Medicaid typically comes into play for seniors when there is a need for nursing home care, which can be very expensive. Most older people do not have the necessary income to cover nursing home costs, and they generally rely on accumulated assets to cover the difference. In order to preserve any assets under Medicaid nursing home coverage, many people transfer those assets to the intended heirs at some point prior to needing a nursing home or during the nursing home stay. Transferred assets will cause a penalty, but it will also allow Medicaid to pay for its share of care at an earlier point. The goal of this planning is to get as much money into the hands of the healthy spouse or the children and reduce the amount of assets that have to go towards the private pay cost of a nursing home.
An effective technique for estate planning is to transfer assets into a ‘Medicaid’ trust. In a Medicaid trust, the trust maker maintains the right to all of the trust income for life while irrevocably giving up the right to receive or benefit from any of the trust principal. The assets in the trust are not available to pay for the cost of the trust maker’s long term care (LTC). By using a Medicaid trust, a senior can preserve capital and still qualify for Medicaid, but only after expiration of the look-back period for the transfer to the trust, which can be up to 60 months. The ‘penalty period’ starts from the date the someone applies for Medicaid and would be eligible but for the disqualifying transfer. Its length is determined by dividing the state’s average daily private pay nursing home cost into the total of the transfers made during the look-back period.
For the Medicaid trust strategy to work, insurance, an income stream, or other assets must be sufficient to pay for LTC if needed during the waiting period before applying for Medicaid. A Medicaid trust can allow the trustee to distribute principal during the trust maker’s lifetime for the benefit of the trust maker’s spouse, children, or other designated beneficiaries, just not to or for the benefit of the trust maker. Many trust makers choose to maintain the right to change the current or ultimate beneficiaries of the Medicaid trust by ‘reappointing’ the assets to different family members at a later date.
Even if the need for LTC is imminent or immediate, sophisticated Medicaid planning opportunities can be employed to protect a substantial portion of your assets. Carefully working within the Medicaid transfer rules can allow individuals to provide security for themselves and a legacy to their families, while ensuring that they will remain eligible to receive LTC under Medicaid when necessary.