Proactive Medicaid Planning
Working with our Medicaid Planning attorneys at least 5 years before you need long-term care can help you qualify for coverage. With preparation, there is no need to spend down your assets to qualify. You can also prevent the loss of a family home to pay back your expenses after your death.
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Understanding Proactive Medicaid Planning
According to the US Department of Health and Human Services, roughly 70 percent of Americans over the age of 65 will require some type of long-term care at some point in their lives. While some people will fund the cost of long-term care with insurance products or personal funds, people often lack sufficient means to pay for the exorbitant cost of long-term care and eventually apply for Medicaid.
Medicaid pays for the cost of long-term care if your resources are low enough. However, if you possess assets over the allowable amount, Medicaid expects you to spend down your net worth to gain eligibility. An adult who needs long-term care will often spend down everything they own in a bid to qualify for Medicaid. Many elderly spend down their bank accounts, retirement, etc., until they have almost nothing.
However, Hopler, Wilms, and Hanna Medicaid Planning attorneys can work with you early to prevent the Medicaid spend-down process while you still qualify for long-term Medicaid care coverage.
Another way that you need protection from asset loss is the Medicaid Recovery process. NC Medicaid allows certain assets to not count against your eligibility for care coverage. So you often may keep your home but still qualify for Medicaid coverage. However, after you die, the state may demand the sale of your home to pay them back for the Medicaid care costs they spent on you.
Working with our Medicaid Planning attorneys at least 5 years before you need long-term care can prevent the need for a Medicaid spend down and also prevent the loss of a family home to pay Medicaid back after your death.
We Help You Prepare for Long-Term Care
We help families proactively plan for future Medicaid needs through an Asset Protection Trust, also known as a Five-Year Trust or Medicaid Trust.
Medicaid will only pay for long-term care for people with limited assets. Preparation of an Asset Protection Trust is a mechanism to let you divert your assets so that you appear to have fewer assets for purposes of Medicaid eligibility. The assets that fund the trust are not counted for Medicaid eligibility if you wait 5 years before applying. This type of trust also makes assets non-reachable to repay Medicaid when you die.
If you work with us to draw up an Asset Protection Trust, otherwise known as a Medicaid Trust, we help you move your assets into a legal framework that creates these conditions:
- Medicaid can’t count assets in the framework (your trust) against you for eligibility
- Medicaid Recovery can’t reach into the framework (your trust) to recover funds after death
The Asset Protection Trust is an irrevocable trust, meaning the terms cannot be modified or revoked. This trust allows you to:
- Transfer assets for preservation
- Maintain tax benefits
- Put people in charge that you trust
- Ensure assets are used as intended
Qualify for Medicaid shortly after the five-year mark of creating the trust.
What is Medicaid Planning?
Medicaid Planning is a broad term to describe circumventing existing rules to help you become eligible, often without losing assets. Medicaid planning also may prevent the state from coming after your assets to cover their costs after death.
Medicaid Planning has two categories:
- Crisis Medicaid Planning: Type of Medicaid planning that occurs within five years before needing Medicaid. While we can help a person become eligible sooner at the “crisis” stage, generally the measures do not save assets as well as proactive Medicaid planning.
- Proactive Medicaid Planning: Medicaid planning that occurs before the five-year lookback period. Essentially, someone anticipates not needing Medicaid for at least five years but wants to plan for that possibility, so they engage in proactive planning.
Often, individuals find themselves ready to apply for Medicaid to assist in paying for their long-term care but face the reality of owning too many assets. Their assets prevent them from qualifying. These individuals often “spend down” their assets, either paying for long-term care or medical needs out of their own pockets in a bid to qualify for Medicaid coverage. There are guidelines about what you can spend down on and still qualify for Medicaid in the future.
Unfortunately, giving away assets to family members can interfere with Medicaid eligibility. During a spend-down, you must sell items for market value to eventually qualify. Otherwise, you could face an ineligibility period based on the amount of value you gave away.
Why Opt for a Medicaid Trust?
MEDICAID RECOVERY
One of the most important reasons to create a trust is to protect assets from the devastating costs of long-term care. According to the 2018 Genworth Annual Cost of Care Survey, the median yearly cost for a private room in a long-term care facility is $100,375. Protecting assets such as residences or vacation homes with a Medicaid Trust prevents Medicaid from recovering those assets as payment of the debt.
PREVENT ELDER EXPLOITATION
Another important reason to create a trust is due to the possibility of elder exploitation. Examples of exploitation include stealing/withdrawing cash, transferring property deeds, and misuse of a power of attorney. Placing the assets of an elderly person in an Asset Protection Trust can help prevent this behavior. The trust also will preserve the assets for future generations, helping to create a legacy by keeping sentimental property in the family.
TAX CONSIDERATIONS
Another very important reason for using trusts is to maintain the step-up in basis on a property for the next generation. For example, let’s say you own a home that is valued at $150,000 but when you purchased the house thirty years ago, you paid $75,000. Therefore, the property appreciated $75,000 in value.
Before Medicaid 5-year look-back, you have options:
- Gift the property before the 5-year look-back period and still qualify for Medicaid coverage. However, the recipient of the property will be required to pay a large amount in taxes if they decide to sell after your death.
- Deed the property to a trust and the basis steps up to the value on the date of your death. If the home is sold after you pass, there is no gain on the sale and no taxes. This is one major benefit of a trust over an outright gift, and the costliest consequences of an outright gift to a family member of real estate or stock.
AVOID PROBATE
A trust also assists in avoiding the probate process upon the death of the creator since there are specific guidelines for distribution to heirs. The probate process essentially is the court overseeing the finalization of your affairs when you pass away. The use of trusts may prevent the need for any court oversight, but will almost certainly limit it.
TRUSTEE MANAGEMENT
One thing to note is that with a trust, a trustee can be appointed to ensure proper management and distribution of assets. One can also appoint successor trustees, alternate beneficiaries, and provisions for special needs beneficiaries if needed.
Disregarded Entity
Asset Protection Trusts can be drawn up as a disregarded entity for income tax purposes. This means that any income that results from the trust is filed on your individual tax return. Trusts pay higher tax rates than individuals do, so a properly drafted Asset Protection Trust allows you the benefit of a trust, while also getting the benefit of a lower income tax bracket.
Process of Creating a Trust
In our office, planning for the possibility of needing Medicaid will often include the creation of the Asset Protection Trust. This is often done in conjunction with other general estate planning, which may include a Last Will and Testament, a Durable General Power of Attorney, a Health Care Power of Attorney, HIPAA releases, deeds, and other important estate planning tools.
The first step in drafting the trust and supporting documents is to gather information in order to obtain a comprehensive picture of the family and financial situation. This normally is done through the completion of a questionnaire and a follow-up consultation with the attorney. Information will be gathered about real estate owned, debts, income, investments, and personal property. Decisions regarding beneficiaries, specific gifts/bequests, and who is trustworthy enough to be in charge will have to be made. Also, if there are minor children involved, guardians should be chosen in the event of death.
Consultations can be conducted in person or by phone. During the meeting, the attorney will make recommendations and quote fees for the documents that will be prepared. Ideally, the turn-around time for the completion of all documents is a few weeks.
Next Steps for Proactive Medicaid Planning
Start the process of Proactive Medicaid Planning today by calling (919) 244-2019 or email law@hoplerwilms.com. Provide information about yourself and the person in need of Medicaid planning and we will work with you to develop a plan that best meets your needs as you look to your future with your loved ones.
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