While the goal of your working life is to make money and save money so that you have a robust nest egg off which to live your retirement years, there are some families who have a hard time making ends meet for various reasons. And when something happens that limits a person’s ability to even do everyday tasks, then there can be a real problem without a safety net.
Needing assisted care can wipe through even a very robust retirement fund, never mind one that has been scraped together over years of just getting by.
Medicaid, the federal-state partnership benefit that covers nursing-care costs for low-income and disabled people, can be a life-saver – at least in terms of your financial life.
But as with most government programs, you will have to jump through hoops to get access. That involves some advanced planning while understanding what you need and what you are dealing with when it comes to getting Medicaid approval.
Medicaid planning, however, has gotten a bad rap of late because some people love to “game” the system by finding way to move all assets to family members so the individual can qualify for Medicaid – a way to preserve an estate and have taxpayers pay for the nursing home care. This is not right, and we would never advocate such an approach.
Medicaid planning is actually meant for those with few assets and little income, but could use some quality planning to make sure Medicaid pays quickly and effectively when you need it.
Here are some strategies, but we caution: it is always best to consult with a financial planner or certified elder-law attorney in your state, as Medicaid rules vary from state to state, so these Medicaid planning strategies won’t work everywhere, and we don’t recommend you try these at home:
- Look-back. Many Medicaid programs do a five-year lookback at any gifted assets you might have given away. The value of the gift within the last five years will count as a penalty; or example, if you gifted $100,000 in cash to a nephew two years ago, and a nursing home costs $5,000 per month, then you will have to wait 20 months before Medicaid will pay for the nursing home care. And there is no catch-up; you pay out of pocket for the first 20 months. You can work this strategy with advanced planning, by gifting money at least five years out – while you are healthy and not in danger of nursing-home care. Beyond 60 months, there is no penalty.
- “Half a Loaf.” This strategy involves gifting money to a family member and having that family member use some of the money to pay the penalty. For example, if you have a 20-month penalty, gave your daughter $100,000 as a gift, have a $3,000 per-month deficit between income and cost of the nursing home, your daughter could use $60,000 of the gift to pay the penalty (20 months times $3,000 deficit) and keep the remaining $40,000.
- Funeral Trust. This allows you to set aside a certain amount of assets for purposes of funeral and burial costs – up to $20,000. But be careful – do not overdo it, because the state will take what is left above and beyond the actual costs.
- Community Spouse Annuity. This is a strategy that allows a married couple to divide assets, then have one spouse give assets to the other one, and that receiver creates an annuity with those assets to create an income stream.
We’re not making these suggestions because they will all work 100 percent of the time. Every state has different rules and guidelines for assets, and only an experienced planner or elder-law attorney in your specific state can help you understand these strategies better and how they might work in your situation.
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