Co-authored by Joanna C. Feldman
To be eligible for Medicaid benefits in a nursing home in 2018, one may have no more than $15,150.00 in available assets. A life insurance policy with no cash value is not considered an available asset. If a life insurance policy has cash value, however, the cash value of the policy is considered the policy owner’s available asset. If that cash value pushes the available assets over $15,150.00, a plan must be developed to establish Medicaid eligibility.
Managing a life insurance policy with cash value as part of that Medicaid eligibility plan depends on a variety of factors. In some circumstances, it may make sense to cash out the policy and use the money to pre-pay funerals or legal fees or engage in other types of planning. The tax consequences of cashing out the policy must be considered. In other circumstances where, for example, the cash value is much lower than the death benefit, it may be more appropriate to transfer ownership of the policy to the applicant’s spouse (if there is one) or to a trust, recognizing that a transfer to a trust may result in a penalty period during which Medicaid will not pay for the nursing home. It may be also be advisable to take out a loan against the cash value, keeping in mind generally speaking, the loan will not equal 100% of the cash value.
Life insurance having a cash value is an ideal asset to transfer to an irrevocable Medicaid trust. As we have previously written, Medicaid trusts are one of the best opportunities for people to plan in advance of requiring care.
These are some options to consider not in a bubble, but as part of an overall plan either when one needs nursing home care or – ideally – when planning for the future before care is needed. An elder law, estate planning, and special needs planning attorney can help by offering advice based on the law, the client’s specific circumstances, and the attorney’s professional experience.