Protecting your Inheritance from Medicaid in Phoenix

Medicaid is a needs-based government program that provides health coverage to 69.8 million Americans. In Arizona, it is administered by the Arizona Health Care Cost Containment System. To qualify for Medicaid, Phoenix residents must meet strict income and asset requirements. Without proper planning, receiving Medicaid could end up depleting your inheritance.

Protecting your Inheritance from Medicaid in Phoenix

How Does Medicaid Deplete Your Inheritance in Phoenix?

The government wants you to spend your own money on health care before they step in. If your assets or income are above the limits, you may be forced to spend-down your resources by paying out-of-pocket for long-term care or other medical-related expenses. Money that you were planning on leaving to your family will be spent on health care.

Additionally, Medicaid will attempt to collect reimbursement for health care costs after your death. The two primary ways that Arizona seeks collection for Medicaid costs are by 1) filing a claim against your estate and 2) property liens. Typically, if you do not have a surviving spouse or a minor, blind, or disabled child, the Arizona Estate Recovery Program will file a claim for the cost of Medicaid care against your probate estate. This means that Medicaid will get paid out of the estate before the property is distributed to your heirs.

Under some circumstances, Arizona can file a lien against your Phoenix home if you are over 55, receiving Medicaid services, and permanently institutionalized. However, they will not take your house if it is occupied by:

  • a spouse,
  • a disabled or minor child,
  • a sibling with ownership interest who was residing in the home for at least one year, or
  • a child who acted as your caregiver for at least two years preceding your application for Medicaid coverage.

There are ways to qualify for Medicaid without sacrificing your inheritance. If you work with an attorney and engage in Medicaid planning well before you need care, you can receive the care you need while protecting your assets.

How Do You Protect Your Inheritance from Medicaid in Phoenix?

There are various estate planning techniques that can be used to protect your inheritance from Medicaid in Phoenix. The earlier that you engage in Medicaid planning, the better because more options will be available to you.

The most popular strategy is an asset protection trust. Putting property into an asset protection trust can both turn countable assets into non-countable assets and protect your estate from the Arizona Estate Recovery Program. The trust must be irrevocable. Irrevocable means that you cannot make changes or cancel the trust. Once you transfer property into the trust, you lose ownership and control over the property. The trust becomes the owner of the property, and a trustee is named to manage it. If you transfer your home into a trust, you still have the right to live it. You can include provisions in the asset protection trust stating who you want the trust property to go to after your passing (e.g., children and grandchildren).

Asset protection trusts in Phoenix are subject to the Medicaid lookback period. When you apply for Medicaid in Phoenix, they look back at your financial history over the past 60 months (five years). If you gave property away or sold it for less than the fair market value during this period, you will face penalties depending on the amount of property transferred. You may be disqualified from Medicaid services for a period of time or have to pay a transfer penalty. The penalty period starts the day of your application, not the day you made the gift. Therefore, you should create an asset protection trust for more than five years before you apply for Medicaid. There are limited exceptions to this rule, including transferring property into a Special Needs Trust for a disabled child.

In addition to asset protection trusts, you could give a lifetime gift to your family members. Gifts are also subject to the lookback rule, so it is important to plan well ahead. This option is risker than putting your property into a trust. The individual could lose the money through a divorce, lawsuit, or bankruptcy. Additionally, you must take into account the gift tax exemption. In 2021, the IRS only allows you to give away up to $15,000 per donor tax-free.

Your Phoenix Estate Planning Attorney

If you have questions about Medicaid planning and would like to speak to an estate planning lawyer, call Nicole Pavlik Law Firm. Nicole Pavlik is an experienced Phoenix estate planning attorney who can guide you through the Medicaid planning process. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a free consultation and discuss your probate needs.


Leave a Comment