When you think of leading causes of bankruptcy, job loss, divorce or separation, and poor credit management probably come to mind. While there’s no doubt that all of the above are frequent culprits, medical expenses are the single most common cause of bankruptcy in the US. Serious, unforeseen illness plays a big role in driving this statistic but so too does failure to plan for long-term care needs such as nursing home treatment. Luckily, with a little bit of foresight, this latter risk can be mitigated and you can look ahead to your golden years with peace of mind.

An Ounce of Prevention is Worth a Pound of Cure

Medicaid, the state and federal government-sponsored public healthcare plan, is the best way to sidestep the enormous potential cost of a nursing home. The catch, of course, is that you have to qualify. In 2020, a single individual can have no more than $2,349 of monthly income and no more than $2,000 in countable assets, meaning most middle-income folks must strategically reallocate their wealth in order to make the cut-offs.

In principle, it is easy to redirect income and shuffle around assets but where Medicaid is concerned, time is of the essence. The program employs a five year “look-back” period when assessing applicants to ensure money which otherwise could have been used to pay wasn’t improperly gifted of liquidated. Should this be determined to have happened, the applicant will be penalized with a period of Medicaid ineligibility. As long as monetary gifts and other adjustments are made more than five years prior to applying, however, you’re in the clear. 

Of course, no one can predict when the need for long-term care will arise. You might be a healthy 35 year-old that has a cycling accident on the way to work, and end up in a nursing home next year (knock on wood). Should this happen, there are still ways to get the coverage you need while at once preserving the majority of your assets and yet much more can be saved if you act now (and are lucky enough to remain healthy for the next five years).

Essential Steps to Protecting Your Life’s Work

Transfer Assets to an Annuity

Whether you live in a state that counts periodic annuity payouts when determining Medicaid eligibility or not, this is a wise step. After all, if payouts are uncounted, an annuity allows you to qualify for Medicaid-covered nursing home care without having to spend down your assets and if payouts are counted, you need only make the transfer outside of the five year window to gain the same benefit.

Transfer Income to Your Spouse

A common concern among Medicaid applicants is jeopardizing their spouse’s income. Luckily, Federal Spousal Impoverishment Act prevents this from happening. What’s more, if your spouse’s income falls below your state’s determined allowance ($2,113.75/month on the low end and $3,216/month on the high end in 2020), you are permitted to transfer them a portion of your personal income to make up the difference. While this is a step to take at the time of applying for Medicaid, it worth planning ahead to ensure you can take full advantage of the provision when need be.

Protect Your Money with an Irrevocable Trust

An irrevocable trust, as the name indicates, is irrevocable, meaning that once the terms are set, they can’t be changed. Assets placed in the trust no longer appear in your name and are thus exempt from nursing home costs. Upon your death, these assets can be passed to your heirs and meanwhile you can continue benefitting from the periodic interest and dividends they generate.

However important each of the above items may be, they are not an exhaustive list of the ways you can protect your life’s work while at once ensuring you have access to long-term care. Testamentary trusts, Medicaid asset protection trusts, and life estates are all additional instruments that serve this purpose (to name just a few). It’s always important to consult a professional. In this case, an experienced estate planning attorney can address the details of each and help you determine which are the best-suited to your personal needs. It is important to act fast, though, as the sooner you have protections in place, the less likely you are to be caught with too much to qualify for Medicaid but too little to pay for your own care without going bankrupt.


Contact the Estate Planning Attorneys at Deliberato Law Center