Medicaid is a joint state and federal program that primarily 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. However, it is a misconception that is solely caters to those with minimal resources. With strategic asset protection planning, there are ways to preserve assets while still meeting the eligibility criteria for Medicaid assistance.
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.
Navigating Pennsylvania's Medicaid Guidelines
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, $1,500 of life insurance, vehicle and any business interests - are countable resources when applying for Medicaid.
Under current Medicaid laws, if you are married, you can exempt the house you live in, one vehicle, and 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. (This figure changes yearly.) These exempt assets would not count toward your Medicaid eligibility. Anything over this calculated number could be put into an asset protection trust and protected from nursing home costs and fully protected - IF you plan ahead.
"Look Back" Period
Medicaid has a five year (60 month) “look back” period and will penalize you for any gifts or uncompensated transfers you make during that time, even transfers to most types of trusts. If you put your asset protection plan in place while you are healthy, the hope is you won’t need skilled care for at least 5 years and 1 day from when you funded the trust. During this period, the assets in the trust are not counted as available resources, and as a result, you would become eligible for Medicaid benefits more quickly and preserve your assets for your family.
If you experience a health crisis, you'll need to pay the nursing home privately for a period based on the "penalty period," which depends on the unprotected asset. However, this amount will likely be much less than your total asset value. The duration of this payment period is calculated using care costs and how long you stay healthy. So, timing is important. Any delay in finalizing your asset protection plan could postpone when your assets are fully secure. If you require care between funding the plan and the five-year lookback period's end, you might still be able to safeguard a portion of the at-risk assets.
The Asset Protection Plan
Asset protection doesn’t begin until you actually complete your asset protection plan. So, what does an asset protection plan look like?
Asset Protection Trust
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.
Revocable Living Trust
You can combine the asset protection trust with a revocable living trust, over which you have full control and access to the assets. Anything in the revocable living trust would be a countable asset at the time of a Medicaid application, but there are other strategies to reduce the amount you may need to private pay to a nursing home. Both of these trusts, either alone or in conjunction with one another, will avoid the probate process for the assets contained in the trust, keeping your affairs private and out of court.
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.
As you navigate the world of Medicaid and asset protection planning, we're here to offer guidance tailored to your needs. Contact us today for a personalized consultation.