Medicaid is a federal program administered by the states that helps individuals who meet certain asset criteria pay for long-term care costs. Because Medicaid is a means-tested program, certain financial conditions must be met to qualify, which means that it is important to plan ahead. Unfortunately, people often wait until it is too late and a sudden illness, disability, or other crises occurs before planning for long-term care. Medicaid crisis planning is a strategy that can help you qualify for Medicaid, without experiencing financial ruin.

Long-term care is expensive, and these costs only continue to increase. The average life span of adults is also increasing, which translates to more years of care at increasingly higher rates. Without a plan in place, these costs could be financially devastating. In fact, without proper planning, your life savings could be wiped out within months of needing long-term care.

Due to Medicaid’s strict eligibility requirements, many individuals fail to meet the income and asset requirements, but still cannot afford the cost of healthcare on their own. Medicaid planning is a way to assess an individual’s situation and devise a strategy to help qualify for Medicaid if it becomes necessary.

Two popular strategies employed to meet these financial qualifications are:

• Spend Down
• Medicaid Asset Protection Trust

The spend down strategy is a way to reduce countable assets by carefully spending excess funds on things like medical expenses, home improvements, prepaid funerals, etc. To prevent applicants from simply giving away their money or resources to qualify for Medicaid, the federal government implemented the “look-back period.” Each state’s Medicaid program uses slightly different eligibility rules, but most states examine all of a senior’s financial transactions dating back five years from the date of their application. If a transaction is found to be in violation, the applicant will be assessed a penalty.

When it comes to the length of the penalty period, there really is no limit.  It is based on the amount of money given away during the last 5 years.  Unfortunately, if a senior has gifted their assets during the look-back period and requires nursing home level care, this will have to be paid out of pocket until the penalty period runs out and they become eligible for coverage.

The other problem with the spend down strategy is that your assets are depleted.  As an individual, you can only have $2,000 in countable assets!  A more favorable strategy to spending all of your assets is to implement a Medicaid Asset Protection Trust (MAPT).  A MAPT is exactly as it sounds – a trust designed to protect assets from being counted for Medicaid eligibility. When planned properly, an MAPT protects the home, other properties, and investments.  When designed properly and in advance, the assets in the trust will go to your heirs instead of having to spent on nursing home care.

The trust must be irrevocable for exemption from Medicaid’s asset limit. This means that the trust cannot be cancelled or changed. Once the assets are transferred into the trust, they no longer belong to the individual, nor can that individual regain ownership of the assets. If the assets are in a revocable trust, Medicaid considers the assets to still be owned by the Medicaid applicant. This is because they still have control over the assets held in the trust.  As a result assets in revocable trust do not provide the necessary asset protection from long term care costs.

Planning well in advance of the need for long-term care is the best course of action when considering a Medicaid Asset Protection Trust.  Transfers of assets to MAPTs do not result in immediate Medicaid qualification as they are subject to the 5 year look back as well.  The advantage is that if the assets have been in the MAPT for 5 years, they are not counted by Medicaid.  Therefore, the sooner you do the planning and get the MAPT set up, the more likely your nest egg will be protected if you need long term nursing home care down the road.

At Miller Estate and Elder Law we have extensive experience advising clients on Medicaid planning. Contact us today so that we can help you qualify for Medicaid, while also protecting your assets and your loved ones.