What is Medicaid and how does it work?

Medicaid is a joint state and federal program that provides health coverage to low-income or low-resource individuals. Due to the high monthly cost of skilled nursing care, Medicaid is the leading payer of nursing home care in the United States. Contrary to popular belief, it’s not just for those with minimal resources. You may be able to protect assets with an asset protection plan, and still qualify for Medicaid.

Most people worry about losing their life savings to a nursing home. Medicaid planning uses exemptions that allow you to keep some of your assets. We will focus on how an asset protection plan can minimize what you will have to pay to a nursing home in the event of a serious health event.

In Pennsylvania you are allowed to keep $45 of your income per month plus any amount you use to pay for health insurance; the rest of your income has to be paid toward the cost of your care. Your assets, including real estate, cash, investment accounts, retirement accounts, life insurance with a cash value great then $1,500, vehicles and any business interests are countable resources when applying for Medicaid. Under current Medicaid laws you can exempt the house you live in, one vehicle, and should you be married, your spouse can retain their retirement accounts and anywhere between $29,724 and $148,620 of the joint assets, depending upon the total amount of your combined assets. These exempt assets would not count toward your Medicaid eligibility. Anything over this calculated amount of exemptions could be put into an asset protection trust and protected from nursing home costs. This may still leave assets at risk for a number of months depending upon the cost of care. For a single person you can still exempt your home, however, the house would be subject to estate recovery at the time of your death.

An asset protection plan will allow you to immediately protect a portion of your assets, in addition to the assets that are exempt from Medicaid, for significant immediate savings that begin the moment your plan is fully funded.

If a health crisis occurred, you would still need to private pay the nursing home for the time period equal to the number of months calculated as the penalty period based on the asset that cannot be protected but this amount would be much less than the full value of your assets. This calculation of the number of months that you would need to private pay is based on the cost of care and how long you stay healthy. So timing matters, any delay in completing your asset protection plan can also delay when all of your assets are safe. Remember Medicaid has a five-year lookback period so if you plan now and stay healthy for five years all of the assets in your asset protection trust will be fully protected from Medicaid. If you need care between the time your plan is funded and the end of the five year lookback period you may be able to still protect a portion of the assets at risk.

Remember, this might not be the whole picture. You may also have to spend some money to save some money. This is a common technique in Medicaid planning to keep assets from going to the nursing home. For example, you may spend approximately $7,500 creating your asset protection plan and approximately $10,000 per person pre-paying for a funeral. There are other ways to spend money rather than giving it to the nursing home, such as paying off your mortgage, other debts, paying income taxes, purchasing a newer vehicle, or even certain renovations to your home. This is why a review with a local attorney is highly recommended, in order to see what other options might be available to you and the timing of any expenditures based on your current health.

Asset protection doesn’t begin until you actually complete your asset protection plan. So, what does an asset protection plan look like? The plan consists of an asset protection trust, in which you can control the assets, but can’t have direct access to them. Giving up direct access to the assets in the Trust keeps creditors and predators away. It may be uncomfortable to think about giving up access to assets, but you may always have complete control. If you do need access to an asset in the trust, you always have the ability to make distributions to someone other than yourself.

In addition to protecting your assets during life, asset protection plans can provide tremendous value for your loved ones when you’re gone. Your plan can protect assets from the creditors and predators of your beneficiaries, yet still provide access to the inherited assets through a friendly Trustee. Laws and statutes – especially in the area of Medicaid – are always changing so what is true today, may not be true in just a few short months.

Do you have more questions about how this works? Wondering how soon you can get started? All of this can be discussed further with us. You can go into the meeting prepared to hear all about asset protection plans, and how else they can benefit you and your family and protect your legacy from the rapidly rising cost of long-term care. Let’s get your estate plan in place!