What would you do if you, your spouse, or a parent had to enter a long-term nursing facility? How would you pay this expense? Most Americans assume that Medicare will pay for an extended nursing home stay. This is completely wrong. Medicare is a health insurance program. It is not a long-term nursing home expense program. If you have any assets, such as bank CDs, property, stocks, bonds, or receive a pension or Social Security check, you are held responsible for paying this expense. With the average yearly cost being $40,000 how long could you make such payments?
In order for Medicaid to step in and pay, you must go through most of your personal assets. In other words, you must be virtually penniless before the government will help. All of your hard-earned assets can literally evaporate before your eyes. Assets that you intended to live on or pass on to your children or grandchildren will no longer be available. This is a brutal, devastating fact, but very true. Just ask anyone who has gone through this terrible experience.
Can you do anything to prevent this from happening? The answer is yes. Because of the vast complexity of the Medicaid subject, we cannot possibly discuss all of the endless details. Our goal is to enlighten you about the subject of Medicaid and provide information on some of the methods you can use to protect your assets. Proper planning done on a timely basis is absolutely critical. The important point to remember is that your planning must begin TODAY if you want to protect your assets. I can guarantee you that you stand to lose much of what you own without doing the proper planning NOW! Don't wait until it's too late and then try to prevent the loss of your assets. Late planning is the same as no planning. Your assets can and will be taken!
WHAT IS MEDICAID?
Medicaid is a Government assistance program started in the 1960's. It was designed to provide health care for poor people of all ages. You must be nearly broke to receive any assistance.
Every state has its own Medicaid rules. However, in order to apply for Medicaid assistance, you are required by each state to disclose all of your assets and income sources. It is at this point that a decision regarding your eligibility is made. If your assets exceed $2,000, you are usually held responsible for your long term nursing care expense.
In general, to qualify for assistance an individual must:
1) Be an U.S. citizen or permanent resident.
2) Be at least 65 years of age.
3) Need the type of care provided only in a "nursing home."
4) Meet a state's income and expense requirements.
Medicaid is a welfare program and anyone applying cannot retain any significant assets and still qualify. You cannot give away your assets the day before you enter a nursing home and qualify for aid. Medicaid is allowed to "look back" three to five years to determine if you transferred assets for less than market value. If such transfers were made, you will be required to pay your expenses.
WHAT INCOME CAN YOU HAVE?
Every state has its own rules regarding what income you can receive and still qualify for Medicaid. The general rule is that the applicant's monthly income must be less than the nursing home's monthly rate. A Medicaid recipient must turn over all income received, minus a few allowable deductions, to a nursing home. This includes pension payments and Social Security benefits plus other sources of income.
This is the most difficult test to overcome to be eligible for Medicaid assistance. Many qualify on the basis of monthly income, but cannot qualify because they own too many assets. Many individuals hold a good portion of their assets in CDs, passbook accounts, or money market accounts. Some also have stocks, bonds and other investments. All of this will disqualify an applicant for Medicaid assistance. Most individuals must spend down (use their personal assets to pay nursing home costs) to an amount around $2,000 before they can receive Medicaid assistance. In other words, you must basically be broke before Medicaid will help you.
Many individuals have tried to give away assets to others, such as children, to appear artificially poor. Medicaid is well aware of this trick and uses the 36-month "look-back" period previously discussed. If a trust was setup, the look back period is extended to sixty months (five years.)
THE SPOUSAL IMPOVERISHMENT RULE
Many people think that as long as one spouse is healthy all of their assets are protected. This is not true. The Spousal Impoverishment Act does allow all the non nursing home resident to retain certain community property, such as the primary residence. Amounts allowed vary from state to state with some as low as $20,000. The non nursing home resident can also be permitted a small monthly living allowance, but usually just enough to cover basic living expenses.
NEED FOR PROPER PLANNING
The need for proper planning is critical when dealing with the subject of Medicaid. Without it, all of your assets could disappear in a matter of just a few months.
TRANSFER TO SPOUSES
Individuals can transfer certain assets to the non-confined spouse within certain limits. This may be effective in the short term, but it provides no protection should the non confined spouse die or go into a nursing home. This type of planning should never be relied on as a long-term solution.
GIFTS TO CHILDREN
Assets can be transferred to children, but the thirty-six or sixty month "look-back" periods will apply. If it is determined that assets were gifted within the thirty-six month period (sixty months for trusts) the assets will be treated as though they belonged to the Medicaid applicant, eligibility will be denied and you will be required to pay for your care.
In practice we have found that many parents reject the gifting option because they do not want to give up control of their assets to their children or consider their children too unreliable to handle such responsibility.
RELY ON YOUR SPOUSE OR FAMILY TO TAKE CARE OF YOU
This is an option. However, the question is, do you really want them to? Can they commit full time 24 hours per day for your care? Will they be willing to? What if they are no longer here? The fact is that this is not a practical option. Proper planning can preserve your independence and help relieve the financial and emotional burden on your family.
