Too many clients come to their initial consultations believing that it is too late to create an estate or elder law plan that can protect their assets in the event they have long-term care needs or are applying for Medicaid. They think the ship has sailed because they have heard of the vaunted 5 year look-back period and “there’s just no way we will be in good shape five years from now.” In addition, they may confuse their ability to obtain long-term care insurance, that is, their insurability, from the process of creating a trust. They also may not realize that there are last minute techniques to save money for families when there is an immediate long-term care event with no pre-planning.
The fact is that even if you have one foot (or even both feet) in a nursing home, there is almost certainly actions that can be taken to make the financial situation better. Sure, planning ahead of time is better than waiting until the last second, but acting last second is better than not acting at all. Don’t just take my word for it. Let’s consider a few scenarios to illustrate the importance of action.
Applying for Medicaid Last Minute Preparation
Scenario 1: Due to an unforeseen event, your Father needs a nursing home and unfortunately, no advanced planning was ever done by them to protect their assets.
This certainly has the makings of a worst-case scenario. Nursing homes are expensive. Fifteen Thousand dollars a month expensive. Not only that, usually, unless a plan was created ahead of time,
the default “plan” is to private pay for the nursing home each and every month until you spend down your assets sufficient enough to qualify for Medicaid. Medicaid will not cover someone until they are down to $15,900 of “resources”. Resources are a subset of your “Assets”. In determining where you are in terms of qualifying, Medicaid will not look at qualified retirement plans (ex. IRAs, 401Ks, 403Bs, Pensions) as “resources”. Instead, they look at those of your assets that can be cashed out so to speak. They look at what you can access, what money you can put in your pocket by your actions alone. Bank accounts, CDs, Savings Bonds, Stocks and Brokerage Accounts, Real Estate, Cash Value in Life Insurance are all examples of “Resources”.
Clearly, it does not take someone to be a Vanderbilt or a Rockefeller to be over-resourced and thus not qualify for Medicaid. What’s more, Medicaid will employ a 5-year look back period to determine if you gave away any assets which otherwise could have been used to pay for your long-term care needs. While the prospects seem quite dim, this is our first example about how last second action can make up some of your previous inaction.
Depending on the specific fact pattern we are presented, we can improve on the worst case scenario considerably.
First, there are certain expenses that can be paid prior to applying for Medicaid in a nursing home. They include pre-paying burial and funeral expenses as well as retaining experts such as attorneys to apply for Medicaid.
Second, depending on the family tree, certain assets may be exempt from consideration as a “resource.” For example, if a child of the applicant has been living at home with the applicant for 2+
years, it may be possible to transfer the home to said child under a “child-caretaker exemption.” If a child of the applicant is disabled, there may similarly be an opportunity to transfer all sums of assets to the disabled child. This seems to be a relevant time to remind you that life does not operate in a bubble and transfers to kids for crisis planning purposes may have serious adverse consequences to the recipients (ex. Disabled child now possibly not qualifying for needs based benefits of their own). In addition, the existence of a spouse can be critical to how assets can be moved between spouses to best take advantage of Medicaid’s own rules.
Third, and most importantly, crisis planning may often result in saving over 50% of the applicant’s assets through what attorneys call a “Gift and Loan” plan. The plan is a complicated one which, instead of running away from Medicaid’s asset and transfer rules, hits them straight on. The plan effectively divides an applicant’s assets into two with some monies being gifted from the applicant and some monies being loaned by the applicant. The exact amounts depend on the income of the applicant as well as the cost of their nursing home. The plan can result in the applicant qualifying for Medicaid twice as fast thus saving half their money.
If for example, a client has $200,000 of excess resources, a Gift and Loan plan can save $100,000. Of course, the devil is in the details and each fact pattern can create its own playbook. It is imperative that an elder law attorney be consulted to best apply the law to the facts presented. It’s also important to realize that a Crisis Plan is often dependent on two things: getting lucky with the fact pattern and using a durable Power of Attorney to get the logistics of the plan completed. Unfortunately, people do not know that crisis planning is an option for their loved one. They never
speak with an elder law attorney and instead rely on the guidance of their neighbors, the nursing home or ill-informed financial advisors or non-elder law attorneys and assume that because they did not plan ahead of time, their financial fate is set.
While last second planning to try and save 50% of one’s assets is great, saving 100% of their assets is better.
Applying for Medicaid with Advanced Planning
Scenario 2: Due to an unforeseen event, your Father needs a nursing home and fortunately, advanced planning was completed five years ago in the form of a Medicaid Asset Protection Trust that is fully- funded.
This is still not a dream scenario. While yes, nearly every asset owned by the applicant will be excluded from being considered a “resource” of Dad, the reality is that he will likely spend the rest of his days in a skilled nursing home. That is anything but a dream. However, attorneys who practice elder law often find themselves in the lemonade business, using thoughtful and custom estate plans to make the best of the lemons life hands their clients. The Medicaid Asset Protection Trust is a Swiss army knife that accomplishes multiple goals for clients. First, the Trust contains a good old fashioned estate plan. Who gets what? When do they get it? How do they get it? There are no wrong answers to these questions so long as they are well thought out.
Second, the Trust helps avoid a costly Court-supervised administration of an estate a/k/a “probate” when a loved one passes.
Third, the Trust is a vehicle for protecting your hard-earned assets by putting them in the Trust while allowing you to continue to enjoy those very same assets. Real estate in the trust is there for your exclusive use and enjoyment. In fact, you still qualify for the STAR exemption for your primary residence and can up-size or downsize your residence as you please. For investments and income producing assets that are put in the Trust, you remain the recipient of the interest and dividends they produce. The day after you sign your Trust and fund it with some of your assets, the Sun still rises in the morning and sets at night. Life is virtually the same. The real difference is felt when there are long-term care events later in life.
Lastly and most importantly, when you create a Medicaid Asset Protection Trust, you are still the boss. You retain the ability to change both your trustees and your beneficiaries until your death. You are still the king of your castle.
When clients who create and fund a Medicaid Asset Protection need long term care, the exercise of getting them qualified for Medicaid becomes routine paperwork and less smoke and mirrors. Lots and lots of paperwork, but routine. There is certainty. There are options. There are plenty of hard-earned assets that can pass to your loved ones as you always intended.
Which scenario will take place if one of your loved ones needs significant long term care? Contact Herzog Law Firm for a free consultation.