Medicaid in New Mexico – The Medicaid Gift Trap
Plan for long-term care in order to protect yourself and avoid sneaky medicaid traps.
As we age, our odds of needing long-term care increase, and long-term care is expensive. Fortunately, New Mexico’s Medicaid program is there to pay for care in a nursing home or assisted living facility if you don’t have the resources to pay for it yourself. Unfortunately, you have to be more or less destitute (generally less than $2000 in assets other than your home and car and less than approximately $2500 monthly income) to qualify for the program.
Qualifying for Medicaid in New Mexico
The $2000 asset limit is a hard and fast rule, and many people have to work hard to get their assets under that threshold. The easiest way to reduce assets is to spend them down (remodel your house, go on a lavish vacation, take up an expensive hobby, generally live it up), but most people are understandably uncomfortable at the thought of spending their way into the poor house. They also would prefer to have something to leave to their children or other beneficiaries when the time comes, not spend it all now on themselves or spend it all on their long-term care in the future.
Be Aware of the Five Year Rule
Some people try to make themselves eligible for Medicaid by giving away assets prior to submitting their Medicaid application. If you no longer own it, it can’t count against you, right? Not necessarily. Gifts you made within five years prior to submitting your Medicaid application will trigger an exclusion period—a number of months during which you are enrolled in Medicaid but not eligible for long-term care benefits to be paid on your behalf. The more you have given away, the longer the exclusion period will last. You will need to pay for care yourself during the exclusion period, but if you have already given away your assets, how will you do that? You’re caught in a trap between not having enough assets to pay for your care and not qualifying for Medicaid assistance until the exclusion period has run. That “one cool trick” of giving your assets away has left you in an impossible situation.
There is no legal magic wand for people who find themselves in this Medicaid gift trap, and the results can be heartbreaking. Your home could have been protected, but now it may need to be sold and the proceeds used to pay for your care until Medicaid payments kick in. Family members may have to use their own resources to cover your costs. You may simply not be able to access care that would otherwise benefit you and your family. If you made large gifts prior to applying, the exclusion period can last for years.
Keep in mind that gifts that can trigger a Medicaid exclusion period are not just large gifts that you made at the last minute in order to sneak into Medicaid qualification. All gifts you made less than five years before applying may count, even if you had a good reason for making them that had nothing to do with Medicaid. You gave your grandchild money four years ago to use as a down payment on a home? It may count. You sold your car to a friend for a dollar instead of its fair market value just to be nice? It may count. Many people are surprised to learn that gifts which are under the IRS annual gift exclusion limit are still gifts under Medicaid regulations, and they count. Yes, Medicaid can decide to ignore gifts that were made before you had any inkling that you would be applying for Medicaid and that were obviously made for other reasons, but there is no guarantee that the Medicaid evaluator will see things your way.
Avoiding the Medicaid Gift Trap
Does this mean that you should never make a gift for fear that you will be excluded from Medicaid benefits in the future if you need them? Of course not, but the risk of falling into the Medicaid trap should be considered before you act. Most of us will never need to rely on Medicaid for long-term care—either we won’t go into assisted living or a nursing home at all, or we will have the resources to pay for it ourselves—but for those of us who will need assistance down the road, careful preparation can be crucial. Gifts should be made in the context of your overall estate plan, and that plan should include potential Medicaid considerations. This is definitely not do-it-yourself territory and it would be in your best interest to hire an experienced estate planning attorney in New Mexico.
Our firm helps individuals prepare for long-term care through Medicaid planning in New Mexico. Let us help you protect your assets and prepare for the future, contact us at (575) 339-2100 and we’ll be happy to discuss your case.