Most people prefer to remain at home as they age, even if they end up needing help taking care of themselves. While this desire is only natural, it can make some people put their heads in the sand when it comes to making plans for their future care. For many, that instinct is driven by the knowledge that long-term care is expensive, and options to help afford it seem limited.
With the assistance of a Medicaid planning attorney from Robbins Estate Law, you may have more options than you realize. Even if you do not think you qualify for assistance, a careful and deliberate plan can help you receive Medicaid benefits while still protecting your assets. As a result, you will not be forced to choose between using up your estate to the detriment of your loved ones and getting the care you need.
How Does Medicaid Work?
Medicaid is a government program designed to provide healthcare to those with limited means. Almost anyone can apply for basic Medicaid, and you only need to prove you have a low enough income and assets to receive it. Along with this basic Medicaid, if you are 65 or older, you can apply for Medicaid that covers the cost of long-term care.
What Is Long-Term Care?
You may need long-term care without even realizing it. Whether you need long-term care depends on whether you need assistance completing activities of daily living (ADL). ADLs include things like:
- Preparing food,
- Dressing yourself,
- Getting around,
- Maintaining hygiene, and
- Using the toilet.
Your need must be ongoing or chronic to require long-term care.
What Qualifies You for Medicaid?
To qualify for Medicaid, you must need a “nursing facility level of care.” Generally, if you require long-term care, you likely need a nursing facility level of care. In addition, you must have limited income and assets that constitute a financial need.
In Texas, if you are unmarried, you must earn $2,829 or less per month and own $2,000 or less in assets to qualify. If you are married but applying on your own, you qualify using the same values. Your spouse’s income is generally not counted. However, because married couples share all property in Texas, your non-applicant spouse can retain up to 50% of the couple’s assets, up to a maximum of $154,140. If you and your spouse both need long-term care, your assets and income are combined. You can earn a combined monthly income of up to $5,658 and own combined assets worth $3,000.
Are There Exceptions to Medicaid’s Income and Asset Limits?
These limitations seem designed for people who have almost no retirement savings and are in relatively desperate need. However, many people who have significantly more assets by age 65 still worry about the steep costs of long-term care, whether at home or in a nursing facility. Thankfully, while most funds you receive qualify as income, there are exceptions to what counts as assets for Medicaid purposes. The most significant exception for many people is their home and its furnishings. For Medicaid planning purposes, another significant exception is irrevocable trusts.
How Does Medicaid’s Look-Back Period Work?
Qualifying for Medicaid is not as easy as giving away assets or placing them out of your immediate reach to lower your countable assets. To deter those who are not financially needy from trying to obtain benefits, the government considers more than the assets you currently own. The government also considers any asset transfers you made in the last five years.
If you have made any large transfers in the last five years, the IRS will likely consider that transfer as an improper attempt to get around the limits. Such transfers can include:
- Giving large gifts,
- Selling property below market value, or
- Putting property into a trust.
Even if your actions were entirely innocent and unrelated to Medicaid, you will be subjected to a penalty period if you transfer property within five years of needing assistance. This penalty period occurs despite otherwise qualifying for Medicaid, and its length depends on the value of the assets you transferred away.
For example, assume your home has a fair market value of $220,000, but you sold it to your daughter for $20,000. As a result, you would likely be subject to a penalty period for the $200,000 of value you transferred away. You divide this value by a number set by the state. In Texas, you divide the value by $7,339 to determine the number of months you will be ineligible to receive coverage. That means if you improperly transferred $200,000 in assets, you will have to wait 27 months after you become eligible for Medicaid to actually receive benefits.
How Can You Plan for Medicaid?
Depending on your financial situation, this look-back period can impose significant hardship on you and your family. However, if you work with an attorney for Medicaid planning, you may be able to avoid this harsh outcome, qualify for Medicaid, and still leave property to your loved ones.
One common Medicaid planning tool, as previewed above, is the creation of irrevocable trusts. Since placing assets into a trust is considered a transfer for look-back purposes, you generally have to fund this trust before the five-year look-back period. To shield the trust assets from counting against Medicaid, you must set up the trust so you cannot benefit from it.
How Can You Protect Your Assets with a Trust?
You can create a Medicaid Asset Protection Trust (MAPT) to protect your assets. Since the trust is irrevocable, it will not count for Medicaid purposes, but you can retain some limited control over the trust assets.
How Can You Protect Your Income with a Trust?
In addition to creating a MAPT, you may want to create a Miller Trust, also known as a qualified income trust. Miller Trusts automatically place a portion of your income into the trust, helping you avoid Medicaid’s income limits and, potentially, preventing you from rebuilding assets without intending to.
Speak with a Cedar Park Medicaid Planning Lawyer
Planning for your future care does not have to be as scary as it sounds. You have options, and the lawyers at Robbins Estate Law can help you figure out what to do. We understand that planning for Medicaid is not a matter of trying to avoid paying for services but to ensure you can leave behind an intact legacy for your loved ones. Contact us today to get started.