If you’re like many people planning for retirement, you might already have an estate plan in place. While no one likes to think of themselves as needing long-term care in the future, the fact is that part of planning for the future is making sure you can cover nursing home costs.
For a significant proportion of people, the most effective way to plan for nursing home care or in-home care is to make sure they’ll be eligible for Medicaid coverage. There are many ways to do this, but half-a-loaf Medicaid planning is one of the most common.
What Is Half-a-Loaf Planning?
The “half-a-loaf” planning strategy gets its name from the idea that it’s better to lose half of a loaf than it is to lose a whole loaf. In this case, the “loaf” is the sum of your assets above Medicaid’s asset limits.
If your assets exceed the limit, you are ineligible for Medicaid. However, if you transfer your assets, you will be penalized with a period of ineligibility.
The general idea of half-a-loaf planning is to transfer half of your excess assets and then use the other half to cover your medical costs while you wait for your period of ineligibility to expire. However, it gets far more complex than that.
How Do “Half-a-Loaf” Medicaid Plans Work?
The original half-loaf Medicaid planning strategy was the simplest one. It worked like this:
- You calculated the assets you have in excess of the Medicaid asset limit
- You gifted half of those assets (usually to your children or other loved ones)
- The asset transfer triggered a penalty period where you were ineligible for Medicaid
- During the Medicaid penalty period, you used the other half of your excess assets to cover long-term care
- By the time you were eligible for Medicaid, you would have met the asset requirements
However, the Deficit Reduction Act of 2005 imposed new regulations. Before this law was passed, the penalty period for asset transfers started when you made the asset transfer (or the month after).
That meant you could make a transfer, use your remaining assets to cover costs during your penalty period, and then apply for Medicaid once your assets were low enough to qualify.
Now, the penalty period doesn’t start when you make the asset transfer — it begins when you apply for Medicaid. That means you must have spent down excess assets before you apply, so you won’t have the “half a loaf” to pay for your expenses during your period of ineligibility.
Half-a-Loaf Strategies
Now that Medicaid rules have changed, the original half a loaf isn’t an option. However, there are many newer, legal Medicaid planning strategies that are essentially adaptations of the original half a loaf.
Promissory Note Half a Loaf
This strategy involves giving away half of your excess assets and then lending the other half to someone. That way, the penalty period is shorter, and you don’t technically lose the money you lend. Here’s how it works:
- You gift half of your excess assets to family members, triggering the asset transfer penalty
- You lend the other half to a loved one
- You apply for Medicaid
- During the asset transfer penalty, you use the loan installment payments to cover long-term care costs
Like most half-a-loaf Medicaid strategies, this one is much more complex than it initially seems. The promissory note must meet several criteria in order to be Medicaid-compliant, but an experienced attorney can help you draft one that fits all requirements.
Medicaid-Compliant Annuity Half a Loaf
This strategy has some similarities with the promissory note half a loaf. However, instead of lending half your excess assets, you use the funds to purchase a Medicaid-compliant annuity. Here’s how the process works:
- You give half of your excess assets to family members, triggering a transfer penalty
- You use the other half of your assets to purchase a Medicaid-compliant annuity
- You apply for Medicaid
- During the ineligibility period, you use the income stream from the annuity to pay for ongoing care
There are many different requirements an annuity must meet in order to be Medicaid-compliant. For instance, it must be irrevocable, and you must make the state of Florida the beneficiary if you pass away while annuity payments are still ongoing.
This works because the money used to purchase the annuity (just like the money you lend to loved ones with a promissory note half-a-loaf strategy) is not a “countable asset” for the purposes of qualifying for Medicaid.
It can be difficult to determine which of your assets are countable and which aren’t, but our legal team can help you accurately value your assets as part of your Medicaid planning strategy.
Reverse Half-a-Loaf
This strategy isn’t ideal, but it’s sometimes recommended if the other two options aren’t feasible. It is also not legal in all states, but it is legal in Florida. Here’s how it works:
- You gift all of your assets above the Medicaid limit to family members
- You then apply for Medicaid and trigger the transfer penalty
- Your family returns some of your assets, and the penalty period becomes shorter
- You use those returned assets to pay for medical care during the rest of the penalty period
The reverse half-a-loaf process can get complicated quickly, so you should always consult an elder law attorney first!
Can You Create a Half-a-Loaf Medicaid Plan Yourself?
There’s nothing illegal about developing your own Medicaid eligibility plan. However, Medicaid law is incredibly complex, and unless you’re a legal professional in this area of law, there’s a very real risk of thinking you have qualified for Medicaid when you have not.
If this happens, you might find yourself with far fewer assets — and no Medicaid eligibility.
When you work with a Medicaid planning attorney, your lawyer can help you qualify for Medicaid benefits while preserving your assets as much as possible. Never try to execute your own Medicaid half-a-loaf strategy without seeking legal advice first!
Need Help With Half-a-Loaf Medicaid Planning?
Long-term care planning can be both emotionally difficult and logistically challenging, but you don’t have to face it alone. At William C. Roof Law Group, we have experience with various Medicaid planning techniques — and we can help you select the one that’s right for you and your family. Get in touch today to get started.
The contents of this article are not comprehensive, they provide only a general overview of the subject matter discussed. This article does not establish a client-attorney relationship with the reader, and no legal decisions should be made based on the article’s contents. Because every legal matter arises under unique facts specific to the client, no legal decision should be made without consulting a licensed attorney.