The Connecticut Elder Law Blog

Medicaid: Retirement Accounts are Fair Game

One source of confusion about Medicaid (and there are many) is how retirement accounts are treated.  When the DSS caseworker assigned to your Medicaid application reviews your financial information, is he/she going to treat your retirement accounts as "avaliable" assets and therefore subject to the spend-down process?

In a word, absolutely.

Yes, retirement accounts are treated as "protected" assets in some legal situations.  Unfortunately, Medicaid law is not one of them. 

And yes, the State fully understands that if you do liquidate qualified retirement accounts you may trigger all kinds of penalties and income tax liability, but the State doesn't care.  Even at a reduced value, it's still a resource to spend on your care, thereby delaying the point where the State has to step in and help out.

Sorry to share such bleak information with you on a Friday, but you need accurate information when you're filing for Medicaid!

Special Needs Trusts and the "Sole Benefit" Rule

As wonderful as special needs trusts are for their disabled beneficiaries, there are a lot of "pitfalls" when it comes to trust management/administration; one wrong step can eliminate the beneficiary's eligibility for government benefits.

One of the biggest pitfalls is a trustee running afoul of the "sole benefit" rule.  The rule simply states that the trust must be for the sole benefit of the disabled person.  Put another way, any and all distributions from the trust must be limited to those that benefit the disabled person. 

If the trustee starts making distributions that benefit other people then the risk is that the government could decide that the trust is no longer a special needs trust, which means that all of the trust assets would be considered "available" to the disabled person and government benefits disappear.

Along these lines, be careful if the disabled person is a minor child with financially viable parents.  If a trustee uses trust funds to cover expenses that the child's parents are legally obligated to cover (i.e. basic living expenses), then the government could consider those distributions as benefiting the parents and not the child!  The argument in that scenario is that the trust is relieving the parents of a financial burden.

Again, special needs trust rules are confusing and missteps can trigger severe problems for the disabled beneficiary.  So, if you're a trustee and you're not 100% sure about the propriety of a proposed distribution, then play it safe (in fact, "play it safe" is a decent mantra for all trustees of a special needs trust!) and consult a professional adviser.

 

Different Gifting Rules for Medicaid and SSI

At this point, many people are aware that the Federal law for Medicaid was overhauled in 2006, and the changes were not favorable for Medicaid applicants; a longer look-back period of five years, and now the period of ineligibility triggered by the gifting starts when the applicant has just about run out of money.

However, just when you thought this stuff couldn't get any more complicated, keep in mind that these 2006 gifting rules do not apply to Supplemental Security Income, better known as "SSI".

Medicaid is a benefit program that helps you pay for your long term care costs in the nursing home, and in the community under certain circumstances.

SSI is a monthly cash payment that provides minimal income to those over age 65, blind or disabled.

Both programs have very strict financial guidelines before eligibility is established (unlike Medicare and SSDI).

As far as the gifting rules for SSI go, that program uses the "old", more-favorable Medicaid rules.  The look-back period under SSI is three years, not five.  And the period of ineligibility for SSI begins when the gift is made, not when the applicant has otherwise spent his/her assets down below the asset limit ($2,000 for SSI). 

Here's the standard disclaimer (you knew it was coming!): Do not attempt to incorporate planned gifting in regards to government benefits on your own.  Seek help from an experienced professional.