When you are a child, you look up to your parents, and they provide you with everything that you need, including answers to all of your questions. As you get older, you assume more personal responsibility, but you still tap into the wisdom and experience that your parents can offer you.
Over the years, this relationship can start to shift. When your parents attain senior citizen status, you may find yourself doing more and more things for them as they slow down. At some point, you may start to recognize the fact that your parents may someday need more living assistance than you can provide.
There is a great deal to take into consideration when you start to consider potential long-term care costs. Many people would assume that Medicare is set up to pay for living assistance, but in fact, this is not the case. The Medicare program will not pay for custodial care at all.
Since long-term care is extremely expensive, this is a very big issue within the elder law community. An extended stay in a nursing home could consume your parents’ legacy.
Medicaid planning is the solution for a significant percentage of American families. This need-based, government run health insurance program does pay for long-term care. However, since it is only available to people with financial need, there is a $2000 limit on countable assets.
This is a very low number to be sure, but the good news is that there are some things that are not considered to be countable. Personal effects and household belongings are not counted, and wedding rings, engagement rings, and heirloom jewelry are not countable assets for Medicaid purposes.
One vehicle that is used as a primary source of transportation would not be counted, and the home of the applicant is not a countable asset, but there is an equity limit. In North Dakota, this limit is $552,000 during the current calendar year. However, if the healthy spouse is remaining in the home, there is no equity limit at all.
Plus, when a healthy spouse can live independently while his or her spouse is applying for Medicaid to pay for long-term care, the healthy spouse is entitled to a Community Spouse Resource Allowance. This allows the healthy spouse to retain ownership of half of the assets that are considered to be countable, up to a certain limit. The maximum Community Spouse Resource Allowance is $119,220.
Medicaid Spend Down
When it comes to the assets that are countable, people who are aiming toward Medicaid eligibility typically engage in a process called a Medicaid spend down. Actually spending the money is a possibility, but many people will give gifts to their loved ones before they apply for Medicaid.
This can be done, and it is often done, but timing is key. There is a five-year Medicaid look-back period. Eligibility is delayed if gifts are given within five years of the submission of the application for Medicaid coverage. The length of the delay would depend upon the amount of the divestitures.
To provide an example, let’s say that the applicant gave away enough to pay for 18 months of nursing home care. Under these circumstances, eligibility for Medicaid coverage would be delayed by 18 months.
Direct gift giving is a possibility, but there is another option that many people embrace. An irrevocable Medicaid trust can be established. The assets that are conveyed into the trust would not be counted by the Medicaid program if the trust grantor was to apply for Medicaid coverage at some point in time. However, the grantor could continue to draw income from the earnings of the trust.
The Medicaid program requires people to use their income to contribute to the cost of the care that is being received. As a result, most of the income from a Medicaid trust would ultimately go toward the cost of the care that is being received if the grantor does in fact wind up using Medicaid to pay for long-term care.
Access Our Special Report
You should certainly educate yourself completely if you are advising your aging parents about long-term care and Medicaid planning. We have provided some of the basics in this brief blog post, but we have a resource that you can access through this website if you would like to dig deeper.
Our firm has prepared an in-depth special report that puts the subject of Medicaid planning under the microscope. The report is being offered to our readers on a complimentary basis at the present time, and you can click this link to get your copy: Free Medicaid Planning Report.