Medicaid Planning and What You Need to Know
You may feel as though your financial plan is sound, and you will be in a position to leave significant inheritances to your loved ones. Unfortunately, many people that are in this position are overlooking a significant legacy risk – losing your assets to the exploding costs of long-term health care, specifically nursing home expenses. Repositioning your assets to qualify for Medicaid can help defer or eliminate this risk. Medicaid planning is important and does not need to be a thing of mystery.
Long-Term Care
No one…no one…ever says they want to go into a nursing home. Yet, seven out of 10 seniors will need help with their activities of daily living according to the United States Department of Health and Human Services. Over 30 percent of these folks will require a level of care that only a nursing home can provide.
The state of Oklahoma has determined that the average cost for a day in a nursing home in our state is right around $180. If you do the math, that comes out to $65,700 a year.
Just under 20 percent of people that require paid care receive the assistance for between one and two years, 21 percent are in the two-to-five-year range, and 13 percent incur costs for more than five years.
An extended stay can consume a very significant portion of your legacy depending on the extent of your resources. It’s only prudent for a married couple to be prepared to receive two sets of nursing home bills.
Medicare does not pay for long-term custodial care. Medicare is not the answer. Fortunately, Medicaid will cover these expenses if you can gain eligibility. With this in mind, let’s look at five important facts you should know about Medicaid planning.
Asset Limit
Since Medicaid is a need-based program, there is a limit on the amount of assets you can hold in your name. That amount is $2,000 in the state of Oklahoma and most other states in the union. That’s the bad news. The good news is that some assets are exempt from this limitation.
One motor vehicle is in the exempt category along with your furniture and other household items. Personal effects are exempt, and the program does not consider the value of wedding rings, engagement rings, and heirloom jewelry.
Medicaid Planning & Home Ownership
Your home is not a countable asset up to a $603,000 equity limit in Oklahoma this year. However, there is a catch. It’s called the Medicaid estate recovery mandate. So if you are in possession of a home at the time of your passing, the program can put a lien on the property.
Medicaid Estate Recovery Exceptions
There are some circumstances under which Medicaid would not attach a home. If a surviving spouse is still living in the property, it would be protected. This also applies to a minor child and a blind or disabled adult child.
Another exception is the child caregiver exemption. Let’s say that your son has been living with you to provide a level of care that has allowed you to stay out of a nursing home. If he has been doing this for at least two years, you can transfer ownership of the home to him, and it would be protected.
Medicaid Planning: Five-Year Look-Back Period
You can divest yourself of countable assets to qualify for Medicaid, but there is a five-year look back period. That means any asset transfers you make during the five years prior to applying for Medicaid will be countable. Those transfers – to a child, parent, or trust – will trigger a “spend down” requirement equal to the amounts transferred before you can gain eligibility for Medicaid In short, if you give your family their inheritances in advance today, you will be ineligible for Medicaid for a period of five years.
A lot of people are not in a position to take this type of step long before they need nursing home care because they rely on the income that is generated by their assets.
Medicaid Trust
There is a solution in the form of an irrevocable, income-only Medicaid trust. We call it a Medicaid Asset Protection Trust. To implement this strategy, you convey income-producing assets and your home into the trust. While you are living independently, you can continue to receive distributions of the trust’s earnings.
After five years, if you apply for Medicaid, the principal would not count. Plus, you would not directly own the home, so it would be out of play during the Medicaid recovery phase.
Schedule a Consultation Today!
When you choose our firm, you will feel comfortable from the start, and we will work with you to develop a nursing home asset protection plan that is ideal for you and your family.
You can schedule a consultation at our Oklahoma City elder care planning office if you call us at 405-843-6100, and you can use our contact form to send us a message about your Medicaid planning options.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.