At some point during your retirement years, you may be faced with the need to qualify for Medicaid, only to find that your assets prevent you from doing so. At that point, your first thought may be to simply transfer those assets into the name of an adult child. The Carmel Medicaid planning lawyers at Frank & Kraft explain why transferring your assets to an adult child won’t work if you need to qualify for Medicaid at some point in the future.
Why Are the Medicaid Eligibility Requirements Important?
You may have never before needed to rely on Medicaid to help pay your healthcare expenses– so why would you need to in the future? The answer can be found in the likelihood that you, or a spouse, will need long-term care at some point during your retirement years. When you reach retirement age, around age 65, you will stand about a 50 percent chance of needing LTC before the end of your life. With each passing year, those odds increase. At age 85, the likelihood of needing LTC will have increased to a 75 percent chance.
If you do end up needing LTC, you can expect to pay a high price for that care. As of 2018, the average monthly cost of LTC in Indiana was around $8,000 and the average length of stay about three years. The cost of LTC will only go up in the coming years. Experts predict that by 2038, that same month of LTC will cost you almost $15,000.
If you are accustomed to relying on health insurance to cover your healthcare expenses, you may be in for a surprise because most health insurance policies will not pay for LTC unless you purchased a separate LTC policy at an additional expense. Medicare won’t be able to help either because the Medicare program only covers LTC expenses if it follows an inpatient hospital stay – and even then, only for a short period of time. For over half of all seniors currently in LTC, the only viable option for help covering LTC expenses is Medicaid. Because you may one day turn to Medicaid for help covering your LTC expenses, you need to understand the eligibility guidelines now.
Medicaid Eligibility Requirements
Medicaid is a healthcare program that is predominantly funded by the U.S. federal government; although, each individual state has the option to supplement the federal funding. Medicaid is also administered by the individual states, meaning that there are slightly different eligibility requirements as well as benefits offered from one state to the next. Medicaid is intended to provide healthcare coverage for low-income individuals and families. As such, the program uses both an income and an asset test when determining eligibility. The asset test limits the value of your non-exempt assets to just $2,000 in most states. If your assets exceed that limit, your application will be denied and you will need to “spend-down” your assets before you re-apply. In essence, this may mean you may have to rely on your retirement nest egg to cover your LTC expenses until those assets are almost gone. Only then will Medicaid approve your application for assistance.
Can You Transfer Excess Assets to an Adult Child If You Need to Qualify for Medicaid?
There was a time when an applicant could simply transfer assets out of his/her name in anticipation of applying for Medicaid. That strategy, however, no longer works because Medicaid now imposes a “look-back” period that prohibits doing so. The look-back period in most states, including Indiana, is 60 months. Medicaid will review your finances for the 60 month period preceding your application and any asset transfers made for less than fair market value during the look-back period could result in your application being denied and a penalty period being imposed. The length of the penalty period will depend on the value of excess assets you have and the average monthly cost of LTC in your area. For example, let’s say you gifted an asset to your adult child a year prior to applying for Medicaid and the asset was worth $50,000, putting you over the allowable resources limit by $48,000. If the average monthly cost of LTC in your area is $8,000. Your penalty period would be 6 months ($48,000/$8,000=6). During that six month period, you would have to rely on your own assets to pay for your LTC bill.
The good news is that by including Medicaid planning in your comprehensive estate plan now you can protect your retirement nest egg and ensure that you will be eligible for Medicaid if you need it in the future.
Contact Carmel Medicaid Planning Lawyers
For more information, please download our FREE estate planning worksheet. If you have additional questions about Medicaid eligibility, contact the experienced Carmel Medicaid planning lawyers at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.