Guarding against Medicaid recovery with a sound estate plan

If you or a loved one is getting near to the age where long-term care, such as a nursing home, is likely to be needed, you may assume that Medicaid is there to help you pay for the costs of this type of care. However, Medicaid is not available for everyone, as certain requirements must be met before it will cover your care.

Specifically, Medicaid requires you to have very limited assets in your name and qualify as “medically needy” under the program. You may think that qualifying is a rather easy thing to do, as you can simply give away your assets (e.g. stocks, retirement accounts, real estate, etc.) in order to meet the requirements of Medicaid. Unfortunately, this is not the case.

The reason why this approach does not work is the five-year lookback rule. Pursuant to this rule, Medicaid can review all financial transactions you made during five years before you applied for assistance. If it is found that you gave away certain assets during this time, you may be subject to a penalty period that will render you ineligible for benefits for a certain time.

Once you are able to qualify for benefits, you can keep many of your assets. However, after you have passed away, the government has a right to take action to recover the cost of your long-term care from your estate. Typically, this means that the government will put a lien on your real estate and file a claim for compensation from your estate. Eventually, this may result in the loss of many of your assets, including your home.

Estate planning can help

Although it is possible to lose your home and other assets because of the Medicaid asset recovery process, this is not a foregone conclusion. Fortunately, there are a wide variety of estate planning solutions, commonly known as Medicaid planning, that will allow you to keep your assets away from the government after your death. However, for best results, it is wise to begin this type of planning many years before it is anticipated that you would need long-term care, due to the five-year lookback rule.

One popular preservation method is to transfer your major assets, such as your home, into an irrevocable trust. This option allows you avoid having to spend all of your assets in order to qualify for Medicaid. Additionally, it allows you to transfer your assets to another family member or a person of your choosing after you die, without having to worry about Medicaid recovery. Another option that may be right for you is to set up a life estate for your major assets, which will avoid Medicaid recovery and permit you to automatically transfer your assets to someone else upon your death.

Because the laws concerning Medicaid are very complex and change often, it is vital to seek the assistance of an experienced estate planning attorney. An attorney can review the viable options with you and recommend a plan that will accomplish your goals and protect your interests.