When families begin thinking about long-term care, they often start with the same questions:
Will I have to spend everything I own?
Can I keep my home?
Should I put the house in a trust?
Can I give assets to my children before I apply for ALTCS?
Those are important questions, but they should not be answered in isolation.
From a legal-planning perspective, one of the biggest mistakes we see families make is taking action before understanding how Arizona's long-term-care rules may apply to their particular situation.
Selling a home, changing title, making gifts, moving assets into a trust, or transferring money to family members may seem like reasonable ways to protect property. But depending on the timing and circumstances, those decisions can affect ALTCS eligibility, trigger transfer penalties, change how assets are treated, or create problems that could have been avoided with advance planning.
At Obsidian Ridge Law, our goal is to help Arizona families understand the legal consequences of those decisions before they act.
First, Understand What ALTCS Actually Looks At
The Arizona Long Term Care System, commonly called ALTCS, is Arizona's Medicaid program for individuals who require long-term care.
ALTCS is not limited to nursing-home care. Depending on eligibility and the level of care required, services may be available in a person's home, assisted living, another community-based setting, or a nursing facility.¹
Eligibility generally involves two separate considerations:
Whether the applicant meets the required medical level of care
Whether the applicant satisfies the applicable financial requirements
The financial analysis is where many families run into confusion.
ALTCS does not simply ask, “How much money do you have?”
Different assets may be treated differently. A home, cash, retirement accounts, investments, vehicles, and property held in trust may each receive different treatment depending on the circumstances. Married couples also have additional rules intended to protect a spouse who remains in the community.²
That is why we generally recommend looking at the entire financial and estate-planning picture before making changes solely for the purpose of qualifying for ALTCS.
Do Not Assume You Have to Sell or Give Away Your Home
Owning a home does not automatically make someone ineligible for ALTCS.
Arizona's ALTCS rules provide circumstances in which a primary residence may be treated differently from other resources. The analysis can depend on several factors, including:
Whether you or your spouse live in the home
Whether you intend to return to the home
The amount of equity
Who owns the property
How the property is titled
Whether the property is held in trust
The legal advice we would give clients at this stage is simple:
Do not automatically sell, gift, transfer, or retitle your home because you believe long-term care may be necessary.
Those decisions should be made only after considering the ALTCS rules, your estate plan, your care needs, and what you may need financially in the future.
The way a home is treated while you own it may be very different from the way cash proceeds are treated after the home is sold.
Once a transaction occurs, some planning opportunities may no longer be available.
A Revocable Living Trust Is Not an ALTCS Asset-Protection Strategy
Many Arizona families already have a revocable living trust as part of their estate plan.
That can be an excellent planning tool.
A revocable trust may help avoid probate, provide for management of assets during incapacity, and establish how property will be distributed after death.
But families should not assume that placing assets into a revocable living trust makes those assets unavailable for ALTCS purposes.
Generally, it does not.
Because the person creating a revocable trust typically retains the ability to access, control, change, or revoke the trust, AHCCCS generally treats that person's ownership interest in the trust corpus as an available resource.³
This is an important distinction.
A revocable living trust and an irrevocable trust used for Medicaid planning are not interchangeable.
If long-term-care planning is becoming a concern, the existing estate plan should be reviewed to determine what the trust actually accomplishes and whether additional planning is appropriate.
Be Extremely Careful About Giving Assets Away
One of the most common pieces of informal advice families hear is:
“Just give the assets to your children.”
That can create serious problems.
For long-term-care Medicaid, Arizona generally applies a 60-month, or five-year, look-back period. Certain transfers made during that period may affect ALTCS eligibility.⁴
This can include situations where someone:
Gives money to children or other family members
Transfers a home for less than fair market value
Gives away investments or other assets
Places assets into certain irrevocable trusts
If a transfer is subject to the Medicaid transfer rules, it can potentially create a penalty period during which ALTCS will not pay for qualifying long-term-care services.
That is a significant concern because the person may already need care when the penalty is imposed.
So before making substantial gifts or transfers, the better question is not:
“Can I get this asset out of my name?”
