How do you hide money from Medicaid?

Sonny asked...

Is there such a way to hide assets? And how does one go about not informing what assets they have by trying to get financial help for a ALF? How far back (in years) do they go,and how is the research conducted?

Expert Answer

First of all, it is illegal to "hide" assets when planning to apply for Medicaid; it's considered fraud. However, Medicaid does permit some transfers of assets prior to applying for coverage in a nursing home or assisted living facility.

Before looking at those rules, though, you have to be aware that in most states Medicaid does not cover residence in assisted living facilities (ALFs) at all. And in those states that do cover ALFs, it only covers certain facilities that participate in the Medicaid program.

Medicaid permits two basic categories of asset transfers prior to qualification for nursing home or ALF coverage:

assets transferred to anyone, as a gift or in any other form, more than 60 months prior to applying for Medicaid coverage are not considered by Medicaid when determining eligibility

"countable" assets that are transferred into assets that are "exempt"

Medicaid rules only allow $2,000 in "countable" assets, but there are many assets that are not countable for Medicaid purposes. In some states, for example, if you are renting an apartment, you might consider purchasing a house, because a house you live in prior to moving to a nursing home is completely exempt, up to $500,000 (or more, in a few states). If you already own a house, consider paying off the mortgage, fixing the roof, adding a room, replacing the heating system, paving the driveway, etc. All those improve­ments go toward the value of the house, and so the moey you spend on them is exempt. Note, though, that this strategy might not work if your state has a special "return home" rule that requires a doctor's certification that you might return home, required in order to keep this exemption for the value of your home.

A pre-paid funeral and burial plan is another exempt asset.

Another technique used by people with substantial cash assets is something called a "Medicaid annuity," a type of irrevocable annuity that pays you equal monthly payments for the rest of your life. In most states, such annuities are exempt, and thus could be a way of reducing your countable assets.  It does have some drawbacks, though: the annuity is irrevocable, meaning that once you buy it you can't change your mind; you must name the state as the beneficiary after your death, to be repaid the amount in benefits they paid the nursing home or ALF on your behalf; and you can't accelerate the payments, meaning that even if benefits ultimately pass to your family, they must wait to receive each monthly check until the annuity expires. Another drawback is that you need to find and pay a lawyer experienced in these annuities.

When you apply for Medicaid, the application will ask if you have made any gifts or other transfers of assets within the last five years. You will need to produce past bank statements and other financial records and explain any large withdrawals.