Facing the need for long-term care can be overwhelming, especially when trying to understand Medicaid rules in North Carolina. One of the most confusing aspects is how to avoid Medicaid 5-year lookback ineligibility, which can lead to penalties or delays in healthcare coverage.
This blog provides the steps to navigate the Medicaid system without falling into the lookback trap. By understanding the rules and planning wisely, you can safeguard your assets and secure the healthcare services you and your loved ones may need.
Will I Need Medicaid Benefits for Long-Term Care in North Carolina?
The question of whether you’ll need Medicaid benefits for long-term care is a significant one. You may have questions or believe myths such as:
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Myth: I won’t need Medicaid. I’ve been healthy for most of my life and plan to stay that way.
Truth: As we age, the likelihood of requiring some form of long-term care increases significantly.
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Myth: My health insurance or Medicare coverage will pay for care costs if I need skilled nursing.
Truth: Most health insurance policies and Medicare will not cover skilled nursing care for more than several weeks, if at all.
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Myth: I make too much money to qualify for Medicaid benefits. Medicaid is for those who live under the Federal poverty level.
Truth: You can qualify for Medicaid benefits for long-term care (AND keep your hard-earned assets) by planning for eligibility at least 5 years before you need Medicaid coverage. By making asset transfers into a Medicaid Trust before the look back period, Medicaid applicants can get coverage for nursing home costs as long as they avoid the Medicaid look back period. It’s possible, even with a large asset transfer into a trust!
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In North Carolina, the cost of long-term care can be staggering, often reaching tens of thousands of dollars per year. Medicare and private insurance usually do not cover long term care expenses, leaving Medicaid one of the few viable options for many people.
Planning for the possibility of needing Medicaid for long term care isn’t just a good idea; it’s often a financial necessity.
By understanding how the Medicaid Lookback affects eligibility, you can take proactive steps to preserve your assets and maintain your eligibility for future healthcare benefits.
How Does a Medicaid Applicant Avoid a Penalty Period Before Coverage Begins?
As a Medicaid applicant in North Carolina, the last thing you want to encounter is a Medicaid penalty period delaying your benefits. Understanding how to maneuver around the rules and avoid a penalty is crucial.
According to North Carolina’s Department of Health and Human Services (NCDHHS), penalties usually arise due to the improper transfer of assets within the Medicaid Lookback period.
To avoid such penalties, don’t give away, sell, or transfer assets for less than fair market value during this 5-year period.
NC calculates a penalty period if you’ve transferred assets during the 5 years before your Medicaid application. This penalty depends on the value of the assets you’ve transferred divided by the average monthly cost of a private patient in a skilled nursing home or facility.
For example, when you change fee simple property to tenancy-in-common property or if you add an additional owner to a savings account, Medicaid may count that as a gift which can incur penalties.
One way to keep your hard-earned assets is by placing them in an irrevocable Medicaid Trust at least 5 years before you apply for Medicaid. Keep reading as we will cover this solution in a bit.
Another less preferable way to steer clear of penalties is to properly spend-down your assets on exempt items and services, such as home modifications that make your residence more accessible or purchasing an irrevocable prepaid funeral contract.
Ways to spend-down excess monies include:
Home Repairs and Maintenance
Investing in necessary home repairs and maintenance can be a good way to spend down your assets. This could include roofing repairs, plumbing, or electrical work.
Medical Equipment and Supplies
Buying essential medical equipment and supplies such as wheelchairs, hearing aids, or diabetic supplies can be another avenue to spend down your resources.
Personal Care Services
Paying for a home aide or other personal care services is generally acceptable. This can help improve your quality of life while reducing your assets.
Outstanding Debts and Bills
Clearing any debts, mortgages, or medical bills you have can effectively reduce your available assets.
Vehicle Purchase or Upgrade
If you require a more reliable or accessible vehicle, this can also be an exempt purchase. Specialized vehicles for persons with disabilities can be particularly relevant here.
Legal Fees
You may also use your funds to pay for necessary legal services, such as estate planning, establishing a trust, or applying for Medicaid.