It is:
“What legal consequence will this transfer have if I need ALTCS within the next five years?”
That is a very different analysis.
Understand the Difference Between Eligibility, Liens, and Estate Recovery
Another common area of confusion is the belief that if someone receives ALTCS benefits, AHCCCS automatically takes the home.
That is not an accurate way to think about the process.
There are actually several separate legal questions.
1. Can You Qualify for ALTCS?
This is the eligibility analysis.
ALTCS looks at medical eligibility, income, assets, transfers, trusts, and other applicable factors.
2. Can AHCCCS Place a Lien Against Property?
Under certain circumstances, AHCCCS may place a lien against real property owned by an ALTCS recipient who becomes permanently institutionalized. Arizona's lien rules also contain important exceptions and protections, including circumstances involving certain family members who lawfully reside in the home.⁵
A lien does not mean AHCCCS immediately owns the property.
It means AHCCCS has a legal claim that may need to be addressed later.
3. Can AHCCCS Seek Recovery After Death?
Estate recovery is another separate issue.
Federal Medicaid law requires states to pursue recovery of certain Medicaid expenses after the death of certain recipients.⁶ Arizona administers its recovery program through AHCCCS.⁷
However, estate recovery is not unlimited.
There are protections and exceptions, including circumstances involving a surviving spouse, certain children, and hardship.⁸
This distinction matters because families sometimes make significant financial decisions based on a fear that “the state will take the house” without first determining whether a lien or recovery claim would actually apply.
That is exactly the type of situation where individualized legal guidance can matter.
Medicaid Asset Protection Trusts Require Advance Planning
For some families, an irrevocable trust commonly referred to as a Medicaid Asset Protection Trust, or MAPT, may be worth considering.
But this type of planning should not be approached casually.
The legal concept behind a MAPT is very different from a standard revocable living trust.
In order for assets to potentially receive the intended protection, the person creating the trust generally must give up meaningful access to or control over the assets being protected.
That creates a real tradeoff.
If you place money or property into an irrevocable trust, you should not assume you can continue using the principal whenever you want while also having ALTCS treat those assets as unavailable.
This is why we encourage clients to think about two separate categories of assets.
Assets You Need to Keep Available
These may be assets you want available for:
Housing
Medical expenses
Care
Emergencies
Travel
Quality of life
Unexpected expenses
Keeping those assets accessible provides flexibility.
Assets You Can Afford to Set Aside
Some families may have assets they are unlikely to need for their own care and are comfortable setting aside for future beneficiaries.
Those assets may present different planning opportunities.
The important legal-planning question is not simply:
“How much can I protect?”
It is:
“How much can I realistically give up access to without compromising my own financial security?”
A MAPT also does not provide immediate protection.
Transfers into certain irrevocable trusts can implicate the five-year look-back rules.⁹ If long-term care is already needed or likely to be needed soon, the available planning options may be very different.
Married Couples Should Not Assume Everything Must Be Spent
Long-term-care planning for married couples requires a different analysis.
Medicaid rules include protections designed to prevent a spouse who remains in the community from becoming impoverished simply because the other spouse requires long-term care.
Depending on the circumstances, the spouse remaining at home may be permitted to retain certain resources and may also qualify for certain income protections.¹⁰
The home may receive additional protection when the spouse continues living there.
This means a married couple should not automatically begin spending down or transferring assets simply because one spouse may need ALTCS.
Before taking action, it is important to determine what the community-spouse rules already protect.
Talk to an Attorney Before Selling the Home
One of the most important times to seek advice is before selling a home when long-term care may be on the horizon.
Why?
Because the home itself and the money received from selling the home may be treated differently.
Arizona policy provides limited circumstances in which proceeds from the sale of an excluded home may temporarily remain excluded when the individual intends to purchase another home and satisfies the applicable requirements.¹¹
Before selling, we would want a client to think through questions such as:
Where will you live after the sale?
Are you buying another home?
Are you moving to assisted living?
How much of the proceeds will be needed for your care?
