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MEDICAID PLANNER’S PERSPECTIVE WHEN CONSIDERING PUBLIC BENEFITS – MEDICARE SAVINGS PLAN RETENTION OPTIONS WHEN RECEIVING AN INHERITANCE

Do you want to analyze a case like an elder law attorney? Here is a recent case and the thoughts that come to mind.

Client, 77, who is single but who has had a partner for decades, is about to receive an inheritance that would result in his loss of being a beneficiary of the Medicare Savings Program called QMB (Qualified Medicare Beneficiary) and he doesn’t want to lose this benefit. QMB is one of four Medicare Savings Programs (the others are Specified Low-Income Medicate Beneficiary, Qualifying Individual and Qualified Disabled and Working Individuals) that are means-tested Medicaid programs whereby the state pays Medicare premiums. The QMB program helps pay for Medicare Part B (medical, doctor’s insurance) deductibles, coinsurance and co-payments (so Medicare providers should not bill for services other than drugs) if you meet certain financial requirements.

The income and resource limit and countable resource limit for this Medicaid program (there are 109 Medicaid programs in Texas) depends on whether the applicant is single or married. To be eligible for QMB, the applicant must be entitled to Medicare Part A (hospital insurance) which generally occurs when the person is age 65 or is disabled. The income limit in year 2021 for a single person is 100% of the federal poverty level which is presently $1,074 per month ($1,452 if married). The countable resource limit in year 2021 is $7,970 for a person who is single ($11,960 if married). Certain resources such as a homestead, car, pre-need funeral arrangements, personal property, term life insurance, etc. do not count towards the resource limit.

There are four basic options or a combination thereof for the client to retain his QMB Medicaid benefits after receiving the inheritance as follows:

  1. Pay bills – if client had credit card bills or other bills or indebtedness is owed, payment of such bills would reduce countable resources getting the client closer to the $7,970 countable resource limit.
  2. Buy non-countable resources – if the client wanted to buy non-countable resources (i.e., homestead including payment of mortgage, car, pre-need funeral, etc.), then eligibility could be retained if he purchased enough of those non-countable resources shortly after receipt of the inheritance and prior to the first day of the month after the receipt of the inheritance. Although a homestead is usually the non-countable resource that has the most value, it may be impracticable to purchase due to limited income and resources to take care of insurance, taxes and maintenance.
  3. Gift excess resources – unlike most Medicaid programs, transfers are permitted without penalty for the Medicare Savings Programs. Most Medicaid programs have a five year look-back period as the government presumes a transfer was made to reduce resources to be eligible for the benefit. Medicare Savings Programs are an exception to that general rule. So, if the client wanted to, he could simply give his excess resources to his significant other or to anyone else. However, this plan creates several other potential issues including:
    1. What if partner spent the funds gifted in a way client didn’t desire? Perhaps an account should be set up where client is not an owner but could write checks at his convenience. The partner should also name client as his agent under a financial power of attorney so that client could have access to the account without being an owner.
    1. What if partner is sued? Unless the partner took additional steps (i.e., purchase of an annuity, etc. or other assets that have creditor protection or created legal documents that have creditor protection), then the gifted funds could be subject to lawsuits against the partner.
    1. What if the partner becomes disabled? It is important that the partner have a financial power of attorney with the client being named as agent thereby and a declaration of guardian in the event of later need naming the client as the potential guardian (in the event one of the partner’s closest relatives contested client being named agent), so that the client could be in charge of the assets without being an owner. However, if the partner becomes disabled, all of the assets could be subject to Medicaid spenddown if he had inadequate insurance.
    1. What if the partner died first? The partner presently has no last will and testament. So, if he received gifted funds and then died, the assets would go to his closest relatives instead of client. If client was concerned the partner would give the assets the way the client wanted, then the client and partner cold either have contractual wills or the partner could give the client a testamentary power of appointment to make changes the way client wanted. The partner’s will could have a contingent special needs trust so that client’s public benefits would not be lost.
    1. What if client needed long-term care Medicaid or another Medicaid program that has a five year look-back period? This would depend on the program as there are different programs with different rules on transfers. For example, under the Star + Medicaid program (which covers care at some assisted living facilities and for care at home) there would be five years of ineligibility if an application was made within five years of the Medicaid application. For long-term care Medicaid, the transfer penalty is based on the amount given divided by the average daily cost of care in a nursing facility in Texas. There are ways to reduce that penalty.
  4. Create an irrevocable trust with some elements of control retained – client wanted to be in control of the inheritance and not spend down the resources. Since there is no transfer penalty for the Medicare Savings Program, client could transfer the excess resources into an irrevocable trust with retention of certain elements of control and act as trustee of the trust.

     As a result, client would not have to worry about partner’s creditors, disability or death. The only problem is the potential need for a Medicaid program that has a five year look-back although client is presently in good health.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.

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