Medicaid planning: what is it, and it is right for you?
For most of human history, planning for old age – and its attendant health-related issues – has been a secondary consideration for most people. This was because until relatively recently most people died before they became very old. Until the 20th century the average life expectancy worldwide hovered in the mid-30s, before rising sharply to where it is today (about 78 years in the United States).
Short lifespans typically meant little time was available to accumulate a sizable personal estate. For those who were fortunate enough in the old days to live into their 60s, 70s and beyond, eldercare was largely synonymous with home care because of a general lack of facilities and personnel dedicated to preserving life and quality of life in old age. Put another way, in the 17th century you may not have lived long enough to amass a fortune, but at least the chances were better that you would not end up consuming your estate with age-related medical bills.
Today, however, the possibility is much greater that you can become, age-wise, a victim of your own success: you can reasonably expect to live to an age that the majority of humans could never dream of reaching 100 years ago. At the same time the medical advances that have made it possible to live so much longer can cost a lot of money as old age and declining health inevitably take their toll. Or as the saying goes,
“We spend our health in search of wealth,
We toil, we scrimp, we save.
We spend our wealth in search of health,
And only find the grave.”
If you have been financially successful in life, but are encountering increasingly expensive health care costs as you advance in years, you could be experiencing a double sense of frustration: you probably make too much money or have too many assets to qualify for public assistance in paying those costs (think Medicaid), and at the same time you’d like to leave something behind for your children but are being forced to consume your estate to pay for your healthcare bills.
But what if there was a way to qualify for Medicaid without having to sacrifice your life savings first? This is the thinking behind the strategies that go by the name, “Medicaid planning.”
What is Medicaid planning?
There is no official definition for the term, “Medicaid planning,” but most people familiar with the concept would agree that at the very least it consists of strategies and actions to qualify in advance for Medicaid benefits eligibility. Although anyone rich or poor can engage in Medicaid planning under this basic definition, it is the use of Medicaid planning as a subset of overall estate planning asset protection that has generated considerable interest and some controversy.
At its lowest level, Medicaid planning can involve providing assistance with completing a Medicaid application. But for people who have considerable assets, Medicaid planning can encompass ways to shield those assets from being gobbled up by expenses like major medical bills or long-term care.
Why should I consider Medicaid planning?
You do not need to engage in Medicaid planning, any more than you need to prepare a will. In both of these situations, inaction simply means that a set of default rules will apply to you and your estate, and you and your loved ones will have little say in how those rules are executed.
Basically, the default rules for Medicaid are based on its core purpose: to provide a “safety net” for people who cannot afford or can no longer afford to pay for their own long-term care. Federal and state laws and regulations determine when your income and asset levels are low enough to qualify you for Medicaid benefits. If these levels are too high, the expectation is that you will burn through your own savings, investments, and other assets (your “countable” assets) until you qualify.
Many people find this prospect unnerving if not distressing: they worry about being left with little or no money in their declining years, or being unable to provide for their children or other family members by providing them with an inheritance. Still others can find themselves in the difficult position of one spouse or partner requiring long-term, facility-based assisted living services while the other one would have difficulty living independently at home because of the significant costs of such services (for example, residential nursing homes can easily cost tens of thousands or even more than $100,000 a year).
With long-term care costs ranging from $5,000 to $9,000 per month, it should come as no surprise that two out of every three families go broke within one year of a prolonged nursing home stay. This is why medicaid planning for nursing home care has become critically important for most of the middle class. We can help you avoid the catastrophe of losing your life savings to the high cost of long-term care by using the tools and strategies commonly referred to in legal circles as Elder Law. We can help you plan in advance to meet the costs of long-term care, or help you in what is known as a Medicaid Crisis situation.
It is not necessarily the prospect of finding yourself reduced to reliance on Medicaid for your health care that may be daunting to you, as much as the potential consequences to your loved ones who might be counting on the fruits of your labor and savings – your estate – only to have them hollowed out while you, and they, watch.
What considerations go into Medicaid planning?
What degree of Medicaid planning you might consider depends on your circumstances. We have already touched upon your income and assets, and how having more of these can affect how you become eligible for Medicaid. Some other circumstances that can play a role in your Medicaid planning include:
- How much time you have to prepare.
- Whether you have other possible sources of long-term care health benefits, such as through the Veterans Administration.
- Your marital status, and how much support is available to you through family members.
- The types of assets that you can protect under the federal Medicaid laws and those of your state.
Taking all of your circumstances into account will lead to a Medicaid planning strategy best suited to your goals and needs, and will help you to focus on the available tools to help you realize your objectives.
Proactive Medicaid Planning is designed to allow you to qualify for Medicaid without losing most if not all of your resources. The main strategy is to utilize special planning techniques to make appropriate transfers at least five years before applying for institutional level of care benefits. Since none of us can predict the future, it’s very hard to judge when you or your spouse might need long-term care or other Medicaid benefits. That’s why you should contact us as soon as possible to design and implement your plan. The sooner you call the more options we will have to protect your savings for your enjoyment today and that of your loved ones after you pass away.
For example, if you need to restructure your finances to qualify for Medicaid, then aside from converting your countable assets into exempt ones other tools to consider include a Miller trust, an irrevocable trust, an annuity, or purchasing long-term care insurance. If you want to ensure that your loved ones are able to inherit money from your estate, you can transfer some assets to them in advance in the form of gifts (subject to annual value caps as well as Medicaid’s five-year “look back” period in which gifts and other transfers you make can be subject to penalties).
Are there any drawbacks to Medicaid planning?
Some people might think that Medicaid planning is unethical, because in their view it can amount to “gaming the system.” But as long as it is done in accordance with federal law and the law of your state there is nothing wrong with seeking to preserve your assets and prepare in advance for the well-being of your loved ones, any more than it is “wrong” to claim the maximum allowable deductions and credits on your income taxes.
Aside from compliance with applicable laws and regulations, there are some additional considerations to take into account when contemplating Medicaid planning, the most important being that the preserving the life and well-being of the person for whom Medicaid eligibility is sought is the primary purpose of the plan (this is especially so in the case of a person who is mentally incapacitated and may be unable to fully understand or participate in the planning).
Contrary to popular belief, entering long-term care without prior planning does not require you or a loved one to exhaust all savings and assets before qualifying for Medicaid. Crisis Medicaid Planning is designed to help both single and married applicants utilize and preserve their assets while simultaneously continuing to qualify for long-term Medicaid benefits. In addition to permissible spend-downs and exemptions, which are available to all applicants, single applicants may utilize variations of a strategy called “reverse half-loaf planning.” This can protect a significant portion of assets in most cases.
Where do I begin?
The potential complexities of Medicaid planning also mean that you should strongly consider enlisting the help of qualified professionals in choosing what is best for your unique situation and ensuring that the plan is carefully crafted and executed. The Medicaid eligibility process can be time-consuming and complicated; errors can drag it out needlessly and possibly expose you to legal liability. Although Medicaid planning is not an investment strategy in itself, resources you devote to securing professional advice and assistance are an investment in your peace of mind when it comes to knowing that your plan is safe, legal, and serves all of your purposes.
Contact an Experienced Medicaid Planning Lawyer
The bottom line is this: Medicaid offers a vast array of benefits, but determining how to qualify for them is like trying to assemble a complex jigsaw puzzle without the image on the box to guide you. Whether you are single or married, in need of proactive or crisis Medicaid planning, Schock Solaiman Ramdayal, PLLC has the experience and the expertise to help avoid the financial ruin associated with the high cost of long-term care. Contact us today to start the process of understanding the issues surrounding Medicaid eligibility and to implement the medicaid planning and application process.