Long-term medical care is expensive, and there is no indication that trend will reverse itself anytime soon. The national median cost of long term care is $44000-$91000. If you don’t have this saved away, you aren’t alone. There are governmental programs that help you pay for those types of programs, but they require planning. That means you need to be proactive in considering the implications of long-term medical care costs when crafting your estate plan. Many people find themselves falling short of the funds needed to pay for increasingly costly long-term care but still having too many assets to qualify for Medicaid funds to help cover those costs. This no-man’s land is a place no one wants to be. Thus the name. A recent article from Marketwatch.com provides some information on Medicaid trusts, estate planning tools that can help you navigate the high cost of long-term care insurance while still holding onto important assets you want to pass to your heirs. Here are some highlights.
Medicaid “Look-Back” Rules
One of the reasons that you should start planning for long-term care costs as soon as possible is the existence of Medicaid “look-back” rules. Right now, Medicaid looks at any major gift you’ve given in the last five years. Gift is used in a loose sense. Any major transfer is likely to be scrutinized. My partner, Rick Weaver, always says “treat a Medicaid application like your tax return with a 100% chance of audit.” These rules mean that even if you are able to prove your eligibility for Medicaid today, you will still be required to have been eligible for each of the past five (5) years, too. If you find yourself in a situation where you are facing heightened medical costs, especially from unanticipated long-term care needs, you will not simply be able to transfer assets somewhere else to qualify. The earlier you start planning, the more secure you can be in your ability to qualify for potentially necessary Medicaid funds when it comes to your long-term care plans.
Basics of Medicaid Trusts
Medicaid trusts must be irrevocable trusts. That means that once you establish them, you generally cannot revoke or modify them. The reason for this is fairly obvious. Medicaid doesn’t want to transferring funds with an ability to liquidate those funds down the road. These Medicaid trusts work by transferring ownership from you and your estate to the trust itself so that assets you decide to place in the trust are not counted when determining your eligibility for Medicaid funding. The individual creating the trust cannot be the trustee of the trust, which means that you are essentially handing over control of the assets you assign to a Medicaid trust to the individual you decide to name as trustee. It is important to make sure you appoint someone that you trust and that you know will manage the assets within that trust responsibly. If this concept is confusing after I explained the look back period, don’t worry. Creating a trust for medicaid is a gift for medicaid purposes. This is why effective planning often takes place earlier in life as opposed to right before you need Medicaid.
Medicaid trusts can sometimes be daunting when considering their upfront costs. You will also likely be responsible for annual accounting fees when it comes to tax preparation and other important trust maintenance costs. However, the best way to look at these trusts are as an investment in your long-term care. Paying to establish a Medicaid trust now can be significantly more cost-effective than being required to pay for long-term care without the assistance of Medicaid funds. Would you rather face a small bill today or face months of long term care at $5000+ a month? You can retain significantly more assets to distribute to your heirs than you would be able to if those assets were needed to pay for long-term care expenses. If you are concerned about the potential implications the costs of long-term care may have on you and your estate, come talk to us today. Early planning is smart planning.