Many seniors are now faced with the possibility of losing their life savings due to nursing home costs and other health care expenses. According to a 2008 study of the MetLife Mature Market Institute, the average cost nationwide for a private room in a nursing home is approximately $77,380 per year. Some seniors also worry about how they will pay for long-term care and still leave an inheritance to their children. While most patients start out in a nursing home paying with their own money, at least 50 percent of patients eventually have their long term care expenses paid by Medicaid.
Medicaid is the largest single payer for long term care. Medicaid is a means tested program in which a person’s income and assets must not exceed a specified amount. Senior citizens usually enroll in Medicaid when they have exhausted their own assets. While a person may not have enough monthly income to pay for a private room in a nursing home, his or her income may still be too high to qualify for Medicaid. This can create a myriad of problems for someone that needs custodial care or is unable to be cared for at home. If this person has a spouse still living at home with all the expenses of maintaining that home, paying for nursing home care without some help from Medicaid can be impossible.
To qualify for Medicaid benefits, including long term care, an individual must meet very strict income and asset rules, as well as level of care criteria. To meet Medicaid eligibility requirements, an applicant must meet three categories of eligibility: i. the applicant must be in need of nursing home or custodial care and be at least age 65 years of age or mentally or physically disabled or blind; ii. the applicant’s income must not exceed a threshold amount; and iii. the applicant’s assets must not exceed a threshold amount.
Prepaying for Your Funeral and Burial
One important aspect of Medicaid planning is determining how you will pay for your funeral, burial, and related last wishes in light of Medicaid spend-down requirements. For information on the types of exempt assets that may be used for a Medicaid recipient's final arrangements, see funerals and Medicaid.
Using a Miller Trust in Medicaid Planning
A Miller Trust is a type of irrevocable trust used in Medicaid planning. A Miller Trust is also called a Qualified Income Trust, QIT, Income Only Trust, Income Cap Trust or Income Assignment Trust. A Miller Trust is designed for a person that receives too much income to qualify for Medicaid but not enough income to pay the entire cost of long-term care. This type of income-only trust is used by some people to lower their income in a way that allows them to meet the eligibility requirements for Medicaid. One of the advantages of a Miller Trust is it allows income to be preserved for the spouse that does not currently need long-term care.
The person making the Miller Trust names another person as trustee of the trust, such as a spouse, adult child, partner, another family member or a professional. After setting up the Miller Trust, the person assigns to the trust his income from social security, pensions, and other retirement income that exceeds the income eligibility amount for Medicaid. When properly drafted and funded, the person that establishes a Miller Trust is no longer deemed to be receiving the income for purposes of Medicaid eligibility, which usually allows the person to qualify for Medicaid benefits. The trustee must spend the income in the Miller Trust in a manner approved by Medicaid. After the patient’s death, Medicaid must be reimbursed by the Miller Trust for benefits paid by Medicaid.
Medicaid has the right to audit a Miller Trust. If a Qualified Income Trust is not set up properly, it can result in ineligibility for Medicaid. Consequently, it is essential that an experienced probate lawyer or estate planning attorney be consulted before establishing a Miller Trust.
Best Selling Medicaid Planning Books
Even when you hire an attorney to help with Medicaid planning, there is a great deal of information you need to know to protect your assets and avoid violating federal and state laws. Before accepting governmental benefits such as Medicaid, read as much as you can about the terms and conditions of receiving such benefits. The following books are best selling guides on Medicaid planning:
Medicaid planning is the process of spending down, rearranging, or otherwise making changes to one’s assets, income, and financial status in an effort to qualify for Medicaid. Some people give away their home or investments in an effort to become eligible for Medicaid. Others add their children to their bank accounts. Not only can these actions have serious tax consequences, they can result in ineligibility for Medicaid for a very long time, placing the person in a situation where they have no way to pay for long-term care. Also, in most cases, a person’s home is exempt when determining Medicaid eligibility if the home equity is no greater than $500,000 (the amount can be increased to $750,000 depending upon the state), and it is the person’s principal residence.
Under Federal law, if an individual transfers, gives away or sells his or her property or other assets for less than fair market value, the individual is penalized by being ineligible for Medicaid during the five year Medicaid look-back period, which begins when the person applies for Medicaid. During the 60 month look-back period, gifts given to children, asset transfers, and assets placed in joint tenancy or joint title with others can still be counted as part of the applicant’s assets for purposes of determining Medicaid eligibility.
Medicaid planning is complex. It has estate planning, tax, financial, and legal implications. During the Medicaid application process, your income and assets, as well as prior transfers made by you and your spouse, will be reviewed. If you failed to comply with Medicaid guidelines, such as by improperly transferring or gifting assets, you may be penalized by being ineligible for Medicaid benefits for at least 60 months or more. To avoid these consequences, it is important to consult a probate lawyer or estate planning attorney before attempting to do Medicaid planning.
Important Medicaid Facts
Medicaid program requirements are established by the individual states. Therefore, Medicaid eligibility requirements vary from state to state and even by county.
Medicare only covers up to 100 days of skilled nursing care. Medicare does not pay for long term care.
You can be covered under both Medicare and Medicaid at the same time, if you meet the eligibility requirements.
Some nursing homes and other long term care facilities that accept Medicaid require the patient pay for at least 2 years of care with private pay (with the patient’s own money) before they will accept Medicaid for that patient.
Transferring your house, bank accounts, investments, and other property to a revocable living trust does not prevent these assets from being counted as part of your assets for determining Medicaid eligibility.
The gift tax exclusion does not apply to Medicaid planning. The gift tax exclusion is a tax law that has no relationship to qualifying for Medicaid.
The state can collect against the deceased Medicaid recipient's estate and other property owned by the recipient to recover the amount of Medicaid benefits paid on behalf of the recipient through a process known as Medicaid estate recovery.
Buying an Annuity as Part of Medicaid Planning
Annuities can play an important role in Medicaid planning, depending on the circumstances. While a Medicaid compliant annuity may offer certain advantages, it is never a good idea to buy an annuity without researching it thoroughly. If you may need to apply for Medicaid, consult an estate planning or elder law lawyer about any annuity you are considering. See finding an attorney.
For an overview of Medicaid planning annuities and important facts, see Medicaid Annuity. For more information, see Medicaid Planning Books.
