Already in a Nursing Home? Arkansas Medicaid Planning

When a parent enters a nursing home, families often believe they have waited too long to do anything about the cost of care. They may have been told that Mom or Dad must simply spend down their savings until almost nothing remains before Medicaid will help pay for nursing home care.

That is not always the case.

If your parent is already in a nursing home in Arkansas, it may still be possible to engage in Medicaid planning. The strategies available during a crisis are different from those available to someone planning five or ten years in advance, but nursing home admission does not automatically mean that all planning opportunities have disappeared. In fact, this is often when families need an Arkansas elder law attorney the most.

What Is Medicaid Crisis Planning?

Medicaid crisis planning refers to planning that occurs when someone already needs long-term care or is likely to need it very soon. For example, you may be dealing with a Medicaid crisis if:

• Your parent has already entered a nursing home;
• A hospital or rehabilitation facility says your parent cannot safely return home;
• A nursing home is requiring private payment;
• Your parent has more assets than Medicaid allows;
• A Medicaid application has been denied;
• Your family has been told to spend down your parent’s savings;
• Your parent made gifts or transferred property during the last five years; or
• One spouse needs nursing home care while the other spouse still lives at home.

These situations can feel overwhelming because nursing home bills can consume savings quickly. However, families should be careful about moving money, giving property away, selling a home, or spending large amounts before understanding how those decisions affect Medicaid eligibility.

Does My Parent Have to Spend Everything Before Qualifying for Medicaid?

Not necessarily. Arkansas Medicaid has strict financial eligibility requirements for long-term nursing home benefits. However, Medicaid planning involves much more than simply reducing a bank account to the applicable resource limit.

Some property may receive favorable or exempt treatment under Medicaid rules. Other countable assets may sometimes be converted into non-countable or exempt resources through appropriate expenditures.

Different rules may also apply when the Medicaid applicant is married. The important question is therefore not simply:

“How do we spend Mom’s money?”

The better question is:

“What lawful planning options are available before we spend anything?”

That distinction can make an enormous financial difference.

The Five-Year Lookback Does Not Mean You Have to Wait Five Years

One of the most common Medicaid misconceptions is that a person cannot qualify for Medicaid unless they stopped transferring assets at least five years before entering a nursing home. That is not how the five-year lookback works.

When someone applies for certain long-term care Medicaid benefits, Medicaid generally examines transfers made during the preceding 60 months. Transfers for less than fair market value during that period can potentially result in a period of Medicaid ineligibility. That makes gifts dangerous.

It does not, however, mean that everyone who failed to plan five years in advance must privately pay for nursing home care for five years. It also does not mean that every transaction involving an asset creates a five-year penalty.

The consequences depend upon what was transferred, to whom it was transferred, when it occurred, what was received in exchange, and whether an exception applies. This is one reason families should obtain advice before moving assets during a nursing home crisis.

What If Mom or Dad Has Too Much Money to Qualify?

Having assets above Medicaid’s resource limit does not necessarily mean the only option is to write checks to the nursing home until the money is gone. Depending upon the circumstances, lawful Medicaid planning may involve strategies such as:

Paying legitimate expenses

Some families have deferred necessary expenses while caring for an aging parent. Using countable assets for legitimate needs may reduce countable resources while improving the parent’s quality of life.

Depending upon the circumstances, appropriate expenditures might involve medical or dental care, necessary equipment, home repairs, accessibility improvements, debts, legal expenses, or other legitimate purchases. The details matter. The goal is not to spend money simply for the sake of spending it.

Converting countable assets

Some assets are treated differently than others under Medicaid rules. Proper planning may sometimes allow a family to convert countable resources into assets or expenditures that receive different Medicaid treatment. This needs to be done carefully because an improper transaction can create an eligibility problem rather than solve one.

Medicaid-compliant planning tools

Certain cases may involve specialized Medicaid planning techniques. The appropriate strategy depends upon factors such as the applicant’s marital status, income, assets, prior transfers, health, family circumstances, and anticipated care needs. There is no single Medicaid strategy that works for every Arkansas family.

What If My Parent Owns a House?

Do not assume the house must immediately be sold. A residence receives special treatment under Medicaid rules in certain circumstances. Whether the house affects eligibility can depend upon factors such as whether a spouse or other protected person lives there and the applicant’s circumstances.

But there is another issue families frequently overlook:

Medicaid eligibility and Medicaid estate recovery are not the same thing. An asset might not prevent someone from receiving Medicaid during life yet still create an estate recovery issue after the Medicaid recipient dies. That means a good Medicaid plan should ask two questions:

1. Will ownership of this property interfere with Medicaid eligibility?

2. What happens to this property after the Medicaid recipient dies?

Families should consider both questions before selling, transferring, or changing ownership of the family home.

What If My Parent Gave Money to Children?

This needs to be evaluated before a Medicaid application is filed. Gifts made during Medicaid’s applicable lookback period can potentially create a transfer penalty. Common transactions that can cause problems include:

• Giving children cash;
• Adding a child to a bank account;
• Transferring real estate;
• Selling property for less than fair market value;
• Giving away vehicles;
• Paying family members informally for caregiving; and
• Moving money shortly before applying for Medicaid.

