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Navigating Medicaid Crisis Planning: Strategies for Protecting Assets and Qualifying for Long-Term Care Benefits

The reality is that there may come a day when you or your loved one needs long-term care. It could be a home health aid or a full-time nursing home. Medicare does not cover most long-term care costs. Instead, Medicaid—a means-tested government program—is the primary option for financial support. To qualify for Medicaid without being forced to spend down your assets, you need to plan ahead. In this article, our Medicaid crisis planning attorney highlights some actionable strategies for protecting your assets and qualifying for long-term care benefits. 

The Challenge: Long-Term Care Costs Can Be Extreme

Health care costs are rising dramatically—even higher than the overall rate of inflation. A recent report from CBS News cited data showing that the average annual cost of a private room in a nursing home was more than $108,000 per year. It is an astounding figure that many people and families are simply not ready to take on. Even a relatively short-period of late-life nursing home care needs could quickly drain a person’s life savings. Without proper planning, that could be hundreds of thousands of dollars in out-of-pocket expenses. 

Medicaid is the Government Program that Provides Support (Not Medicare)

A far-too-common misunderstanding: Many people believe that Medicare will cover their long-term care/nursing home care costs. That is generally not the case. Medicare only provides insurance coverage for short-term, transitional nursing home care needs. Indeed, Medicare will usually only step in and cover nursing home needs for a post-hospital, short-term stay. 

Medicaid offers a lifeline for those facing long-term care needs. Medicaid is designed to assist low-income individuals and families in paying for long-term care services—including nursing home stays and home health care. Understanding the distinction between these two programs is crucial for effective planning. Here is the most important thing to know: 

  • Medicaid is means-tested. Not everyone qualifies. If a person’s income and/or assets are too high, Medicaid will force them to “spend down” those assets before it steps in to provide long-term care. 

Here is an example of how this can go wrong without proper planning. Imagine that a 70-year-old has $100,000 sitting in a bank account. Suddenly, they fall seriously ill and need long-term care from a nursing home. They can apply for Medicaid to get nursing home coverage. However, the cash resource limit for Medicaid eligibility is generally only a few thousand dollars—it varies from state to state. That means the vulnerable $70,000 could be forced to spend virtually all of that money they saved away (spend down) before they qualify. 

Strategies to Protect Assets and Qualify for Medicaid 

As frustrating as it can be to learn how strict Medicaid is for long-term care costs, there is some good news: Proactive strategies can protect your assets while allowing a person to qualify for Medicaid. 

  • Create and Fund an Irrevocable Trust: One effective strategy for Medicaid crisis planning is establishing and funding an irrevocable trust. By transferring assets into the trust, individuals can legally separate themselves from their wealth. Since these assets no longer count as personal assets, they help individuals meet Medicaid’s asset threshold. Setting up a trust is generally considered to be the best, most effective wealth preservation strategy to protect assets from long-term care costs. Though, it must be done proactively. 
  • Turn Assets into Income (Medicaid-Compliant Annuity): Another strategy involves converting assets into income through a Medicaid-compliant annuity. This type of financial product can transform a lump sum into a stream of income. It is a strategy that can be particularly useful for a spouse living at home while the other receives care. These annuities must be irrevocable and non-transferable to ensure they comply with Medicaid eligibility. 
  • Set Up a Life Estate for Certain Property: Setting up a life estate for a personal residence can also be a beneficial strategy. In a life estate, the original homeowner retains the right to live in the home until death—after which the property transfers directly to a designated remainderman. It is an estate planning strategy that is effective for some people. 
  • Using Your Primary Residence: A person’s primary residence—about to a certain value, varying from $600,000 to $955,000 in different states—is not counted by Medicaid when determining long-term care eligibility. That housing equity is protected.   
  • Engage in Early Gifting: Early gifting can help reduce countable assets for Medicaid eligibility. By giving money or property to children or other family members well before it becomes necessary to apply for Medicaid, a person can meet eligibility requirements while also preserving some wealth within the family. 

Key Long-Term Care Planning Point: Medicaid Has Five-Year Look Back

Why is early planning so important when it comes to long-term care? The potential challenge is that Medicaid has a five-year lookback window that it uses when assessing an applicant’s eligibility for long-term care benefits. If a transfer happened within the last five years before a person applies for Medicaid nursing home benefits, Medicaid can review that transfer and, potentially, unwind it. 

For example, imagine that a person sets up an irrevocable trust. Two years later, he or she applies for Medicaid coverage for long-term care. The assets in that trust are not effectively protected because the transfer occurred within the lookback window. Likewise, if a person early gifts their child $15,000, that gift is only fully protected from Medicaid if that transfer happened at least five years before they filed a Medicaid application. 

The Bottom Line: A proactive approach is essential. Awareness of and planning around the five-year look-back period is a must for anyone considering Medicaid as part of their long-term care strategy.

Schedule a Confidential Consultation With a Long-Term Care Planning Attorney Today

At Estate Law Center USA, our long-term care planning lawyers are committed to helping people and families protect their hard-earned life savings. We provide proactive asset protection strategies to help clients preserve wealth while setting up their eligibility for Medicaid when the time costs. If you have any questions about your options, please do not hesitate to contact us today. We offer free estate planning workshops and free estate planning live webinars.