Pre-Paid Funeral Arrangements
As previously mentioned, one commonly used method is to pre-pay funeral expenses using tools designed to make assets non-countable for Medicaid purposes, thereby reducing your available assets without penalty.
By focusing on these expenditures, you can lower your assets in a way that does not trigger a penalty period for Medicaid eligibility in North Carolina.
However, first consult with a qualified elder law and Medicaid Planning attorney to ensure you’re making the right choices in line with current regulations.
How Can I Avoid a Medicaid Spend-Down of My Assets?
No one wants to spend-down assets to qualify for long term care expense coverage. Spending yourself down to living close to poverty levels is not exciting to anyone. But what if there were a way to keep your assets and still qualify for long-term care coverage?
- What if you want to keep your assets in case you need something that Medicaid benefits won’t cover later?
- Or what if you’d like to leave your children or grandchildren an inheritance?
- How about if you want to keep your assets for other expenses without needing to spend-down a thing?
In these cases, you’ll want to start planning before the 5-year lookback period begins.
Using an Irrevocable Trust to Avoid Medicaid’s 5-Year Lookback Period
Navigating Medicaid’s 5-Year Lookback Period can be a financial minefield, especially for those with substantial assets they’d like to protect. One complex yet effective method to achieve this is by using an irrevocable trust.
Trusts and annuities are unique cases when it comes to assessing financial resources for Medicaid eligibility.
What Is an Irrevocable Trust?
An irrevocable trust is a legal entity that holds and manages assets for the benefit of specific individuals or entities.
Unlike a revocable trust, you cannot easily modify or dissolve an irrevocable trust once it’s set up. This makes it a secure but rigid tool for asset protection.
Transferring Assets into the Trust
To avoid the Medicaid 5-Year Lookback Period effectively, you must transfer your assets into the irrevocable trust (also called a Medicaid Trust) well before you apply for Medicaid benefits —preferably, at least 5 years and one day before. Keep in mind that not just any irrevocable trust will do. A Medicaid Asset Protection Trust is designed specifically to navigate around the rules that pertain to qualifying for Medicaid benefits and preventing the sale of your estate after you die to repay Medicaid for services provided during your life.
Once transferred, these assets no longer count towards your personal financial resources. You’ve given up control over them to your trustee.
However, you can set up your trust to benefit from the assets. You can also set the trust documents up so that it benefits others.
How a Medicaid Trust Affects Your Eligibility
Upon transferring assets into an irrevocable trust, the value of those assets is no longer countable toward Medicaid’s resource limits, given you’ve set up the trust correctly and abided by the 5-year timeframe.
However, these transactions must be conducted meticulously, following all the regulations and guidelines stipulated in the Medicaid Manual. That’s why it’s crucial to set up a Medicaid Trust with an experienced Elder Law Attorney.
Points to Consider
- Choose a reliable and competent trustee, as they will manage the assets in the trust. Your trust documents will set up the framework as to how, what, and when to spend the trust assets transferred into your trust.
- Not all assets are suitable for an irrevocable trust. Consult an attorney to determine what can and should be included.
- Due to the complexity and rigidness of irrevocable trusts, seek professional legal advice from a Medicaid Planning attorney to ensure you fully comply with Medicaid rules and North Carolina law.
Consult with a qualified attorney to make plans to circumvent the Medicaid 5-Year Lookback Period effectively.
Talk With Our Experienced Elder Law Medicaid Planning Attorneys
Medicaid eligibility and the notorious 5-Year Lookback Period are complex in North Carolina. Missteps can bring costly penalties or delays in receiving the healthcare services you or your loved ones desperately need. There are also significant tradeoffs in order to get the protection you may be seeking, so you should be advised on those tradeoffs so you are fully informed as to the consequences of the use of a tool like this.
Talk with our elder law Medicaid planning attorneys at Hopler, Wilms, and Hanna to understand the way forward. Our legal team is well-versed in North Carolina’s specific regulations and can provide guidance on asset protection, irrevocable Medicaid trusts, and other strategies to preserve your hard-earned resources.
Don’t leave your future to chance. Consult our skilled legal team today to secure the care you may need tomorrow.