For most aging Americans, long-term health care sources are nebulous. While most people entering their “final third” of life will need long–term care in some form, they simply are unaware of their options. Some may choose early in life to purchase a long-term care insurance policy. Others may rely on savings for their health care needs. For those who have not planned for the long term, or simply do not have the luxury of spare income for such purposes, Medicaid is often the last option.
Unlike Medicare, which does not cover long-term care, but is available to anyone over the age of 65, Medicaid is a means-based program. This means that in order to qualify, you must have little to no-income, very little savings and little to no property. The income and assets tests vary based on the state that you are in. Most states require Medicaid applicants to have less than $2,000 in assets. New York allows assets of up to $14,550.
So, a person who has a small income, but owns a house, car and other higher-value property outright, may have to sell some or all of that property in order to qualify for Medicaid. There are, however, ways to avoid losing everything in order to obtain long-term care coverage
Asset Protection Strategies
With some advanced planning, it is possible to obtain the long-term health coverage that you need to cover nursing home and other costs, without losing everything you’ve worked hard to obtain. Here are some of the asset protection strategies you might consider.
- Asset Protection Trust – when assets are transferred into an irrevocable trust, they no longer “belong to you” so they cannot be used to determine your eligibility for Medicaid. This is a far-safer method than simply transferring assets to other family members or friends. You can even live in your house for the rest of your life if it is properly transferred into the trust. Beware - Medicaid does have a 5-year look back period on asset transfers, regardless of the transferee, so be sure to do this well in advance of your application to Medicaid.
- Pooled Income Trust – as noted before, Medicaid has an income limit which can varies by state. Any excess income must be used to cover the cost of care. However, if you are disabled, you are able to participate in a Pooled Income Trust. This type of trust is managed by a nonprofit organization and protects excess income, allowing it to be distributed for the payment of necessities like food, rent and utilities.
- Private Annuities or Promissory Notes – this last-minute strategy is designed to assist you if you have or will transfer assets during the 5-year look-back period. If this happens, Medicaid imposes a “penalty period” which is calculated by the dividing the value of the assets transferred by Medicaid’s monthly rate for nursing home care (determined on a state by state basis). The result of this calculation determines the number of months that the person is not eligible. An elder law attorney may advise using a medicaid compliant annuity or promissory both of which convert an asset into an income stream that can be used to pay for care during the penalty period.
- Caregiver Agreements – in some cases, your friends or family members may act as caregivers to provide services not covered by Medicaid, in exchange for some of your assets. Certain restrictions apply, so it is best to consult with an experienced elder law attorney to draft the agreement.
- Spousal Transfers – spousal transfers are not subject to the Medicaid look-back period. If one spouse needs care, that spouse can transfer any assets that would restrict him or her from obtaining Medicaid benefits to the other spouse. However, this strategy has limitations because Medicaid counts the value of the assets of both spouses.
Advanced planning for long-term care is advised. For those who are unable to develop a plan in advance, an elder law attorney can assist you in last-minute strategies designed to save your assets while getting you the care you need.
References: Top 5 Strategies to Protect Your Money from Medicaid (6/17) https://www.agingcare.com/articles/strategies-to-protect-money-from-medicaid-175434.htm