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Guaranteed Issue Life Insurance
Aguaranteed issue life insurance policy offers coverage based on three variables:
The state you reside in
Itâs optimal for people whose medical or financial history makes them ineligible for a traditional life policy. While applications are generally guaranteed acceptance, the caveat is that youâll get less coverage for your money than with term life insurance and policies are only for those age 50 to 80.
How To Prevent Your Life Insurance Policy From Being Taken By Medicaid
The most advantageous option and advice would be to make sure that your estate is not the beneficiary of your life insurance policy. The Medicaid program will seek to take money from your estate, and this cannot be conducted if you choose to change the beneficiary of your policy. Therefore, instead of listing your estate as a life insurance beneficiary, list any individual or individuals that you wish to receive your life insurance policy proceeds.
Also, there are limitations as to what Medicaid can withdrawal from your estate. States can elect not to take money from an estate, which would usually only happen if the state determines that taking money from the estate would lead to hardship on survivors or it is not considered cost-effective to pursue any benefit reimbursement from the estate. Either way, there are ways to protect your proceeds from being taken by Medicaid, in which you list an individual or multiple individuals to receive your proceeds instead of your estate.
While this article can provide insight into any potential questions asked, it is also advised to meet with an elder law attorney before deciding to make any decisions about Medicaid or your life insurance policy. Your state may handle Medicaid different from others, which is why it is a must to meet with someone before making any permanent financial decisions.
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What Is A Funeral Trust
To solve the Medicaid and life insurance problem, a funeral trust works nicely.
Just as it sounds, it is a trust.
Two popular types of trusts exist. One type of trust allows you to maintain control of the assets in the trust. Because of this control, Medicaid and creditors could legally force you to use the trust value inside the trust to pay off debts, etc, including nursing home costs. These are called revocable trusts.
This isnt the type of trust used for a funeral trust.
The other type is called an irrevocable trust. A funeral trust is irrevocable. This means the trust protects the trust value from Medicaid, creditors, etc. They cant get at it, touch it, or force you to use it.
Conversely, neither can you.
Once the money is in there, its in there. You cant borrow from it, you cant change it, nothing
But, why would you want to change it? The purpose of the Funeral Trust is to prevent Medicaid or the nursing home to use the cash from your current life insurance policy and other assets.
From that standpoint, the funeral trust serves its purpose and rather nicely.
Just as it sounds, the money pays out for your funeral or burial expenses.
There are no look-back provisions, either, with the Funeral Trusts
Most states allow up to $15,000 transferred into the funeral trust.
If that doesnt seem like much, then there is the Estate Planning Trust.
Estates Subject To Merp
The federal government has general guidelines for MERP, but specifics vary from state to state. The basic federal guidelines place your estate at risk if youre at least 55 years old and receiving long-term care services paid for by Medicaid.
Specifically, the text of the legislation that implemented MERP clarifies that costs can be recovered for “nursing facility services, home and community-based services, services in an institution for mental diseases, home and community care, and community-supported living arrangements” for people who were 55 or older when the care was provided.
But states also have the option to use estate recovery to recoup Medicaid costs for a person who was permanently institutionalized, even if they were younger than 55. States can also implement estate recovery for any Medicaid spending incurred after enrollees turn 55.
Depending on where you live, your estate could be subject to MERP even if you never accessed long-term care as a Medicaid enrollee.
Check with your state Medicaid office to understand how MERP is enacted within your state and what costs are subject to recoupment.
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What Happens If I Give Away Or Transfer My Assets Before Moving Into A Nursing Home
Giving away resources for no compensation, or refusing to accept income, or reducing income you could receive before moving into a nursing home may result in:
- A penalty against you for not paying for nursing facility or ICF/IID facility services when you were able to do so or
- A decision by the state that you are ineligible for waiver program services or state supported living center services.
The state may “look back” up to 60 months before you applied for nursing home, ICF/IID or waiver services to determine when your income was reduced, and resources were transferred.
PLEASE NOTE, HHSC and its staff, including its attorneys, are prohibited from giving legal advice or recommending specific actions to the public. Anyone in need of legal advice or assistance with estate planning has the option to contact or retain an attorney of that person’s choice. Please contact your local Area Agency on Aging for additional resources.
