Leveraging Compensation in Medicaid Planning for Long-Term Care

by: Attorney Noyes

9/11/20232 min read

A well-structured estate plan should encompass a range of goals and objectives, including planning for potential long-term care (LTC) needs, often called "Medicaid planning." Medicaid planning aims to reduce "countable resources" to ensure eligibility for Medicaid coverage in case of LTC requirements. Surprisingly, compensation can play a pivotal role in achieving this goal, ultimately helping to cover LTC expenses.

Understanding the Popularity of Medicaid Planning:
While contemplating the need for long-term care may not be enjoyable, the reality is that most individuals have a significant chance of requiring LTC as they age. The longer one lives, the higher the probability of needing LTC becomes. The associated costs can be excessive and rapidly deplete retirement savings, especially since Medicare does not cover LTC expenses. Moreover, private health insurance policies typically exclude LTC expenses unless a separate, additional policy is purchased.

The encouraging news is that Medicaid does cover LTC costs, with over half of all seniors in LTC relying on Medicaid to assist with these expenses. However, to access Medicaid benefits, you must first meet eligibility criteria involving income and countable resource limits. In many states, the countable resources limit is as low as $2,000 for individual applicants. While Medicaid does exempt specific assets from consideration, many seniors find their non-exempt assets exceed the limit without proper Medicaid planning. Compensation is a valuable strategy within this planning process.

How Can Compensation Aid Medicaid Eligibility?

The primary objective of Medicaid planning is to diminish the value of non-exempt assets or "countable resources" to meet Medicaid qualifications. Compensation for services rendered is a powerful means to achieve this goal. Seniors often require assistance with daily living tasks or household chores. By entering into a personal services contract that pays a caregiver, you effectively lower your countable resources.

For example, assume a Medicaid countable resources limit of $2,000. Your home ($250,000) and $25,000 in a bank account are your most valuable assets. While your home is exempt, the $25,000 in cash exceeds the limit by $23,000. By contracting with a caregiver, paying them $1,000 per month for two years (totaling $24,000), your non-exempt assets drop to just $1,000 – well below the Medicaid countable resources limit. However, it's essential to note that the compensation received under the contract constitutes employment income, subject to income tax and self-employment taxes.

Medicaid planning is a vital component of any comprehensive estate plan. Given its personalized nature, consulting an experienced estate planning attorney is crucial to determining the best approach to guarantee Medicaid eligibility when needed.

Don't hesitate to contact us if you're considering Medicaid planning or have questions about your estate plan. At Noyes & Associates, we're committed to helping you achieve your estate planning goals and ensuring a secure future. Reach out today for personalized guidance and support.