Will you need cash available for future expenses?
Are you likely to apply for ALTCS?
Have you made gifts or transfers during the last five years?
Are you trying to preserve assets for children or other beneficiaries?
How does the sale affect your current trust or estate plan?
A sale may still be the right decision.
But it should be made with a clear understanding of what happens next.
The Best Planning Usually Happens Before the Crisis
There is no one-size-fits-all ALTCS strategy.
For one client, preserving access to assets may be the highest priority.
For another, advance planning to protect certain property for children may make sense.
For a married couple, existing Medicaid protections may substantially change the analysis.
And for someone whose health has already declined significantly, the options may be different from those available to someone planning five or ten years in advance.
That is why legal planning should begin with the client's goals—not with a particular trust or transaction.
At Obsidian Ridge Law, we look at the entire picture:
Your home.
Your income and assets.
Your spouse.
Your existing estate plan.
Your care preferences.
Your family.
And, most importantly, how much flexibility you need to preserve for yourself.
The goal is not simply to qualify for ALTCS.
The goal is to make informed legal and financial decisions about your care and your property while you still have the opportunity to choose.
If long-term care is becoming part of your family's planning, we encourage you to speak with an attorney before transferring assets, changing ownership of your home, creating an irrevocable trust, or making other significant changes to your estate plan.
Schedule a free 15-minute consultation with Obsidian Ridge Law to discuss your circumstances and the next steps that may be appropriate for you.
¹ Arizona Health Care Cost Containment System (AHCCCS), Arizona Long Term Care System (ALTCS). AHCCCS explains that qualifying individuals may receive long-term-care services in nursing facilities, assisted-living settings, or their homes depending on eligibility and care needs.
² AHCCCS Medical Assistance Eligibility Policy Manual, MA0403, Arizona Long Term Care System (ALTCS). ALTCS eligibility includes medical and financial requirements, and financial eligibility may involve analysis of income, resources, trusts, transfers, and marital circumstances.
³ AHCCCS Medical Assistance Eligibility Policy Manual, MA802, Non-Special Treatment Trusts. Under AHCCCS policy, a person's ownership interest in the corpus of a revocable trust is generally considered a resource.
⁴ AHCCCS Medical Assistance Eligibility Policy Manual, MA901, Transfers Overview; MA903A, Transfer Before the Look-Back Period; see also 42 U.S.C. § 1396p(c). Arizona applies a 60-month look-back period to certain transfers for less than fair market value in connection with long-term-care Medicaid eligibility.
⁵ AHCCCS Medical Assistance Eligibility Policy Manual, MA1902, TEFRA Liens. AHCCCS may impose liens against certain real property of permanently institutionalized ALTCS members, subject to statutory protections and exceptions.
⁶ 42 U.S.C. § 1396p(b). Federal Medicaid law requires states to pursue recovery of certain Medicaid expenditures under specified circumstances.
⁷ A.R.S. § 36-2935, Estate Recovery Program; Liens. Arizona law authorizes AHCCCS to maintain an estate-recovery program consistent with federal Medicaid requirements.
⁸ AHCCCS, Estate Recovery Program. Arizona recognizes protections involving surviving spouses, certain children, and qualifying undue-hardship circumstances.
⁹ 42 U.S.C. § 1396p(c); AHCCCS Medical Assistance Eligibility Policy Manual, Chapter 800, Trusts, and Chapter 900, Transfers. Transfers into certain irrevocable trusts may be subject to Medicaid transfer rules depending on the trust terms, timing, and circumstances.
¹⁰ AHCCCS Medical Assistance Eligibility Policy Manual, MA707, Community Spouse Resource Budgeting, and related community-spouse provisions. Arizona's ALTCS rules provide certain resource and income protections for a spouse who remains in the community.
¹¹ AHCCCS Medical Assistance Eligibility Policy Manual, MA705K, Home Property. Arizona policy addresses the treatment of a primary residence and, under specified circumstances, proceeds from the sale of an excluded home when the individual intends to purchase a replacement residence.
Double-click to edit...
