Prepare for Nursing Care with a Medicaid Trust

A "Medicaid Trust" is defined under regulations issued by the Michigan Department of Health and Human Services (“MDHHS”).  A Medicaid Trust must meet all of the following criteria:

• The trust was established by the Medicaid applicant, the applicant’s spouse, or someone acting on their behalf;
• The applicant or the applicant’s spouse contributed assets to the trust;
• The trust cannot be revoked or modified (i.e. change the beneficiaries or the availability of principal or income) by any person or court; and,
• The applicant or the applicant’s spouse cannot direct the use of the trust principal for his or her needs, or direct the trust principal to revert to themselves. 

The purpose of a Medicaid Trust is to allow the trust owner to retain control of the trust assets and still become eligible for Medicaid.  In other words, assets placed in a Medicaid Trust before the "look-back period" (defined below) are not considered for purposes of Medicaid eligibility.  As a result, the trust owner may become financially eligible for Medicaid benefits while still preserving control of the trust assets for his or her beneficiaries.  There is no other method to retain control of countable assets and still qualify for Medicaid benefits. 

A Medicaid Trust has several advantages:

• A person may transfer assets to a Medicaid Trust and continue to manage them as trustee;
• All of the trust income may be retained by the person who creates the trust;
• Assets transferred to a Medicaid Trust before the look-back period are not counted with respect to Medicaid eligibility regardless of how much property was transferred to the trust;
• Pre-planning with a Medicaid Trust may reduce the cost of nursing home care even before the look-back period fully expires.  For example, if a Medicaid Trust is created and funded with assets, and the person needs nursing home care 48 months later, then they will only have to pay for such care for 12 months before the look-back period expires – at which point the trust assets will no longer be counted to determine Medicaid eligibility;
• Assets in a Medicaid Trust are not subject to recovery by the state for the cost of care, and they will be preserved for beneficiaries designated in the trust; and, 
• Assets in a Medicaid Trust are protected from creditors.   

A Medicaid Trust also has several disadvantages:

• Nursing home care may not be needed in the future; 
• Not every nursing home will accept Medicaid patients; 
• The rules promulgated by MDHHS may change in the future; 
• Assets placed in Medicaid Trust cannot be used or recovered by the owner (however, the assets may be distributed to trust beneficiaries who may use them for any purpose); 
• Income taxes must be paid upon transferring a qualified retirement account (IRA, 401(k), etc.) to a Medicaid Trust; 
• A Medicaid Trust does not result in immediate eligibility for benefits; and 
• Income from the trust, if any, must be applied to the cost of care.

Medicaid Trusts are used only for advance planning.  They are not appropriate when there is an immediate need for Medicaid benefits to pay for long term care.  This is due to the application of the "divestment penalty period", which is explained below.  Other methods may be used to qualify for Medicaid benefits when there is an immediate need for care.  However, no other planning method can provide as much asset protection as a Medicaid Trust.   

We can add a separate Medicaid Trust to any estate plan that is designed to avoid probate.

The average cost of a private room for long term care in Grand Rapids, Michigan, is over $10,000 per month.  Some facilities are much higher depending upon the level of service.  You can find the average cost of care for any location on this website: cost of long term care.

There are three ways to pay for long term care:

• Personal savings and assets
• Long term care insurance
• Government assistance (Medicaid and VA benefits)

Note:  MEDICARE does not pay for long term care services. 

Medicaid will pay for the following long term care services:

• Nursing and related services
• Specialized rehabilitative services (treatment and services required by residents with mental illness or intellectual disability, not provided or arranged for by the state)
• Medically-related social services
• Pharmaceutical services (with assurance of accurate acquiring, receiving, dispensing, and administering of drugs and biologicals)
• Dietary services individualized to the needs of each resident
• Professionally directed program of activities to meet the interests and needs for well being of each resident
• Emergency dental services (and routine dental services to the extent covered under the state plan)
• Room and bed maintenance services
• Routine personal hygiene items and services

Medicaid will pay for long term care for eligible individuals in a qualified facility that accepts Medicaid reimbursement.  You can search for nursing homes that accept Medicaid patients here:  long term care facilities.

Yes.  Eligible persons may participate in the "Program of All-Inclusive Care for the Elderly" (PACE).  The PACE progam provides many services outside of a nursing home setting.  More information about PACE can be found here:  PACE Program.

