Overview. The cost of long-term care, whether in assisted living or a nursing home, can wipe out a person’s savings. For some this is exactly what happens, a lifetime of savings is wiped out in a few years or even in a matter of months. Long term care costs don’t, however, have to wipe out your nest egg. The key to protecting your savings from the high costs of care is to plan ahead by arranging your finances to take advantage of various exemptions and allowances provided for in the Medicaid law and regulations.
Exempt Assets. The value of a person’s homestead (up to $595,000 in equity) and household furnishings don’t count against him or her for purposes of Medicaid eligibility. The homestead exemption can be problematic for single individuals because the individual would not have the income or financial assets to pay for both the cost of care and the expenses associated with homeownership. There are strategies to mitigate this dilemma. A person can own a car, even an expensive car, a prepaid funeral trust, and an IRA (so long as it’s in payout mode) and still qualify for Medicaid. If the Medicaid applicant is married, his or her spouse (the “Community Spouse”) is also allowed to have up to $128,640 in countable assets. In many cases where a Medicaid applicant has excess resources, Medicaid eligibility can be achieved with an asset restructuring plan.
Income Rules. The income allowance for a Medicaid applicant is more restrictive than the asset exemptions. Specifically, a person who is looking to qualify for Medicaid for Long Term Care can have a gross income of up to $2,349 per month. His or her income would go to the assisted living facility or nursing home. A person who has income that is greater than $2,349 per month can still qualify but the excess income would have to funnel through a special bank account referred to as a “Miller Trust”. Funds in a Miller Trust go towards the Medicaid recipient’s cost of care
A married applicant, as does his or her spouse, benefits from income and asset rules that apply to the Community Spouse. Specifically, the income of the Community Spouse is not counted for purposes of Medicaid eligibility of the medically needy spouse. This rule allows married couples to convert excess assets to income in the form of a Qualified Medicaid Annuity in the name of the Community Spouse and thereby achieve immediate Medicaid eligibility for the medically needy spouse.
Gifts to Family. In light of these financial eligibility requirements, it would be tempting for you to simply gift assets to your children or grandchildren, at the last minute, in an attempt to achieve Medicaid eligibility while protecting your nest egg for your family. The Medicaid rules prevent this approach by imposing a penalty period based on the value of gifts made during the 5 yeas period preceding the date of the Medicaid application. Notwithstanding the 5-year rule intrafamily gifts, typically by way of a trust, are often used as part of an asset protection plan for someone who is in need of long-term care services.
The Typical Plan. The cost of long-term care, whether in an assisted living facility or a nursing home, can wipe out the life savings of many middle-class and upper-middle-class seniors in a matter of months. Individuals and couples who have concerns about these costs, whether these costs are around the corner or down the road can take steps today to protect their life savings. The typical Medicaid asset protection plan involves some combination of (1) gifts to family members through an irrevocable trust, (2) personal care contracts by which a medically needy parent pays one or more of his or her children for services provided by that son or daughter, (3) asset restructuring, taking advantage of exemptions, and (4) converting excess assets into income, in the form of a Medicaid Qualified Annuity,
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