The Hidden Cost of Waiting: Why Florida Families Lose More Than Money When They Delay Medicaid Planning
Applying for Medicaid can be a long and stressful process but much of that can be avoided by working with an elder law attorney to plan in advance. Starting the Florida Medicaid planning process before an individual needs care can ensure that assets are protected and help make for a smooth application process when care is needed. This article will provide an overview of how advance planning can be extremely beneficial from a financial, emotional and quality of care standpoint.
Asset Protection
In Florida, Medicaid applicants are only allowed to have $2,000 in countable assets. This does not include a house and car, which are considered “exempt” assets. Florida has a strict five‑year look‑back period on all Medicaid applications for long‑term care. This includes nursing home and home health services. Any gifts, transfers, or sales for less than fair market value made within 60 months of applying for Medicaid can lead to significant penalty periods that delay Medicaid eligibility. By planning in advance, an individual or married couple can protect their assets that may otherwise be lost or diminished through delay.
How an Irrevocable Trust Protects Assets
An Irrevocable Trust (also called a Medicaid Protection Trust or Asset Protection Trust) can provide several important benefits when Florida Medicaid planning is done well in advance of needing long-term care.
Some of the key advantages include:
- Protects countable assets from future Medicaid spend-down requirements
- Starts Florida’s five-year look-back period
- Allows a trusted individual to manage assets as Trustee
- Keeps assets invested and working for you
- Can help beneficiaries avoid probate
- May preserve valuable tax advantages through a step-up in basis
When an individual or married couple establishes an Irrevocable Trust, they are known as the Grantor of the trust. The Grantor appoints another person (often an adult child, family member, or trusted friend) to serve as Trustee and manage the trust according to its terms.
When assets are transferred into the trust, Medicaid treats the transfer as a gift. Florida’s five-year look-back period now begins. Once that period has passed, those assets are generally no longer considered countable resources for Medicaid eligibility purposes.
When the Grantor transfers assets into the trust, Medicaid generally treats the transfer as a gift. This begins Florida’s five-year look-back period. If the Grantor does not need long-term care during those five years, the transferred assets are generally no longer considered countable resources for Medicaid eligibility purposes.
Example: How Advance Planning Works
Bob is a healthy 68-year-old Florida resident who owns his home and has a $500,000 brokerage account.
After consulting with an elder law attorney, Bob establishes an Irrevocable Trust and names his daughter, Becky, as Trustee.
Here’s what happens next:
- July 15, 2026: Bob transfers ownership of his brokerage account to the trust.
- The account remains invested and continues earning income.
- Becky manages the account as Trustee according to the terms of the trust.
- If Bob needs funds, Becky can use trust assets to pay eligible expenses on his behalf.
- Because the transfer is treated as a gift for Medicaid purposes, Florida’s five-year look-back period begins.
Result:
If Bob does not need Medicaid until after July 15, 2031, the trust assets are generally no longer considered countable resources for Medicaid eligibility. Meanwhile the assets have remained invested for his benefit throughout that time.
Preserving Valuable Tax Benefits
A properly structured Irrevocable Trust can also preserve the highly valuable step-up in basis that generally applies when assets pass to beneficiaries at death.
One common Florida Medicaid planning mistake is transferring assets directly to a child or other family member in an effort to begin Florida’s five-year look-back period. While these gifts can help establish Medicaid eligibility after five years, they may create unintended tax consequences for the recipient.
When assets are gifted directly to another person, the recipient generally inherits the original owner’s cost basis. As a result, they may owe significant capital gains taxes if the assets have appreciated in value.
In contrast, assets held in a properly drafted Irrevocable Trust may qualify for a step-up in basis upon the Grantor’s death. Beneficiaries then receive the assets with a cost basis equal to their fair market value at that time. This can substantially reduce, or even eliminate, capital gains taxes when the assets are later sold.
Example
Suppose Bob originally purchased the investments in his brokerage account for $300,000, and by 2026 they are worth $500,000.
If Bob transfers those investments directly to his daughter, she generally receives them with Bob’s original $300,000 cost basis. If she later sells the investments, she could owe capital gains taxes on the appreciation above that amount.
If, instead, Bob transfers the investments to a properly drafted Irrevocable Trust and the investments are worth $600,000 when he passes away, his daughter may inherit them with a $600,000 stepped-up basis. If she immediately sells the investments for that amount, she would generally owe no capital gains tax.
