Long-Term Care Planning / Asset Protection
Medicaid Planning (Pre-Crisis)
The first point in time for you to consider long-term care planning is while you are still independent with activities of daily living. What you can plan for is to protect assets in advance of a healthcare crisis that may require you to pay for home health aides, assisted living, or skilled nursing. This is known as Medicaid preplanning. It takes place as part of planning your estate.
The tool we use to protect assets for future Medicaid qualification purposes is an irrevocable trust. Typically the asset involved is the home. The strategy involves transferring legal ownership of the home into the trust’s name. The transfer, once made, is irrevocable. This is why the strategy works to protect assets. The goal is to get ownership away from you. The trust document states that you retain the right to live in the home without restriction. It takes five years for the protection to come about. This means an application for Medicaid should not be filed until the five-year period has passed.
Medicaid Crisis Planning
The other point in time to consider long-term care planning is when the need for care first arises. This is known as Medicaid crisis planning. A crisis means that the need for care exists and that an application for benefits will be filed to protect assets. Yes, that is correct – it is by filing an application and obtaining approval that assets become protected. This is not what you expected to read, is it?
The word on the street is that Medicaid is a government benefit for the poor. If a person has more than $2,000 in assets, they can’t qualify until they have spent down the excess assets. After the excess is spent down, then the application is filed. This is not accurate on many levels.
The truth is that Medicaid is a benefit for the disabled, not the indigent. The mandatory prerequisite for qualification is medical, not financial. If the applicant does not require assistance with one or more activities of daily living, the application will be denied.
If the medical need is in place, well then, yes there are financial restrictions. For an individual applicant, total assets cannot exceed $2,000. For a married applicant, total assets (all of the couple’s assets together) cannot exceed $156,000. Assets over these limitations will have to be spent down to satisfy the financial limitations. Usually, the house is not subject to the spend-down requirement.
Delaware is an income-cap state. The general rule is that the applicant’s gross income cannot exceed the cap amount, which is set yearly in the Medicaid rules. If the applicant has too much income, we set up a Miller trust account so that the trust owns the income, not the applicant. This arrangement satisfies the cap amount.
For an individual applicant, we can protect between 50% to 60% of the excess assets. There are only two ways to spend down: purchase goods and services or give assets away. The general rule anticipates that excess assets will be consumed by paying for care and regular bills. There are exceptions to the general rule that allow gifting of assets to qualify as spending them down. If done strategically and properly, the gifted assets become protected.
For a married applicant, we can protect almost 100% of the excess assets. The reason the Medicaid rules allow this result is to ensure that the community spouse (the one not applying for Medicaid) does not become impoverished just because their loved one requires expensive care. If there are excess assets, the rules permit turning then into a stream of income for the community spouse through the purchase of a Medicaid-compliant annuity. The community spouse can use this income without restriction.
The time to engage in crisis planning is when the need for care first arises. This is when you will still have your life’s savings. Do not wait to begin until you have consumed your life’s savings on care. It is by applying for Medicaid and obtaining approval that assets become protected. Caution: these asset protection strategies require the guidance of an Elder Law attorney. Only a duly licensed attorney has legal authority to advise clients regarding Medicaid asset protection strategies.