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Long-term care and protecting assets with Medicaid planning

On Behalf of | Feb 13, 2024 | ELDER LAW - Medicaid Planning

Loved ones often urge their aging family members to get their affairs in order. Commonly, they are referring to the estate planning process and creating documents such as a will, trust, power of attorney and living wills. While these are important documents, it is also imperative to consider the need of long-term care and how to protect your assets from the high costs associated with this need. For this reason, Medicaid planning can be especially beneficial.

Long-term care

In simple terms, long-term care includes the services needed for those unable to perform everyday tasks due to a debilitating health condition or a disability. Because long-term care is distinct from traditional healthcare, these services are not covered by health insurance.

Whether it’s a skilled nursing facility, nursing home, assisted living, adult daycare, homemaker services or home health aides, the costs associated with long-term care can be significant. There are four ways you can pay for long-term care. You could pay for it with your own assets, purchase long-term care insurance to reduce or cover the costs, use Medicare when eligible or use Medicaid to cover the costs.

Medicaid planning

For those seeking to use Medicaid to cover the costs of long-term care, careful planning is needed. Medicaid planning not only considers your eligibility but also strategizes ways to protect your assets.

To begin, a Medicaid asset protection trust could be established. This is an irrevocable trust, and you can transfer your assets in excess to meet the Medicaid’s means-testing requirements. Keep in mind that the assets held in the trust cannot be transferred back to you, the five-year lookback period applies and these can be costly to set up. Thus, they might be more suitable for larger estates.

Next, a life estate could be created. This allows you to own real property jointly, resulting in the value of the family home being excluded from the means test. Note that these are irrevocable, and the five-year lookback rule applies. Finally, you could use your assets in excess to purchase a Medicaid annuity that generates a monthly income that meets the means test.