According to the US Department of Health & Human Services, 70% of Americans who reach the age of 65 will need some form of long-term care in their lifetime for an average of three years. Most people think of Medicaid as a health insurance plan for poor people, so if they have a decent amount of income and assets, it is not relevant to them. However, if you or a loved one needs long-term care, there may be ways for you to get Medicaid to help cover those costs without using up all your money first. Medicaid planning is a process whereby you utilize various legal tactics to protect income and assets for you and your family while still qualifying for Medicaid. You should consult an attorney about your particular situation, but here are a few of the basics of Medicaid planning:
Do You Need Medicaid Planning?
If you are a homeowner with a spouse and children or grandchildren, there is a high likelihood you can benefit from Medicaid planning. Generally, Medicare and private health insurance do not cover nursing home or home care except in limited circumstances. Instead, you must pay for care out of your own pocket, get long-term care insurance, or try to qualify for Medicaid.
By 2030, the estimated cost of a private room in a long-term care facility will be more than $141,000 annually. Paying out of pocket can quickly deplete your savings unless you are wealthy. Long-term care insurance is also costly and must be purchased before you have any health conditions that would disqualify you or raise the premium substantially. Further, few companies offer insurance policies and premiums go up regularly, making it cost-prohibitive for many individuals.
As a result, the need for Medicaid planning is a critical part of your overall estate plan. Medicaid Asset Protection Planning must be done well before you require care to be most effective at securing your assets. In fact, in the past 10 years, adults aged 31 to 64 have been the fastest-growing population in long-term care facilities. (Source: Mass Mutual)
With proper planning, you can protect your spouse, and any children or grandchildren you would want to inherit your assets after your death.
How Does Medicaid Planning Work?
The first step is to meet with an attorney with experience in Medicaid planning because the rules are confusing. The attorney will review your assets, income, and expenses and discuss your situation (health, family, needs, and goals). Next, he or she will make recommendations about how best to shelter assets and still qualify for Medicaid. One of the most common tactics is to transfer assets into an irrevocable trust. However, the options available depend on how close you are to needing long-term care. The more time you have, the greater the opportunity to engage in Medicaid planning. That is because Medicaid has a lookback period. If you transfer assets to someone else within the lookback period, Medicaid will deem that those assets are still yours and you will be disqualified from Medicaid for a certain period of time. We will discuss the Medicaid lookback period in more detail in a future blog post.
Should You Just Give Away All Your Money to Qualify for Medicaid?
Medicaid allows you and your spouse to retain certain amounts. There are also exempt assets that you can keep so you do not want to give those away.
Beyond that, one of the most important reasons to work with a skilled attorney is to have someone who will advise you about how to gift only what you need to and avoid problems with gifting. For example, there are risks in giving away assets outright to loved ones. Unfortunately, they could refuse to give you money for your care, spend it on themselves, or lose it to creditors or in a divorce. Instead, there are ways to gift money that give you some control.
Do You Need an Attorney?
Medicaid rules are complicated. The amount you can keep varies by state. There are also different rules depending on whether you want Medicaid to pay for a nursing home or home care.
Transferring assets is also complex. If you do not do it correctly, it can have both Medicaid and tax implications as well as jeopardize your financial independence.
You should engage in Medicaid planning well before you need care but you do still have some options even at that stage.
The best thing to do is to consult an experienced attorney. Our attorneys have helped many families preserve their assets and achieve peace of mind and we can help you evaluate your choices. Complete the inquiry form here to set up your consultation.