In February 2006 President Bush signed into law the Deficit Reduction Act of 2005. The Act contained several changes to Medicaid eligibility rules and long-term care coverage. It will affect the major estate planning objective of preserving family business assets for the next generation. First, it extends Medicaid’s look-back period for all asset transfers from 3 to 5 years, and changes the start of the penalty period for transferred assets from the date of transfer to the date when the individual transferring he assets enters the nursing home and would otherwise be eligible for Medicaid coverage. The penalty period is determined by dividing the amount of transfer by the average monthly cost of nursing home care. The resulting figure is the number of months the person’s penalty period will last. Second, any individual with home equity above $500,000 is ineligible for Medicaid (unless the applicant’s spouse resides in the home or the home is occupied by a child under 21, blind or disabled).
The new asset transfer rules complicate traditional asset preservation strategies. What should be done with transferred assets, gifts transferred to children or funds the children should set aside in event that the parents need assistance? Perhaps, the use of contractual family agreements concerning he use of these funds may be appropriate. Or, the assets could be held in trust for the entire family’s benefit. Clearly, there is incentive, for those that can afford it, to purchase long-term care insurance. Those who cannot afford the premiums for a lifetime (although preferred) may be able to pay the premiums for a long enough period of time to cover any penalty period triggered by transfer of assets. Maybe, the children, rather than the parents, should consider paying the premiums as a means to assure inheritance of the assets.
Specific rules and information concerning Medicaid coverage in Ohio may be found at: http://jfs.ohio.gov/Ohp/.