Protecting Assets from Medicaid Eligibility Consideration

Protecting assets from Medicaid (and the nursing home) is something most people don’t think about while they are healthy—but they should. The average cost of a semi-private room in a Michigan nursing home in 2024 is $9,938 per month, or almost $120,000 per year. For a private room, the cost is even higher: $10,769 per month. Some residents may be able to pay that for a little while, if they have savings, but few can continue to shell out that amount for years on end. Fortunately, Medicaid assistance is available to help pay for ongoing nursing home care. 

Unfortunately, in order to qualify for Medicaid, you must “spend down” assets and income. That could mean that almost all of the assets you have accumulated for your family’s use may go to pay for the nursing home. Why not just give those assets to your loved ones before going into the nursing home? Because agencies that administer Medicaid benefits have anticipated that impulse, and will penalize you for acting on it. There is a five year “look back” period to qualify for Medicaid benefits. Having transferred assets for less than their fair market value within that time frame could delay your eligibility for Medicaid.

How on earth does anyone who needs nursing home care manage to preserve assets for their loved ones? The answer is careful planning, preferably as early as possible. Let’s talk about Medicaid’s eligibility considerations and protecting assets from Medicaid.

Understanding Medicaid Eligibility in Michigan

The spend down requirements and look back period are not intended to impoverish Michigan families, but to ensure that benefits go to the people who really need them. Accordingly, the government has provided for certain avenues to protect assets from Medicaid spend down. Making use of these measures removes assets from the category of “countable” for purposes of Medicaid eligibility and makes them “non-countable,” or exempt. 

An experienced Medicaid planning attorney can help you identify and implement options to help with protecting assets from Medicaid legally, without jeopardizing your eligibility. Some of these tools include: 

Maximizing Exempt Assets

Because certain assets are automatically exempt from Medicaid’s eligibility considerations, it makes sense to convert as many non-exempt assets as possible to exempt assets. In practice, this often means using liquid assets like funds in a bank account to pay down certain debt or purchase non-exempt assets. 

One of the biggest exemptions available is the equity in a primary residence. In Michigan in 2024, you can exempt up to $713,000 in equity in your primary residence from being counted toward your Medicaid eligibility. So, if you have a home worth $550,000, and you still owe $150,000 on the mortgage, your equity in that home is $400,000. It may be worth using cash that’s in your bank account (a countable asset) to pay down that mortgage and build equity (an exempt asset). 

Other exempt assets include: 

• Household and personal belongings like clothing, jewelry, furniture, and appliances
• One personal vehicle
• Certain prepaid funeral or burial plans
• Up to $1,500 in cash surrender value of a life insurance policy
• Assets held in certain irrevocable trusts

An elder law attorney can help you determine the best way to maximize your exempt assets. For instance, it may be wise to get rid of your old vehicle and pay cash for a new one that your spouse will be able to use for years or your children will be able to inherit.

Medicaid Asset Protection Trusts (MAPT)

As the name suggests, this type of irrevocable trust is specifically designed to protect assets from Medicaid’s eligibility considerations. A MAPT can contain a wide variety of assets, including a primary residence—which is especially helpful if the amount of equity in the residence exceeds the exempt amount. 

 While you need to give up ownership and control of assets in a MAPT, you can continue to benefit from them, and assets in a MAPT will not be counted for purposes of determining Medicaid eligibility. What’s more, you can choose who will benefit from the trust after your passing, and the assets in the trust are protected from their creditors.

Medicaid asset protection trusts are a great tool, but they have their disadvantages as well. For example, while assets in the trust are out of Medicaid’s reach, income produced by those assets, if payable to you, may cause you to exceed Medicaid’s income limits. Also, the Medicaid look back period applies to assets placed in a MAPT, so if you are interested in creating one, you should do so as soon as possible to avoid benefit eligibility issues. 

Child Caretaker Exemption

It would be an injustice for an adult child who dutifully lived with and cared for an elderly parent to be turned out of their home and lose their inheritance because of the parent’s nursing home expenses. The Child Caretaker Exemption allows seniors to transfer a home to an adult child who lived with them in the home under certain circumstances. The adult child must have lived with the parent for the two years immediately preceding their entry into the nursing home, and must have provided care to the parent that was necessary to allow them to continue to live in the home rather than a care facility. 

Protecting Assets from Medicaid: The Sooner You Act, the Better

The options described above are just a few of the tools you can use to protect your assets while gaining Medicaid eligibility for nursing home care. To learn about more things you can do to protect assets from Medicaid, contact Estate Planning & Elder Law Services to schedule a consultation. While we can often help families in a crisis situation, your options are broader if you start Medicaid planning before you need it.