Planning for your long-term care, or that of a loved one, is an important decision that many of us will face one day. As the quality of health care here in America improves, lifespans extend, and the use of nursing homes becomes more commonplace. That's why Medicaid planning strategies are getting so much attention lately.
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 $6,000 per month, and the average stay in a home is around 30 months. That puts a financial burden of nearly $200,000 on individuals that are also dealing with the heartache of placing someone in a home.
In our article on Medicare eligibility, we explain how the program is geared towards individuals that demonstrate medical need, are aged or disabled, and can pass a series of financial needs tests.
Since Medicaid is administered through state governments, each can have a slightly different set of financial tests. Generally, these 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 the estate will be depleted before qualifying for Medicaid benefits.
Anyone worried about the high costs of nursing homes or health care, and what that will do to an estate, needs to consult with an elder law attorney. These individuals should be well versed in the current law, and can provide clients with strategies that include both Estate Planning as well as Medicaid Planning.
Keep in mind that children are in no way "entitled" to their parent's money. There is no law that states children must inherit their parent's hard-earned money; no one is advocating that position. What we're discussing are options that allow someone to live a quality life, and do what they choose with their money. That's really what estate planning is all about: Helping someone to decide how they want to spend their money, rather than having someone else make those decisions.
Many individuals mistakenly believe they can simply transfer assets, such as a house, home, or bank account, 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."
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 them by the average monthly cost of Medicaid benefits for each state.
If Thomas transfers $36,000, and the average cost to provide nursing home care in his state is $3,000 per month, then he wouldn't be eligible for Medicaid benefits for $36,000 / $3,000, or 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.
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 typically not useful for Medicaid planning purposes.
An irrevocable trust is also subject to the 60-month rule mentioned earlier; however, it can play an important role in someone's 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, known as the "grantor."
The funds, or principal, of the trust are eventually paid to 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 someone ever needs to move into 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, they cannot be accessed for any reason. Therefore, it is generally advisable to exclude some assets or funds from the trust; just in case they're needed. It's also possible to place real estate property into a trust; however, once in the trust control over the property is lost.
We hope the examples above highlight why it is so important to plan for the future. Durable Powers of Attorney and Living Trusts can help ensure that plans are carried out if the grantor becomes incapacitated by illness or injury. Finally, it should also be clear how complex the law can be in these matters. That's why it's important to work through these planning scenarios with an attorney that specializes in elder law.
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