Senior care can very quickly become expensive, especially when prolonged stays are involved. For those over 65, Medicare handles many expenses, but it is not designed to cover long-term care. If you are finding you need to plan for a nursing home stay, you’ll need to draw on other resources.
Unfortunately, without careful planning, this can mean a depletion of your estate, especially if you end up staying in a nursing home for years on end. This can cost hundreds of thousands of dollars, which will reduce the amount you can transfer to your loved ones when you pass on.
There are various strategies you can use to protect your assets from nursing home costs, and they all hinge on qualifying for Medicaid.
Medicaid and Nursing Home Costs
While Medicare doesn’t handle long-term senior care costs, Medicaid does, but there’s a catch—it’s designed only for people who have wealth below a certain threshold. This means if you are asset-rich, you’ll have to spend down your estate to qualify.
Medicaid has measures in place to handle that too, however. Any transfers of assets, with a few exceptions, are subject to a penalty if made within a five-year period of applying for coverage. Any transfers made before that point aren’t considered, fortunately.
This five-year lookback period means careful planning is needed well in advance of needing Medicaid assistance.
Irrevocable Trust
While you retain control over assets in a living trust, it will do very little to protect you from asset seizures, estate taxes, and Medicaid income limits. Any assets held within a living trust will still be considered part of your estate and may therefore disqualify you from coverage.
An irrevocable trust, on the other hand, effectively removes wealth from your estate since it legally takes it out of your control. It must be properly structured to function the way it needs to, however, and you’ll want someone you trust to manage it. In addition, it should be created more than five years before you apply for Medicaid, so it’s best to create this trust early on.
Special Needs Trust
One strategy that doesn’t incur a Medicaid penalty is a special needs trust. This type of trust is designed to provide income for those who have a legal disability per Social Security regulations, and it is often used to help disabled persons qualify for Social Security income.
If you have a spouse or loved one with a special needs trust, transferring assets over to that trust can help you qualify for Medicaid coverage. In addition, this transfer can be made at any time since it is not subject to Medicaid penalties.
Gift Assets
Perhaps the simplest way to spend your estate is by giving gifts to loved ones or humanitarian causes. This is a sound strategy for diminishing your tax exposure as well since gifts up to a certain amount are tax-free. Again, just be sure to make these transfers at least five years before applying for Medicaid.
Of course, there are many other methods that you can use. Contacting an estate planning attorney, like us at Hart David Carson LLP, is vital to protecting your estate from nursing home costs, not to mention estate taxes and probate.