Additionally, because Bob’s estate falls below the applicable federal estate and gift tax exemption, the transfer itself can generally occur without triggering federal estate or gift taxes.
By planning in advance, individuals can strategically transfer assets into an Irrevocable Trust long before Medicaid is needed. If and when long-term care becomes necessary, the five-year look-back period may have already expired, allowing the individual to qualify for Medicaid while preserving assets that might otherwise have been spent on the cost of care.
Planning for Long-Term Care Placement
Advance Florida Medicaid planning does more than protect your finances. It also gives you more options when it comes to long-term care. Planning ahead allows individuals and families to research facilities, prepare for future care needs, and avoid unnecessary expenses that can arise while waiting for Medicaid approval.
Finding the Right Facility
Many people mistakenly believe that qualifying for Medicaid means they will have limited choices when selecting a nursing home or assisted living facility. In reality, that is often not the case.
According to the American Health Care Association, nearly 95% of skilled nursing facilities in Florida are certified to accept both Medicare and Medicaid. As a result, many highly rated facilities that charge private-pay residents more than $20,000 per month also accept Medicaid beneficiaries.
For example, if Betty receives $1,200 per month in Social Security and a $300 monthly pension, her monthly Medicaid patient responsibility would generally be $1,500, even if the skilled nursing facility charges private-pay residents $22,000 per month.
Although many facilities accept Medicaid, that does not necessarily mean a Medicaid-certified bed will be available when it is needed. Planning ahead allows families to:
- Research facilities that best meet their needs
- Compare available services and levels of care
- Join waiting lists when appropriate
- Complete paperwork before a crisis occurs
An experienced elder law attorney can also help families understand the differences between facilities and prepare for placement before long-term care becomes necessary.
Reducing Costs Before Entering an Assisted Living Facility
Planning ahead can also reduce out-of-pocket expenses when entering an assisted living facility.
In many assisted living facilities, Medicaid pays the care portion of the monthly bill. The resident remains responsible for room and board. Because the care portion can range from $1,000 to $2,000 per month, obtaining Medicaid approval before moving into the facility can result in significant savings.
If an individual waits until after entering an assisted living facility to apply for Medicaid, the approval process may take several months, or even longer. During that time, the resident is generally responsible for paying both the room and board costs and the care portion of the bill. Those care expenses are typically not reimbursed once Medicaid is approved.
Understanding Medicaid Pending at Skilled Nursing Facilities
Advance planning can also help families avoid substantial temporary expenses when entering a skilled nursing facility.
Once Medicaid is approved, residents generally contribute only their monthly income toward the cost of care, while Medicaid pays the remaining balance. However, not every skilled nursing facility handles pending Medicaid applications the same way.
Many facilities accept residents as Medicaid Pending, allowing them to move in while their Medicaid application is being processed. Other facilities require residents to pay the full private-pay rate until Medicaid approval is received.
For example, if a nursing facility charges $20,000 per month and Medicaid approval takes six months, a family could temporarily pay more than $120,000 out of pocket. Although those costs are generally reimbursed after Medicaid approval, many families simply do not have access to that amount of money while waiting.
By planning ahead and obtaining Medicaid approval before admission whenever possible, families may be able to avoid these significant temporary financial burdens.
Family Stress from Crisis Planning
The benefits of advance Florida Medicaid planning extend beyond protecting assets and reducing long-term care costs. Planning ahead also provides peace of mind by giving individuals and families the opportunity to make thoughtful decisions before a crisis occurs.
Advance Medicaid planning is about much more than qualifying for benefits. It is an opportunity to protect the assets you’ve worked hard to build, preserve your options for future care, and reduce the stress that often accompanies last-minute decisions. By planning ahead, individuals and families can make informed choices with confidence instead of facing unnecessary financial and emotional burdens during a crisis.
When important decisions are made in advance, loved ones are better prepared to honor your wishes and avoid costly mistakes that can result from rushed decision-making during an already emotional time.
Conclusion
An experienced elder law attorney can help you understand your options, develop a personalized Medicaid planning strategy, and navigate Florida’s complex Medicaid rules before long-term care becomes necessary. Whether you’re planning years in advance or beginning to explore your options now, taking action today can help protect your future and provide peace of mind for you and your loved ones.
If you have questions about Florida Medicaid planning or long-term care planning, the experienced elder law attorneys at Shalloway & Shalloway are here to help. Contact our office today to schedule a consultation and learn how proactive planning can help protect your assets, preserve your choices, and prepare for the future with confidence.
