Many people are crossing their fingers that they won’t need long-term care (LTC) when they get older. But “someone turning age 65 today has almost a 70 percent chance of needing some type of long-term care services and supports in their remaining years,” according to the U.S. Department of Health and Human Services.
And that care doesn’t come cheap. The cost of a private room in a nursing care facility averages $7,698 per month, or more than $92,000 per year. That amount is “ruinously expensive,” according to the New York State Court of Appeals. Yet few people are aware they have options and rights when it comes to LTC planning and Medicaid.
Medicaid is Payer of Last Resort
Medicare does not cover LTC. Payment for LTC must come from your own pocket, long-term care insurance (if you’ve purchased a policy, kept current on payments and qualify under the policy’s terms) and Medicaid.
Medicaid coverage of nursing home costs is means-tested. Often, by the time people qualify for Medicaid, their assets are depleted. Any inheritance they hoped to leave loved ones is gone, and they are without financial security if they end up moving out of the care facility.
As an example, New York has a relatively generous income allowance for Medicaid. Those 65 and older may have no more than $15,150 in assets (some other states put this limit at $2,000 or less). Income may also factor in. The annual income limit in New York for an older adult is $10,100.
There’s an important catch regarding assets. Medicaid has a look-back provision which lets the government review transfers of assets for up to five years before the Medicaid application. If it finds a transfer that was not exempt, the applicant may become ineligible for Medicaid for a defined penalty period.
Asset Protection Trusts
To qualify for Medicaid, you may place assets, such as your home, in an irrevocable trust. These assets legally no longer belong to you, but are controlled by an independent trustee. You can designate a spouse or other loved ones to inherit the assets of the trust upon your death. While you lose control of the trust’s principal, you can use assets in the trust during your lifetime.
This method of asset transferal has benefits compared to simply giving the assets away with strings attached, such as specific conditions. For starters, you don’t have to rely on an individual’s trustworthiness (such as hoping that person won’t turn around and kick you out of the home). You won’t be left in the cold by having your home taken away if an individual incurs a debt or liability that exposes that person’s assets to debt collection. There won’t be complications over who owns the house or whether or not you can stay in it because an individual got divorced or predeceased you. And the individuals will receive a step-up in basis for assets like a house when it is placed in a trust, meaning they won’t have to pay capital gains on the difference between what you paid for it and what it is worth when you die.
Also, if your home in such a trust is sold while you’re still alive, the proceeds will not count toward your Medicaid eligibility. Be aware that a revocable, or “living” trust, does not offer this protection. Assets in a revocable trust are still considered to be your property.
Further, irrevocable trusts are subject to the five-year Medicaid look-back period.