Medicaid is thought of as a program that is only relevant to people who have virtually no financial resources. This is true to a large extent, but there is more to it when you understand the facts.
Most seniors will qualify for Medicare when they reach the age of 65. You would logically assume that you won’t need Medicaid if have Medicare coverage, and you wouldn’t qualify anyway. In fact, many elders who were never financially needy ultimately do seek Medicaid coverage, because Medicare will not pay for long-term care.
Medicaid will pay for a stay in a nursing home or assisted living community if you can meet the eligibility requirements. People who retired with some financial resources typically spend down their assets to qualify for Medicaid. When you spend down, you spend or give away your assets in an effort to become eligible for Medicaid coverage.
When you are engaging in a Medicaid spend down, you could convey assets into a trust to get these resources out of your own name. There are two different classes of trusts: revocable trusts, and irrevocable trusts.
You do not surrender control of assets that you convey into a revocable trust. Because you retain incidents of ownership, assets that have been placed into this type of trust would be looked upon as your personal property when Medicaid is evaluating your eligibility.
Things are different with irrevocable trusts. You surrender control when you place assets into this type of trust. As a result, irrevocable trusts are used for Medicaid planning purposes. Assets placed in this type of trust would not be counted by Medicaid evaluators.
It is possible to create an income-only Medicaid trust. The principal would not be counted, but you could receive income from the trust throughout your life.
A Medicaid trust can sound like an ideal solution, but there are some drawbacks. For one, if you do enter a long-term care facility, the income that you had been receiving from the trust would potentially go toward paying for your long-term care costs.
In addition to this, the loss of control may be good for Medicaid purposes, but there are disadvantages. There is a five-year Medicaid look-back. You must divest yourself of assets within five years of applying for the program or your eligibility will be delayed.
As a result, you must plan ahead well in advance. You may convey assets into a Medicaid trust before there is a reason to believe that you will need long-term care. If you never apply for Medicaid, you lost control of assets that you could have otherwise utilized.
Medicaid Planning Special Report
Medicaid planning can be a complex subject. If you would like to obtain some in-depth knowledge, download our free Medicaid planning report. You can access the report through this link: Report on Medicaid Planning.
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.