When is the Right Time to Start Medicaid Planning?
With the costs of Long-Term Care continually rising, the time to start planning for Medicaid might be sooner than you think, at least for some assets.
Our clients choose to engage in Medicaid Planning for a variety of reasons, which often include protecting: (1) Family Heirlooms or a family cabin; (2) The marital home or the family farm or ranch; 3) A community spouse’s quality of life; or 4) Inheritance meant for children or charities. Whatever your motivation for engaging in Medicaid Planning, those reasons are personal to you and your situation. The big question clients ask is, When should we start planning for Medicaid? The very short answer is that it is never too late to start.
First, let’s identify what Medicaid Planning is. Medicaid, for the purposes of this discussion, is a federal program that covers the costs of Long-Term Care (i.e. the nursing home) for eligible persons. Medicaid Planning is planning intended to qualify you for Medicaid benefits. Because Medicaid is needs-based, there are specific limits on how much property and income you can have in order to be eligible. Those property and income limits are low, very low. An applicant must be practically destitute before Medicaid will start paying for their Long-Term Care. Medicaid will require you to sell almost all your assets and spend almost every dollar before they will start paying the bill. So, the most basic concept behind Medicaid Planning is disposing of assets and reducing income, in order to get an applicant qualified for Medicaid benefits.
It is important to identify the two types of Medicaid Planning: Advance Planning and Crisis Planning. Let’s start with Advance Planning strategies. The most important rule to consider when planning for Medicaid is the “5-year Lookback” rule. The 5-year Lookback rule, most simply, is any large financial transactions or gifts within 5 years of making your application for Medicaid. Those transactions will be counted against you. So, any pre-planning you do has to occur five years before your application for Medicaid benefits, in order to be fully effective.
Since no one has a crystal ball to know when you will enter into a nursing home, it is tricky to determine the right time to pre-plan for Medicaid, at least when it comes to the bulk of your assets. We will look at the value of the assets you want to protect, the likelihood you will enter the nursing home within 5 years, and your desire to retain control of certain assets. For some assets, this might be easy. You might feel great about placing the family cabin in an Irrevocable [Medicaid] Trust relatively early in life, because you know you want to ensure that asset is protected for generations to come. For other assets, like your personal checking account, you may never feel comfortable giving up the ownership and control that is required to hold the asset under an Irrevocable Trust. What about assets like your primary residence? Have you been thinking of selling that house and moving to Arizona? What about your savings? You can see the decisions can get specific to each family’s circumstances.
Let’s transition to Medicaid Crisis Planning. Crisis Planning is different. It is the planning steps you can take months before you or your spouse enter the nursing home, or after one or both are already in the nursing home. If you or your spouse are in the nursing home or about to enter the nursing home, you should begin Medicaid Planning now. For many people, there are still good opportunities to protect a significant portion of your estate for your spouse and kids from nursing home costs.
If you want to learn about steps you or your loved ones can take to protect your assets from the cost of long term care, call our office to schedule an appointment. 307-682-1313.