The idea of willingly becoming impoverished, in order to qualify for long-term care, is an unfortunate necessity for many, as illnesses strike in their later years.
Sometimes it takes a village to plan for Medicaid and, as reported by CNBC recently, in “Here’s a surprise source you can tap for long-term care services,” this village is made up of an elder law attorney, your CPA and financial advisor to help pay for nursing home care and protect your family at the same time.
Medicaid covers a range of long-term services for eligible applicants. States generally require that individual applicants have no more than $2,000 in assets ($3,000 to $6,000 for couples). State income requirements vary by jurisdiction.
Medicaid planning is a strategy to work with attorneys, accountants, and advisors to shift wealth to trusts or annuities to qualify.
Those who should be thinking about this are seniors who aren't insurable for some reason. If they have some assets but needed care in a nursing home, their savings would quickly be drained.
To qualify for Medicaid and pass the means test, older individuals must transfer their wealth at least five years before they apply. There’s what is called a "five-year lookback." An applicant may be subject to penalties and be ineligible for Medicaid for a period of time. They’d have to pay out of pocket.
However, a transfer of assets can be risky in Medicaid planning. That’s because an outright gift of assets to a relative, could mean that the recipient doesn't get a step-up in basis. They could wind up with hefty capital gains taxes, if they try to sell the asset immediately.
In addition, leaving money to a child can be reached in a divorce or by creditors.
One option may be an irrevocable trust. This is because those assets aren’t under the control of the senior and are protected from creditors. Another choice is a single-premium income. The applicant would use some assets to buy an annuity that will begin distributing income to that person's spouse.
Make certain to work with experienced professionals, especially an elder law attorney, because the plan will likely include tax planning, trusts and asset management.
Reference: CNBC (February 27, 2018) “Here’s a surprise source you can tap for long-term care services”