5 Medicaid Planning Mistakes to Avoid in New Jersey

Medicaid planning can feel like trying to solve a puzzle with missing pieces. It’s confusing, overwhelming, and if you’re not careful, a few wrong moves can cost you—and your loved ones—a lot. But don’t worry! An experienced elder law attorney can help you steer clear of the most common Medicaid planning mistakes:

1. Giving Your House to Family Instead of Using a Medicaid Asset Protection Trust (MAPT)

Thinking of handing over your house to a family member to protect it from Medicaid? It might sound like a great plan, but it could backfire. Why? Because when you transfer your house outright, the new owner inherits your cost basis. If you bought your home for $25,000 back in the day and it’s worth way more now, they might face a hefty tax bill when they sell it.

Here’s the better option: if they inherit the house after you’re gone, they get a “step-up” in cost basis, which means way less in capital gains taxes. A Medicaid Asset Protection Trust (MAPT) helps you protect your home for Medicaid purposes and keeps this tax-saving perk for your heirs.

And what about adding a life estate to the deed? It can work—sometimes. But if Medicaid issues pop up sooner than you expect, or the property needs to be sold, things can get messy. Throw in a creditor problem or divorce involving the new owner, and your home could end up in the middle of the chaos. A MAPT is often the smarter, safer bet.

2. Making Gifts Without a Plan

Who doesn’t love giving gifts? Unfortunately, Medicaid doesn’t share the warm fuzzies. Gifts, even small ones, can trigger penalties during Medicaid’s five-year look-back period. So, that $18,000 annual federal gift tax exclusion? It’s irrelevant for Medicaid. If you’re gifting money without a solid plan, you could unintentionally create a financial headache for yourself or your loved ones.

Want to avoid penalties? Work with an elder law attorney to create a strategy that lets you share the love without sacrificing Medicaid eligibility.

3. Mixing Your Parent’s Money with Yours

Let’s face it—managing a parent’s finances can be tricky. Transferring their funds into your account for “convenience” might seem harmless, but Medicaid could see it as a gift. Even if you keep receipts and only spend it on them, you’re risking penalties.

The solution? Keep their money in their own account and manage it with the right legal tools, like a power of attorney. It keeps things tidy, clear, and penalty-free.

4. DIY Medicaid Planning or Asset Spend-Down

Medicaid rules are no joke—they’re complicated and ever-changing. Trying to navigate a spend-down or application on your own? That’s like assembling IKEA furniture without the instructions (or those little tools). Sure, you might figure it out eventually, but mistakes are costly and can delay approval or result in penalties.

An experienced elder law attorney knows the ropes and can help you protect your assets while making the process way less stressful. Think of them as your Medicaid GPS—they know the shortcuts and how to avoid dead ends.

5. Waiting Until There’s a Crisis

It’s tempting to put off Medicaid planning until you really need it, but trust us, that’s a recipe for stress. Medicaid’s five-year look-back period means last-minute moves can lead to penalties, asset loss, and family drama.

Planning ahead lets you take a deep breath and make thoughtful decisions—like setting up a MAPT or exploring other options—to protect your assets and keep your sanity intact.

Final Thoughts

Medicaid planning doesn’t have to be a nightmare. Avoiding these common mistakes can save you money, stress, and time. A trusted elder law attorney can help you create a plan that fits your family’s needs and gives you peace of mind. Don’t wait—start now so you can focus on the things that really matter.

Planning for the future doesn’t have to be scary—it can actually be empowering. And hey, you’ll sleep better knowing you’ve got it all figured out!