Medicaid Planning for Your Estate
Medicaid is a federal and state program that provides health care coverage for people with limited income and other resources. Many people rely on Medicaid for long-term care, and long-term care accounts for 20% of all Medicaid funding. To access such coverage, you must have limited assets—about $2,000 in many cases—and that limit and future responsibilities can put your estate at risk.
Medicaid planning differs from estate planning. An estate plan maintains your financial control after passing and safeguards assets for your beneficiaries while minimizing estate taxes. Medicaid planning often is a part of estate planning, but here, the focus is ensuring your eligibility for the Medicaid program and protecting assets that Medicaid may have a right to while you are alive and after you pass. The general rule is that you must have total assets worth no more than $2,000. This limit does vary between states, and there are usually certain exceptions, such as your primary home and your primary vehicle.
The Importance of Planning for Medicaid in Advance
If there is potential that you may need long-term care paid for by Medicaid, it is a good idea to meet with an estate planning lawyer as soon as possible. The reason for this is the look-back rule. When you apply for long-term care through Medicaid, the agency will scrutinize your finances from the date of application as far back as the look-back period allows. This time frame varies from state to state but is generally between three and five years. Being in violation of the rule is cause for Medicaid disqualification, and many common estate planning strategies do violate it.
Medicaid Estate Recovery Program
Every state has a Medicaid estate recovery program that attempts to reimburse the program through the estates of deceased beneficiaries. Even the primary home is often not safe from the MERP, which makes it necessary to protect assets specifically from this kind of debt recovery.
An annuity is one of the most common tools that an estate planning lawyer can you use to protect your assets from Medicaid. An annuity is a contract between you and an insurance company. You pay the insurance company a lump sum, and that company will provide you an ongoing income stream. There is a common strategy called “half a loaf” involving annuities that is useful when the look-back rule must be violated. The Medicaid applicant gives approximately half of their assets to loved ones. The other half is then used to invest in an annuity. The gifting does put the applicant in violation, but the annuity is set up such that it covers the penalization period prior to the full benefits kicking in.
Another common tool is a trust. Irrevocable trusts, which generally cannot be changed after their creation, safeguard assets, ensure privacy concerning your assets and pay out to your beneficiaries after your passing. There are also Medicaid asset protection trusts which are a specific kind of irrevocable trust that protect a wide range of assets from the MERP while maintaining the primary home.
New York and Florida have a concept known as spousal refusal. The other spouse refuses to pay, and Medicaid is unable to refuse long-term care coverage based on that. In other states, you have the option of a Medicaid divorce. Improved spousal impoverishment rules have made Medicaid divorces less common, but they remain an option when substantial asset loss would otherwise occur.
Professional Assistance Planning for Medicaid
If there is the potential that you may need long-term care paid for by Medicaid, it is important to take steps to protect your estate as soon as is practical. The Knee Law Firm is here to assist you, and we have helped many people in New Jersey plan for Medicaid long-term care while also protecting their assets. Meet with one of our estate planning lawyers to discuss your estate and your Medicaid needs. You can contact our law firm online or call our Hackensack office at 201-996-1200.