The federal Medicaid program is designed to ensure senior citizens have long-term health care, but it has financial eligibility requirements that should be considered well ahead of the need for Medicaid benefits.
Qualifying for Medicaid often requires applicants to spend down their assets to meet the eligibility requirements. This should be a planned distribution of assets that will protect your estate and your heirs, ensure the quickest possible eligibility for benefits when the need arises, and avoid penalties for improper asset transfers.
Proper estate planning can help your family prepare for the financial toll of long-term care needs while protecting your assets for future generations. At the Brady Cobin Law Group, PLLC, our dedicated Raleigh elder law attorneys can help you make strategic financial arrangements for your long-term care needs.
What is Medicaid and How Does It Work?
Medicaid helps lower-income Americans who are 65 years old or older or disabled pay certain medical expenses, including nursing home care and in-home care under North Carolina’s Community Alternatives Program (CAP). Medicaid is not available to all seniors. It strictly limits the income and assets an individual may have and still qualify for benefits.
Medicaid is administered by the individual states and rules differ from state to state. In general, Medicaid rules require that beneficiaries have no more than $2,000 in countable assets or $3,000 for a couple. Certain assets, such as the individual’s primary residence, vehicle, and personal belongings, are not countable assets. The maximum allowable annual income in North Carolina ranges from $17,131 for an individual and $23,169 for a couple to $59,398 for a household of eight, with provisions for larger households.
Often, people with a sudden need for Medicaid benefits – in many cases for nursing home care or other long-term care needs – initiate a spend down to meet eligibility requirements. This typically involves spending income on medical bills and selling off some assets with proceeds applied to medical costs.
Some people attempt to give money or transfer assets to a family as part of a spend-down, but there are regulations to prevent transferring assets that could be used to pay long-term care expenses.
Under the Medicaid look-back period for asset transfers, the government can look at transfers and gifts made as long as five years before the date of an application for assistance. If someone applying for assistance has shifted assets within the look-back period, a penalty period may be triggered, during which that individual cannot receive Medicaid.
After a Medicaid recipient dies, the federal government requires states to recover some of what it has paid for their care from their estate. This may lead to a lien on the Medicaid recipient’s home, potentially requiring the children to sell the family home to settle the lien. State Medicaid agencies may place a lien on a home owned by a living Medicaid beneficiary unless certain dependent relatives such as a spouse or underage children are living there.
You Can Plan for Medicaid Long-Term Care Benefits Now
Long-term medical care is very expensive, especially nursing home care. Most people find themselves paying for nursing home care out of their savings until their assets are depleted, at which point they qualify for Medicaid nursing home assistance.
The better approach is to make Medicaid plans before you need long-term care. This allows you to distribute or protect your assets in advance of a need for Medicaid eligibility. Then, when necessary, you will also qualify for Medicaid sooner.
Estate Plan Tools to Prepare for Long-Term care Assistance from Medicaid
To plan for Medicaid eligibility, an irrevocable trust would be drafted so that the income it generates is payable to you (the person establishing the trust) for life, but the principal cannot be applied to benefit you or your spouse. At your death, the principal would go to your heirs. This protects the funds in the trust and allows you to use the income for living expenses. If you moved to a nursing home, the trust income would pay nursing home costs, but the principal would not be counted as an asset for Medicaid eligibility. To avoid Medicaid’s look-back period, the trust would have to be funded at least five years before applying for benefits.
To set up a simple immediate annuity, you pay a lump sum of money to an investment company and the company sends you a monthly check for the rest of your life. Putting money into an annuity transforms otherwise countable assets into a non-countable income stream as long as the income is in the name of someone (such as your spouse) who is not in the nursing home. The purchase of an annuity is considered an investment and not an asset transfer for purposes of Medicaid eligibility in North Carolina if the structure of the annuity and timing of purchase meet certain state requirements.
A life estate (or life tenancy) is a form of joint ownership of property between two or more people who have full ownership rights at different periods of time. Establishing a life estate would ensure you maintain full rights to your home for the rest of your life, allowing you to sell it, remodel, or rent out part of it. The other owner would have an ownership interest but be unable to take possession until the end of the life estate upon your death. Then, the ownership would transfer without the property ever being a part of your estate. You would need to have a five-year gap between establishing a life estate and applying for Medicaid to avoid potential penalties.
Contact a Medicaid Planning and Elder Law Attorney for Help
Medicaid offers significant long-term health care benefits, but you should plan ahead to obtain the benefits without spending down your hard-earned assets in an unnecessarily costly manner.
Our estate planning attorneys at Brady Cobin Law Group have more than 35 years of experience helping individuals protect their assets and qualify for Medicaid. Don’t wait for a sudden need to arise. Contact us online today or phone (919) 782-3500 to make plans for future needs.