Why Asset Protection Planning is the Next Step for Your Long Term Care

So, you have a traditional trust — one that is revocable, and changeable, and will avoid the need for a guardian or probate in the event of incapacity or death.  But, did you know that this type of trust offers no additional protection against your creditors, not during your life nor after it?  For many people it is this gap — the lack of protection against the rising cost of long term care and the risk to their non-liquid assets — that motivates them to use an irrevocable trust to hold their assets.

The reality is that the cost of long term care is increasing exponentially.  In 2015, the US Department of Health and Human Service’s determined that the average cost of care is $138,000 per individual.  In the same month, Forbes Magazine estimated the higher figure of $265,000 per individual.  This is not limited to medical care costs like a hospital stay, or medication.  Long term care is defined as the care one needs to meet their basic activities of daily living, like meal preparations, using the rest room, paying bills, or taking medication.  According to the same government study, each of us has a 50% chance of needing assistance to meet these needs if we are 65 years old and older.  And, sadly, between inflation, and economic troubles, and decades of relying on limited pensions and social security to meet financial needs, the reality is that many people do not have the liquid investments on hand to meet the rising cost of their long term care needs.

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Annuities May Create Too Much Income

The last several weeks, I’ve addressed how individuals can maximize their available resources in order to afford needed care as they age.  One to the questions I regular get is whether a person is automatically disqualified from Medicaid if he or her income is too high.  The short answer is no.

Medicaid says that you cannot qualify if you earn more than $2,199 per month.  However, you may still apply for Medicaid even if you earn income above that amount.  In order to apply, you must set up something called a “Qualified Income Trust.”  Some states call it a “Miller Trust.”  Usually this trust is managed by the well spouse.

The basic concept for this kind of trust is that it siphons off and holds the applicant’s income.  All of the applicant’s income, no matter it’s source, must be deposited into the bank account for the Qualified Income Trust.  For example, the applicant’s social security, pension payments, and any annuity payments must all be deposited there.

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Start Tracking Now to Avoid Penalty Later

When applying for Medicaid, the government will presume that any transfers you made for less than fair market value in the last five years was done with the specific intent to qualify for Medicaid.  Even if that was not your intention, Medicaid will treat the transfer as a gift.  Under Medicaid rules, amounts gifted are treated as if they were still in your possession on the day you otherwise qualified for Medicaid and you will be penalized as if that cash was still in your bank account.

For example, Jane gave $15,000 to her grandson to help him with college.  Three years later, she applies for Medicaid when moved into a skilled nursing facility.  Even though that money is long gone, Nevada Medicaid will treat it as if that money was still in her bank account and could be used for her care.  Even though she would otherwise qualify for Medicaid, she would be disqualified for a period of three months.  This means that for a period of three months, Jane would not have any assistance from Medicaid even though she actually has less than $2,000 in the bank.


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Proper Planning Can Protect Healthy Spouse

As we or our parents’ age, we will be forced to confront how to receive quality long term care.  At a certain point, aging adults will need assistance to meet their daily needs.  Many times, this is done in an assisted living or skilled nursing facility.  The concern becomes affording such care.  Medical insurance rarely covers skilled nursing.  Instead, the cost of such a facility may be covered by long term care insurance, privately funded, or covered by Medicaid.

If you are married, the well spouse does not have to become impoverished to place the disabled spouse in skilled nursing.  As a married couple, you do not need to spend all of your assets on care for the sick spouse.  It is very poor planning to spend all of your hard earned retirement on the care of one spouse, and then have years or decades left in your own life with no way to pay for your basic necessities like food or shelter.  Instead, with proper planning, we can protect assets for the well spouse staying at home while still providing for the sick spouse’s care with the assistance of Medicaid.

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