The need for long-term care continues to grow as the population ages, and so has the cost. The cost for an individual requiring skilled care in a nursing home can easily exceed $90,000 per year. People who require long-term care have three options:

  • Pay privately of an average of $7,500 per month;
  • Long-term care insurance; or
  • Medicaid

Only a small percentage of our clients have long-term care insurance, and many want to plan ahead so that they have options and aren’t forced to spend down their assets in the event they need nursing home care.

When you apply for long-term care Medicaid benefits, Medicaid can look back five years from the date of application to see if you have given away assets. This is what is referred to as the “five-year look-back period” for Medicaid. If Medicaid determines that the Medicaid applicant improperly gave assets away during the five-year look-back period, then Medicaid can implement a penalty period and refuse to pay for care, which can be devastating if the applicant doesn’t have the ability to get the assets back or sustain the penalty period. For example, if an applicant gave away $15,000 as a gift to a child a year before application, Medicaid could determine it is an improper transfer and refuse to pay for care for a couple months.

A planning tool we use to help our clients protect their assets in advance, such as a house or investments, from Medicaid is a Medicaid Asset Protection Trust. The goal with the Medicaid Asset Protection Trust is to plan before needing to apply for Medicaid and beating Medicaid’s five-year look-back period. Through the use of a Medicaid Asset Protection Trust, our client, the Grantor, sets up the trust and funds it with assets, such as a house, and names someone to be their trustee, such as child, sibling or friend. If five years pass before the Grantor needs to apply for Medicaid benefits, then the assets in the Medicaid Asset Protection Trust are fully protected, meaning the Grantor will have options and will not have to spend down those assets.

The Medicaid Asset Protection Trust is the safest way to protect assets from Medicaid. Many hear or read that they can simply gift assets to kids outright, and while it is certainly an option, it might not be the best option. If you give away assets to kids, then those assets are owned by your kids and subject to their creditors, divorce, or estate if they pass away. For example, if you give your house and investment account to a child and he or she then causes an accident and gets sued, then those assets could be subject to the lawsuit since they are in the name of the child. With a Medicaid Asset Protection Trust, those same assets would be held in trust and not distributed to your child until your passing and subject to the terms of the trust. Additionally, if you gift an asset, like a house, to a child during your lifetime, it could potentially expose your child to capital gains taxes.

To learn more about protecting assets from Medicaid through a Medicaid Asset Protection Trust, call Alex Carr Law, LLC.