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Better Than No Loaf: Medicaid Planning Using “Half a Loaf” Strategies

Medicaid half a loaf
So-called half a loaf plans avoid spending all assets on long term care.

While it is preferable to conduct long-term care planning well in advance of needing care, if you haven’t planned ahead, there are some strategies available to avoid spending all your assets. So-called “half a loaf” approaches (we often call them “half and half” approaches) allow a Medicaid applicant to give away some assets while still qualifying for Medicaid.

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets and the resident cannot have recently transferred assets. (A spouse living at home may keep more.)

Congress has imposed a penalty on people who transfer assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period does not begin until the person making the transfer has (1) moved to a nursing home or needs equivalent care in the community, (2) spent down to the asset limit for Medicaid eligibility, (3) applied for Medicaid coverage, and (4) been approved for coverage but for the transfer.

If a Medicaid applicant has excess assets, he or she must spend down those assets in order to qualify for Medicaid. However, Medicaid applicants who want to preserve some assets have a couple of options:

  • Promissory note. The person in need of long term care gives half of his or her funds to the resident’s children (or other family members) and lends them the other half under a promissory note that meets certain requirements in the Medicaid law. The resident uses monthly repayments of the loan, along with his or her income, to pay nursing home costs during the penalty period.
  • Annuity. The person in need of long term care gives half of his or her funds to the resident’s children (or other family members) and uses the remaining assets to buy an immediate annuity. Income from the annuity can be used to help pay for long-term care during the Medicaid penalty period that results from the transfer. In such cases, the annuity is usually short-term, just long enough to cover the penalty period.

Contact the Stinson Law Firm at 317-622-8181 or www.stinsonlawfirm.com to review how to protect your assets from the cost of long term care.