We are going to look at the matter of life insurance and the Medicaid asset limit in this post, but before we address this question, we will share some background information to provide context.
Long-Term Care Costs
Medicaid is a jointly administered federal/state government program for people with very limited financial resources. In spite of the fact that it is a need-based benefit, it is relied upon by many seniors that qualify for Medicare.
How can this be the case? Over half of senior citizens will require some type of paid long-term care, and 35 percent will reside in nursing homes eventually. These facilities are very expensive, and Medicare does not cover the custodial care that they provide.
Medicaid will pay for long-term care if you can gain eligibility, and this is why a Medicare beneficiary may be interested in Medicaid eligibility.
Asset Limit and Non-Countable Assets
The Medicaid asset limit is $2000, but some resources that you probably have in your possession are not considered to be countable assets. When it comes to life insurance, it all depends on the type of insurance that you are carrying.
Term life insurance is coverage that does not have any cash value. It will pay a death benefit if you pass away, but you cannot extract cash from the policy. Because it has no cash value, you can potentially qualify for Medicaid with unlimited term life insurance.
Whole life insurance does have a redeemable cash value, so it is counted if you apply for Medicaid if its value exceeds $1500. You are allowed to have $1500 set aside for final expenses either in cash or in the form of a life insurance policy.
While we are on the subject, other non-countable assets include your household items and personal effects. Wedding rings, engagement rings, and heirloom jewelry are not counted, and one motor vehicle that is used as a primary source of transportation is exempt.
Your home is not considered to be a countable asset for Medicaid eligibility purposes, but it is unwise to maintain personal possession of the property when you apply for Medicaid. This is because there is a Medicaid estate recovery mandate.
If you are in direct possession of a home at the time of your passing as a Medicaid beneficiary, the program can place a lien on the property, but there are some exceptions to the rule.
There would be no estate recovery effort is your spouse is living in the home, and this would also apply to minor children and blind or disabled adult children.
In addition to these exceptions, there is also a Medicaid caregiver child exemption. If one of your adult children has been living in your home for at least two years to provide care that has allowed you to stay out of a nursing home, you can give the property to the child. Medicaid would not go after the home under these circumstances.
Five-Year Look Back Period
There is a five-year Medicaid look back period. You can give away assets or fund an irrevocable trust to transfer resources out of your name for Medicaid eligibility purposes. However, you have to wait five years after you divest yourself of assets to apply for Medicaid.
We should point out the fact that this look back period does not apply when the caregiver child exemption is granted.
An income-only Medicaid trust can be the ideal solution in light of the five-year look back period. If you convey income-producing assets into the trust, you would be able to take distributions of the earnings, and this can allow you to maintain your lifestyle.
You could also transfer your home into the trust to protect it from potential Medicaid estate recovery efforts. If you never enter a nursing home, that’s great, but you will have a plan in place to protect your legacy if you do in fact move into a nursing facility at some point in time.
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The dates are posted on our Cincinnati estate planning webinar page, and when you identify the session that works for you, follow the instructions to register so we can reserve your spot.
- Does Life Insurance Count When You Apply for Medicaid? - August 5, 2021