CREATION OF TRUSTS
A typical living trust is revocable and since the trust grantor has full access to the living trust funds, living trusts will NOT protect assets from Medicaid. The living trust income and assets are considered available to the applicant for Medicaid assistance and could result in denial of assistance.
An "irrevocable" income only trust could protect the trust principal from Medicaid. However, remember that with the creation of a trust, Medicaid will use the sixty-month "look-back" period to determine exactly when the trust was created. Due to the lengthy "look-back" period, very few individuals take advantage of this type of planning. Use of trusts can be useful in Medicaid planning. However, this involves a substantial amount of foresight to have the trust considered as an exempt asset. This can be useful when a spouse has a slow developing degenerative disease, but could be worthless in the event of a sudden stroke or other illness.
The two distinct disadvantages with the creation of trusts are the need for planning several years ahead (to circumvent the five-year "look-back" period) and the need to employ competent legal counsel in creating a trust, could prove to be an extremely expensive undertaking.
PURCHASES OF ANNUITIES
The purchase of annuities can be a useful Medicaid planning tool. However, the purchase must be made before the "look-back" period begins. Also, the expected return from the annuity must be greater than the original amount paid for the annuity. If both criteria are met, this will be considered an allowable transfer and will not be countable for Medicaid purposes.
USE OF LIFE ESTATES IN REAL ESTATE TRANSACTIONS
A life-estate (or life-interest) is an interesting real or personal property that is limited to the life of the person designated to have this right. Upon the death of the person the life-interest is lost. Usually the states do not treat the life-estate as an available asset. However, a lien may be filed on real property. States are increasingly being pressured by the Federal government to recoup as many Medicaid dollars as possible. What is happening is that more and more states are placing liens on property placed in life-estates after Medicaid recipients pass away in order to try to recoup some or all of the Medicaid dollars spent on the deceased.
PURCHASE OF A LONG TERM CARE POLICY
One of the most advantageous and cost effective methods of planning for a long-term care confinement in a nursing home is the use of the long-term care policy. The benefit of using these policies is that it does not require that ANY control over assets be relinquished.
Various types of policies are available for long term nursing care and asset protection. The traditional policy allows you to select the coverage period desired in exchange for a specific annual premium. While these policies used to be extremely expensive, they have decreased in cost due to more companies making such care available. You can now protect a substantial portion of your estate for comparatively little expense in comparison to the estate.
A new type of long term care policy is now available through what is called a combination life and long term care policy. This allows an individual to make a single deposit by shifting a part of his or her savings into the policy. These policies offer benefit values significantly larger than the initial deposit plus long term care benefits in the event the individual needs to enter a long-term care facility. Additionally, the values increase free of taxation.
The newer type of policy offers significant advantages over investing in traditional CDs. For example, if you had $100,000 invested in CDs earning 5%, you would only be earning about 3% after taxes. In such a case you have absolutely no protection from Medicaid and are paying taxes on the interest earned. With the new combination life-long term care policies there are no taxes being paid on the increase in cash value. Secondly, the policy provides a death benefit that is also tax-free. Existing policies with cash values could be exchanged for the newer policy without any tax consequences or out of pocket expenses. Additionally, the policy provides long term health care if the client should need it. Looking at it another way, the long term care coverage, the ultimate asset protector, is being provided free. This is probably the easiest way to protect your assets and is worth thorough consideration in establishing your Medicaid asset protection plan.
Long term care insurance should be an integral part of your insurance package. Let's look at the odds that you will use your different insurance coverages:
1. House insurance (1 in 1,200) cost = $500-$1,500 yearly
2. Car Insurance (1 in 240) cost = $500-$2,500 yearly
3. Health insurance (1 in 15) cost = $1,500-$5,00 yearly
4. Long term care insurance (1-2)* cost = ?
*According to the Wall Steet Journal, 7 out of 10 couples now reaching age 65 can expect one partner to be confined in a nursing home.
THE FUTURE OF MEDICAID
Almost every day you see newspaper articles and newscasts regarding the issue of Medicaid. As time goes by, the Government will make it increasingly more difficult to qualify for assistance. In time, such items as "look-back" periods will be increased and most, if not all, legal loopholes available for dealing with the Medicaid issue will be closed. You have a choice. Take action NOW and protect your assets or run the risk of losing everything you own to Medicaid by doing nothing. Contact Medicaid to find out about the program. Discuss the subject with relatives, neighbors, and friends who have had to deal with this nightmare. After doing so, take action to protect as much as you can. Whatever you do, DO NOT delay in putting your asset protection plan together. A delay of just a few days could make all the difference in the world.
THE NEXT STEP
1. Meet with a competent professional.
2. Analyze your situation.
3. Consider the best options.
4. Implement the plan.
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