Michigan also has a program called "MI Choice Waiver Program", which is sometimes simply referred to as the "waiver".   The purpose of the waiver is to allow eligible individuals to live independently while still receiving nursing home level of care in their home.   More information about the waiver can be found here:  MI Choice Waiver Program.

A person must meet medical and financial eligibility criteria to receive Medicaid long term care benefits.  These assessments must be conducted by a representive from the Michigan Department of Health and Human Services (MDHHS).  

Financial eligibility for Medicaid long term care benefits is based upon an applicant's "countable assets".  In general terms, a person's countable assets includes all available financial resources, excluding:

• a personal residence;
• one motor vehicle;
• personal effects and household goods;
• $2,000 in cash;
• a small amount of life insurance cash value; and,
• an irrevocable pre-paid funeral and burial contract.

If a Medicaid applicant has any countable assets on the date of the application, then they will not be eligible for benefits.  In that case, the applicant must spend their countable assets before becoming eligible for benefits.  There are various ways to spend countable assets without incurring a "divestment penalty period" (see explanation below).  However, in most cases, the applicant must spend their own resources on nursing care until they are left with only $2,000. 

Definitions

Special rules apply for a married couple when only one of them is in a nursing home.  In that case, the "community spouse" is allowed to keep additional assets for his or her own needs.  This amount is referred to as the "protected spousal amount".  The following definitions apply to this area:

• "Countable assets" (CA) are those assets owned by either spouse which are not excluded (see the previous section for an explanation); 

• "Community spouse" refers the spouse who is not in a nursing home;

• "Protected spousal smount" (PSA) is the amount that the community spouse is allowed to keep for his or her own needs;  

• "Snapshot date" is the first date of the first period in which the Medicaid applicant has been in continuous care for 30 days or more; and,

• "Spend down" (SD) is the amount that the couple must spend from their countable assets to qualify for Medicaid benefits.

How to Calculate the PSA and Spend Down

The PSA is equal to one-half (1/2) of the countable assets owned by the couple on the snapshot date.  However, the PSA may not be less than $27,480 and not more than $137,400 (these amounts apply in 2022; they change on an annual basis).  The spend down amount equals the countable assets minus the applicant's allowance of $2,000 and PSA (SD = (CA-$2000)-PSA. 

Example 1:  If the countable assets on the snapshot date are $30,000, then the PSA is $27,480, and the spend down amount is $520.

Example 2:  If the countable assets on the snapshot date are $100,000, then the PSA is $50,000, and the spend down amount is $48,000.

Example 3:  If the countable assets on the snapshot date are $300,000, then the PSA is $137,400, and the spend down amount is $160,600.

For purposes of calculating the PSA, it makes no difference which spouse holds title to the assets. 

The “look-back period” refers to the period of time that MDHHS is allowed to consider transfers of assets for purposes of Medicaid financial eligibility.  The look-back period is 60 months, which commences on the “baseline date”.  The baseline date is the first date that the applicant was eligible for Medicaid and actually in a nursing home. 

The look-back period is used to calculate the "divestment penalty period", which is discussed in the next section. 

Definitions

The divestment penalty period prevents a Medicaid applicant from giving away their assets to become eligible for benefits.  The following definitions are used to calculate the divestment penalty period:

• "Divestment" is a transfer of an asset by a Medicaid applicant for less than fair market value during the look-back period (unless an exception applies); a divestment also includes purchasing an asset which decreases an applicant's net worth and is not in his or her financial interest;

• "Divestment divisor" refers to the average monthly cost of private nursing home care in Michigan, which is published by MDHHS on an annual basis;

• "Divestment penalty period" is the length of time in months during which an applicant will not receive Medicaid benefits. 

How to Calculate the Divestment Penalty Period

The divestment penalty period is determined by dividing the value of all divestments by the divestment divisor.   The result is the number of months that an applicant will not be eligible for Medicaid benefits.  The penalty period commences when the person is in a nursing home, and meets the medical and financial requirements for benefits, but is only precluded from receiving them due to the divestment penalty period. 

For example, if a Medicaid applicant gave away $90,000 within the look-back period, and the divestment divisor was $8,700, then the divestment penalty period would be 10.33 months.  The applicant would not receive Medicaid benefits during the divestment penalty period.  There is no other penalty for divesting assets.