If you are like most people, your retirement goals are focused on ensuring that you will have the money you need to live comfortably in old age. Saving through stock market crashes and economic downturns can be a struggle, and it can truly be a feat to build a retirement nest egg that eschews worries about day-to-day finances and occasional travels once you leave work for the last time.
But, what happens when things do not go as planned? More specifically, what happens if you become ill or frail, and you need to transition into life in a nursing home? The annual cost of nursing home care in the United States currently averages $70,000 per year; and, according to the American Association for Long-Term Care Insurance, that amount is expected to double over the next 20 years. Keep in mind, that is just for average care. The quality of nursing homes varies widely, and on the upper end a year in a nursing home can already cost close to $200,000.
Will you be ready?
Introduction to Medicaid Planning
Medicaid planning is a way to help prepare for the potential costs of long-term care after retirement. Once considered a system designed to help the less-affluent members of our society, with the skyrocketing costs of medical and long-term care, people at all socioeconomic levels are increasingly relying upon Medicaid to meet their financial needs.
But, as with all government benefit programs, collecting Medicaid benefits is not as easy as you might expect. If you qualify, the benefits are there when you need them, but knowing whether you qualify, when you are eligible to claim Medicaid benefits, and how to prove your need are all challenges that require advance planning with the help of an experienced attorney.
Five Facts to Know About Medicaid
Before we get too far into our discussion of the importance of Medicaid planning, let’s briefly step back and examine the Medicaid system in general. Here are five facts every US citizen should know about their entitlements under Medicaid:
- Medicaid is a joint state-federal program under which the states administer their own benefit programs in line with federal mandates.
- Since Medicaid is administered at the state level, each state can give its system a unique name. While some states still simply refer to Medicaid as, “Medicaid,” Medi-Cal (California), MassHealth (Massachusetts), and TennCare (Tennessee) all refer to states’ individual Medicaid systems as well.
- Medicaid covers the cost of nursing home care for qualifying senior citizens. It also provides health insurance coverage to low-income individuals and individuals with disabilities.
- Medicaid is different from Medicare. Medicare is what is known as an “entitlement program” – if you paid into the system, you are at least initially eligible for benefits. However, in order to be eligible for Medicaid, you must meet certain criteria for income and accumulated wealth.
- Due to these income and accumulated wealth criteria, advance planning can be critical to ensuring that you will have access to Medicaid when you need it.
Basics of Medicaid Planning: When and How to Plan
When it comes to Medicaid planning, the time to get started is when you put together your estate plan. As we’ve said previously, it is never too early (or too late) to begin the estate planning process. While some of the planning to achieve Medicaid eligibility will necessarily need to be done as you age, there are steps you can take at any age to help secure your financial future – whether that means eventually relying upon Medicaid or not.
Since there are upper limits on income and accumulated wealth for Medicaid eligibility, much of the Medicaid planning process focuses on shifting your wealth to your loved ones. Of course, this is also the primary purpose of estate planning – so, much of the Medicaid planning and estate planning processes actually go hand in hand.
While you may have heard criticisms of Medicaid planning as a form of “gaming the system” in order to collect benefits to which you may not “ordinarily” be eligible, the truth is that Medicaid planning is no more gaming the system than taking advantage of provisions of the Internal Revenue Code in order to reduce your tax liability. There are clear guidelines for who is (and isn’t) eligible for Medicaid, and if you take the appropriate, legal steps to qualify, there is absolutely no reason to forego collecting the benefits that the federal and state governments make available.
In order to plan to receive Medicaid benefits if and when you need them, there are a number of different strategies and estate planning tools you can use. These include: (i) establishing a trust (or trusts), and (ii) transferring assets to loved ones during your lifetime.
1. Establishing a Trust (or Trusts) for Medicaid Planning Purposes
Establishing a trust allows you to transfer personal assets out of your name. When you transfer assets to a trust, you are no longer the legal owner of those assets. But, depending upon the type of trust you create, you can either retain control over the assets (as trustee) while retaining the benefits of ownership (as beneficiary); or, you can designate third-parties – like a spouse, child, relative, or charity – as your trustee and beneficiary(ies). In addition, you can structure the trust so that any third-party beneficiaries gain access to the trust’s assets when and on the terms you desire, whether before or after your death.
Trusts are popular estate planning tools not only because of the flexibility they offer, but also because they can reduce or eliminate estate tax liability while securing assets from potential creditors. The fact that you can use trusts for Medicaid planning purposes is just another important benefit.
2. Transferring Assets During Your Lifetime
If you are prepared to give up certain assets before you die, giving away assets during your lifetime (lifetime transfers) can be an effective method of Medicaid planning as well. While there are potential penalties and gift tax liabilities to consider, these issues can easily be addressed with proper planning.
Alternatives to Medicaid Planning
When considering your Medicaid planning options, it is important to consider the alternatives. Depending upon your personal health and financial circumstances, Medicaid planning may or may not be your best option. For example, if you wish to retain assets that would result in disqualification from Medicaid eligibility, you may want to consider long-term care insurance. In addition, we often recommend life insurance with a long-term care rider over long-term care insurance; and, if you have enough wealth to cover the costs of long-term care, life insurance can be a less-expensive and more-secure way to provide for your loved one’s needs during your long term care and after you are gone.
Medicaid planning is a complicated process that starts with understanding the requirements for qualification and understanding how your current income and assets affect your eligibility. If you think it might be time to start planning for your future long-term care needs, you should discuss your options with an experienced attorney.
Contact a Medicaid and Estate Planning Attorney at Jiah Kim & Associates
To learn more about the steps involved in Medicaid planning and how you can incorporate Medicaid planning into your overall estate plan, schedule an appointment with an attorney at Jiah Kim & Associates. You can call us 24/7 at (646) 389-5065, or contact us online and we will respond as soon as possible.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.