Medicare and Medicaid are valuable resources for many in the latter stages of life.
Government health insurance programs provide essential coverage that allows seniors to make the most of their retirement years. Still, there are often substantial gaps in coverage that you must cover out of pocket. This could deplete your life savings, even if you qualify for Medicare and Medicaid. Fortunately, there are trust protection strategies you can take to protect your savings and legacy.
The Medicaid Spend-Down Requirement
So, how do retirees find themselves spending a significant portion of their savings when Medicare and Medicaid should provide adequate coverage? There are several reasons, but a primary driver is the Medicaid spend-down requirement.
To qualify for Medicaid benefits, seniors must meet several eligibility criteria, including the spend-down requirement — depleting your assets to a specific threshold to become eligible for coverage. In real-world terms, this means dipping into your savings to pay for healthcare costs. The amount of assets that must be spent-down varies from state to state. However, the spend-down requirement can deplete your life savings in all cases.
Medicaid Pre-Planning Basics
Most Ohioans believe that in order to qualify for Medicaid, they have to give away their hard-earned assets — and suffer all the adverse tax effects — or go broke. Fortunately, this doesn’t have to be the case. It just takes a little planning.
What is Medicaid Pre-Planning?
Medicaid pre-planning is the process of using legal strategies to position assets so that they are exempt from being considered countable assets for Medicaid purposes and, thus, do not have to be spent down (and lost). These legal techniques will help ensure that you:
- Protect assets for your spouse, your children, and other beneficiaries;
- Maintain control while you are still alive and well;
- Qualify for Medicaid sooner than you otherwise would without planning; and
- Minimize or eliminate Medicaid estate recovery when you pass away.
However, to be completely effective, Medicaid pre-planning must be done at least five years before care is needed. While there are asset protection options, even if you are in the midst of a nursing home crisis, Medicaid pre-planning has several advantages. It costs less, is considerably less stressful, and allows you to protect more assets.
What is a Medicaid Trust?
A Medicaid trust is a valuable planning tool designed to protect assets from being counted for Medicaid eligibility purposes. In other words, a Medicaid trust allows someone who would otherwise be ineligible for Medicaid to receive the benefit for the care they need at home or in a facility, all while avoiding the dreaded “spend-down.”
While a Medicaid trust is irrevocable, trustmakers can always choose their trustees and retain their ability to change beneficiaries at death. In addition, trustmakers keep unfettered use of their home and, if done correctly, continued access to other assets. Instead of giving assets away to beneficiaries during your lifetime, a Medicaid trust does not subject your assets to the good luck or good faith of others.
No one can predict whether your beneficiaries will get sued, divorced, or predecease you. In those events, you have not only lost control of the asset but, quite likely, the asset itself. A Medicaid trust can also help avoid capital gains tax when assets are later sold, compared to gifting during your lifetime.
Why Consider Medicaid Pre-Planning?
To be eligible for Medicaid, an individual can have only $2,000 in assets and some limited exemptions. While a healthy spouse may keep additional assets over the $2,000 single limit, those assets are subject to spend-down if the healthy spouse eventually needs care; and if not, the assets can be subject to Medicaid estate recovery. You and your family should consider Medicaid pre-planning if you have assets in excess of $2,000 and want to preserve those assets for your family in a controlled and tax-efficient manner.
Medicaid Pre-Planning With a Qualified Estate Planning Attorney
Medicare and Medicaid coverage can be a late-in-life blessing. But without a Medicaid pre-planning strategy, you could face the Medicaid spend-down or even see your assets dwindle. While you may think you don’t need an elder law attorney or a probate attorney, you have a lot to lose without guidance from an experienced professional.
That’s why it’s important to seek advice from a qualified estate planning attorney. With an understanding of your unique situation and the potential pitfalls of Medicare and Medicaid benefits, the right estate planning attorney can help find the trust protection options that will best preserve your legacy.
Houck Menninger Law specializes in estate planning and trust protection, with years of experience behind us. Contact us today to schedule a consultant so that we can understand your situation and help you find the trust protection option best suited to your legacy.