But discovering a prior gift does not mean a family should panic or automatically assume Medicaid eligibility is impossible. The amount, date, recipient, purpose, documentation, and surrounding circumstances should be reviewed before determining the effect of the transfer. In some situations, additional planning may be available.

What If One Spouse Is Still Living at Home?

Married couples require special attention. Medicaid contains protections designed to prevent the spouse who remains in the community from becoming impoverished simply because the other spouse needs nursing home care. The spouse remaining at home is generally referred to as the community spouse.

Special rules can affect how the couple’s assets and income are treated. Depending upon the circumstances, the community spouse may be permitted to retain significantly more than families initially expect. This is an area where applying for Medicaid without first analyzing the couple’s finances can be particularly costly.

Before a married couple spends down substantial savings, transfers assets, changes account ownership, or sells property, they should determine what protections may already be available.

What If My Parent’s Income Is Too High for Medicaid?

Income and assets are separate Medicaid eligibility issues. An Arkansas Medicaid applicant may have limited assets but still receive monthly income above the applicable Medicaid income cap.

In appropriate cases, a Qualified Income Trust, commonly called a Miller Trust, may be used to address an income eligibility issue. A Miller Trust is not the same thing as a Medicaid Asset Protection Trust. A Miller Trust generally addresses excess income.

A Medicaid Asset Protection Trust is generally associated with advance asset planning and ordinarily involves very different rules, including consideration of Medicaid’s five-year lookback period. Using the correct planning tool requires understanding which eligibility problem actually needs to be solved.

Can We Just Give Everything to the Children?

This is one of the most dangerous things a family can do without first obtaining advice. Giving away assets may create a Medicaid transfer penalty. There may also be consequences completely separate from Medicaid, including:

• Capital gains tax issues;
• Loss of control over property;
• A child’s creditors;
• Divorce;
• Bankruptcy;
• Family disagreements; and
• Problems if the property later needs to be sold.

The fact that someone is entering a nursing home does not mean the family should immediately begin changing deeds or transferring bank accounts. Sometimes the transaction that seems like the fastest solution creates the biggest Medicaid problem.

Is a Medicaid Asset Protection Trust Still an Option?

A Medicaid Asset Protection Trust is primarily an advance-planning strategy. Because transfers to an irrevocable trust can implicate Medicaid’s five-year lookback rules, creating a new Medicaid Asset Protection Trust after someone has already entered a nursing home usually does not provide the same immediate solution that it can provide when established years earlier.

But that does not mean all Medicaid planning is over. Crisis planning uses different strategies.

This is why families should not confuse:

“It is too late to complete five years of advance planning”

with:

“It is too late to do any planning at all.”

Those are very different statements.

Should We Apply for Medicaid Immediately?

Maybe—but filing an application before understanding the financial picture can sometimes create unnecessary problems. Before applying, it is often helpful to determine:

• What assets the applicant owns;
• How those assets are titled;
• The applicant’s monthly income;
• Whether the applicant is married;
• Whether a home or other real estate is involved;
• Whether significant gifts or transfers occurred during the lookback period;
• Whether family members have been paid for caregiving;
• Whether trusts already exist;
• Whether the applicant has life insurance or annuities;
• Whether there are retirement accounts; and
• Whether the applicant has a valid Durable Power of Attorney.

This information helps identify potential eligibility problems before the application is submitted.

What Documents Should the Family Start Gathering?

If a parent is already in a nursing home, begin organizing financial records as soon as possible.

Useful documents may include:

• Bank statements;
• Investment statements;
• Retirement account statements;
• Deeds;
• Life insurance policies;
• Annuity contracts;
• Vehicle titles;
• Trust documents;
• Powers of Attorney;
• Funeral or burial contracts;
• Records of large withdrawals or transfers; and
• Information concerning gifts made during the previous five years.

Good records can make the Medicaid application process substantially easier and can help explain transactions that might otherwise raise questions.

The Biggest Mistake Is Assuming Nothing Can Be Done

Families frequently come to an elder law attorney after someone has told them:

“You just have to spend everything down.”

That statement is often an oversimplification. Medicaid rules are complicated, but they also contain exemptions, spousal protections, transfer exceptions, income-planning mechanisms, and other provisions that may be important in a particular case.

The options available to someone already in a nursing home are usually more limited than the options available five years earlier. But limited options are not the same as no options. The earlier a family evaluates the situation, the more opportunity there may be to avoid unnecessary private-pay nursing home expenses and costly Medicaid mistakes.

Talk With an Arkansas Medicaid Planning Attorney Before Spending Everything Down

If your parent or spouse is already in a nursing home, don’t assume you’ve waited too long. Before giving away property, draining savings, selling the family home, or submitting a Medicaid application, determine what planning options may still be available.

The Riddle Firm, PLLC helps Arkansas families with Medicaid crisis planning, nursing home asset protection, Medicaid applications, estate recovery planning, Miller Trusts, and related elder law matters.

We serve families throughout Arkansas, including Arkadelphia, Hot Springs, Malvern, Benton, Little Rock, and surrounding communities.

If a loved one is already in a nursing home—or may need nursing home care soon—contact The Riddle Firm to have your family’s situation evaluated before making major financial decisions.