Paying nursing home long term care costs for just a year or two can deplete your savings or cut into you intended legacy for your children. But Medicaid will pick up the cost if you’re poor. Arranging ways to transfer or convert your assets to make you poor enough to qualify for Medicaid has become known as ‘Medicaid Planning’.
One option for your ‘Medicaid Planning’ is to set up a trust to which you can transfer your assets so they’re not counted as owned by you according to Medicaid qualifying rules. That’s because anything you own must first be spent down to the low Medicaid asset threshold by paying long term care costs before Medicaid takes over. Your state’s medical asset threshold is only a few thousand dollars or so because Medicaid is a poverty-based medical assistance program. In an effort to minimize the growing burden of those seeking Medicaid assistance, the government is trying to minimize ‘Medicaid Planning’. To frustrate those who would simply transfer their assets to children or a trust, it requires all asset transfers to be completed 5 years (called the ‘look-back’ period) before applying for Medicaid.
So, anything you transfer within the 5 year look-back period will penalize you from immediately collecting Medicaid benefits. Before qualifying for free benefits, you must first pay whatever Medicaid benefits you receive for a number of months equal to the value you transferred (within the look back period) divided by the monthly Medicaid benefit in the state you receive them.
Of course, it’s difficult to guess just when you may need long term care and, therefore, the help Medicaid can supply you in a nursing home. And transferring your assets away leaves you no control over what were your assets – which is, of course, hard to do.
*Medicaid Trust Provisions and Concerns:
The trust into which you transfer your assets so you’ll eventually qualify for Medicaid, (call it your Medicaid Trust) must be irrevocable. You cannot control it. You may have the trust document allow for only its income – and not its principal – to support your living expenses. After the 5 year look back period expires the principal will be secure for the trust beneficiaries such as your children.
When you do apply for Medicaid assistance for your long term care, Medicaid will put that income towards your Medicaid expenses, and then pay the rest.
But Medicaid qualifications continue to evolve to frustrate Medicaid Planning tactics. So be leery of forming a Medicaid trust that gives you control over its income, the ability to replace the trustee, or allow you other benefits from the trust assets. Elements of control can undermine the trust’s asset protection and, therefore, disqualify you from Medicaid.