Better Than No Loaf: Medicaid Planning Using “Half a Loaf” Strategies

While it is preferable to conduct long-term care planning well in advance of needing care, if you haven’t planned ahead, there are some strategies available to avoid spending all your assets. One such strategy is known as  “Half a Loaf” which allow a Medicaid applicant to give away some assets while still qualifying for Medicaid. 

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets in Michigan in addition to the home, and other exempt assets. The resident cannot have recently transferred assets. A spouse living at home may keep more. The Half a Loaf plan is usually most appropriate for applicants who do not have a spouse/

Congress has imposed a penalty on people who transfer assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period does not begin until the person making the transfer has (1) moved to a nursing home, (2) spent down to the asset limit for Medicaid eligibility, (3) applied for Medicaid coverage, and (4) been approved for coverage but for the transfer. 

If a Medicaid applicant has excess assets, he or she can spend down those assets in order to qualify for Medicaid. However, Medicaid applicants who want to preserve some assets have a few options. One of these is referred to as a “Half a Loaf Strategy” because it involves making a gift of approxiately half of the applicant’s assets and intententionally triggering the penalty period for a few months. The remaining assets are used to purchase a specific type of annuity which, combined with the applicant’s other income, pays for the cost of nursing home care during the penalty period Whe the applicant applies for Medicaid and is approved, benefits begin after the penalty period has expired. 

 The nursing home resident gives a portion of his or her funds to the resident’s children or other family members.   As opposed to an outright gift of the assets to individuals, the resident can gift the assets to an irrevocable trust. Either way, there must be a completed and irrevocabel gift of the assets. This gift results in a penalty periord during which the applicant will not be eligible for Medicaid benefits.  The  remaining assets are used to buy an immediate annuity. This annuity must meet certain specific criteria in order to be acceptable for Medicaid purposes.  The annuity is structured so that it provides income to the resident during the penalty period whcih is used to  help pay for long-term care during the Medicaid penalty period that results from the transfer. In such cases, the annuity is usually short-term, just long enough to cover the penalty period.

This strategy allows the nursing home resident to preserve some, but not all, of  his or her countable assets. Of course, the resident can also keep all exempt assets, such as the home. However, as the resident will not have funds to maintain the home, it can be difficult to keep this asset unless family members are willing to pay expenses of insurance, taxes and maintainance. The Half a Loaf Strategy allows money to be transferred to the family  while still allowing the resident to qualify for Medicaid. The implementation of this stragegy requires very detailed and careful calculations and planning. It also requires the use of a very specific form of annuity. It should not be attempted without the assistance of an elder law attorney who is experienced in  Medicaid planning. To learn more about the “Half a Loaf” Strategy and other types of planning for long-term care, you may contact Wenzel Bennett & Harris, PC at (989) 356-6128 and schedule a Long-Term Care consult with an elder law attorney and paralegal who will help review  your options and customize a plan which will meet the needs of you and your family.

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

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