Where Can You Get Help
If youre receiving public assistance and need assistance navigating the ins and outs of Medicaid and life insurance, an experienced estate planner may be able to help you get the coverage you need to make sure your family is protected. An attorney who specializes in elder law may also be able to Medicaid recipients or potential applicants through the legalities of maintaining life insurance coverage. If you can’t afford to pay a consultant, contact your state Medicaid agency for answers to Medicaid-related questions and help with applying.
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Can Medicaid Affect Your Ability To Get Life Insurance
Although Medicaid may not directly impact your ability to get a policy, there is a direct correlation between Medicaid and life insurance eligibility. Because Medicaid is designed for low-income Americans, its eligibility requirements include strict income and asset limits. Individuals who meet those requirements may find it difficult to get approved for a life insurance policy.
Essentially, thats because life insurance is meant to replace your income when you die, protecting beneficiaries from the financial hardship that results from your absence. It isnt meant to create wealth. Policies are approved, in part, by evaluating evidence of insurability, which includes looking at your current and future income. That means that if you qualify for Medicare, insurance providers may find your income too low to warrant approval for a life insurance policy.
The good news is that Medicaid recipients may qualify for life insurance through providers who have lower income thresholds for policies. They may also be able to purchase guaranteed or simplified issue plans, which guarantee coverage regardless of income. On the downside, these policies typically offer lower coverage at a higher cost than traditional plans.
Recovering From The Estate
The first method states use is to seek repayment from the estate of a deceased Medicaid beneficiary. Each state defines the term “estate” — meaning what type of property Medicaid will go after — differently. Some states are fairly conservative about what they will try to take — they have the right to recover costs from real estate, personal property, and other assets only if they are included within the deceased person’s “probate estate.” A probate estate includes only assets that were owned solely by the individual at the time of death, where there is no beneficiary or joint owner designated. Joint accounts, payable on death accounts, and contracts that have designated a beneficiary are not included in the probate estate.
Other states use a broader definition of the term estate that includes any assets an individual had legal title to or interest in at the time of death, including property that . In these states, the estate includes assets that the individual attempted to convey to a survivor, heir, or assign through an arrangement such as a joint tenancy, tenancy in common, survivorship, life estate, or living trust.
To recover expenses paid under the probate definition of estate, the state files a claim in the probate estate of the decedent just as would any creditor. Under the more expansive definition of estate, the state must enforce its rights by notifying heirs of its rights under state law.
Read Also: How Much Can You Make To Apply For Medicaid
Whole Life Insuranceif Structured The Right Way
Whole life insurance is an option.
John. You just said whole life has a negative impact on my Medicaid eligibility!
Yes, that is right. However, a simple solution to this is to have someone else not on Medicaid own the policy. Say a son, daughter, or brother or sister.
Remember, Medicaid looks at ownership. If someone else owns a policy on you, they own the policy. Not you.
The problem is ownership. Most people own their life insurance policies outright. If they need Medicaid, their whole life insurance is subject to the spend-down process.
Now, this is where you should contact a qualified lawyer in your state. However, we discuss a general overview here.
If someone else owns the policy, then that scenario usually keeps you eligible for your Medicaid assistance. Again, speak with a lawyer for specific questions about your state or situation.
As we stated, the issue is ownership. On the life insurance policy, you will be the insured, and someone else will be the owner.
Now, not anyone can be the owner. Typically, an owner should be a trusted loved one like a son or daughter or a sibling.
Carriers look at insurable interest connections for beneficiaries. Insurable interest means the beneficiary will be negatively impacted upon your death. This means the beneficiary should be a loved one, relative, or even a business associate. Death impacts these relationships.
The Impact Of Medicaid And Life Insurance On Beneficiaries
Can Medicaid take your life insurance payout from your beneficiaries? In most cases, as long as your life insurance policy’s designated beneficiaries are alive and able to file a claim for your death benefit, Medicaid won’t have access to your life insurance payout when you pass away.
However, there are some situations where Medicaid can seek a form of repayment via your death benefit through the Medicaid Estate Recovery Program . The rules differ from state to state, but usually the state can only seek retribution through your policy’s death benefit if:
- You received long-term medical care, such as a nursing home or assisted living
- Your spouse is deceased
- You have no children or dependents under age 21 or any children with qualifying physical or mental disabilities
- Your life insurance death benefit was paid out not to a beneficiary but to your estate
Remember to update your policy’s beneficiaries over time as deaths and births occur, and make sure your current beneficiaries know to file a claim with your life insurer when you pass away.
