of amount. However, your child may be receiving “means-tested” government benefits such as Supplemental Security Income (SSI) and/or Medicaid – that is, government programs that require your child to be impoverished. In that case, making gifts directly to such children would put them over the asset level, causing them to lose their SSI or Medicaid benefits.

A way to avoid this problem and so get assets out of your name for the benefit of your disabled child without affecting his or her Medicaid eligibility would be to transfer the assets into a “Special Needs Trust.” These trusts are designed to hold assets for the benefit of persons who are disabled and receiving “means-tested” government benefits. If the trusts are property drafted and administered, then the trust assets will not be treated as “available” to the trust beneficiaries and so will not affect their Medicaid or SSI eligibility.

So that’s a solution for your child’s Medicaid eligibility. But what about your Medicaid eligibility? Since transferring money directly to a disabled child is exempt for Medicaid purposes, doesn’t the same apply if the money goes into a trust for that child? Not exactly; there is one more requirement when using a Special Needs Trust.

In order for the transfer into such a trust to be exempt, the trust must include a “payback” requirement. This means that the trust document must state that any money remaining in the trust at your child’s death be used first to repay the Medicaid agency for all the money spent on your child’s behalf. But while this usually means that little if any of the trust money will benefit your other children, you still accomplish your primary goal of having your money used for the benefit of your disabled child rather than having it all be spent down on your nursing-home care.

    • For the Benefit of a Blind or Disabled Person. You may have other family members with disabilities, such as grandchildren, nieces or nephews, or even non-family members who you would like to benefit. Giving them money directly would not be an exempt transfer for your Medicaid purposes (only direct gifts to a blind or disabled child are exempt). However, a gift to a Special Needs Trust for the benefit of non-children would also be exempt if:

      • the trust document includes a “payback” requirement (as described above);
      • the trust beneficiary is under age 65 at the time the gift to the trust is made; and
      • the trust beneficiary is disabled (so being blind is not by itself sufficient.[1]
  • “Immediate” Annuities. The purchase of immediate annuities that meet certain Medicaid requirements is not treated as a disqualifying transfer of assets; that is, like the other “exempt transfers” discussed in prior articles in this series, their purchase does not create any delay in your Medicaid eligibility. However, to understand their usefulness in a Medicaid context and avoid confusion, it’s first important to distinguish two types of financial instruments that are both called “annuities” but are treated very differently for Medicaid purposes.
    • Tax-Deferred Annuities. The annuities owned by clients who come in to see us are almost always “tax-deferred annuities.” These are similar to CDs in several ways: like CDs, they have a higher interest rate than simple savings accounts; like CDs, they charge a penalty for early withdrawal; and like CDs they are “countable” assets that would have to be spent down before the owner can be eligible for Medicaid. Unlike CDs, the interest generated by these annuities is not treated as taxable income to the owner until money is withdrawn. These are not the kind of annuities we are talking about here.
    • Immediate Annuities. Unlike tax-deferred annuities, these annuities – if they meet certain legal requirements – are not considered countable assets for Medicaid purposes. Instead, they are treated as streams of income. These annuities are contracts purchased from an insurance company, which pay back to the owner (or other designated person) the entire amount of the annuity over a period of time, with interest. Again, if they meet certain legal requirements, they are not treated as countable assets for Medicaid purposes, nor does the Medicaid agency treat their purchase as a “gift. For this reason, they can be a very useful tool for asset-protection.

The next article in this series will discuss how an experienced elder-law attorney can use these immediate annuities to help you protect a significant part of your lifetime of savings when you are already in a nursing home or need to qualify for Medicaid to pay for care at home. Stay tuned.

The content herein is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified elder law attorney.


Note: Working with the long-term care system we have in this country, seniors and their families need to understand that despite the restrictions in the Medicaid law, it is almost never too late to protect part or your remaining assets, even when facing an immediate crisis and with no advance planning. Whether you are 75 years old and living in your own home, or have an 85-year-old spouse in a nursing home, there are steps you can be taking now to preserve part – and often a very significant part – of your life savings otherwise at risk of being spent on your nursing care. But it is more true than ever that “time works against you.” Every day of delay in a crisis can result in $250 or more of irretrievable loss, so it is important to contact a knowledgeable and experienced elder law attorney for advice sooner rather than later.

Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at schelly@losscaleselderlaw.com. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.

  1. This distinction is made because most blind people are perfectly capable of earning a living and so would not be considered “disabled” for Medicaid purposes.