Medicaid was considered a complicated program when President Lyndon B. Johnson first signed it into law at the Truman library in Independence Missouri, and it has grown even more complex since 1965 when the program was created. Medicaid is a maze of rules and regulations, filled with all kinds of pitfalls that can ensnare the unwary.

Here are some of the biggest Medicaid pitfalls that we’ve spotted:

1. Gifting Money, Vehicles, or Property

Specifically, transferring assets to try to “beat the system.” Any gift transfers within the 5 year period prior to the application will be penalized, and could prevent Medicaid benefits at the exact time when you need them the most. If the applicant has transferred money or property to a third party to try to create Medicaid eligibility, they are in for a rude awakening. Similarly, adding your name to your parents bank accounts will not help them become eligible for Medicaid, and is actually far more likely to cause problems than solutions with regard to their eligibility for the program. Other misguided planning strategies like selling your house or car to someone for $1 (or really, for anything less than the fair market value) will also incur serious Medicaid penalties as well as tax consequences for the recipient due to the step up in basis.

2. Confusing Medicaid Rules and Tax Rules

Many people think (or have heard from someone) that they can give away up to $15,000 per year without incurring Medicaid Penalties. In fact, the $15,000 figure is an IRS rule regarding when a gift tax return should be filed and has nothing to do with Medicaid law. Medicaid has its own, state-specific rules regarding gifting (and the penalties associated with gifting) but there is no crossover between Medicaid rules and tax rules. Tax exempt does NOT mean Medicaid exempt. There is no amount of money that can be given away in the 5 year period prior to a Medicaid application without an associated penalty.

3. Thinking it's too late to plan

It’s rarely too late to establish a good plan. Generally, the earlier a plan is put in place the more assets can be preserved, but don’t count yourself out because there’s usually something that can be done to make your situation better.

4. Spending down money you could have saved

Many couples with significant assets can qualify for Medicaid benefits without spending a penny. Although there are income and asset criteria a couple must meet before one of them can apply for benefits, Medicaid regulations protect individuals from becoming impoverished if their spouse needs nursing home care. If you don’t consult an Elder Law Attorney, you may not be able to qualify for these protections.

5. Setting up a Trust that won’t protect your assets

This is definitely one of the top questions we get from people calling our office for the first time - “If all my assets are held by a trust, does that mean Medicaid can’t take them?” The short answer is, no. Assets held by a Revocable Living Trust are no less countable by Medicaid or could cause a normally exempt asset to be countable.

6. Not having a good Power of Attorney

You should pick up the phone and call us right now if you or a loved one does not have a Power of Attorney in place for financial and healthcare decisions. It’s important that these documents are put in place before a gradual or sudden decline in mental competency occurs. It’s also important to make sure the financial Power of Attorney contains the right language so that Medicaid planning is possible. Chances are, that online form is not going to cut it and once you find that out it could be too late. Without a solid Power of Attorney, Medicaid planning may be difficult or even impossible.

7. Wasting time reading resources about Medicaid rules in other states

Although Medicaid is a national program, it is administered by each state. The rules and regulations are constantly changing and can vary widely from state to state. So, it’s no wonder that there are many myths and inaccuracies surrounding the program. Policies, eligibility requirements, exemptions, all are different across state lines and that article you found online written by a Florida attorney is not going to get you any closer to understanding Kansas or Missouri Medicaid rules.

8. Not getting expert help

Medicaid planning is like tax planning in that legislation has provided legal loopholes which, with good advice from a knowledgeable professional, can save Medicaid applicants and their families thousands of dollars. It is “penny wise and pound foolish” not to retain an expert if you are able to.

9. Not being aware of, or misunderstanding Medicaid Estate Recovery

Most real-life Medicaid horror stories involve Medicaid Estate Recovery, a program that allows your State to try to recoup the cost of whatever Medicaid spent on your care. Estate Recovery can place liens on your property, make a creditor claim against your probate estate, and generally can create huge surprises and financial burdens for applicants who are not aware that the program exists or aren’t sure how it operates.

10. Not Having an Estate Plan in place

Someone applying for Medicaid usually isn’t in the best health. During the application process, it is important to have your estate plan solidified in order to avoid the probate process after your death. Otherwise, your loved ones will have to deal with the stress and expense of the probate process in the wake of your passing.