If you are currently planning for the possibility of entering a nursing home and having to rely on Medicaid to help pay your nursing home expenses, one estate planning issue you need to address is - what happens if you receive a large cash payment as the proceeds of a loved one’s life insurance policy?
Since Medicaid only allows you to have limited resources and income, in fact you may have no more than $2,000 in cash resources on hand, this cash benefit could cause you to immediately become disqualified from Medicaid or ineligible to receive Medicaid benefits. By law, you would have to report the receipt of the money to the state Medicaid agency, and if you are currently in a nursing home receiving Medicaid benefits, it would let both you and the nursing home know that you are no longer eligible for Medicaid until you have "spent down" that money.
At that point, you could spend the money on your nursing home bills until you are once again down below the $2,000 limit and then re-apply for Medicaid, or work on an asset protection plan to preserve some, if not all, of that lump sum payment, before re-applying for Medicaid.
Not only could this life insurance proceed impact your current situation, but Medicaid has what is called a ‘look-back’ period, in which they review transfers that have occurred within the last 5 years. Therefore, life insurance benefits received over the past five years will impact your eligibility for future benefits.
The best time to put together a Medicaid plan or an asset protection plan is before either of them becomes necessary. You should work with a Medicaid attorney to ensure that you receive the advice you need to navigate the complex rules and regulations of the Medicaid program.
We at the Mendel Law Firm can help you uncover your options and choose the strategy that is best for you.