There are many misconceptions that surround elder law. The defining feature of elder law is Medicaid planning. Medicaid planning is a form of estate plan through which an attorney assists a client in qualifying for Medicaid benefits.
Medicaid is a health payment plan for needy individuals. In order to qualify for Medicaid, an individual must have a very limited amount of assets, typically less than $2,000, and income insufficient to pay for the cost of her long-term care. Long-term care, such as care in a nursing home, can cost up to $15,000 a month, so many people who never thought they would need to qualify for Medicaid rethink their need for Medicaid when the bills start coming in. Most of my Medicaid planning clients who seek to qualify for Medicaid benefits have between $50,000 and $800,000 in total assets.
There are a number of techniques that I can employ to qualify a client for Medicaid benefits. The techniques vary greatly depending on whether the client is married or single. The techniques also vary depending on whether the client is seeking to have Medicaid pay for long-term care in her home, in an assisted living residence, or in a nursing home. Finally, some of my clients are only preplanning for Medicaid; currently, they are perfectly healthy, but they worry that some day they may need care. Other clients are currently receiving long-term care services and cannot wait to qualify for benefits. The planning techniques also vary if I am preplanning for the client or engaged in emergency planning.
But is Medicaid planning legal. The unequivocal answer is, yes. Every year, millions of American engage in income tax planning. They plan their income and finances in such a way as to minimize income taxation. For instance, a former President of the United States paid only a few hundred dollars in income tax despite being a billionaire. He brags about it. No one begrudges him the right to engage in tax planning. In fact, I would say that tax planning is fundamentally part of what it means to be an American as it is so ingrained in our culture.
The Supreme Court of New Jersey, in the context of a guardianship action equated Medicaid planning with tax planning. The Court held that since competent people are free to engage in Medicaid planning, people who lack mental capacity, through their guardians, should also be free to engage in Medicaid planning. In other words, Medicaid planning, like tax planning, is as American as apple pie. (I added that last bit; I don’t want to attribute it to our Supreme Court.)
A client recently said to me, “My friends say that this planning is illegal, and my mother’s lawyer should be in jail. They say that people can only gift $14,000 a year.” The misconceptions contained in these sentences are behind why many people do not engage in Medicaid planning.
When mom needs care in a nursing home, her kids are often scared and anxious. Oftentimes, they have never had to take care of their parent. The kids want to ensure that their mother receives the care she needs. There is a belief that if they use mom’s money to pay for her care, mom will receive better care than if mom qualifies for Medicaid benefits.
Medicaid planning often involves gifting “large” sums of assets—sometimes tens of thousands of dollars, sometimes hundreds of thousands of dollars. If I say to a client, gift $200,000 to your son, the son’s friends might say, “That’s illegal. You can’t do that.” But the fact of the matter is, yes, you can. There is nothing illegal about it. In fact, there isn’t even any tax that is owed on the gift.
Mom can currently gift $12,920,000 without paying any gift tax. She can also gift $17,000 a year to an unlimited number of people without reducing her lifetime credit of $12,920,000. Since most people do not have $12,920,000, most people will never pay gift tax.
Most every nursing home in New Jersey accepts Medicaid benefits. Once you are admitted to a nursing home (and most rehabilitation centers are nursing homes), the nursing home must accept Medicaid benefits if you qualify, and the facility cannot treat you differently than non-Medicaid clients.
Don’t let misconceptions get in your way. Consult with a certified elder law attorney.
Families are often surprised to discover that certain Medicaid planning or estate planning strategies are completely legal despite sounding questionable at first. The problem is that assumptions, half-truths, and outdated advice can easily create confusion when people are already under stress.