Medicaid Planning: It’s Not Too Early
Medicaid can be a safety net for many elderly people who find themselves unable to afford the seemingly astronomical costs associated with long-term medical care. The Medicaid program, which is a joint federal and state program, exists to provide medical assistance to those with low incomes and limited assets. However, applying for and qualifying for the program can be confusing, and is often misunderstood. Attempting to navigate through the cumbersome process when the need suddenly arises can result in the applicant suffering penalties, or being denied coverage altogether. But there are ways to avoid falling through the holes in the Medicaid safety net. Proper advance planning is critical to ensuring you receive the benefits you may need should you require nursing home or other long-term care.
Medicaid benefits are based on financial need. To qualify, your assets must be below a certain amount. This may result in having to “spend down” assets before you can qualify. Without careful planning, you and your spouse may be required to spend considerable resources just to be eligible, leaving you with limited assets. The prospect of losing financial independence is unpleasant, to say the least, and particularly for those who have worked a lifetime in the hopes of leaving an inheritance to their family members.
A thorough approach to Medicaid involves consideration of many different factors and will depend upon individual circumstances. For example, the “spend down” requirement is different for married couples than for single applicants. Some assets may be kept by a spouse (called a community spouse) who still lives at home. This may include the family home, a car, and various other things, such as retirement accounts and limited other resources. Thus, in many cases, not all of your assets need to be disposed of before you can qualify.
While there are fewer exemptions for single residents, there are circumstances under which a family home can be safeguarded. These include situations where the home is transferred to another. However, the transfer must meet certain specific requirements, or it can result in a penalty. When applying for Medicaid, asset transfers are subject to a five year “look-back” period. This means that all transfers within that five year period will be investigated and can result in a penalty to the applicant, reducing Medicaid benefits for a specific period of time.
Another way to protect assets, yet retain Medicaid eligibility, is through the use of an irrevocable trust. The assets held in an irrevocable trust do not count in calculating financial resource limits for potential Medicaid recipients. The assets transferred to an irrevocable trust are, however, scrutinized under the five-year look-back provision for Medicaid application purposes, and can be used as a bar to qualification for benefits or may result in reduced benefits if the assets were placed in an irrevocable trust within the five year period. While these are details to consider prior to executing an irrevocable trust, the protection an irrevocable trust can afford you in the event that you need long-term care make it a worthwhile option.
The Medicaid look-back period underscores the importance of planning years ahead for what you may need down the road. If you or your loved one anticipates a future need for Medicaid support, it is crucial that you prepare as early as possible to protect your assets to the extent that you can.