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half a loaf and reverse half a loaf medicaid planning

half a loaf and reverse half a loaf medicaid planning
Elder Law
Jason Neufeld
June 4, 2019

Half-a-loaf Medicaid planning is really only useful in crisis situations. When a senior has more time to plan, elder care attorneys can usually find more effective Medicaid planning techniques to deploy. However, in a pinch, half-a-loaf can usually save just over ½ of a nursing home resident’s assets, which is certainly a far better result than if the senior spends all their money on their long-term care. Lets explore the half-a-loaf technique further:

What is Half-a-Loaf Medicaid Planning?

Prior to 2006, Medicaid penalty periods of ineligibility were calculated differently than they are today. Prior to 2006, penalty periods began the same month a transfer, for less than fair-market value, was made.

So, under the prior law (before the Deficit Reduction Act of 2005, which was implemented in 2006), someone anticipating Medicaid in the future would give a way about ½ of their assets (to an irrevocable trust or to their children) and keep ½ of their assets to live or, if crisis struck, to pay for their cost of care through the imposed penalty period. Using this scheme,the eventual Medicaid applicant could save significantly more than ½ of their assets if they were able to stay out of a nursing home for the few years following their gift.

But now the Medicaid penalty period doesn’t begin to run until the person who wants Medicaid to pay for their long-term care, otherwise qualifies for Medicaid institutional level of care (both financially and medically) AND actually applies.

So now, half-a-loaf only works if the Medicaid applicant is already (or about to be) in a nursing home. So, the technique is now sometimes referred to as “reverse half-a-loaf” because some of the money being transferred out of the Medicaid applicant’s name must actually be returned to the Medicaid applicant. This an be done using trusted friends or family, but this elder care attorney does not advise that method as it is less dependable than utilizing a medicaid compliant annuity.

Reverse Half-a-loaf Medicaid Planning Example

Moira is a widow and is 80 years old. She lives in Villa Maria Nursing and Rehab in North Miami. They charge about $7,300 a month for a semi-private room. Moira has $200,000 in countable assets that she needs to spend down. Moira’s income is $2,500 per month between her social security retirement and her inherited IRA RMD payments.  So she has an income shortfall of $4,800 ($7,300 - $2,500).

Determine the Half-a-Loaf Burn Rate and Term

We need to figure out the “burn rate” by adding the Florida Medicaid penalty divisor is currently (as of 2017): $8,662.00, to the income shortfall ($4,800). This gives us a “burn rate” of $13,462.

Then we would divide spend down amount by the burn rate:$200,000 / $13,462 = 14.86, which becomes the half-a-loaf Medicaid plan in months. (a term of 14.86 months).

The Medicaid Half-a-Loaf Gift Amount

Then, determine the amount that should be gifted to Moira's beneficiaries or an irrevocable trust by: multiplying the term of the plan by the Florida Medicaid penalty divisor (14.86 x 8,662) = 128,717.32.

The Medicaid Half-a-Loaf Annuity Amount

Moira would then take the difference between the half-a-loaf gift amount and the spend-down amount ($200,000 – $128,717.32) to get $71,282.68,which is the amount that would be put into a Medicaid-compliant annuity structured with 15 equal monthly payments (rounding the half-a-loaf plan term up from 14to 15). Since the Medicaid annuity is paying out in substantially equal payments within her life expectancy (an 80 year old woman has a 9.43 year life expectancy per the life expectancy tables utilized by the Florida Medicaid agency – DCF) and names DCF as the primary beneficiary to the extent of Medicaid benefits paid to Moira, it is in fact Medicaid compliant.

Recall that a Medicaid compliant annuity is not a gift subject to a further transfer penalty.

After the gift is made and annuity purchased, Moira would apply for Medicaid to get the penalty clock ticking. Moira will use her income+ the income provided by the annuity to pay for her care through the penalty period.  There will be a small monthly shortfall between Moira’s income and the cost of the nursing home. Her beneficiaries that received the initial gift to trigger the penalty would usually pay the difference. If not, Moira would be able to afford it by spending her $2,000 individual resource allowance.

Benefits of Medicaid Half a Loaf Planning

If Moira chose to self-pay rather than engage a north miami elder care attorney to assist with half-a-loaf planning, she would have used up all of her countable resources in just over 27 months (200K / Villa Maria nursing home cost of $7,300). If Moira lived just over two more years, this would leave her beneficiaries with nothing. Instead, her beneficiaries received over ½ of all of Moira’s assets.

On the other hand, If Moira sadly died prematurely, before 15 months, Medicaid would not have been entitled to any estate recovery because Moira was self-paying via her income and annuity through this period.

Click here for another example of how Medicaid compliant annuities are used.

Jason Neufeld

Jason Neufeld is the Founder and Managing Partner of Elder Needs Law, a Florida estate planning and elder law firm he created in 2017. With more than 15 years of experience practicing law, he represents clients in a wide range of legal matters, including Medicaid planning, estate planning, elder law, probate, Medicare, and life insurance.

Jason received his Juris Doctor from the University of Miami — School of Law and is a member of the Florida Bar and the Broward County Bar Association. He has received numerous accolades for his work, including being named a Rising Star and Super Lawyer by Super Lawyers and among the Florida Legal Elite by Florida Trend in 2024.

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