If you’ve been keeping up with the news in recent years, then you’re probably already aware that nursing home costs have been rising to new heights. In the state of Indiana, those costs now exceed $200 a day, with some facilities charging more than $9,000 a month. It’s only natural to wonder how the average resident is supposed to be able to afford those rates – especially when you consider the fact that most Americans have less than $10,000 in retirement savings! To cover those costs, you need to have a strategy that includes powerful Medicaid planning tools. Medicaid trust planning can be an important part of your effort to secure the care you’ll eventually need.
Why Medicaid Matters
If you’re familiar with Medicaid, you might wonder how a government program for low-income Americans is relevant in a discussion about your nursing home costs. After all, seniors have Medicare, and that program is supposed to take care of their health care needs. That’s why you pay into it throughout your life, right? The idea is supposed to be that when you retire, you have the health care assistance that you need. That’s all true to a point. T
he problem is that the Medicare program doesn’t really help with long-term care needs. Sure, it can provide coverage for a short-term stay in a nursing home, but that coverage ends after no more than 100 days.
That’s where Medicaid comes into play. This joint federal/state benefit program provides millions of Americans with benefits that cover the costs associated with long-term care. In fact, Medicaid’s role in paying for nursing home care is so extensive that the program is now the largest payment source for these facilities. However, before you can obtain Medicaid benefits, you need to be able to meet the program’s stringent income and asset limits. Those requirements limit you to not more than $2,199 per month in income and a total of $2,000 in assets.
Protecting Assets While Securing Program Eligibility
The goal of Medicaid trust planning is to provide you with protection for certain assets without disrupting your eligibility for those critical Medicaid benefits. This can be a tricky proposition, however, because federal law is designed to prevent you from sheltering assets just to qualify for those benefits. That doesn’t mean that you cannot preserve some assets; it just means that you need to do it the right way to avoid running afoul of the program’s rules.
How Can Trusts Help?
To use trusts effectively, you need to know how Medicaid treats different kinds of trusts. For example, let’s consider that revocable trust that you created to ensure that your wealth goes to your children when you pass away. Most revocable trusts provide no protection for your assets. As far as the Medicaid program is concerned, you still maintain access to that wealth – and if you can access the assets, the government can too. That doesn’t make revocable trusts worthless, but it does make them essentially useless for Medicaid planning.
Irrevocable trusts, on the other hand, can provide the protection that you need – if they are structured properly. Since you cannot change the terms of the trust once it is created, the irrevocable trust can be viewed as a complete severance of your ownership of the assets contained within the trust. It also helps that most irrevocable trusts used in Medicaid planning are set up to deny the trustor access to the principal assets in the trust while still providing him or her with ongoing income distributions. That can prevent Medicaid from treating the principal as a countable resource. Instead, the government just deals with any income derived from the trust.
Of course, if you don’t mind losing access to the resources and any income they generate, you can also just set up the trust to benefit only your heirs. That arrangement can prevent Medicaid from interfering with any aspect of the trust. Meanwhile, those heirs can – if they choose – use those resources to benefit you when needed.
The Five-Year Rule
It is vital to remember that even irrevocable trusts do not necessarily negate the provisions of the five-year look-back period. Under those provisions, the government can “look back” over the last five years of your asset transfers when you apply for Medicaid. That gives them the authority to flag questionable transfers that appear to be designed to shelter your assets, and count them as part of your estate. This can result in a denial of benefits and an assessed ineligibility penalty that could leave you unable to qualify for program benefits for months or even years.
Putting it In Perspective
There is an ongoing debate about the usefulness of trusts in Medicaid planning, with some experts insisting that seniors should forgo the trust option and instead rely on spend-down strategies, gifting, and other techniques. The fact is that trusts remain useful of achieving Medicaid eligibility, but they are best used as part of a broader long-term strategy to ensure that your assets are organized in a way that best meets your needs.
As you might expect, that involves a level of familiarity with estate planning law that most clients don’t possess. Moreover, any attempts to use trusts, gifting, or other strategies on your own can easily result in mistakes that cause additional hardship down the road. Fortunately, experienced trusts attorneys can help you navigate these complex issues and ensure that you have the strategy you need to achieve your Medicaid planning goals.
At Frank & Kraft, Attorneys at Law, our trusts experts can work with you to develop a Medicaid trust planning strategy that can achieve your objectives. We’ll help you to safeguard assets in a way that facilitates your eligibility for the program benefits you need. At the same time, we can ensure that you avoid costly mistakes that could leave you with no way to pay for essential nursing home expenses. To find out more about how our team can help you with your planning efforts, call today at (317) 684-1100 or contact us at our website.
Paul A. Kraft, Estate Planning Attorney
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.
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