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Planning for your long-term care, or that of a loved one, is an important decision that many of us will face one day. In addition, as the quality of health care here in America improves, our lifespan extends and the use of nursing homes becomes more commonplace. That's just one reason why Medicaid planning strategies are getting so much attention.
Planning for Nursing Home Costs
Everyone wants to provide loved ones with quality care, regardless of age. However, the reality is that nursing home costs can run from $3,000 to $5,000 per month, and the average stay in a home is approximately 30 months. That puts a financial burden of $150,000 on individuals that are also dealing with the heartache of placing someone in a nursing home.
If you've read some of our publications such as Medicare eligibility, then you understand that the program is geared toward individuals that demonstrate medical need, are aged or disabled, and can pass a series of financial needs tests.
Since Medicaid is administered through your state government, each state can have slightly different financial tests. Generally, these financial tests look at either income levels, assets, or a combination of those factors to determine program eligibility. Regardless of the exact test, experts agree that most of your estate will be depleted before you qualify for Medicaid benefits.
Estate Planning and Medicaid
If you're worried about the high costs of nursing homes or health care, and what that will do to your estate, then you really need to consult with an elder law attorney. These individuals should be well versed in the current law, and can provide you with strategies that include both Estate Planning as well as Medicaid Planning.
Keep in mind too that your children are in no way "entitled" to your money. There is no law that states your children must inherit your hard-earned money. That's not what we are advocating. What we're discussing are options that allow you to live a quality life, and do what you choose with your money. That's really what estate planning is all about - helping you to decide how you want to spend your money, rather than having someone else make those decisions for you.
That being said, we will quickly mention several of the more common Medicaid strategies used by individuals as part of their plans, as well as what's not acceptable under the program's rules.
Medicaid and Asset Transfers
Many individuals mistakenly believe that they can simply transfer assets, such as a house, home, or bank accounts, to loved ones in order to qualify for Medicaid. The federal government quickly recognized that individuals would try to transfer assets, and created strict rules to prohibit such actions. The most important of these rules is termed the "look back period."
Look Back Periods
There are two forms of the look back period. The first has to do with the transfer of assets within 36 months of applying for Medicaid. This rule creates a waiting period before which the applicant is eligible for benefits. The waiting period is based on a formula that takes the assets transferred, and divides it by the average monthly cost of Medicaid benefits for your state.
Look Back Example
That means if you've transferred $36,000, and the average cost to provide nursing home care in your state is $3,000 per month, then you wouldn't be eligible for Medicaid benefits for 12 months.
The second form of the look back period has to do with the transfer of irrevocable trusts in the 60 months prior to applying for Medicaid. Asset transfers to a spouse are allowed, however, eligibility formulas usually consider assets of both spouses.
Irrevocable Trusts
A "revocable" trust is one that can be changed by the person that created it. This type of asset would be included in any Medicaid eligibility formula; therefore such trusts are usually not useful for Medicaid planning purposes.
While an irrevocable trust is also subject to the 60-month rule mentioned earlier, it can play an important role in your future plans and overall strategy. As its name implies, an "irrevocable" trust is one that cannot be changed after it has been created. Most of these trusts are prepared such that any income from the trust is paid directly to the person establishing the trust or the "grantor."
The funds, or principal, of the trust is eventually paid to your heirs or the fund's beneficiary. However, the income from the trust can be used to pay the grantor's living expenses. That means if you ever need to move to a nursing home, the income portion of the trust can be used to pay for those expenses.
These types of trusts are not without their drawbacks. Once the funds or money are placed in the trust, you cannot access them for any reason. Therefore, it is generally advisable to exclude some assets or funds from the trust - just in case you need them. You can also place real estate property into the trust, however, once in the trust you lose control over the property.
Complexity of Medicaid Planning
We hope these examples highlight why it is so important to plan for the future. Durable Powers of Attorney and Living Trusts can help ensure that your plans are carried out if you are incapacitated by illness or injury. Finally, we hope that you realize how complex the law can be in these matters. That's why it's important to work through these plans with an attorney that specializes in elder law. This way you can jointly develop a strategy that you can live with.
About the Author - Medicaid Planning Strategies
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