Q: My mother is worried about spending all her money on long-term care and not being able to leave an inheritance to her children. Is there any way to "hide" money from Medicaid?

A: "Hiding" assets by not reporting them on the Medicaid application is illegal and considered fraud against the state, with both civil and criminal penalties. Thus, I would not recommend it! However, there are a number of perfectly legal techniques for preserving and protecting your mother's assets so that they pass to you, even if she were on the Medicaid program.

For example, she can make an outright gift to you and then wait five years to apply for Medicaid. Once this "five-year lookback period" has passed, the gift is ignored for Medicaid eligibility purposes, no matter how large the gift. A combination of a present gift to you of a certain amount of money and a purchase of a Medicaid annuity is a great way of protecting at least one-half of her assets so that they pass to you. A Medicaid annuity is a special type of annuity that is irrevocable, non-transferable, immediate, and fixed to equal monthly payments. With the right type of annuity, it is non-countable as an asset for Medicaid purposes, and the purchase is not considered a gift that might otherwise cause a disqualification period.

Another way your mother can protect assets for an inheritance is by taking advantage of your state's Long-Term Care Partnership Program (not all states have this available, however). By purchasing, say, $200,000 of coverage, she can set aside up to $200,000, and if her nursing home expenses exceed the insurance coverage, Medicaid will pay for her care and the state cannot touch this protected amount. Upon your mother's death, it will pass to you. To see which states currently offer this Partnership program, see the LTC Partnership website.