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Q If A Person Gets Medicaid After Taking The Cash Surrender From Their Whole Life Policy For Funeral Expenses But The Policy Remains In Effect Through Continued Payments By The Beneficiary Who Is Entitled To The Remainder Of The Policy Medicaid Or The Beneficiary Which Is Not The Estate The Medicaid Beneficiary Only Lived For Two Months After Beneficiary
A. The rules surrounding Medicaid can be complicated.
Under the terms you describe, it seems the beneficiary and not Medicaid would get the money from the life insurance policy.
Under Federal and New Jersey law, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments provided by Medicaid for services received on or after age 55, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.
She said states have the option of using a narrow probate definition of estate in their Medicaid recovery program or defining estate more broadly to include probate and non-probate assets.
Probate assets are those that pass under a will. Non-probate assets include joint accounts and assets that are designated to go to a beneficiary other than the estate.
New Jersey uses an expanded definition of estate recovery, which includes any property that belonged to the deceased person at the moment prior to his or her death, Whitenack said. This includes property such as the deceased persons home or share of a home, bank accounts, whether solely or jointly held, trusts, annuities, stocks, bonds and any other real or personal property.
She said proceeds from whole life insurance policies are subject to estate recovery if they are not liquidated prior to death as required.
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Avoiding Medicaid Estate Recovery
So, what can families do to minimize the impact of the Medicaid estate recovery process? Are there exceptions to this harsh rule? First of all, in states where recovery of benefits paid is only made by a claim against probate estates, all you need to be sure of is that the Medicaid recipient has no probate estate at death. This can be accomplished by ensuring that all the recipients assets are jointly owned with right of survivorship or in POD, TOD, or annuity form. This estate-planning strategy is similar to those used to avoid probate for other reasons.
The only difference is that a living trust cannot be used as a planning tool. Any asset titled in the name of a living trust will be considered a countable asset for Medicaid purposes, even if it would ordinarily be classified as a non-countable asset were it not in the trust.
For example, a senior can title an automobile in joint names with a child , such as Mary Smith and John Smith, JTWROS. Upon Marys death, sole title to the car passes automatically to John outside of the probate process. Since one car of any value is considered exempt by Medicaid during Marys lifetime, its protected until she passes away and then avoids probate and estate recovery.
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Can Nursing Homes Take Your Life Insurance From Your Beneficiary
Nursing home care is often one of the largest expenses people experience towards the end of their lives. With costs exceeding $7,000 a month, many people struggle to afford the costs, especially on a long-term basis. Life insurance is one way that people can choose to help their family members cover end-of-life expenses, but you may be wondering, can a nursing home take your life insurance policy payout from your beneficiary if you have outstanding costs? The short answer is no, if you specify a beneficiary, the nursing home cannot take that money. We’re here to break down how life insurance can benefit you and your loved ones after your death and answer any of these outstanding questions.
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What To Do If Your Life Insurance Keeps You From Getting Medicaid
If your life insuranceâs cash value amount disqualifies you from Medicaid, you can get rid of your policy by canceling it â you may get some cash surrender value â or selling it, which isnât recommended. You can maintain some amount of coverage by:
Converting to extended term life insurance: A common option in most permanent policies, this allows you to use your cash value to purchase a new policy with the same death benefit for a shorter coverage period.
Taking a reduced paid-up option: This option uses your accumulated cash value to purchase a new permanent insurance policy with no premiums owed and no cash value. The amount will be lower than your original death benefit, but you get lifetime coverage.
Transferring your policy: Transferring ownership of your life insurance policy to a family member or an irrevocable trust means the cash value is no longer your asset. An estate planning attorney can walk you through the process.
Use your cash value to pay your premiums: If youâve built up enough cash value you may be able to spend it down by using it to pay your premiums, then resume payments once the amount is below the maximum allowed by Medicaid.
If someone still depends on you for financial support, consider the alternatives to canceling your policy. A reduced paid-up or extended term option ensures your loved ones have financial support but doesnât come with continued premium payments.
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Ways To Obtain Life Insurance And Keep Your Medicaid Benefits
Weve briefly discussed Medicaid and eligibility. Medicaid determines eligibility in 2 ways. Medicaid subjects most people to the non-MAGI test which requires spend-down of ones assets and limited income.
As you can surmise, Medicaid eligibility and the spend-down process subject life insurance policies that have a cash value. These policies include whole life, indexed universal life, universal life, variable life any permanent type of life insurance with cash value.
So, what are your options, then? Lets talk about them next.
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