If you’re applying for Medicaid benefits on behalf of a loved one, one planning approach you should consider is creating an Irrevocable Trust to prepay their funeral arrangement. Once you establish it, you can pay for your funeral arrangements before your assets are used up or reduced. The money you set aside for funeral expenses will also be considered a non-countable asset and not affect your ability to apply for public assistance.
At Jeffer & Harris, we work with the New Jersey Prepaid Funeral Trust Fund, overseen by the New Jersey State Funeral Directors Association (NJSFDA). These accounts are FDIC-insured, have competitive interest rates, and funds are immediately available when the funeral homes need them.
Medicaid recipients are eligible for irrevocable trusts. Additionally, any funds you designate for funeral planning in an Irrevocable Trust are non-refundable, unlike a Revocable Trust. The remaining funds will go to the state of New Jersey to fund public assistance programs. However, the state allows you to transfer funds and switch funeral homes whenever needed. For anyone ineligible for Medicaid, preplan your funeral using a revocable trust where you can receive a full refund plus the accrued interest.
Established in 1965, Medicaid is an essential program created by Congress to help low-income households access healthcare. To qualify, you must be under 21, over 65, living with a disability, receiving public assistance, or receiving Supplemental Security Income.
Medicaid offers many services, including long-term institutional care and home-based services. When you apply, you must submit the correct state-approved form to your local Social Service Agency. Once accepted, Medicaid will cover costs retroactively for up to three months before the application.
In New Jersey, Medicaid, or NJ FamilyCare, is overseen by the state’s Department of Human Services and operates under regulations that align with federal laws.
Medicaid eligibility has undergone significant changes over the last few decades. The Omnibus Budget Reconciliation Act of 1993 (OBRA-93) restricted the conditions under which people could qualify for Medicaid.Congress amended the program with the Deficit Reduction Act of 2005 (DRA).The amended law reformed asset transfer rules, made disclosure of annuities mandatory, and gave states more flexibility to expand or improve healthcare coverage.
Medicaid eligibility and elder law planning are constantly changing. That said, staying updated with changes is crucial. Not every hearing about these topics is published, but those interested can find countless resources online for further reading.
To qualify for New Jersey’s Medicaid program, non-exempt resources must not exceed $4000. If you’re a married couple applying, your combined countable assets should be under $6,000. Nursing home services can use these resources; anything extra can go towards an Irrevocable Trust for your funeral service.
Aside from standard assets, you can have an irrevocable funeral trust or a $1500 burial fund. The trust has no maximum limit, but it is non-refundable and excess funds go to the state. However, you can transfer the irrevocable trust between funeral homes as often as needed. If you hold a burial account and an irrevocable burial trust, any amount not dedicated to burial-related expenses will reduce the allowable amount in the $1500 burial account.
Your home also doesn’t count against eligibility, regardless of its value. However, it needs to be your primary place of residence, or if it’s not, you need to show your intention to return. The same exemption applies to institutionalized applicants if there’s a chance for them to return to the nursing home.
If you don’t return to your residence, Medicaid can place a lien on it until you do. However, the house will still be exempt if your spouse, minor, or child with disabilities still lives there. If you have no intention to return and none of the exemptions apply, the home will count as a non-exempt resource and you’ll be ineligible to apply.
Other items considered exempt are:
As of 2023, a Medicaid recipient in New Jersey is allowed to retain an income of $2,742 per month. If the recipient is aged, blind, or disabled, an extra $20 of the monthly household income can be retained. Nursing home residents are also allowed a personal allowance of $50. Anything above that amount would deem them ineligible for Medicaid.
However, someone making over the limit could establish a Qualified Income Trust (QIT). Since your income will be under the trust, any payment you make here isn’t countable. Medicaid will control where the money is spent, including nursing home fees, assisted living facilities, or in some cases, to your spouse.
Since the DRA was passed in 2006, the look-back period for asset transfers for institutional Medicaid applicants has been extended to five years. The period begins on the first day of the month after the transfer of assets below fair market value. It can also begin when you start receiving nursing home services covered by Medicaid, whichever comes later. Therefore, the penalty period for Medicaid eligibility usually doesn’t begin until the applicant is in the nursing facility, has applied for benefits, and has non-exempt assets of $2,000 or less.
An exception to the penalty might be possible if the penalty causes undue hardship to the applicant or recipient.
If you receive any transferred assets after qualifying for Medicaid, they will be factored into your eligibility recalculation as if you never transferred them. Medicaid will also adjust the penalty period length. This recalculated penalty period starts when they receive services in a nursing home and would have been eligible for Medicaid coverage if not for the penalty. Consequently, the recalculated penalty period won’t start before the assets, which were transferred and subsequently returned, have been spent down to the appropriate Medicaid resource level.
You must file a new application if your original one gets denied or discontinued due to a transfer penalty. Additionally, if the transferred assets were returned to the applicant during reapplication, the original penalty period will decrease by the value of the returned assets for eligibility determination.
Some gifts are exempt from Medicaid’s transfer penalty rules, including:
Medicaid regulations allow transfers between spouses to happen within 90 days after eligibility determination, provided the community spouse’s assets do not exceed the Community Spouse Resource Allowance. However, completing all transfers to a spouse before submitting the Medicaid application will make the application process easier.
The following transfers by an applicant and their spouse are also exempt from Medicaid eligibility:
As for homestead titles, applicants can transfer them to the following people without any penalties:
Spousal refusal is not common in New Jersey courts except for rare circumstances. Typically, Medicaid can access a community spouse’s assets and income to care for the institutionalized spouse. But if the non-institutionalized spouse signs a “spousal refusal” letter, Medicaid benefits will still cover the applicant’s healthcare costs. Medicaid also retains the right to sue the spouse and recover costs.
Medicaid rules regarding asset transfer penalties only apply to those seeking nursing home coverage. If someone still needs home health care or a hospital visit, they can transfer assets freely without affecting their eligibility for community-based Medicaid if their assets are below the appropriate threshold. Their primary homestead and surrounding land are also exempt resources.
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) introduced trust funds and Medicaid eligibility restrictions. Irrevocable income-only trusts protect Medicaid applicants’ assets. Only the trustee will distribute the funds as previously agreed upon. This type of trust is considered an uncountable asset and won’t affect Medicaid eligibility. Conversely, assets in a revocable trust will be available to the applicant, making these trusts countable assets from Medicaid’s perspective. Thus, irrevocable trusts are the most suitable choice for those planning to apply for Medicaid benefits.
Medicaid remains one of the most cost-effective solutions for older adults to afford long-term healthcare in the U.S. As these regulations often change at different governmental levels, keeping yourself updated is crucial. It would be best to consider hiring an experienced elder law professional to help you create an effective strategy to protect your assets while accessing the benefits you need.