The February 2006 Estate Planning Insights column was entitled “Big Change in Medicaid Laws.”  On February 1, 2006, Congress passed the Deficit Reduction Act of 2005.  President Bush signed the bill into law on February 8, 2006.  This new federal law makes important changes to the rules about qualifying for Medicaid for nursing home costs.  These are the biggest changes in this area of law since 1993.

According to the Deficit Reduction Act, some important parts of the new law were to be effective from February 8, 2006.  However, the Medicaid program is a joint federal and state program.  The State of Hawaii needed to amend its Medicaid rules found in the Hawaii Administrative Rules.  We kept waiting for the new rules, but Hawaii was very slow in adopting them.  In the July 2009 Estate Planning Insights column I announced that the new rules were coming up for public hearing on July 28, 2009.  Finally, I can inform you that the new Hawaii Medicaid rules became official on October 18, 2009.

The delay in the new rules was a blessing for many of our clients.  During the last 3 ½ years, our law firm was able to help many clients legally transfer assets to loved ones, and then qualify for Medicaid for nursing home costs.  Probably all of them would have lost much more of their assets to nursing home costs if the new rules had been in effect.  You can read about some of the important changes in the law in the July 2009 Estate Planning Insights column, a copy of which is in my July 2009 blog at www.new.okuralaw.com.  You can read the actual new rules in my blog entitled “Notice of Public Hearing and DHS Proposed Rule Change.”

There are two important things you must understand as a result of the new rules.  The first is that in order to protect assets from nursing home costs, you must take action more than five years before you enter a nursing home. In the past, you could give away $100,000, and then qualify for Medicaid for nursing home costs 13 months later.  Now, when you give away assets, if you apply for Medicaid for nursing home costs any time within 5 years, there will be a penalty.  The penalty is a period of time during which Medicaid will not pay for your nursing home costs.  In order to avoid a penalty, plan on transferring assets at least 5 years before you need to enter a nursing home.

The second important thing is this:  do not turn in an application for Medicaid for nursing home costs until you have consulted with a Medicaid Planning specialist.  Let me show you why.  Suppose mother transfers ownership of her home to her son.  The house and lot are worth $600,000.  A little more than 5 years later, mother, who has less than $2,000 of assets, enters a nursing home and applies for Medicaid.  Son gets to keep the home, and Medicaid pays for Mother’s nursing home costs.

Suppose, instead, that after transferring the home to her son, Mother applies for Medicaid one day before 5 years have gone by.  There will be a penalty of more than 5 years and 7 months.  Under the new rules, the penalty period begins not when Mother transferred the home to her son, but when she applies for Medicaid.  Although she has already waited almost 5 years after transferring the home to her son, now she must wait another 5 years and 7 months, a total of 10 years and 7 months before Medicaid will help her!  It is important to know what to transfer, when to transfer, to whom to transfer, how to transfer, when to apply for Medicaid, and when not to apply.  There are so many ways to make a mistake that it is best to consult with a Medicaid Planning attorney before turning in the Medicaid application.