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 preserve assets for your loved ones. How? Through Medicaid planning.
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. It 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 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. That’s where Medicaid planning comes in. Over the years, a number of tools and strategies have arisen that might help you qualify for Medicaid sooner.
In general, Medicaid planning seeks to accomplish the following goals:
- Exchanging countable assets for exempt assets to help you meet Medicaid eligibility requirements
- Preserving assets for your loved ones
- Providing for your healthy spouse (if you’re married)
Let’s look at these in turn.
You may be able to exchange countable assets 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 asset will determine your eligibility for Medicaid. Under federal guidelines, each state compiles a list of exempt assets. This list includes such items as the family home, prepaid burial plots and contracts, one automobile, and term life insurance.
Through Medicaid planning, you may be able to rearrange your finances so that countable assets are exchanged for exempt assets or otherwise made inaccessible to the state. For example, you may be able to:
- 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
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.
There are many ways to potentially preserve assets for your loved ones. One way is to use an irrevocable trust. 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 will be sheltered from the state and can be preserved for your heirs. Typically, 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.
A healthy spouse may want to 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. This is 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. 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 for a period of months before the date you applied for assistance. In general, a 60-month look-back period exists for transfers of countable assets for less than fair market value. 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. 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.
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. Make sure to consult an attorney experienced with Medicaid planning and the laws in your state before taking any action.
If you’re thinking of starting your medicaid planning, contact one of our advisors today
At Sterling Group, we offer complimentary financial consultations. Our advisors can review your current financial plans and help you plan for the future. Contact us today for your complimentary review!
Disclosure:The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Sterling Group United recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.