Using a Limited Liability Company (LLC) can help protect family assets from Medicaid eligibility calculations.  To qualify for Medicaid in Wisconsin, an individual must meet certain income and asset requirements, which can be a devastating and challenging reality for many families, as the asset limit is generally $2,000.00.  What is often referred to as “the spend-down” is the period of time where the family liquidates everything and pays the excessive cost of care until there is nearly nothing left, then they can apply for Medicaid benefits.  However, establishing an LLC may be a smart strategy to consider for protecting specific family assets while ensuring Medicaid eligibility.

Here is an overly-simplified explanation of how it works:

  1. Create an LLC

The first step is to establish a valid business entity. This entails filing Articles of Organization with the State Department of Financial Institutions, obtaining a Tax ID number from the IRS, and creating a carefully crafted Operating Agreement that spells out the specific legal requirements to allow the LLC to protect assets in a way that will exempt them from Medicaid eligibility calculations.

  1. Transfer Assets to the LLC

To protect family assets, the first step is to transfer them to an LLC. Assets such as real estate, investments, and personal property can be transferred to the LLC, which becomes the owner of these assets. The family members, in turn, become members or owners of the LLC.

  1. Operating Agreement

The LLC must have a comprehensive operating agreement with carefully worded provisions that outlines the rights and responsibilities of its members. The agreement should address the management, operation, and distribution of assets.

  1. Self-Management

It is crucial that the LLC is self-managed by its members, not a third party. Family members must handle the day-to-day management of the LLC, including all investment decisions and distributions. 

  • Limited Liability Protection

Normally, a typical LLC provides limited liability protection for its members, meaning that their personal assets are protected from creditors if the LLC is sued.  That may sound impressive, but it is generally ineffective for protecting the personal assets from a Medicaid spend-down.  This is where the carefully crafted Operating Agreement is critical – if not structured properly, an LLC may offer zero spend-down protection for it’s owners.

To learn more about how establishing an LLC can be an effective strategy for protecting family assets from Medicaid eligibility calculations, contact The Estate Planning Group and one of our exceptional Life & Legacy Planning attorneys can help you determine if it is the appropriate tool for your family protection.

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