Did you know that over 50% of people who are 65 years of age or older will spend some part of their lives needing nursing home care? This is important because nursing homes often cost $90,000 per year or more, which can exhaust your entire life savings within a short period of time.
Planning Ahead v. Crisis Planning
Planning ahead is very important because unless you have a strong long-term care insurance policy that will last for your entire nursing home stay, you may be forced to spend your assets down on nursing home care until you are left with the small amount Medicaid permits you to have.
Fortunately, even if you are already in a nursing home/assisted living facility or are about to enter one, it is usually not too late to preserve something. Don’t assume it is too late without getting the facts.
If your goal is to preserve your savings for your spouse, children, or other loved ones instead of spending it all on nursing home care, contact me to schedule a consultation. We will examine your current situation to determine your risk, discuss your goals, and then implement a plan to protect you whether you are planning ahead or in crisis mode.
The consultation will include a discussion on long-term care insurance, Veteran’s Aid and Attendance Pension, Medicaid planning and spenddown techniques, trust planning, and anything else that will help you preserve as much of your savings as possible while ensuring you receive the care you need.
Medicare Is Not a Solution
Medicare only pays for long-term care in full for up to 20 days, and only pays a co-pay after that for up to an additional 80 days (a maximum of 100 days partial coverage).
Regular Wills and Revocable Trusts Are Not Enough
It is extremely unlikely that your current will or trust is enough to protect you and your family in this situation. Unfortunately, a regular wills or even complicated trusts that were created to save estate tax are not enough. In fact, the typical financial power of attorney is not sufficient to cover long-term care situations, either.
Medicaid Can Pay for Long-Term Care
Medicaid is the program that will pay for long-term care, but you must meet their financial requirements. Rule of thumb: Never apply for Medicaid until you are certain you qualify. Once you apply for Medicaid, many of the planning opportunities are lost. I strongly recommend speaking with an Elder Law Attorney to determine if you are eligible, and to file the Medicaid application for you.
Fortunately, the law provides some planning tools that allow those that have too much money to become eligible for Medicaid.Because the general rule is that single people with over $2,000 and a married couple with over $120,000 (2017) are ineligible (there are many exceptions to these figures), that leaves a large portion of the population with too much money to qualify.
Medicaid “Spend Down”
If you have too much money to be eligible for Medicaid, you are permitted to spend your money on yourself until you are eligible. For example, if you are a single person with $100,000 you can spend your savings on nursing home and other medical expenses each month for about a year until you have only $2,000 left. At that point, you could apply for Medicaid and your application would be approved (as long as you met all the other requirements).
Under law, you are also allowed to spend your money on a list of other things, which can be very helpful in gaining eligibility for Medicaid. In our consultation, we would discuss these spend down items to see which would be helpful to you.
Gifting Assets Causes Medicaid Ineligibility
You may be thinking “If I have too much money to be eligible for Medicaid, I should just give the excess to my kids/loved ones to become eligible.” Be careful! First, if you give away assets or property within 5 years of your application for Medicaid, you will be ineligible for a period of time. The period of ineligibility depends on the amount of the gift. As of 2017, a $120,000 gift would cause a “penalty period” of about 19 months. A $500,000 gift would cause a “penalty period” of about 6.5 years!
It requires complex planning to do this planning in the right way. Part of our consultation will be to determine which of your assets is countable toward the Medicaid asset limit and which aren’t. Another part of the conversation is to determine how to reduce your assets in a way that will not negatively impact you or your loved ones.
Gifting Causes Loss of Control, Is Risky
You may have heard of the “5-Year Rule” mentioned above and devised a plan to gift your house and some money to a child/loved one and then wait 5 years before applying for Medicaid.
This is dangerous!
Once you make that gift, the house and money are no longer yours. Here are just a few of the problems with making this type of gift:
- You cannot demand return of the gift.
- The person you give the gift to (“donee”) can sell the home and spend the money. This is not illegal.
- The donee may have creditors, lawsuits, bankruptcy, mental or chemical dependency issues, or be go through a divorce. The assets you gave to them may be lost to an unforeseen circumstance.
- The donee may become incapacitated or die.
- You lose the tax basis “step-up” on the value of the home because your donee did not inherit it at your death. This could cost thousands of dollars in income tax.
A safer way to transfer money away from you to gain Medicaid eligibility is to use an irrevocable trust. This is a very specifically designed type of trust. Some important points to understand are:
- You cannot be the trustee of your own irrevocable Medicaid trust. You could name a child or other loved one (not your spouse), however.
- You do not own the assets once they are transferred to the trust. Fortunately, neither to your children or other beneficiaries! The trust owns the assets until you die, which means they cannot be taken away from your children/beneficiaries in a lawsuit, bankruptcy, or divorce situation.
- You can preserve the tax basis “step-up” if the trust is drafted to do so.
Know Where You Stand – Schedule A Consultation
If you or a loved one is worried about a nursing home or assisted living stay, please schedule a consultation. We will de-mystify the Medicaid rules, explain where you stand today, and we may be able to create a plan to preserve your savings while ensuring you receive all the care you need.