Medicaid is a jointly administered federal/state government program that provides health insurance for people with very limited financial resources. It was not intended to serve this function, but it has become the de facto source of long-term care insurance in this country.
Why would this be the case, when we already have a health insurance program in place that is intended for senior citizens in the form of Medicare? This is a good question.
Many people would say that it makes no sense, but Medicare does not pay for a stay in a nursing home or assisted living facility. Plus, it will not pay for in-home care if it is considered to be custodial care.
Another question to ask would be this: How can you qualify for Medicaid if you have never been financially needy throughout your life? While individuals who can afford to pay nursing home costs for a long period might not need Medicaid assistance, nursing home expenses are a real hardship on most families. Many people think they can just give assets to their loved ones to get below the $2000 Medicaid asset limit, but it’s not that easy. There are rules in place to prevent people from gaming the system this way after they find out they need long-term care.
Let’s take a look at this in some detail.
Five Year Rule
There is a 60 month Medicaid look-back period that you have to address if you want to position your assets ahead of time with future Medicaid eligibility in mind. You have to spend and/or give away all of your countable assets at least five years before you apply.
Aside from direct gift giving, which has significant risks and potential tax consequences, there is another option that can be the right choice for some people.
You could convey assets into an irrevocable Medicaid trust. You would not be able to touch the principal so the assets in the trust would not be counted if and when you apply for Medicaid.
In the meantime, you would be allowed to keep income that is earned by assets that have been conveyed into the trust.
Now, getting back to the Medicaid look-back period, if you violate this five year rule by giving away assets less than five years before applying for assistance, you are not necessarily permanently disqualified from the program. You may be penalized, though, and your eligibility delayed.
The best way to explain the duration of the penalty is through a simple example. The state will determine the average cost of long-term care. For the purposes of this example, let’s say that it is $70,000 per year.
You give each of your three children $70,000 during this calendar year for a total of $210,000. Three years from now, you find out that you must enter a nursing home. The five year look-back period has not expired.
Since the amount that you gave away would pay for three years of nursing home care, your eligibility would be delayed by three years. You would have to pay out-of-pocket during this interim.
Because of this 60 month Medicaid look-back, it takes careful planning to divest yourself of assets in the right ways at the right times.
We should also note that even if you do not have five years left before needing assistance, the federal and state Medicaid regulations often provide ways of preserving assets for families. The key is to have a consultation and make a plan as early as possible before the assets are spent.
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Devastating nursing home costs can consume everything that you intended to leave to your loved ones. And remember, if you are married, your family may face two different instances of nursing home costs.
The good news is that Medicaid is a solution, and in fact, most seniors in nursing homes are relying on Medicaid to pay their long-term care bills.
We know that it can be disconcerting to discuss highly personal financial matters with someone that you have just met. All the people on our team are kind, empathetic, caring individuals that make our clients feel comfortable from the first moment that they walk through our doors. You can rest assured that you will feel these positive intentions when you interact with us.
As Medicaid attorneys, we have a thorough understanding of advanced nursing home asset protection strategies. We can gain an understanding of your financial situation and other factors and provide you with the appropriate guidance.
If you are ready to take action, we can be reached by phone at 704-944-3245 in North Carolina (Charlotte, NC, and Huntersville, NC), and the numbers in Kentucky are 606-324-5516 for Ashland, KY, and 859-372-6655 for Florence, KY. You also have the option of sending us a message through the contact page on this website.