3 Common Mistakes To Avoid When Medicaid Planning

Jul 6, 2023 | Elder Law

Many people do not realize the importance of planning for Medicaid assistance until it is too late. Medicaid planning is a complex issue and can be hard to fully understand at face-value. In this blog, we will be discussing what Medicaid is, and what it means to “plan” for it. Then, we’ll divulge the 3 most common mistakes we’ve seen people make when it comes to this process!

What Is Medicaid?

Medicaid is the name of the United States’ public health insurance program for people with low incomes. One in five people in America receive coverage through this program, and it is the principal source of long-term care coverage. “Long-term care” usually refers to both medical and non-medical services provided in nursing homes or through home-health care. While Medicaid is technically a partnership of the federal government and state government, the state ultimately has the final say on eligibility criteria, eligible coverage groups, services covered, administrative and operating procedures, and payment levels.

Contrary to popular belief, Medicaid is not just for the elderly population. In fact, children account for more than 43% of all enrollees; children and adults with special needs also make up a considerable percentage of enrollees. Studies consistently prove that individuals who have coverage through Medicaid have better access to care and are less likely to put off or simply ignore finding much-needed medical care. As a whole, Medicaid has paved the way for a nation of people who are much healthier and much less hesitant to face the costs of medical care. 

What Is Medicaid Planning And Why Is It So Important?

To understand Medicaid planning and why it’s necessary, you must first understand that eligibility is very complex and is changing constantly. Each state has their own set of eligibility requirements, which means that what may qualify you in Alabama will not qualify you in Mississippi or Georgia. The application and review process is extremely time-consuming. Being denied enrollment can bring several negative effects to the individual applying, such as less comfort and happiness, as well as health deterioration. 

Essentially, Medicaid planning is when an individual enlists help – usually from a Medicaid planning attorney – with restructuring their finances to have the greatest possible chance at being accepted to the program. This can be accomplished by creating trusts, converting countable assets into exempt assets, transferring assets, and more. Medicaid planning attorneys may also assist with preparing documentation for the application process, protecting a family home from Medicaid recovery, and managing finances to ensure a non-applicant spouse still has adequate income and resources to continue living independently. 

Planning ahead to ensure you will qualify for Medicaid benefits in the future can make or break an individual’s entire estate. Nursing home and other long-term care costs can significantly deplete the wealth that their spouse was to continue living on or that they were planning on bequeathing to heirs. In 2021, the average cost of a stay in an assisted living facility in Alabama was around $3,500 a month, or over $40,000 a year. It isn’t difficult to see how much of an impact even a one or two year stay could have on your finances, and thus the necessity of being able to obtain Medicaid benefits. 

Due to the how complicated each step of the Medicaid planning process is, there are 3 things you’ll want to make sure you avoid doing so that you don’t jeopardize your eligibility when you need it most:

Mistake #1: Procrastinating

It is crucial that you get a headstart on the Medicaid planning process due to the 5 year “look-back” that the government will complete before determining your eligibility. In their examination of your finances, they will check to see if you gifted or transferred any assets that would count toward your resource limit. Many people operate under the false assumption that they can just give all of their assets to their children and then apply for aid right after. You will be denied! The sooner you begin the process of planning for medicaid, the better position you will be in to be accepted. 

Mistake #2: Inadequate Asset Protection

Again, due to the 5 year look-back period, it is crucial that any asset transfer be done correctly and at the right time. After reviewing your financial situation and family dynamics, your Medicaid planning lawyer will recommend the best strategy to help you meet the income requirements and protect your assets. Some of those strategies might be:

  • A Qualified Income Trust (QTI) – an irrevocable trust into which your income is deposited and subsequently controlled by a trustee whom you select
  • A Pooled Income Trust – an irrevocable trust into which your “surplus” income can be diverted to maintain Medicaid eligibility
  • An Asset Protection Trust – a trust to which you may transfer all of your assets to, therefore removing them from your estate and ensuring you qualify for Medicaid
  • Spousal Transfer – transferring all of your assets to your spouse

Mistake #3: Not Seeking The Guidance Of Qualified Medicaid Planning Attorneys

To reiterate once again, the Medicaid laws of each state are extremely intricate and are constantly changing. It is critical to choose a Medicaid planning attorney who is experienced and highly knowledgeable of the Alabama Medicaid qualifications. Many people are fearful of seeking legal aid because of the cost, but in the long run, you will actually be saving much more money, and sleep better at night knowing that your assets are protected and your family will not have to suffer the burden of your long-term care costs. Attorneys are also invaluable when it comes to the application process, as they can help you gather the necessary documents and complete your application correctly, giving you the best chance at being approved. 

The Ladd Firm Can Help You Avoid These Mistakes And More!

Our attorneys, Banks Ladd and Mary Carol Ladd, have over 50 years of combined legal experience in Medicaid planning, estate planning, probate, and other elder law areas. They have been serving the Mobile area for nearly 30 years and offer personalized service to all clients! Call to learn how you can schedule a free phone consultation with our attorneys where they can listen to your concerns and explain your options.

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