Good Medicaid planning to protect your assets from the Medicaid spend down
Importance of Medicaid Asset Protection Planning
In Medicaid asset protection planning, seniors now have one more thing to worry about. The government requires seniors to spend down all of their assets before they can be eligible for Medicaid to cover the cost of a nursing home. This is a great concern for many seniors. They worked their entire life to earn what they have, and now it is going to be taken away. There are ways to protect those assets.
New Medicaid Laws When Transferring Assets Before Entering Nursing Home
With the tax season fast approaching seniors often ask if they can include their Medicaid asset protection in their current tax strategies. In 2005, the Tax Reduction Act included provisions that address transfers of assets made by seniors. Under new laws, all seniors who are applying for Medicaid to cover the cost of a nursing home must spend down their assets. There is currently a period of five years in which these assets cannot be repositioned or transferred without incurring some Medicaid (Medi-Cal has a 2 ½ year look back period, the Act pertains to Federal benefits) penalty. This is referred to as the look-back time. The new provisions also state that all marital assets must be spent down. This means that if your spouse gets sick and needs to be placed in a nursing home, you will be left with no resources on which to live.
Transferring Assets in Medicaid Asset Protection Planning
When it comes to Medicaid asset protection planning, seniors sometimes question whether they should transfer all of their assets to their children. This can be done, but it is a high risk. If something happens to your children, such as divorce or law suit, they may make use of your assets to help their own situation. At an average rate of over 50% who are ending up in divorce this is a high risk indeed. There are far too many risks in doing this, so it is not a recommended way to reposition your assets. In addition, there are some tax issues to consider when transferring assets to your children. You will be responsible for paying any gift tax if the assets were transferred at less than the fair market value. No matter how you transfer your assets, if the act is done within the 2 1/2 year look-back period, it may be considered fraudulent conveyance.
The Medicaid Asset Protection Trust
The irrevocable Medi-cal Asset Protection Trust has proven to be a highly effective estate planning tool for many older Americans. There are many factors to consider when deciding whether a Medicaid Asset Protection Trust is right for you and your family. This brief overview is designed to give you a starting point for discussions with your loved ones and legal counsel.
A Medi-cal Asset Protection Trust enables an individual or a married couple to transfer some of their assets into a trust, to hold and manage the assets throughout their lifetime. Upon their deaths, the remainder of the assets will be transferred to the heirs in accordance with the provisions of the trust.
This process is best explained by an example. Let’s say Mr. and Mrs. Thomas, both retired, own stocks and savings accounts valued at $300,000. Their current living expenses are covered by income from these investments, plus Social Security and their retirement benefits. Should either one of them ever be admitted to a skilled nursing facility, the Thomas’ likely will not have enough money left over to cover living and medical expenses for the rest of their lives.
Continuing the above example, the Thomas’ can opt to transfer all or a portion of their investments into a Medi-cal Asset Protection Trust. Under the terms of the trust, all investment income will continue to be paid to the Thomas’ during their lifetimes. Should one of them ever need Medi-cal coverage for nursing home care, the income would then be paid to the other spouse. Upon the deaths of both spouses, the trust is terminated and the remaining assets are distributed to the Thomas’ children or other heirs as designated in the trust. As long as the Thomas’ are alive, their assets are protected and they enjoy a continued income stream throughout their lives.
However, the Medi-cal Asset Protection Trust is not without its pitfalls. Creation of such a trust can result in a period of ineligibility for benefits under the Medi-cal program. The length of time varies, according to the value of the assets transferred and the date of the transfer. Following expiration of the ineligibility period, the assets held within the trust are generally protected and will not be factored in when calculating assets for purposes of qualification for Medicaid benefits. Furthermore, transferring assets into an irrevocable Medi-cal Asset Protection Trust keeps them out of both spouses’ reach for the duration of their lives.
Deciding whether a Medi-cal Asset Protection Trust is right for you is a complex process that must take into consideration many factors regarding your assets, income, family structure, overall health, life expectancy, and your wishes regarding how property should be handled after your death. An experienced elder law or Medicaid attorney can help guide you through the decision making process.
The skilled attorneys at The Elder Law Legal Group, P.C. can work with you in designing an asset protection plan that best suits your needs. For more information and a free consultation call The Elder Law Legal Group, P.C. at 866-386-4135 or complete the client contact form.