Listen to Lawrence…Life Insurance as it Relates to Medicaid and Asset Protection

December 11, 2020
Dear clients and friends,
In my last email, I discussed the taxation of life insurance proceeds and that only those with taxable estates (over $5.85 million in New York) need be concerned.
My message today is that less affluent people…working and middle class people…may not have a tax problem with their life insurance, but still may have a Medicaid and asset protection problem.  You see, your life insurance is another asset that Medicaid can make you spend before you become eligible for Medicaid.
You can run into a problem with life insurance and Medicaid in two ways. First, Medicaid counts the cash value of your life insurance policy as if it were another bank account in your name.  It counts toward the $15,750 limit.  Many clients have term policies that do not have a cash value, but universal and whole life policies do….so, we have to include them in our planning. Often, we transfer the ownership of these policies to the children or to an irrevocable trust, subject to a look-back.
Second, even if your policy has little or no cash value, we still have to pay attention to the policy beneficiary. If the beneficiary is your estate, Medicaid could seek reimbursement from your estate after your death. If the beneficiary is your spouse, the insurance proceeds could be vulnerable in the future if your spouse needs Medicaid. In addition, Medicaid could seek reimbursement for your Medicaid costs from your spouse’s probate estate after his or her death. The solution may be to change the beneficiary of your policy to your children or to an irrevocable trust.
The bottom line is that your life insurance must be included in a comprehensive elder law estate plan.
I hope this helps! Please forward this information to your friends and relatives.
As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!