In times such as these, it can feel as if folks can’t agree on anything and yet few will argue that 2020 could hardly have been worse. After all, nobody imagined the perfect storm a pandemic tangled by politics would provoke. Unfortunately, 2020 isn’t over and if you haven’t done the work of planning for long-term care it could get nastier still.
Imagine you fall ill, end up in a traffic accident, or simply tumble down the stairs and become unable to live unassisted. Data shows that 70% of those age 65 or older will need some type of long-term care during their lifetime. Few think they will end up among the unlucky majority and yet Covid-19 has shown that sudden, serious illness is no rarity. Should the dice fall out of your favor, you are looking at an average of $3,000 to $5,000 per month for an assisted living facility and $7,000 to over $10,000 per month for a nursing home. Even home care agencies charge $25 to $30 per hour for their services. A middle-class individual can easily slip into poverty after a life of hard work if no plan exists to mitigate these costs.
But Doesn’t My Insurance Have Me Covered?
For most, the answer is no. Neither Medicare nor most health insurance plans cover long-term care. Medicaid, which is different than Medicare, does, however. And while overcoming the barriers to qualifying for the program can be daunting, doing so beats spending your life savings and depriving your loved ones of an inheritance. What’s more, legal mechanisms exist that allow you to preserve most of your assets while at once meeting Medicaid’s eligibility requirements.
Ensuring You Qualify for Medicaid
In 2020, a person seeking Medicaid may have a maximum total monthly income of $2,349. Any more and the applicant will need to establish a Qualified Income Trust. This tool allows any income placed in the trust that exceeds the maximum limit to be disregarded for Medicaid application purposes. Nonetheless, once approved, this money must be used to pay for the costs of care before Medicaid covers the balance. If an individual is married and their spouse earns no more than $2,113.75, a portion of this cost can be offset by an income transfer.
Assets are the real sticking point where Medicaid is concerned, though. Between bank accounts, brokerage accounts, real estate, retirement accounts, annuities, and life insurance policies, a person may have no more than $2,000 to their name to qualify. While assets can be transferred to children and loved ones, this is only a solution if you know for sure that your loved ones, themselves, won’t suffer financial calamity—and nobody can be certain of this.
A better solution is an Irrevocable Medicaid Asset Preservation Trust. While this legal instrument doesn’t exempt you from what is referred to as Medicaid’s five year “look back” period—the time frame upon which the Department of Job and Family Services revises your financial history searching for “improper transfers” of wealth—it does protect your life’s work from disappearing in a child’s divorce or bankruptcy. An Irrevocable Medicaid Asset Preservation Trust permanently takes assets out of your name thereby placing them beyond Medicaid’s reach. By naming your children or loved ones as beneficiaries of the trust, you guarantee that they receive your assets intact while at once facilitating your application for long-term care coverage.
Wait, five year look back period? What if I need Medicaid now?
The best way to ensure your estate isn’t consumed by long-term care costs is to start planning early. Not everyone has the luck or luxury of being able to do so, though. If you need Medicaid coverage now but have assets that exceed the $2,000 limit you still have options. One strategy that preserves a significant portion of one’s wealth is to gift a percentage to loved ones or an irrevocable trust and place the rest in a Medicaid-Compliant Annuity Share. This allows for the purchase of a special annuity that is not counted as an asset and which can then be used to pay through the penalty period that results from making a financial transfer within the five years placed under review.
While the examples provided above cannot hope to cover the full complexity of ensuring you qualify for Medicaid, they assure that with a little bit of planning you can successfully protect your life’s work from the costs of long-term care.
It may be true that it’s never too late to get started but that doesn’t mean earlier isn’t better. After all, to quote John F. Kennedy: “The time to repair the roof is when the sun is shining.” If in 2020 it’s not yet raining, the clouds have gathered, and nobody can say who’s about to get caught in the downpour.