You may not know it, but your need for long-term care could be one of the greatest threats to your assets at some point during your lifetime. If you have spent a lifetime accumulating assets, and then investing those assets wisely in the hope of leaving behind a sizable estate for your loved ones when you are gone, you undoubtedly don’t want to lose those assets at the last minute because of the need to pay for long-term care. That is precisely what could happen, however, if you fail to plan ahead. The good news is that asset protection can be accomplished by including a Medicaid trust in your overall estate plan.
Why Do You Need to Protect Your Assets?
The longer you live, the better the odds that you will eventually need long-term care. The cost of that care could deplete a lifetime of working and saving if you are forced to pay for it out of pocket. In New Hampshire, the average cost of a year stay in a long-term care facility is close to $120,000 and the average length of stay nationwide is 2.5 years. Not surprisingly, over half of all seniors rely on Medicaid to cover long-term care costs. Qualifying for Medicaid, however, could put your assets at risk. Yet, without Medicaid you may be forced to pay out of pocket because neither Medicare nor most private health insurance policies cover long-term care costs. While Medicaid does cover costs associated with long-term care, you must first be found eligible for benefits.
The Problem with Medicaid Eligibility
Eligibility for Medicaid is based, in part, on an applicant’s income and countable resources. As a retiree your income may fall below the program limits; however, your countable resources could easily be valued at more than the program limits given the fact that the limit is as low as $2,000 for an individual applicant in most states. If your assets exceed the limit you will be required to rely on those assets first before Medicaid will start helping cover your expenses. Transferring assets in anticipation of applying for Medicaid won’t work either because Medicaid uses a five year “look-back” period that effectively discounts any asset transfers in the five-year period prior to your application for benefits.
How Can a Medicaid Trust Help Protect Your Assets?
Medicaid planning, in general, seeks to avoid the loss of assets by planning ahead and anticipating the need to qualify for Medicaid in the future. A Medicaid trust is often used as part of an overall Medicaid plan. A Medicaid trust is an irrevocable trust that is created to take ownership of assets that would be considered countable resources when you apply for Medicaid. Because the trust is an irrevocable trust, once you transfer an asset into the trust it is no longer part of your estate and, therefore, no longer a countable resource. When created early enough, and drafted properly, a Medicaid trust can protect considerable assets. Just because you transfer ownership of assets into the trust doesn’t mean you can no longer benefit from those assets though. You may, for example, be able to continue to benefit from the interest earned on the assets or remaining living in a house you transferred into the trust. Eventually, the assets held in the trust will be distributed to your loved ones when you die, something that you would likely want to occur anyway. By creating a Medicaid trust, however, you are able to protect those assets instead of having to use them to cover long-term care expenses for you or a spouse. You also set yourself up in a position to be found eligible for Medicaid benefits if you need them at any point in the future.
The key, however, is to start planning early by including Medicaid planning in your comprehensive estate plan long before you reach retirement age because if you wait until you are inside the five-year look-back period it becomes much more difficult (though not necessarily impossible) to protect your assets.
If you have additional questions or concerns regarding asset protection, contact the experienced New Hampshire estate planning attorneys at Debruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.