Many people hear the word Medicaid and they tune out, because they expect to be eligible for Medicare coverage. Before we take a look at the disadvantages of Medicaid trusts, we should first explain why Medicaid is relevant to senior citizens so we don’t lose anyone.
Long-Term Care Costs
The United States Department of Health and Human Services tells us that most of the people in the United States will eventually need custodial care. This is the type of care that is received in nursing homes and assisted living communities. This type of care can also be provided within the homes of seniors who need living assistance in some instances.
Long-term care is extremely expensive. When you compare the average retirement savings account to the average cost for a stay in a long-term care facility, the numbers simply don’t add up. If you are thinking that you are not worried about these expenses because you will be qualified for Medicare, you should understand the fact that Medicare won’t pay for custodial care.
Medicaid will pay for long-term care costs if you can qualify. Once again, the majority of seniors are going to need living assistance at some point in time. This is why Medicaid is relevant to people who will be qualified for Medicare.
Medicaid Planning & Five Year Look Back
To qualify for Medicaid you must be able to demonstrate financial need. This can involve spending down, which is a term that describes divesting yourself of assets. To do this effectively you must be aware of the five year look back. Your eligibility will be delayed if program evaluators find that you have given away assets within five years of applying for Medicaid.
Medicaid planning is important for many people who are making preparations for the eventualities of aging, but the earlier you plan, the greater your options.
Medicaid Trusts
You can spend down by giving direct gifts, but you could alternately convey assets into a trust. When people who are engaged in Medicaid planning create a trust to hold assets, it is often referred to as a Medicaid trust. This kind of trust can have significant tax or asset protection benefits.
There are different types of trusts. Revocable trusts allow you to revoke or rescind the trust at any time. You retain control of the assets that you have conveyed into the trust, and you can change the terms.
Because of this ongoing control, assets that have been conveyed into a revocable trust would be counted as personal property by the Medicaid program.
A Medicaid trust would be an irrevocable trust that you cannot rescind or change. The disadvantages stem from the loss of control. Once you have conveyed assets into an irrevocable trust, you can’t take them back, even if you never apply for Medicaid.
Medicaid Planning Consultation
Medicaid planning can be complex. If you would like to discuss things with a licensed elder law attorney, contact our firm to request a free consultation.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
- What You Need to Know about the Medicaid Look-Back Rule - January 3, 2023
- How to Pass Down Your Legacy in Your Estate Plan - October 3, 2022
- Practical Steps to Take after Receiving a Terminal Diagnosis - September 30, 2022
