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Medicaid Planning is Not Traditional Estate Planning

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Medicaid planning

Some people delay Medicaid planning because they don’t believe they will ever require the services provided by a long-term care skilled nursing facility like a nursing home. Others incorrectly believe that their traditional estate plan which may include a Revocable Living Trust, Property or Financial Power of Attorney and Healthcare Power of Attorney plans for Medicaid. This is not the case and additional planning is needed if you are concerned about having to pay for the cost of a skilled nursing facility at some point in your future.

So first, what is Medicaid? Medicaid is a joint federal and state benefits program that pays for long-term care needs.  In order to qualify for Medicaid, you must meet strict income and asset limits that require most people to spend a large part of their assets in order to meet these limits.  Because Medicaid is a means-based program, Medicaid has a look-back rule where it reviews any asset transferred by gifting or any sale for less than fair market value during the five years immediately preceding the date of the Medicaid application. If you have transferred assets for less than fair market value or gifted assets within the past five years and you are planning to apply for Medicaid, Medicaid may impose a penalty which means you will be ineligible to receive benefits for a certain number of months. To avoid this, it is important to plan in advance if possible.

One option for advance planning is to create an Irrevocable Medicaid Asset Protection Trust. This type of trust is a valuable tool that allows you to protect your assets while still qualifying for Medicaid. A Medicaid Asset Protection Trust allows you to transfer assets to a special kind of trust where you are not the trustee, and not the principal beneficiary, but still have access to income from the trust, thereby allowing you to qualify after the 5 year look back period has run. 

What types of assets can go into a Medicaid Asset Protection Trust? A number of different type of assets can be put into a Medicaid Asset Protection Trust, including a home. Other assets that are traditionally placed in a Medicaid Asset Protection Trust include investment real estate, checking and savings accounts, stock, bonds and mutual funds. In most cases, transferring retirement accounts, like your 401K or IRAs, is not recommended due to tax implications.

As you can see, traditional estate planning is focused on passing your assets to your loved ones after you die in the most efficient way possible. Medicaid planning is focused on structuring your assets in a way that allows you to qualify for long-term care benefits while simultaneously preserving some of your assets, like your home. For many people, a complete estate plan will include the traditional estate planning documents, like a Revocable Living Trust, but also a Medicaid Asset Protection Trust to protect certain assets.

To review your traditional estate plan and discuss planning for long-term care needs, please contact us at Sinclair Prosser Gasior for an appointment today.

Sinclair Prosser Gasior
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