MEDICAID
PLANNING BASICS
Unfortunately,
many nursing home residents end up exhausting their assets on long-term care. But it
doesn't have to be that way. The best time to plan for the possibility of nursing home
care is when you're still healthy. By doing so, you may be able to pay for your long-term
care and protect assets for your loved ones. How? Through Medicaid planning.You worked
hard all of your life to pay off your mortgage and build a retirement fund. You expected
to live off your savings in the comfort of your own home, and you planned to leave
something to your kids at the appropriate time. Suddenly, the unthinkable happens--you
suffer a stroke at age 70 and must spend the rest of your years in a nursing home. What
will happen to your life savings?
Eligibility
for Medicaid depends on your state's asset and income-level requirements
Medicaid
is a joint federal-state program that provides medical assistance to various low-income
individuals, including those who are aged (i.e., 65 or older), disabled, or blind. It is
the single largest payer of nursing home bills in America and is the last resort for
people who have no other way to finance their long-term care. Although Medicaid
eligibility rules vary from state to state, federal minimum standards and guidelines must
be observed.
In
addition to you meeting your state's medical and functional criteria for nursing home
care, your assets and monthly income must each fall below certain levels if you are to
qualify for Medicaid. However, several assets (which may include your family home) and a
certain amount of income may be exempt or not counted.
Medicaid
planning can help you meet your state's requirements
To
determine whether you qualify for Medicaid, your state may count only the income and
assets that are legally available to you for paying bills. Medicaid planning helps you
devise ways of making your assets and income inaccessible. Over the years, attorneys have
developed several strategies to rearrange finances and legally shelter assets from the
state. These strategies--and the Medicaid rules themselves--can be complicated, so you
should consult an experienced elder law attorney if you wish to take steps to protect your
assets from the state.
Along
with qualifying you for Medicaid benefits, Medicaid planning seeks to accomplish the
following goals:
·
Sheltering
your countable assets
·
Preserving
assets for your loved ones
·
Providing
for your healthy spouse (if you're married)
Let's
look at these in turn.
One
way to shelter countable assets is to exchange them for exempt assets
Countable
assets are those that are not exempt by state law or otherwise made inaccessible to the
state for Medicaid purposes. The total value of your countable assets (together with your
countable income) will determine your eligibility for Medicaid. Under federal guidelines,
each state compiles a list of exempt assets. Usually, this list includes such items as the
family home (regardless of value), prepaid burial plots and contracts, one automobile, and
term life insurance.
Through
Medicaid planning, you can rearrange your finances so that countable assets are exchanged
for exempt assets or otherwise made inaccessible to the state. For example, instead of
spending your savings solely on nursing home bills, you can pay off the mortgage on your
family home, make home improvements and repairs, pay off your debts, purchase a car for
your healthy spouse, and prepay burial expenses.
There
are many other ways to shelter countable assets. Consult an experienced attorney for more
information.
Irrevocable
trusts can help you leave something for your loved ones
Why
not simply liquidate all of your assets to pay for your nursing home care? After all,
Medicaid will eventually kick in (in most states) once you've exhausted your personal
resources. The reason is simple: You want to assist your loved ones financially. You want
to be able to leave something to them, rather than to strangers.
There
are many ways to protect assets for your loved ones. One way is to use an irrevocable
trust. (It's irrevocable in the sense that you can't later change its terms or decide to
end it.) Property placed in an irrevocable trust will be excluded from your financial
picture, for Medicaid purposes. If you name a proper beneficiary, the principal that you
deposit into the trust (and possibly any income generated) will be sheltered from the
state and can be preserved for your heirs. Typically, though, the trust must be in place
and funded for a specific period of time for this strategy to be an effective Medicaid
planning tool.
For
information about Medicaid planning trusts, consult an experienced attorney.
If
you're married, an annuity can help you provide for your healthy spouse
Nursing
homes are expensive. If you must go to one, will your spouse have enough money to live on?
With a little planning, the answer is yes. Here's how Medicaid affects a married couple. A
couple's assets are pooled together when the state is considering the eligibility of one
spouse for Medicaid. The healthy spouse is entitled to keep a spousal resource allowance
that generally amounts to one-half of the assets. This may not amount to much money over
the long term.
But
there's an important loophole in the law. Your healthy spouse can use jointly owned,
countable assets to buy a single premium immediate annuity to benefit himself or herself.
Converting countable assets into an income stream is a plus because each spouse is
entitled to keep all of his or her own income, in contrast to the pooling of assets. By
purchasing an immediate annuity in this manner, the institutionalized spouse can more
easily qualify for Medicaid, and the healthy spouse can enjoy a higher standard of living.
Beware
of certain Medicaid planning risks
Medicaid
planning is not without certain risks and drawbacks. In particular, you should be aware of
look-back periods, possible disqualification for Medicaid, and estate recoveries.
When
you apply for Medicaid, the state has the right to review, or look back, at your finances
(and those of your spouse) for a period of months before the date you applied for
assistance. In general, a 36-month look-back period exists for transfers of countable
assets for less than fair market value, along with a 60-month look-back period for similar
transfers into irrevocable trusts. Transfers of countable assets for less than fair market
value made during the look-back period will usually result in a waiting period before you
can start to collect Medicaid. So, for example, if you give your house to your kids the
year before you enter a nursing home, you'll be ineligible for Medicaid for quite some
time. (A mathematical formula is used.)
Also,
you should know that Medicaid planning is more effective in some states than in others. In
addition, federal law encourages states to seek reimbursement from Medicaid recipients for
Medicaid payments made on their behalf. This means that your state may be able to place a
lien on your property while you are alive, or seek reimbursement from your estate after
you die.
