Medical Insurance

Posts Tagged ‘Medicaid Planning’

Eligibility for Medicaid

Planning and properly setting up your estate for Medicaid eligibility can reduce your fear of ending up in a nursing home because meeting Medicaid requirements can save on average a eighty-five thousand to one hundred and fifty thousand dollars. Typically, the annual cost for nursing home care ranges between $85,000 and $150,000. This placement and change in life means many things. It causes the loss of personal autonomy and can come with a hefty financial obligation.

Many people pay for these costs from their personal savings. This results in the depletion of all savings and assets. Who is eligible for Medicaid? Only after your assets have been depleted does one get eligibility for Medicaid benefits. There is an advantage to paying for the nursing home with your own money. It allows you to choose where to live and it can eliminate having to deal with state bureaucracy. The disadvantage is the huge expense. This is why careful planning is so important.

Medicaid asset protection for your estate is possible. A long-term care insurance policy could possibly help achieve this, but it not the best way to protect your assets. Whether you are receiving Medicaid or Medicare benefits, it is important to take proper planning steps to make sure you are receiving all of the benefits you are entitled to as early as possible.

Medicare Part A

Medicare Part A is something that every aging person should be familiar with. This part of Medicare will cover up to 100 days in a skilled nursing facility per illness. The catch is the actual definition of a skilled nursing facility. In fact, due to the strict guidelines and varying definitions, very few people are actually entitled to these 100 days. The end result is that Medicare ends up only paying for 9% of all nursing home care in the country.

Medicaid – What is it?

Medicaid is the only way to obtain long-term medical care in the United States. Most people are required to pay nursing home costs out of their own savings until they have reached the financial eligibility for Medicaid. Medicare and Medicaid are often confused. It is important to understand that these are two completely different programs with different benefits. Medicare is the health insurance granted to those who receive Social Security. It is an entitlement program that could be compared to PPO’s and HMO’s like Blue Cross Blue Shield and United Healthcare. Medicaid is a form of welfare and is largely based on income. To be eligible for Medicaid, you must not earn more than the specified amount in a one month period – in most states the absolute maximum income level is $2,300 per month.

Medicaid is administrated by individual state governments, but is reimbursed by the federal government and thus most states rules are very similar but different. Each state has its own form of Medicaid, often called by different names. The state operates the program, but all programs must conform to specific federal guidelines. This means that Medicaid rules and regulations differ in each state, which can cause a lot of confusion. The best thing to do is contact your state to find out exactly what the eligibility rules are and what benefits are offered through the program. These programs change often so it is important to always have the most up to date information available.

Using Medicaid Asset Protection for Eligibility

One way people plan for Medicaid is by distributing their assets before they require the benefits from Medicaid. When this is done, individuals will be able to qualify for Medicaid faster than if they had to spend down their savings and deplete assets. This is why planning for Medicaid can be difficult. It is nearly impossible to know when you will need long-term care. However, planning for this care is one of the most important things to do. An asset protection plan is one way to go about planning. These plans will reallocate your assets and transfer money, making you eligible for Medicaid when the time comes.

Irrevocable Trusts for Protecting Assets in Medicaid Planning

While transferring assets is a great way to protect your assets and gain eligibility for Medicaid, there is a major disadvantage to asset transfers. When you transfer an asset, you basically give it away. This means that you no longer have control over that asset. Even when you transfer an asset to a trusted family member, they can run the risk of losing the asset or spending it for their own behalf. A better solution is to place the asset in an irrevocable trust. A trust is a legal entity in which one person is named a trustee. The trust holds legal title to the assets. Those who benefit from the trust are known as the beneficiaries. The named trustee must follow all rules associated with the trust. In some cases, the assets in the trust can be counted against Medicaid resource limits. This is why it is imperative to be aware of all rules and regulations regarding trusts and Medicaid eligibility.

It is also important to know the difference between an irrevocable and a revocable trust. A revocable trust can be changed or rescinded by the individual who created the trust. Since the trust can be changed, Medicaid considers this kind of trust to be an asset. All assets that are in a revocable trust will be considered when determining Medicaid eligibility. In short, when planning for Medicaid, revocable trusts are not useful tools.

Income-only Irrevocable Trust in Medicaid Asset Evaluation

Irrevocable trusts of the “income-only” version cannot be changed after they have been created. This type of trust is usually drafted so that the income from the trust can be paid to you for life. The principal cannot be applied to benefit either you or your spouse. When you die, the principal is then paid to your heirs. This allows the funds to be protected while giving you the opportunity to use the income from the trust for living expenses. The principal in this type of trust is not considered a resource for Medicaid asset evaluation purposes. However, if the situation changes and you move to a nursing home, the income from the trust will have to be paid to the nursing home. This is one of the disadvantages to an income-only irrevocable trust. Unless the trust is set up correctly, you are also not allowed access to the funds in a trust if you should need them for other purposes. This is why you should always have another source of funds aside from income from the trust.

Special Testamentary Power of Appointment – Step-Up Basis of Property

It is possible to place property in a trust. When doing this, you and your spouse will not be able to obtain payments of income, but could take loans from the trust. The trust must be set up so that your children will benefit from the trust income. If the trust contains property that has increased in value, the grantor, the creator of the trust, can retain a “special testamentary power of appointment.” This allows the beneficiaries to receive the property upon your death. The receipt of the property will come with a step-up basis.

Testamentary Trusts in Medicaid Planning

The testamentary trusts are created under a will. There is a specific Medicaid rule that provides safety for these trusts if the trust was created by a deceased spouse with the intention to benefit the living spouse. The assets in these trusts are considered available to the Medicaid applicant, but this is only the case when the trustee has an obligation to pay for the Medicaid applicant’s support. If the payments are left to the discretion of the trustee, they are not considered available. This is a good tool to utilize when planning for Medicaid. These trusts allow community spouses to leave funds for a surviving spouse that is in a nursing home. The funds are then used to pay for services that are not covered under Medicaid.

Supplemental Needs Trusts

There are certain exceptions by Medicaid regarding transfers that are made for the benefit of a disabled person under the age of 65. If you have a child, relative or friend that is under 65 with permanent disabilities, you can transfer assets. This is true even if you are already in a nursing home. It is important for these trusts to be properly structured. If done right, the funds that are in these trusts will not be considered owned by the beneficiary and will not be considered when determining Medicaid eligibility. However, if the disabled person dies, the state is required to reimburse funds from Medicaid that have been spent on behalf of that disabled person.