At first, you may not understand why Medicaid planning is important to many senior citizens. After all, most people are going to qualify for Medicare coverage when they reach the age of 65. In addition to this, Medicaid is a need-based program. The majority of people who retire are going to have some resources, so they wouldn’t qualify for Medicaid.
All of the above is true, but nonetheless, Medicaid planning is quite relevant to most people who are entering their retirement years.
The majority of senior citizens are going to require assistance with their activities of daily living at some point in time. The plurality is 70 percent according to a government survey. It is irresponsible to go through life assuming you will never need long-term care given this statistic.
The Medicare program will not pay for long-term custodial care. This is an enormous gap, because long-term care is extremely expensive. The average stay of two years and three months can cost over $200,000 in many areas.
Medicaid does pay for long-term care if you can qualify, and it has become the de facto long-term care insurance in the United States. Most people in long-term care facilities are enrolled in the Medicaid program.
People with resources qualify for Medicaid by spending or giving away assets. Many will simply give their children their inheritances in advance.
You can give direct gifts, but you could also use an irrevocable trust for Medicaid planning purposes. When you convey assets into this type of trust, you no longer own the resources directly, and you cannot dissolve the trust. As a result, assets that have been placed into an irrevocable trust would not be counted by Medicaid evaluators.
A popular type of Medicaid trust is the income-only irrevocable trust. With this type of trust you could continue to receive income that is earned by the principal, but you could not access the principal. That would go to your beneficiaries after you pass away.
The downside to this arrangement is the fact that Medicaid may absorb some of this income to offset the long-term care costs.
It is also possible to create a Medicaid trust that does not provide you with income. Everything in the trust would eventually go to the beneficiaries, but the divestiture could facilitate Medicaid eligibility.
To realize the full benefits of a Medicaid trust, you must convey your assets into the trust at least five years before you apply for Medicaid coverage. There is a five-year look-back period. If you give away assets within five years of applying, your eligibility can be delayed.
Revocable living trusts are very popular, but they have no value when it comes to Medicaid planning. Because you retain control of the assets in the trust, the resources in the trust would be counted by the Medicaid program.
Free Medicaid Planning Report
We invite you to download our in-depth special report on Medicaid planning. This report will provide you with a great deal of important information, and it is being offered to our readers free of charge at the present time.
To access your copy of the report, click this link and follow the simple instructions. Indianapolis 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.