This blog is the second chapter of a series entitled “How to Qualify for Medicaid in Pennsylvania” that focuses specifically on the program for long-term care. Qualifying for Medicaid can be confusing and complicated, but following this guide explains it in plain English. If you would like to order a copy of the complete guide click here.
What assets are countable toward financial eligibility?
The general rule is that any asset that has value, or that can be redeemed for value, is potentially countable unless it is exempt by law. (Exempt assets will be covered in the next section.) Typical countable assets include:
- checking accounts
- savings accounts
- certificates of deposit
- investment accounts
- mutual funds
- savings bonds
- real estate (other than the residence)
- the applicant’s retirement accounts (IRA, 401(k), 403(b), )
Credit does not count as an asset. For example, a $50,000 home equity line of credit has no value when adding up an applicant’s assets.
The general rule is that any asset that has value, or that can be redeemed for value, is potentially countable unless it is exempt by law.
Some assets need further discussion:
Life insurance. The cash surrender value of a life insurance policy may count unless some or all of it is exempt. The next section discusses life insurance exemption rules.
Joint accounts. Sometimes an applicant owns an account jointly with another person, usually a relative. Medicaid rules count a joint account as 100% the property of the applicant unless the joint owner can show proof that he or she contributed to the account.
If there is proof of contribution, the rules consider the account to be the joint owner’s property only to the extent of the contribution. Example: The applicant owns a joint account with his brother, having a total value of $100,000. The brother shows proof that he put $25,000 of his own funds into that account. The rules will count $75,000 as the property of the applicant, and $25,000 as the property of his brother.
Jointly held real estate. Unlike a joint account, a parcel of real estate is considered to be owned in equal shares by the “grantees” listed on the deed. Example: The applicant owns a vacation cabin worth $120,000 with her brother and sister. The property is not the applicant’s residence. The rules will count only $40,000 as the value of the applicant’s interest in the cabin.
Another way jointly held real estate differs from jointly held accounts is that if the applicant added another owner to a piece of real estate within the five-year look-back period, there may be a gifting penalty because that additional owner now has an interest in the property. (Gifting rules are covered in a later section.) But there is no penalty for adding a joint owner to a financial account, even during the look-back period, because the rules consider that joint owner to have no financial interest in the account, absent their own contribution.
Trusts. If the applicant is the beneficiary of a trust, some or all of the contents of the trust may countable depending on the terms of the trust, when it was established, by whom it was established, and other factors.
Example #1: The applicant is the beneficiary of a $100,000 trust established by his mother’s estate. The trust states that the contents of the trust are to pay for the applicant’s “health, maintenance, and support.” The entire $100,000 balance in the trust is a countable asset.
Example #2: The applicant is the beneficiary of a properly drafted special needs trust established by her father, and funded from his estate. Among other terms, the trust provides that trust assets may “supplement but not supplant” any public benefits for which the applicant may be eligible, including Medicaid. None of the trust assets are countable.
In other cases, the applicant has established a trust with his or her own assets. If the trust is revocable, Medicaid rules provide that the contents of the trust are countable assets.
If the trust is irrevocable, the contents will not be countable provided the trust has been properly drafted. (But keep in mind that there may be a penalty if assets were transferred to an irrevocable trust during the five-year look-back period.)
A disabled person under age 65 may establish a special needs trust using his or her own assets. Assets owned by such a trust will not be countable, but any surplus at the time of death may pass to the Commonwealth to repay any Medicaid costs.
A lawyer should review any trust that (1) names the applicant, or the applicant’s spouse, as a beneficiary, or
(2) was established by the applicant, or the applicant’s spouse, to determine whether part or all of the trust contents may be countable.
“Unavailable” assets. Sometimes an asset cannot be made available for spend-down because of a contractual restriction or other circumstance beyond the applicant’s control. For example, the applicant may own a parcel of landlocked real estate for which no buyer can be found, or shares in a closely held corporation that he is not permitted to sell. If the asset cannot be liquidated, then it may be determined to be unavailable, and therefore not countable.
In some circumstances, though, the rules may require the applicant to take some action to remove a restriction on the item’s sale. In the case of nonresidential real estate owned jointly with rights of survivorship, the applicant may need to file a petition in court to force a sale if the other owners will not consent to selling it.
If the restriction on sale was entered into during the look-back period, the state may argue that a gifting penalty should apply.
What about assets owned by the applicant’s spouse?
The rules on countable assets apply the same way if an asset is owned by the applicant’s spouse. For example, if the applicant’s husband owns a joint checking account with the couple’s daughter (who did not contribute to the account), then the entire balance of the account is considered the husband’s asset.
Medicaid rules make assets owned by a spouse countable toward eligibility. However, the rules allow the applicant’s spouse to keep certain assets. At the beginning, it is easiest to think of all countable assets owned by the applicant, the applicant’s spouse, or by both of them together, in one large pool. Then the applicant’s spouse may be allowed to keep some of those assets when the applicant is qualifying for benefits. Later, after qualification, assets may have to be transferred into the spouse’s name so that the applicant will end up with an amount of assets below his or her allowable limit.
Rule against disclaiming assets
Medicaid rules require you to make your assets available if you can. If you refuse an asset, or even pass up an opportunity to obtain an asset, there may be a penalty.
Suppose your brother recently died and named you as a beneficiary of his estate. You are entitled to receive $100,000 but you disclaim (refuse) the bequest, allowing it to pass to other relatives. If you apply for Medicaid during the next five years, your refusal could be considered a gift to others, leading to a period of ineligibility for benefits.
Sometimes a Medicaid recipient’s spouse dies and leaves his or her assets to their children. Under Pennsylvania law, that recipient has a right to “elect against” the deceased spouse’s will and receive one- third of his or her estate. If the recipient passes up the opportunity to make that election, that could likewise be considered a gift endangering the recipient’s Medicaid eligibility.
Keep in mind that refusing an available asset, or even failing to claim an asset you could have received, can make you ineligible for benefits.