Why You Should Start Medicaid Planning in Your 30s

Sep 8, 2022

A common misconception is that you don’t have to think about long-term care issues until you’re in your retirement years. However, starting Medicaid planning in your 30s offers significant benefits and no downside. The same tactics that protect assets for long-term care also help you save for retirement, provide a legacy for your children, and avoid the time and expense of probate. Medicaid planning should be an integral part of your estate plan and discussed with your attorney to ensure it meets the needs of you and your family through each stage of your lives.

What Is Medicaid Planning?

If you need long-term care in the future, your options are to pay for it out of your own pocket, get long-term care insurance, or try to qualify for Medicaid. That’s because Medicare and your health insurance policy only provide very limited coverage. Individuals who don’t prepare in advance are forced to deplete their assets and end up on Medicaid. However, with Medicaid Planning, you utilize various tactics to preserve your assets and still qualify for Medicaid. Anyone can likely reap the rewards of proper planning.

How Can You Benefit From Medicaid Planning in Your 30s?

Starting to plan in your younger years means you likely won’t need to worry about the Medicaid lookback period which prohibits you from transferring assets within a certain number of years of applying for Medicaid. This ensures you are protected if you should end up needing care before you expected. 

What Assets Should You Be Protecting in Your 30s?

The top three assets of most families can easily be preserved through Medicaid planning.

  • Your house. This is probably your most valuable asset and is easy to protect with a Medicaid Asset Protection Trust. Putting your house in a trust doesn’t affect your use of the home and it can still be sold and replaced with a new one. As long as the owner of the house continues to be in the trust, Medicaid will only look at the original date when you transferred your first house into the trust for purposes of the lookback period. 

You have two options for placing your house in a trust. Either the trust can buy the house or you buy the house and then transfer it into the trust. Generally, having the trust buy the house is less expensive. However, if you have a mortgage, the bank will probably want your name on the loan documents, not the trust, so you will have to buy the house and then transfer it. You also will want to name the Trust as an additional insured on your homeowner’s insurance policy.

  • Your retirement accounts. Such accounts are exempt assets for purposes of qualifying for Medicaid provided they are in pay-out status, meaning you are withdrawing your Required Minimum Distribution (RMD) every year. The RMD is counted as income for Medicaid eligibility but the rest is protected and no lien can be placed on the account. If you need long-term care before your account is in pay-out status, you can choose to put your account in pay-out status early.

There are a few important caveats here. You can put your account into pay status as soon as you want, but you may pay penalties for early withdrawal. In many cases, the penalties are worth paying because you can qualify for Medicaid and preserve other assets. If you have a Roth IRA, you may not have a penalty for early withdrawal, which may encourage you to put more retirement money into Roth vs traditional IRAs. However, there is a risk. Currently, Medicaid treats Roth and traditional IRAs the same even though there is no RMD for Roth IRAs. In the future, that could change, which could make Roth IRAs a countable asset in determining Medicaid eligibility.

How Much Should You Put into a Medicaid Asset Protection Trust?

It’s important to only transfer what you can afford and that you consult an attorney regarding putting certain protections in place. You also want to avoid costly mistakes that may disqualify you from Medicaid or result in tax or other problems. An experienced lawyer can advise you regarding the best way to protect your assets and help you revisit your plan over the years as your needs and family life changes.

Our attorneys have provided estate and Medicaid planning assistance to many families to help them achieve peace of mind. Complete the inquiry form here to set up your consultation.