As costs dramatically increase and life expectancy continues to trend higher, Medicaid planning has become an essential part of estate planning. Unfortunately, most people do not become aware of this need until it’s too late to qualify.
The Skyrocketing Costs of Nursing Home Care
Nursing home and residential home costs have skyrocketed over the past few decades. A six-year study by Georgetown University Medical Center published in Medical Care Research and Review, reviewed nursing home costs in eight states between 2005-2010. It concluded that out-of-pocket costs for nursing home care increased significantly beyond normal inflation rates, and even beyond inflation in other health care costs.
In California, between 2002 and 2011, the median out-of-pocket cost for nursing home care increased by 56.7%. According to another recent study, the average cost of a private room in a nursing home for Californians was $8,365 per month for a semi-private accommodation, and $9,817.00 per month for a private room. For nursing home care in Hawai’i, the numbers are even more dire: $12,167 and $13,657, respectively.
A 2014 study by the Centers for Medicare & Medicaid Services reported that 15.5% of the nursing home population is under age 65. Almost one third of nursing home patients were under the age of 74.
Continuing Rise in Life Expectancy
The National Center for Health Statistics announced in January of this year that the average life expectancy had again increased to 78.7 years in 2018.
Medicaid Eligibility
Medicaid eligibility is determined by a number of factors, including level of care and financial requirements. The level of care requirement simply means that the applicant must require the level of care typically provided in a nursing home. The financial requirements are comprised of income limits and asset limits. To be eligible for long term care in California, or Medi-Cal benefits, your household income cannot exceed $16,395 per year, or $22,108 of combined income if you live with another adult. Hawai’i’s long-term care program, administered by MedQuest, follows the eligibility requirements of the Medicaid FFS program, which require income limits of less than $2,349 / month. Asset threshold levels are also included. So even if you have assets which do not produce a stream of income, these may disqualify you from receiving benefits. There are numerous exceptions and permutations in making these calculations.
If Income Limits Exceed Thresholds
Whether services are home care, assisted living, or nursing home services, if a person accepts government benefits but is later determined to have assets that exceed the applicable limits, that will not be the end of the matter. The government may, and usually does, target their estate in an attempt to recoup benefits paid. Your executor may even be required to liquidate assets to repay Medicaid benefits. I might like to see this paragraph sound a little scarier if people lie about their assets.
Giving Away Assets to Qualify
In attempt to qualify for government benefits, many attempt to give away assets to reduce overall wealth. This can work, but has some significant drawbacks. First, if you give away too many assets, you may not have what you need to live on before you qualify for the level-of-care requirements for long-term care. Second, if you have transferred assets during the “look-back” period prior to your application, you will have to pay, or re-pay, that same amount. In California, the look back period is 30 months. In Hawai’i, and all other states, that period is 60 months. So, for example, if you were to apply for Medicaid on October 1, 2020, California would look at your financial transactions back to April 1, 2018, while the remainder of the states would look back to October 1, 2015.
A Solution- Medicaid Trust
A Medicaid Trust is an irrevocable Trust where the Grantor (person creating the Trust) transfers assets into the Trust. The Trust, controlled by a person other than the Grantor, holds the assets for the benefit of the Grantor, and provides them for the benefit of the Grantor (who is also the beneficiary of the Trust). In providing the Trust assets to the beneficiary in the form of support and maintenance, the Trustee can ensure the Grantor qualifies for government benefits by keeping payments below the income threshold levels. Also, because the Trust now owns the assets, they are not counted against the Grantor in calculating government benefit asset thresholds. This, however, assumes this transfer is made before the 60 or 30 month look-back period.
Takeaway
Consider whether a Medicaid Trusts makes sense for your estate plan. As both the cost of long-term care and life expectancy rise, being able to provide for yourself or your aging relatives by putting aside available assets at this time may be right for you. It is a way to keep someone from depleting all his/her life’s savings very quickly on health care, and thus being at the mercy of the government benefit’s system for a substantial period of their lives.
Need more information? Contact CASHMAN LAW today for a free consultation to see how we might help you, or your loved ones, protect their estate.
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