You may make it to your retirement years without ever giving the need to qualify for Medicaid a second thought because you were fortunate enough to be covered by employer-sponsored or privately purchased health insurance. As a senior, however, the likelihood that you will need to qualify for Medicaid increases because the high cost of long-term care. Qualifying for Medicaid, however, could put your retirement nest egg at risk An Indianapolis Medicaid attorney at Frank & Kraft explains what a Medicaid trust is and how it can help protect your assets.
Why Might I Need to Qualify for Medicaid as a Senior?
People often fail to include Medicaid planning in their estate plan because they have never needed Medicaid benefits. As a senior, however, that could change rather quickly if you (or a spouse) need long-term care (LTC) at some point. Nationwide, the average yearly cost of LTC was more than $100,000 per year in 2021. Indiana residents pay about the same, on average, as the national average for LTC.
Like most seniors, you will probably rely on Medicare to cover most of your healthcare expenses. Unfortunately, however, Medicare only covers LTC expenses under very limited circumstances, and even then, only for a a limited number of days. Furthermore, most basic health insurance plans also exclude LTC expenses. Therefore, unless you purchased a standalone long-term care insurance policy prior to the need for coverage, you will be faced with the prospect of covering your LTC expenses out of pocket. For the average person, an entire retirement nest egg could be lost to LTC costs if forced to pay for them out of pocket. This is where the need to qualify for Medicaid comes in because Medicaid will help with LTC costs.
Medicaid, however, is a “needs based” program, meaning that Medicaid uses both an income and a “countable resources” limit when determining eligibility. Although some assets, such as a primary residence and a vehicle, are exempt from consideration, it is still easy for a retiree to have non-exempt assets that exceed the countable resources limit. If that is the case, your application will be denied. At that point, you will have to “spend-down” your excess assets before Medicaid will approve your application.
Can a Medicaid Trust Help Me?
One way to protect vulnerable assets is to transfer them into the right type of trust. All trusts also fall into one of two general categories. The first is a testamentary trust which does not activate until a provision in the Settlor’s Last Will and Testament causes it to activate upon the death of the Settlor. A living trust, as the name implies, is a trust that activates while the Settlor is alive. Living trusts are further divided into revocable and irrevocable living trusts. If you create a revocable living trust you retain the ability to modify or revoke the trust at any time and for any reason. On the other hand, if you establish an irrevocable living trust you can never modify or revoke the trust for any reason. If your goal is to protect assets from the Medicaid spend-down requirement, this distinction between revocable and irrevocable living trusts is crucial.
A Medicaid trust is an irrevocable trust wherein the income is payable to you for life, but the principal cannot be applied to benefit your or your spouse. Upon your death the principal remaining in the trust is paid to the beneficiaries named by you (usually children and/or grandchildren). This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in a Medicaid trust is not counted as a resource for eligibility purposes so long as the Trustee cannot pay it to you or your spouse for either of your benefits. If you do end up in a nursing home, however, the trust income will have to be paid to the nursing home in most cases.
Contact an Indianapolis Medicaid Attorney
For more information, please join us for one of our a FREE seminars. If you have specific questions about how a Medicaid trust can help you, contact an experienced Indianapolis Medicaid attorney 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.
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